After too many exceedingly boring trading days over the past two weeks, Wednesday’s price action was a breath of fresh air. While the downside was limited to 0.38% on the S&P 500, it was interesting to see the small-cap Russell 2000 index leading the selling and the technology-heavy Nasdaq Composite actually closing in the green by a tick, thanks to Apple (AAPL) of course.
Given AAPL’s stellar one-day performance, it is only appropriate that I start today’s missive with the following chart:
For two months now, I have been discussing the importance of the $430 area, which yet again played a crucial role Wednesday as the stock gapped above this line in the sand at the open and never looked back.
To put this in context, the $430 level is a confluence zone made up of the May downtrend line and the 50-day and 100-day simple moving averages. The other area that I am watching spans from $445 to $455, and roughly marks the next resistance area.
The daily close above $430 now stands a good chance of moving the stock toward $455, and past there might even have enough momentum to ultimately clear the $465 area, which has been tough resistance since March.
On the sector front, it was the utilities leading Wednesday’s downward press. The Utilities SPDR (XLU) was a leading indicator of broader market selling in May and June, but quickly rebounded off the June lows and retraced exactly 61.8%, an important Fibonacci number. This is where they found resistance on Tuesday, and subsequently on Wednesday marked the tape with a nasty red down day. I will be watching this closely in the coming days to see if selling pressure can keep up.
To put Wednesday’s trading action in perspective, I created the above chart on which I drew the transports, utilities, S&P 500 and the technology sector.
Note how tech moved in the opposite direction of the rest of the market, which for now, may simply be marked as an oversold bounce given the recent under-performance.
More importantly, the synchronized selling in transports and utilities, and the clearly visible bearish reversal candle on the small caps (not shown), leads me to raise a first red flag.
Also note that Wednesday saw a 16-point trading range on the S&P 500, which is significantly expanded from Tuesday’s 8-point sideways shuffle. Throw in the fact that 10-year Treasuries bounced significantly to yield 2.58% and the U.S. dollar rallied, and the near-term headwinds for stocks have just picked up a smidgen. However, I still need to see more confirmation to really press any short positions.
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.