Market Consolidation – Weekly Technical Outlook
Another week of consolidation and just over a 20 point trading range for the September S&P 500 Index futures. For those of you selling out of the money options thinking this pattern will continue forever, be careful. There is no way this muted volatility can sustain itself.
Once again, the index tested the 1390 handle and rebounded. After making a low on Thursday (1395.25 which matched the August 24th low) and Friday’s low (1397), major support could not be better defined. Forget about all the other lows in the lower 1390’s, if 1395.25 is breached it is time to pick an exit point and sit tight.
As well as major support is defined, so is major resistance. How about a triple top at Tuesday’s (1412), Wednesday’s (1412.50) and Friday’s (1412.25) highs. Not very often do you witness such key formations on both sides of the market . Therefore, be prepared to capitalize if the support or resistance is taken out.
Apple (NASDAQ:AAPL) got a boost on Monday from a favorable court ruling against Samsung. As a result, it made a new all time high that day at 680.87 but retreated later in the week to close at 665.24. Obviously, the big money used the gap open opportunity to unload some of their position as opposed to adding to it. The long-term ramifications of the verdict and how much it will add to AAPL’s bottom line is impossible to predict. Most likely, the verdict will be appealed and there is no guarantee the decision will be upheld. From a technical perspective, there is not much support under the August 24th low (655.55). On the upside, traders will only be confronted with minor resistance points until the all time high of 680.87.
Just as important as the 1395 level is to the September S&P futures, so is the 87 level in Exxon-Mobil (XOM). With five of the previous eight lows between 86.93-87.14 (which was Friday’s low) XOM has provided traders and investors with an excellent reference point. Long-term investors looking to protect profits should use this level as a possible exit point if XOM retreats. For those in the bullish camp, XOM has provided a lower risk entry point to attempt a long. On the upside, institutional selling has been persistent in the entire 88 handle for the last month and will continue to be present all the way up to the 52 week high of 88.91.
International Business Machines’ (NYSE:IBM) performance relative to the overall market during this recent rally has been disappointing. Not only has it come nowhere near its all time high of 210.69, it has struggled to even maintain staying above 200 for any extended period of time. After making a double top from August 24th (198.11) and Monday (198.29), IBM has deteriorated and closed at 194.85. Beneath the double bottom from Thursday (193.18) and Friday’s (193.46) low, IBM enters a vacuum area with no visible support until well under 190. Keep in mind, during the recent market sell-off back in July, IBM breached its June low by several points, while several other issues in the Big 10 did not.
Another laggard in the recent rally and more of a laggard from the 2009 lows is Microsoft (NASDAQ:MSFT) However, the technical formation of MSFT is much different than that of IBM’s. While IBM is attempting to break down, MSFT is trying to break out. On Friday, MSFT made its fifth attempt this month to clear 30.96 and the institutional sellers at 31. Perhaps the sixth time will be the charm and MSFT can migrate towards its 52 week high at 32.95. On the downside, major support has moved up slightly from the mid-August lows at 30, up to Thursday’s low (30.22).
After making a 52 week high of 21.19 on August 7th, General Electric (NYSE:GE) has been in a trickle down sell mode. Nothing spectacular, but just a modest decline in price over the course of the last few weeks. Now with a triple top at Monday’s (20.95), Tuesday’s (20.92) and Wednesday’s (20.95) highs, it almost feels like GE will never trade above 21 again. On the downside, GE is hovering above the August 24th (20.55) low and put in a double bottom on Thursday (20.62) and Friday (20.61). If GE breaches the double bottom it may migrate towards the 20 level.
Chevron Corporation (NYSE:CVX) has been confined to just over a three point trading range since August 3rd (110.70-113.87). CVX visited the lower end of the trading range on Thursday (low of 110.92) and rebounded on Friday to close at 112.16. As the chart indicates, there has been institutional selling pressure present in the entire 113 handle and was reinforced on Friday as CVX topped out at 112.95. As long as CVX maintains 110.70, there will be continued attempts to make a new all time high above 113.87. If not, CVX has no major support until the August 2nd (108.47) low.
Similar to the other major components in the index, AT&T (NYSE:T) is range bound, trading in a 62 cent range (36.43-37.05) since August 20th. Sellers have constantly reloaded in the 37 area, while buyers are doing the same at 36.45. Considering its monster run from 34.24 to 38.28, T has held up quite nicely. Until T can get above and hold 37, or break down below 36.43, traders should be prepared for more of the two-sided activity in the upcoming week.
The consolidation theme continues with Johnson&Johnson (NYSE:JNJ). For the last ten trading sessions JNJ has primarily traded between 67 and 68. Briefly trading under 67 on Thursday (66.85 low) then rebounded towards the upper end of the range on Friday (67.90 high). It appears institutional sellers that missed exiting at 68 during the recent rally seem determined not to be denied again. Expect those sellers, coupled with the High Frequency Trading crowd shorting in the mid 67.90’s, to be active again this week. On the downside, minor support can be found at 66.85 and at the triple bottom from June 26th-June 28th from 66.36-66.44. However, if JNJ breaches the June 25th low (66.14), it could possibly go into a freefall mode.
What can you determine from Wells Fargo’s (NYSE:WFC) 47 cent trading range from last week and 70 cent range since August 22nd? Not much. Until WFC can clear the multiple highs from 34.20 (Friday’s high) to 34.28 (Wednesday’s high), there is limited amounts of money to made on the long side. On the other hand, if WFC can breach its cluster of lows around 33.80 and 33.50, there is very little support until the August 2nd low of 32.84. With five of its previous six closes between 34.02-34.10, traders should continue to use 34 as a key swing level.
The tightest range of the week award goes to Pfizer (NYSE:PFE) with a 36 cent range(23.75-24.11). As institutional sellers have been stacking their sell orders from 24-24.11, PFE has managed to trade above 24 in five of its last six sessions, but closed above it on only one occasion. After fending off negative responses from the FDA regarding their new Alzheimer’s drug, PFE still cannot muster a significant rally back up to the 52 week high of 24.49. On the flip side, PFE has bottomed between 23.59-23.82 during the last twelve trading sessions. Investors anticipating a big move in PFE, will not get one until it can post a string of closes above 24.11 or below 23.59.
This weekly outlook is like a broken record (for those of you who still remember what a record is), consolidation, consolidation, and consolidation. Unfortunately, the bulls and the bears are at loggerheads and neither side can gain an edge. For the time being, the bulls have successfully defended 1395.25 and the corresponding support levels in the Big 10 components. The bears and large institutional sellers have not backed down with their gigantic sell orders and have prevented much talk about a melt-up in the market. With the August unemployment data looming on Friday during this shortened trading week, Tuesday through Thursday may be just as boring as the last few weeks. My suggestion would be to ignore the immediate reaction to Friday’s data (the market has been dead wrong the last few times, selling off on poor data, then rallying back to even higher levels before the next report). Instead focus on a break out above 1412.50 or a break down below 1395.25 to determine the market direction over the next few weeks.
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