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Minyanville's T3 Morning Market Call: Market Looks to Build on Friday's Reversal

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Stocks to watch include Qualcomm and Facebook.

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US stock futures point to a higher open Monday as the market looks to build on Friday's reversal. The outside day and Red Dog Reversal we saw on Friday is a great cash-flow trading set-up, but it can also be a major macro inflection point. On October 4, 2011 after a sharp pull-in in the market, we got a loud reversal that turned out to be a bottom. On June 4, 2012, we got another reversal signal, although not as strong, that triggered a multi-month uptrend. Will Friday's action do the same for this market?

As of now, Friday's reversal has been a great calculated day and half trade. The trick now is measuring the market's strength and the validity of Friday's move. Today S&P futures are up 6-8 handles, which is a good start to the second day of the potential new rally. Now, can we see the market hold the upside gap and close near the highs of the day? In the past few weeks, "gap and go's" to the upside have been few and far between.

Follow-through this morning shows demand for market in this area. Usually two strong days after a hammer candle like we saw Friday is very constructive action. According to IBD, after the first initial igniting bar, you need a follow-through day somewhere on days four through seven in order to verify the new potential rally. This process is just potentially starting so it's good to know what to look for. There should be lots of opportunities along the way if you missed the Friday entry.

On the S&P, the 200-day moving average stands at 1382. It seems like that will be the area this market should head to before its first test. It didn't give much support on the way down. We need to see if it gives the market big resistance on this potential bounce. Closing above 1364-1367 would be a win for the day.

Technology led us lower and will be something to watch closely. The Nasdaq ETF (NASDAQ:QQQ) has a bit more distance to travel to reach its 200-day. The $64.50-65.50 level is the spot where it will get some push-back. But from now until then, it could be good for cash flow before having to measure composure closely.

Apple (NASDAQ:AAPL), after a massive move from $700+ down to almost $500, finally put in a "Major Reversal" day with 45 million shares. Friday was a classic Red Dog Reversal, and today it is opening up $6-$7. Closing above $532ish should open the door for a move to $550-$555 through Thanksgiving. The bigger resistance stands at the $574-$587.

Qualcomm (NASDAQ:QCOM) has held up better than most stocks during this correction, putting it on my radar as a long when the market turned up. Above $62.80 and it can start flexing some muscle.

Facebook (NASDAQ:FB) has been acting much better. Some thought when 800 million new shares got unlocked last week it would be easy money, but instead the shorts got squeezed. The stock could have bottomed. Above $24.50 there is a gap that gets filled to $26.50.

LinkedIn (NASDAQ:LNKD) is very choppy and tough to deal with. The stock reacted pretty well on Friday and is above the 200-day. You can trade it vs. 95ish, but take care.

Amazon (NASDAQ:AMZN) held its 200-day and reacted well Friday. It has room to $237-$240.

Priceline (NASDAQ:PCLN) held part of its gap and looks okay to trade vs. $611.

Yahoo (NASDAQ:YHOO) has been a nice swing long for some above $16.60 since earnings and still looks good for higher prices.

For the Financial Sector SPDR ETF (NYSEARCA:XLF), high level stops were prudent when it broke its 50-day on November 7 around $15.80. It responded well Friday and could see a move back to that area.

The Retail ETF (NYSEARCA:RTH) held above its 200-day and could see a move back to $44.50.



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Scott Redler is long SPY, AAPL.
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