Yesterday the S&P opened up nearly 20 handles, but the gap was faded and the market closed flat on the lows of the day. This is textbook bearish action, where investors take big gap ups as an opportunity to do more selling. Today, we are seeing a very similar sized gap up as S&P futures are up about 15 handles. Today’s action will be very telling for the short-term complexion of the market.

What you like to see for a strong market is for stocks to open down or flat, and then gain strength as the day progresses. That is tradeable action. When the market gaps up, sells off, then gaps up again the next day, that is a difficult environment for traders. The $SPX is doing a lot of work in this 1120-1140 area and still holding this lower pivot by a thread. That’s about the only “somewhat constructive” thing I can say about the market. Most stocks are technically broken below their moving averages, with very few to pick from showing “extreme” relative strength.

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If you bought tier one puts in this 1120-1140 zone yesterday, this is why you do only tier one to start and you have through September. Buying puts also lets you not get spun around with these choppy up and down days as this lower pivot gets built.

If you are in tier one macro long the “key stocks” that you chose to buy in this 15-20% move off they highs, sit tight for now. You “bought the dip” and had the luxury to test this zone if you went to cash as the market broke 1245-1255. This is why you are only in tier one and not adding yet. Market hasn’t proved you can add into strength . You also need some ammo if this market breaks the lower range.

Lastly, if you’re actively trading and don’t have the luxury of using a few week/months as a time horizon, I would not do the cost average game here if you are short overnight. I am caught a bit short as well, I will see how market handles the first 30-60 minutes. If we see the same type of action as yesterday (which you rarely get same action two days in a row) I will add and see if we can pull in again. If we get and stay above 1140-1144 I will cover and continue to keep it light and perhaps see if they start to probe the mid to upper end of this lower pivot.

The key is to know your time horizon and figure out your risk. At this point, most guys having success are coming in flat and trading the daily action both long and short. Markets are trying to figure out if this move off the highs is enough. Or, do we need another move lower to test bigger support.

Gold has now gapped up 5 days in a row and could use a rest. This morning it is set to open lower. Even if it goes higher, don’t chase it up here. Watch Gold today, if it starts to correct a bit more than a percent or so, the markets might take that as a sign that it can hold up and churn higher all day.

I think one clue today will be to watch Apple Inc. (NASDAQ:AAPL). If it goes negative and breaks the $353-355, there is no way the market holds up today. The next level would be the 200day at $342.55. This stock is a bit weaker now. Market participants have seen other key stocks get well below their 50day and 200day moving averages like Amazon.com (NASDAQ:AMZN), Baidu.com (NASDAQ:BIDU), SINA Corporation (NASDAQ:SINA), Netflix (NASDAQ:NFLX), and Google (NASDAQ:GOOG), so it seems like AAPL wants to at least test its 200day.

The Banks continue to be a trouble spot as they went negative first yesterday, and then the GS news on the close adding some fuel to the fire. GS was up at much as $4 this morning, but has pulled off sharply from pre-market highs and is up about $1.50. We still don’t know exactly why CEO Lloyd Blankfein hired a prominent defense attorney to represent his interests, but investors yesterday took it as an ominous sign that criminal charges are imminent from the Department of Justice. See if this fades and goes through yesterday’s low.

Scott Redler
Scott Redler is the Chief Strategic Officer of T3 Live. He develops all trading strategies for the service and acts as the face of T3 Live. Mr. Redler focuses on thorough preparation and discipline as a trader. Scott Redler has been trading equities for more than 10 years and has more recently received widespread recognition from the financial community for his insightful, pragmatic approach. He began his career as a broker and venture capitalist where he was able to facilitate relationships that led him into trading. Beginning his trading career at Broadway Trading in 1999, Scott moved on with Marc Sperling to Sperling Enterprises, LLC after establishing himself as one of the best young traders in the firm. As a manager at Sperling Enterprises, he maintained his status as a top trader in the industry while working closely with all traders in the firm to dramatically increase performance. Scott has participated in more than 30 triathlons and one IronMan triathlon, exhibiting a work ethic that also defines his trading. His vast knowledge and meticulous attention to detail has led to regular appearances on CNBC, Fox Business and Bloomberg, and he has been quoted in the Wall Street Journal and Investor’s Business Daily among other publications. Scott produces much of the media and content available to subscribers and followers. T3LIVE.com is an online financial media network and education platform that provides active traders and investors with market analysis, real-time access to strategies, and in-depth training from real traders, real-time.

*DISCLOSURE: Scott Redler is short (NYSE:SPY), (NYSE:DIA)

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