Morning Call: Expect Markets to Work Off Remaining Overbought Reading (NYSEArca:GLD, NYSEArca:SLV)

Futures are around the flat line this morning after yesterday’s bearish outside day/Red Dog reversal. The oscillator is still overbought despite yesterday’s move, and I expect this pullback to at least work off that reading. The S&P also just had a two week move from 1343 back to the 61.8% Fibonacci retracement zone of 1423, so it’s not surprising or unhealthy to see some digestive action. The short-term point of reference to watch this morning will be yesterday’s low of 1408.46.

More than anything, now is just a time to be a little bit more cautious and flexible. We saw several push-through failures on stocks across the board that could hurt momentum in the short-term. The question now will be what retracement and support levels hold going forward. We measure the overall “speed” of a rally based on how far the market pulls back during “corrections.” That is why we are diligent about mapping out key levels on our Off the Charts newsletter and morning Price Point Sheet for subscribers.

Facebook (NASDAQ:FB) saw one of the more harsh reversals yesterday. The stock was up more than 3% in the morning, but reversed hard to finish the day down 3.4%. FB had been in a steep uptrend since the IPO lock-up expiration on November 14th, so a pullback is healthy. Now we will have to see whether this is a “new Facebook” that can consolidate gains and continue higher. So far in its short existence, the stock has had a hard time holding higher after bounces.

Apple (NASDAQ:AAPL) staged a potent rally after reversing on November 16th, but lagged the market a little bit last week as it consolidates under its 200-day moving average. Yesterday AAPL continued to rest, finishing narrowly positive while the market closed lower. With a new mini consolidation in place, the key hurdle for the stock continues to be the 200-day moving average that stands around $600.

Google (NASDAQ:GOOG) also regained some of its strength after bouncing off its 200-day moving average on November 16th. Yesterday the stock was rejected at its 50-day moving average, which is natural following a strong four-day rally. If the market does pull back a bit more, we will be watching GOOG closely for any signs of relative strength.

Price action in the precious metals has also been worth noting. Gold (NYSEArca:GLD) and Silver (NYSEArca:SLV) have been a bit weaker recently. On 11/28 we saw a pretty harsh gap down that never got filled in (NYSEArca:GLD), which usually leads to more downside and shouldn’t be ignored. If you are trading GLD, honor your stops–they are there for a reason.

The financials will be an interesting group to watch as fiscal cliff talks heat up. The sector has been the most sensitive to the contentious budget negotiations, and could give traders clues about market direction. Bank of America (NYSE:BAC) is still in the top end of its range and holding up best among the banks.

Overall right now traders are simply taking a little step back to survey the scene. The action over the next few days will be important in establishing how high we hold on this pullback. If you want to further your trading education during this period, take our Free Online Trading Course for priceless technical trading lessons and market psychology.

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 MGM, BAC. Short SPY, FB.

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