Yesterday’s broad rally in risk assets squeezed plenty of players that got caught with too many beta shorts from last Friday. The tape continues to be unforgiving to short sellers, just as the S&P 500 marked another all-time high daily closing.
On the daily chart of the S&P 500, the breakout was clean past the lateral resistance area of 1570 and thus also out of its month-long consolidation pattern. I continue to see potential upside to 1600 but just like I pointed out yesterday, chasing markets higher at these levels, with negative momentum divergences forming across indices becomes more dangerous with every tick higher.
Yesterday’s leader on the sector front was technology. The SPDR Technology XLK with yesterday’s move closed above a level that had acted as resistance for the past month. The gap and go higher nature of yesterday’s move in technology favors some continuation higher over the coming days, although in the immediate term may be a smidgen overbought.
Among the technology sector Apple Inc (AAPL) also staged a nice rally. While a bounce off the recent lows was to be somewhat expected, I stand back a little further back from the chart and it still looks horrific. Chasers yesterday were forced to buy anything in sight, and since Apple Inc (AAPL) falls among the category of ‘everything’, higher it went. At the same time, as I always force myself to see both sides, a solid daily close above the $440 level would get me at the margin more bullish on the stock. I receive half a dozen emails on this stock on a daily basis, which tells me emotions still run high around this name and having a firm opinion (as always) will only hurt my from profitably trading the stock.
In yesterday morning’s musings I highlighted the financial sector via the SPDR Financials XLF etf. I discussed that the chart looks more neutral than bearish and with yesterday’s move it further confirmed this view. Given that both JPMorgan & Chase (JPM) as well as Wells Fargo & Co (WFC) are schedule to report their latest earnings tomorrow, risk/reward to hold a major long position in the financials seems bad, despite yesterday’s move higher.
As one would expect on a squeeze day to new all time highs, correlation among sectors was very high. The bulls will point out that defensive sectors lagged, while the bears talk of overbought levels and impending seasonal weakness in stocks. Personally I see valid arguments in both camps, thus remaining fluid in my directional bets yet rigid toward my trading plan.
