It was a pretty wild week for the markets. The market came under pressure from the disappointing unemployment data on Monday and Tuesday. However, Wednesday's and Thursday's rebound was just enough for CNBC to proclaim the correction to be over with new highs on the horizon. Wrong. Friday's action should be viewed as very negative for three reasons.
First of all, the sell off took place after two major drivers in the market posted favorable earnings reports, Google (NASDAQ:GOOG) and JP Morgan (NYSE:JPM). Considering they were both crushed on Friday, it was a good thing they didn't miss! Secondly, the main driver of this market, Apple (NASDAQ:AAPL) was lit up on Friday like the Christmas tree at Rockefeller Center. And most importantly, the market closed very weak on Friday, just above the previous two days lows. If 1362.50 cannot stem the tide Sunday night, taking out the weekly low of 1352.50 will be a mere formality and a likely test of the March 6th low of 1332.75 will occur later in the week. In my opinion, for the correction to be over the S&P 500 Index better get above and hold 1380.00 off the hop.
So what should you do with Apple stock? Dare I say, take some profits. This is a scarce phrase heard on today's mainstream sources of financial news, where it is either wait and "buy the dip", (although rarely is an actual trading level cited for this purchase until after the buying opportunity has already taken place). Or analysts say "hold on", and do not worry, AAPL still has a low price to earnings multiple and is eventually going to 1000.00. The problem with the latter argument is eventually AAPL is going to disappoint the street and have a 50 point down day. But the actual timing of that is impossible to predict.
I have only one word of caution to AAPL investors, if you cannot believe how fast it went up since January, this issue has the potential to give a lot of it back very quickly. Expect minor support around the 590.00 level. The 580.00 handle looks as thinly supported as the 610-620.00 area was last week. Therefore, 578.00 is the key level to hold, otherwise traders may put on their selling caps in order to protect the majority of their yearly gains in this issue. It may be a good idea to use any analyst upgrade as a selling opportunity, as the chart is starting to look broken. Expect major resistance from 620-625.00.
The major resistance in Exxon Mobil (NYSE:XOM) just keeps moving down. After failing to make a new 52 week high on its recent run, folks have been saying "get me out". At this time, 83.75 is the level to focus on for this issue as three of the previous four highs have been between 83.69-83.75. Most likely, it is the High Frequency Trading crowd leaning on the huge sellers at 84.00. XOM did hold up better than the overall market on Friday, but did settle just 9 cents off the low of the day. Most likely, it's string of three higher lows will be snapped on Monday. Expect minor support at the weekly low of 81.88 and 80.61 and major support at the December 19th low of 79.38.
More wreck in the tech sector with International Business Machines (NYSE:IBM) losing almost 3 points on the week. IBM closed on the low of the day at 202.80, which is not a good sign for Monday's action. With four out of the five lows this week in the 202 handle, with 202.17 being the lowest, support is well defined. At this time, IBM seems destined to test 200.00 which was just above the area it broke out from in early March. A string of closes above 205.32 (the highest close for the week) would reverse the downtrend from the 210.69 all time high.
Microsoft (NASDAQ:MSFT) retreated this week along with the rest of the sector. After breaching major support at 31.05, MSFT tumbled to 30.23, a level not seen since mid-February, before recovering. Next stopping point on the downside is the Wednesday low of 30.23 which is in close proximity to Tuesday's low (30.30) and Thursday's low (30.43). Below that level, the February 15th low of 30.03 should come in to play. Longer term, MSFT could take back half of its gains from the October low of 24.26 and consolidate at the 28.50 level. In order to reverse the downtrend from the 32.95 high, MSFT needs to get above and hold 31.00 for three consecutive closes.
Similar to IBM, General Electric (NYSE:GE) closed very weak on Friday (18.88) but above the weekly low (18.70). Heavy volume on the down days and light volume on the up days does not bode well for GE. There is simply no driver for this issue. Of course, there is stability in their core businesses and it has a nice dividend, but it is often overshadowed by the weakness in their financial arm. Perhaps GE should consider a spinoff of the financial unit if it ever wants to see an appreciable rise in its stock price. Since January, GE has been in a trading range from 18.23-20.36 and is starting to lean on the lower end of it. Expect minor support at the weekly low (18.70) and major support at 18.23. GE must establish a string of closes above 19.00 to make another attempt at the 52 week high of 21.00.
