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Monday, February 12, 2018

Market Alert - The Close

Stocks started where the Friday reversal left off. That means futures were solidly higher and stocks opened higher. A quick first hour 40 minute drop to test the stronger open was met with buying. Stocks rallied through midday, paused over lunch, then rallied into the last hour. Of course the late ETF/ETN reallocations resulted in some late weakness, but the damage was minimal and stocks held the gains.

SP500 36.45, 1.39%
NASDAQ 107.47, 1.56%
DJ30 410.37, 1.70%
SP400 1.00%
RUTX 0.93%
SOX 1.86%
NASDAQ 100 1.73%

That move has SP500 on its way to test the 50 day MA's broken 6 sessions back after the Friday intraday break of the 200 day SMA washed out a lot of stops and took out a lot of sellers. Now a test of the 2690 to 2710 level on SP500 is next in line for this rebound (SP500 closed at 2664.85). A move to 2750 to 2800 overall on this bounce would be about right to set up the next downside move to test the Friday low.

DJ30 and NASDAQ are a bit closer to their 50 day MA's on a percentage basis (2% and 1%, respectively), but overall they should rise above that on this move as well (DJ30 to 25,500ish, NASDAQ 7200-7300).

SOX is not far from the 50 day MA at all (1300, closed at 1279, 1.6%), but key resistance for SOX on this relief move is 1340 if it can take out the 50 day, and is should take out the 50 day.

RUTX and SP400 are nowhere near threatening their 50 day MA's as they are just above the 200 day MA after selling well below the 200 day Friday and coming a long way back to hold that key level.

Most stocks rebounded regardless of their pattern shape, but we were sticking to the good patterns and the 'names' in good patterns. Thus we picked up some AMZN and NFLX. We also bought some RACE options on a good break higher from a breakout test. FB struggled to hold its bounce as did some biotechs we were looking at, so we left them to see if they can hold and resume upside.

It is worth nothing that a lot of the rebounds are just that, rebounds from sharp selling. Patterns are in disarray for many stocks and that is why the market really needs a bounce and subsequent test to let stocks build new patterns to rally from. There are still good bases in 'no name' biotechs as well as name brands such as AMZN and NFLX, but overall stocks need to rebuild bases to support another sustained upside move. That is where the test comes in: stocks bounce, but most bounce from poor position and need a subsequent fade to complete a base to set up that new move.

Thus we did not pile into a lot of stocks bouncing, but we will continue to pick up good positions as they present themselves Tuesday. Indeed, a morning pullback Tuesday presents an opportunity to move into some of those stocks that toyed with a break higher but backed off Monday.

The market still has to deal with the Wednesday CPI report, and that too could provide some opportunity if stocks take pause at a solid number. If it is too hot it could be a bounce killer, but these technical setups tend to have typical action and a typical lifespan so while it could act to pause the rebound, it likely does not kill it off. You just want to watch the action of stocks such as AMZN and NFLX and stick to the overall plan if the move holds.

Have a great evening!
Jon Johnson, Chief Market Strategist
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