by Serge Berger | April 23, 2012 7:33 am
Friday’s trading action in U.S. stocks was fairly lackluster as stock options for the month of April were set to expire Saturday morning. For me it was a usual options expiration day as I slipped out the door around noon Eastern and into a fun-filled weekend. Trading is stressful enough and forcing trades in a low-probability decision-making environment is an additional challenge I happily leave to others.
The Russell 2000 is still holding above the 785 support level, but if broken would likely move toward the 200-day simple moving average (SMA) around 755, which is 5.5% lower than current levels. The 200-day moving average has historically been a decent level of support/resistance for the Russell 2000 index.
The S&P 500 remains inside the bear flag pattern on the 15-day 30-minute chart below. The range within this bear flag has been choppy and not until we get a clear breakout in either direction will it become more apparent which direction the next 40 to 50 points go. The levels to watch for on the upside and downside are 1,393 and 1,367, respectively.
The Nasdaq 100, i.e. Apple (NASDAQ:AAPL), was the notable underperformer on Friday. AAPL slid another 2.46% as options expiration pulled the stock toward the $570 strike and the 50-day simple moving average.
On the 30-day 60-minute AAPL chart, I see the stock retraced just about 61.8% of the initial sell-off before resuming its downtrend. I often use the 23.6% Fibonacci extension as a first price target of a measured move. In this case, the 23.6% Fibonacci extension tells us a move to $550 may be a likely next downside target.
From an investor psychology point of view, the $550 would be classically below the 50-day simple moving average (which is not a great support/resistance level for Apple historically) and thereby stopping out all those that set their stops at the 50-day SMA level.
This week is chock full of earnings announcements, and that includes a host of important companies in the energy sector. If we look at the chart of the Energy Select Sector SPDR (NYSE:XLE), note that the uptrend since late November 2011 was recently broken. Further, XLE is now trading below its 200-day simple moving average and in a bear flag. A break lower and out of the bear flag may well lead to test $65 and $63.
Turning to the rest of the world, the spread between 10-year French and 10-year German government bonds is back at levels last seen in early January thanks in part to the sell-off in French bonds. This reiterates the fact that stress levels in the euro zone remain elevated.
This week is sure to be a big one as events such as the FOMC meeting and U.S. corporate and Spanish bank earnings all have the potential to shape the tape.
I for one am immediate-term directionally agnostic when it comes to equities but will say that if 1,367 on the S&P 500 does not hold then 1,330-1,340 has the potential to be visited very soon.
Here’s to a great week trading. Anticipate volatile chops and always set stops.
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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