Even with an upgrade and positive guidance, Chevron Corporation (NYSE:CVX) fell four points this week. Furthermore, it closed weak on Friday (100.78) making a triple bottom from 100.58-100.72. If CVX does not come out of the gate hard and hold this area, it may blink at 100.00, but 99.32-99.59 (triple bottom from December) will be good support. Below that is a gap to fill down to 98.05. On the other hand, if this level can curtail the break, expect major resistance from 102.86 to 103.38 or perhaps there will be a nice fat offer at 103.00 for the HFT crowd to feast on.
It is time to flee AT&T (NYSE:T)? Now that is does not pay its handsome dividend for another three months, I would think so. Perhaps allow this issue to drift down for the next two and half months to around 29.00 and then begin to nibble when the smart money initiates in pre-dividend stock accumulation tactics. A bogus upgrade on Thursday squeezed the shorts a bit, but the double top at 30.86-30.88 should provide them with plenty of protection along with the "Johnny come lately" sellers trying to get out at 31.00.
Not to alarm investors in Procter&Gamble (NYSE:PG), but this issue is "sitting on a cliff". After making a new 52 week high on the heels of drastic cost cutting measures, PG has stalled. PG has breached the lower end of it's trading range at 66.00. In my opinion, PG could slide back down to late February lows just above the 64.00 level. More importantly, during its ascent to just under 68.00, PG had to fight its ways through some of the largest institutional offers I have encountered since the advent of decimalization. Although the HFT crowd was able to make a few bucks on these orders, it appears smart money exited PG at the right time. Not until PG can get back above and hold 67.00 will my thoughts change on the direction of this issue.
Another stock in deep doo-doo from a technical perspective is Johnson&Johnson (NYSE:JNJ). After trading between 64.02 and 66.32 since December 20th JNJ has broken down closing at 63.54 on Friday. Here is yet another issue that had to claw its way through huge sell orders at every penny and sub-penny all the way through the 65 and 66 handles. Perhaps a few of those orders were Warren Buffet's since he has vacated this issue. Now that JNJ has breached 64.00, expect sellers to lower their offers as they try to wiggle out, and expect the HFT crowd to be right in front of any substantial offers. Expect minor support at 62.93 and major support at 61.05. Keep in mind, JNJ is going through a transition at the top and until the management can alleviate the street's concerns, sell side pressure will remain on JNJ.
Welcome to the Big 10 Wells Fargo (NYSE:WFC). Boy, am I glad I do not have to write about Pfizer (NYSE:PFE) any longer. Along with JPM, WFC was pounded after releasing improved profits. Perhaps it is time for a breather for WFC after it's monster run from it's 22.51 low back in October. The WFC chart has the "sitting on a cliff" appearance as well (as many of the other financial issues). Just below Friday's low (32.80) is minor support at 32.58, but after that level the chart really opens up until the March 12th low of 31.58. Expect the 33 and 34 handles to be littered with sellers stepping in front of the fortress of resistance in the 34.50 area.
In closing, I apologize that this week's outlook is so bearish. When I wrote my blog about 1400.00 being an interim top in the market I was reaching a bit. Unfortunately, the charts are now beginning to confirm my earlier hunch. With a majority of the Big 10 closing weak on Friday, Sunday night and Monday could be very ugly. Perhaps another European financial crisis will emerge this weekend (Spain is in the bullpen) and renewed fears about Europe.
Even though Bob Pisani says we have "decoupled" from Europe, I have a hard time with that premise. On the other hand, if the S&P 500 Index can pop from the close, instead of drop, three closes above 1380.00 would compel me to revaluate my bearish stance. Stay tuned, Sunday night's action in the futures could set the tone for the next few weeks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: This is a very time sensitive artice. Is there any way it could be posted Sunday night or early Monday morning?