Morning Call: Are We Downplaying China’s Economic Malaise?

US stock futures point to a lower open Thursday after downbeat manufacturing data out of China overnight. New monetary policy initiatives from the Fed and ECB have stabilized those two regions for now, but China remains a wildcard as growth continues to slow. The Shanghai Composite hit is lowest levels since 2009 after the nation’s PMI declined for the 11th straight month. We will have more economic data today with the Philadelphia Fed’s manufacturing index at 10am ET.


Last night we also had some pre-announcements from Norfolk Southern Corp (NYSE:NSC), CSX Corporation (NYSE:CSX) and Best Buy (NASDAQ:BBBY), all of which are trading at least 5% lower this morning, adding to the bearish slant on the market. Most banks are also headed for a lower open after UBS AG (NYSE:UBS) lowering ratings on several of them.

Despite that barrage of negative news, we are down only about 4-5 handles.  We are now about 20-25 handles off last Friday’s high of 1474. The Oscillator that flashed extreme readings of 60+ is now a bit below 20, on its way to neutral. Some spoiled bulls/chasers are measuring their commitment to this rally as the 8- and 21-day moving averages are playing catch-up. All in all, the markets like to show everyone that stock selection matters. In addition, entries and exits using a tier system are extremely important. These are all concepts we teach in our Active Trading Course.

On Monday oil, which we usually trade via the United States Oil Fund ETF (NYSE:USO), had a potent down move, much more severe than the other sectors. Most were asking why? Instead of looking at what happened, we focused on the fact that it DID happen. This was the first warning flag for this commodity that it could be headed lower. Oil sliced three moving averages in three-days. Crude oil is still above $91 and, in my humble opinion, is still overvalued.  Oil has not been the place to be this year regardless. We will monitor the action here and the relationship to the markets. Perhaps today we could get a “cute long” as it’s worth a look if you didn’t get caught in it, but that would only be a quick cash flow trade with a tight leash.

Metals held in pretty well yesterday as oil corrected. Today the metals are a bit softer after a massive move that ignited in late August. For Gold (NYSE:GLD), the 8-day moving average has supported this rally since the August 20-21st breakout, which stands around $170. The 21-day moving average, which is bigger support, stands around $165.50-$166.

The 8-day moving average for the S&P, which could act as support, has now moved up to 1450. Holding above this level will continue to make it easy for intermediate term bulls. The 1438-1442 level is bigger support and the 21-day is now at 1426. Markets can see this spot in next few weeks and still be in the game for new highs this year.

Google (NASDAQ:GOOG) has been a rock star hitting $727 yesterday. We have mentioned this one a several times in our Off the Charts newsletter in the past two months as it raced to new highs. Trade it based on your time frame. $747 is the historic high from November 2007, and it shouldn’t be a problem reaching that level.

Apple (NASDAQ:AAPL) had a nice 30-point move since last Wednesday on top of the 50-60 points following the gap down after last quater’s earnings. It can use a break, though, and is stalling a bit around the $700 level. The $694-$696 area is decent support, but bigger support is $687-$688. I don’t think highs of the year are in.

Amazon (NASDAQ:AMZN) keeps moving near highs, but goes unnoticed in the shadow of GOOG and AAPL.

Social networking stocks had a lot of action yesterday, and I was quoted in the Wall Street Journal (Facebook Shares Jump Again: Is the Bottom In?) regarding the technical action in Facebook (NASDAQ:FB). FB built a nice lower level base, and its possible we won’t see that low again for a long time, if ever. The key will be whether the company can start to build some momentum with earnings.

http://blogs.wsj.com/marketbeat/2012/09/19/facebook-shares-jump-again-is-the-bottom-in/

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 Invest.

Scott is currently the Chief Strategic Officer of T3 Live and is a Registered Associated Person of T3 Trading Group, LLC.

*DISCLOSURES: Scott Redler is long AAPL, MSFT, LNKD, FB, P, POT, GRPN, VMW, YELP. Short SPY

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