It was not a Good Friday for the equities markets even though they were closed. But how often do significant or trend changing moves happen while the main exchanges are closed? Very often. The reason is that it is much easier to manipulate a thinly traded overnight Globex session than a much more heavily traded intraday session. As a result of Friday's bloodbath in the futures markets (at this time - down 15 points - slicing through major support levels), stocks are forced to open much lower on Monday. And what has really changed fundamentally for these issues besides a disappointing unemployment report? Basically nothing. Thus, on like similar occasions, short covering and high frequency traders will be stepping in front of any sizeable bid which may induce a rally for a bit, and then choppy meaningless trading from 10:00 AM on. Of course there may be a total melt down, which we are long overdue for, but I'm sure there will be some analysts on CNBC, that will spew about how you need to "buy the dip" and take advantage of the great opportunity this sell-off has presented.
From a technical perspective, the June S&P 500 futures index has penetrated a major support level (1380.50) that www.premarketinfo.com has identified as a critical one for the market to maintain. However, I am always skeptical when levels are breached during an overnight trading session. Furthermore, this move occurred during an abbreviated Globex session ahead of a three day weekend. Therefore, for an interim top to be in place, the index should fail to rally back and close above 1400. On the other hand, if this is going to be a gap and go, the index could easily test major support this week at 1332.75. Keep in mind, history has shown time and time again, that weeks and months of gains can disappear in a matter of days. Especially after such a long period of muted volatility.
One issue that kept flashing warning signals to us was Exxon-Mobil (NYSE:XOM). Even though the S&P 500 index futures surpassed the July high by over 80 points, XOM could not even make a new 52 week high. Every attempt at that level was thwarted by high frequency traders leaning on the institutional size at 88.00, 13 cents shy of the 52 week high of 88.13. Finally this week, after holding 85.00 since February 17th, XOM buckled and closed below that key level at 84.82. Until XOM can get above and hold 85.00, expect 82.00 to be minor support and major support at the December 14th low of 78.66.
Perhaps the extra 80 points the S&P index tacked on over the July high was attributable to Apple (NASDAQ:AAPL). This issue surpassed its July high by an astonishing 230 points. Perhaps it is time to put on the long XOM short AAPL spread. What the heck, it could not work any worse than the long RIMM short AAPL spread I joked about last week on our morning broadcasts. On a more serious note, long term players should place their sell stops at 600.00, if they do not want to sit through a test of the 578.00 level. If you want to try and sell the top, place your order at the highest close of 633.68, and don't sweat out the extra point at the all time high of 634.66.
International Business Machines (NYSE:IBM) fell prey this week to a few downgrades from the street. If these are the same analysts that are placing 800.00 price targets on AAPL by August, I am not so sure that I would pay much attention to their comments. Keep in mind, IBM is one of the only companies that has affirmed earnings guidance for years to come. And until that changes, it is hard to bet against it. However, after reaching an all time high of 210.69 on Tuesday, IBM has fallen five points from that level. With the stock being that far from the all time high, it is likely that size will start to appear at whole number levels all the way up to the all high. If 203.70 cannot curtail the selloff, you have to figure the shorts will be gunning for the sell-stops at 200.00.
Although Chevron Corporation (NYSE:CVX) did make a new high over the July level, it was by less than three points. Similar to XOM, CVX is testing major support at the 105.00 level and closed below that level on Thursday for the first time since February 2nd at 104.75. Most likely, follow through next week will test minor support at 102.08 and if CVX really craters, the triple bottom from mid-December at the 99.50 level will come into play. For CVX to right the ship and head back up, a few closes above 106.00 would be the first step in the process.
Microsoft (NASDAQ:MSFT) has quietly sold off almost two points from its recent high of 32.95, and will be poised to test the double bottom from last week at 31.05. Under 31.00, is the level MSFT broke out from in February at 30.80. However, the shorts may want to wait for the minor support at the February 16th low of 30.30 or the major support at 30.03 to reel in their profits. Expect the double top at 31.63-31.69 to be major resistance this week.
It took a day for Moody's downgrade of General Electric's (NYSE:GE) unsecured debt rating by one notch to have an impact on its stock price. After the announcement on Wednesday, GE opened lower but managed to recoup some of its losses by day's end. However, on Thursday GE opened lower, could not reach the close and settled just off the low of the day at 19.49. Frankly, there is very little support in GE under 19.46 until the 19.00 level. Back in early March there were four consecutive lows between 18.92-19.09 that was the foundation for the rally up to 20.36. GE is another issue in the Big 10 that was unable to surpass or even approach its 2011 high of 21.65. If GE can mount a rally, expect minor resistance at 19.76 and a fresh round of sellers at 20.00. As always, high frequency traders will be leaning on those sellers in the 19.90s.
Procter and Gamble (NYSE:PG) held true to form this week trading a majority of the time in the 67 handle. On Monday, PG briefly approached the size at 68.00 but was beat back down by the HFT crowd feasting on the large order. Pressure is starting to mount on the lower end of the 66.71-67.95 trading range that has corralled PG since its announcement of significant cost cutting measures back in mid-March. If the three low's (66.71-66.94) from Tuesday, Wednesday and Thursday are breached, PG is likely to establish a new lower trading range from 66.00-67.00, as opposed to 67.00-68.00.
Now that AT&T (NYSE:T) has gone ex-dividend expect this issue to migrate toward the lower end of its trading range just under 30.00. After a nice rally into the ex-dividend date, making a new 52 week high at 31.97 (what a coincidence just under the institutional size at 32.00) T has begun to fade. Expect Thursday's high of 31.16 to be resistance for the entire week, as that level is the break-even level for the dividend capture players that took the stock home Wednesday night. Even if T can get above that level intraday, it will struggle to close above that level.
After flirting with 66.00 earlier in the week, Johnson&Johnson (NYSE:JNJ) could not maintain the upper end of its 2012 trading range from 64.02-66.32. Although JNJ managed to close above 66.00 on Monday, the remainder of the week was greeted with three lower highs and three lower lows. At this time, there is not much to prevent JNJ from surrendering its gains since late February and again testing the validity of the 64.00 level.
Pfizer (NYSE:PFE) was unable to follow through on its gains from last week and make a run at the 23.00 level. Instead, PFE fell short of last week's high of 22.80 (also a multi-year high), only reaching 22.73 before retreating Tuesday through Thursday to settle at 22.34. Most likely, this was a result of short-sellers reloading, after getting scorched by the break out at the 22.00 level, after Goldman Sach's (NYSE:GS) gave the stock a $37.00 break-up value. If 22.22 cannot hold, PFE is destined to slide back under 22.00 and creep down to its late February low of 20.75. Expect 22.73-23.00 to halt any rallies unless some fundamental news about the company comes across the tape.
In closing, will Friday's selloff have any legs come Monday? Or will the under invested funds and short sellers yearning to cover save the day and ignite a rally? Where the market closes on Monday will not be nearly as important as where it closes on Friday. If this is just another minor pullback on the way back to new highs than the June futures should rally up to and close above 1400.00 On the other hand, if the index cannot sustain a close on Friday above 1380.50, the market has a significant correction on the horizon.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.