After a strong open this morning, markets sold off sharply and broke the lows made on Friday’s big month-end swoon. Since then, however, buyers have stepped in and caused stocks to rally a bit. Equities are currently trading near the middle of their daily range, but remain lower on the session. Currently, the Nasdaq is today’s relative laggard, down about 0.6% amid further weakness in AAPL and GOOG. Today’s relative strength leader is the Dow, as the index is 0.3% higher thanks to strength in INTC, MSFT, MRK, and PFE. The Russell 2000 and S&P 500 are each down about 0.2%, while bonds are trading near breakeven. Metals are catching a strong bid, with gold and silver each about 2.5% higher.
CHART OF THE DAY
Netflix (NFLX) – The internet television company has been on quite a tear as of late, but there are some signs that the trend could be reversing. Since gapping higher on earnings on 4/23, the shares have traded in a choppy range, and appear to be forming a head and shoulders pattern on the daily chart. Much of the rally in NFLX could be attributed to short covering, but short interest currently sits near multi-year lows, which could allow for new bearish positions to enter the trade. Additionally, should the recent weak market continue, it is likely that many of the high fliers from earlier this year will be hit the hardest in a weak tape.
I like a bearish play here with a stop on a close above 225. I would initially target a move to the 200 level, with the the earnings gap near 175 as a stretch target.
WHAT I’M EXPECTING
A move on the S&P 500 back near the 1600 level. I will reverse this thesis should the index break back above 1650, site of former support. Should the 1600 level get breached, the next downside objective is 1575.