Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.
Wednesday’s broad-based rally in risk assets squeezed plenty of players that got caught with too many beta shorts leftover from Friday. The tape continues to be unforgiving to short sellers, as the S&P 500 marked another all-time daily closing high.
On the daily chart of the S&P 500, the breakout was clean past the lateral resistance area of 1,570, and also out of its month-long consolidation pattern. I continue to see potential upside to 1,600, but as I pointed out yesterday, chasing the market at these levels, with negative momentum divergences forming across indices, becomes more dangerous with every tick higher.
Wednesday’s leading sector was technology. The Technology SPDR (NYSE:XLK) closed above a level that has acted as resistance for the past month. The gap-and-go nature of Wednesday’s move in technology favors some continuation higher over the coming days, although in the immediate term, tech may be a smidgen overbought.
Within the technology sector, Apple (NASDAQ:AAPL) also staged a nice rally, gaining just over 2%. While a bounce off the recent lows was to be somewhat expected, if you stand a little further back from the chart, it still looks horrific. Stock chasers were buying anything in sight, and since AAPL falls into the category of “anything,” higher it went.
At the same time, as I always force myself to look at both sides of the coin, a solid daily close above the $440 level would get me a little more bullish on the stock.
I receive half a dozen emails regarding AAPL every day. This tells me emotions still run high around the name, and having a firm opinion (as always) will only hurt my profitably when trading the stock.
In yesterday morning’s musings, I highlighted the Financial SPDR (NYSE: XLF). I discussed that the chart looks more neutral than bearish, and with Wednesday’s move it further confirmed this view.
Given that both JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) are scheduled to report earnings tomorrow, the risk/reward for holding a major long position in the financials still does not seem attractive, despite the move higher.
As one would expect on a squeeze day to new all-time highs, correlation among sectors was very high. The bulls will point out that defensive sectors lagged, while the bears will talk of overbought levels and impending seasonal weakness in stocks. Personally, I see valid arguments in both camps, thus remaining fluid in my directional bets yet rigid toward my trading plan.
Today’s Trading Landscape
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.