After too many exceedingly boring trading days over the past two weeks, yesterday’s price action in US stocks was a breath of fresh air. While the downside was limited to 0.38%% on the S&P 500, it was interesting to see small caps, i.e. the Russell 2000 leading the selling and the technology-heavy Nasdaq Composite actually close in the green by a tick, thanks for Apple Inc (AAPL) of course.
Given Apple Inc’s (AAPL) stellar one-day performance yesterday, 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 on the chart of Apple Inc (AAPL), which yet again played a crucial role yesterday as the stock gapped above this line in the sand at the open and never looked back. To put this in context, the level around $430 is a confluence zone made up of the May down-trend line as well as the 50 and 100 day simple moving averages. The other area that I am watching spans from $445 to $455, and roughly marks the next resistance line. The daily close above $430 now stands a good chance of moving the stock toward $455 and past there might give the stock enough momentum to ultimately clear the $465 area, which has been tough resistance since March.
On the sector front it was the utilities leading yesterday’s downward press. The utilities as here represented by the XLU sector etf was a leading indicator to the broader market selling in May/June but off the June lows quickly rebounded and retraced exactly 61.80%, an important Fibonacci number. This is where they found resistance on Tuesday and subsequently yesterday 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 yesterday’s trading action in US stocks in a little perspective, I created the below 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 may for now 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 leads me to raise a first red flag. Note also that yesterday saw a seventeen point trading range, which is significantly expanded from Tuesday’s euight point sideways shuffle. Throw in the fact that 10 year treasuries yesterday bounced significantly in yield to 2.58% and the dollar rallied, and the near-term headwinds for stocks have just picked up a smidgen, although I still need to see more confirmation to really press any short positions.