All eyes were on Ben Bernanke today, as he testified in front of Congress regarding the current state of the economy and the future path that he was looking for the Fed to take regarding monetary policy. After some comments about continued easing early this morning, markets spiked significantly as fears of “tapering” were overblown. However, after this big rally, we’ve seen a significant intraday reversal, and stocks are currently near their lows for the session.
At present levels, the Russell 2000 is today’s relative laggard, down 1.2% for the session. The Nasdaq is performing only slightly better, down 0.9% today, while the S&P 500 and Dow Industrials are down slightly less. One bit of surprising intermarket action is taking place in bonds. Given the massive intraday reversal, you might expect to see some flight to safety. However, this isn’t the case, as bonds are about 1.4% lower for the session. Metals saw a big spike this morning after the Bernanke comments, but they’re now in negative territory.
CHART OF THE DAY
First Solar (FSLR) – FSLR has been on quite a tear as of late, but there are signs that it may be setting up for a nice reversal here. After rallying through the 55 strike and getting almost to 60 yesterday, the equity reversed sharply and formed a doji candle. Dojis can often time mark trend reversals, and today’s action on FSLR provides further evidence that it could be in for some mean reversion. This is a counter-trend trade(which typically has a lower win rate than simply following the trend), but the risk/reward potential here is very nice.
I like a bearish entry here with a stop on a close above 55. I would initially target the 50 level to the downside, with 44 as a stretch target.
WHAT I’M EXPECTING
Given how sharply markets reversed off the extremely bullish environment this morning, I think we are now going to get the pullback that everyone’s been waiting for. The potential support areas on the S&P 500 to watch on the downside are 1650, 1630, and 1600. This is a great time to lock in some profits on longs that you’ve held during this bull run.