Off the Charts

The market opened sharply lower this morning as there was no progress this weekend toward avoiding a government shutdown. Political turmoil in Italy and a weak PMI out of China also contributed to world market weakness. The indices tried to fill the gap in the first three hours of the session but momentum faded in the afternoon. The S&P finished the day down 0.60%, bookended by a 0.84% loss for the Dow and a 0.27% drop for the Nasdaq. The best way to describe the market now would be disinterested. The market has been dribbling lower since the breakout failure in the days following the Fed no taper decision, but the selling hasn't been aggressive enough to create a real compelling oversold dip-buying opportunity. There has obviously been some profit-taking after the initial short-lived Fed decision shock and euphoria, but most investors seem to be in wait-and-see mode due to overall policy confusion. Today the S&P closed below its 21-day EMA, which is a small technical warning sign. The key now will be how long we stay below the 21-day, or whether we continue to stretch away from it to the downside. The longer we stay below it, the more it tells us that more downside could be in store. The market doesn't seem terribly spooked by the idea of a government shutdown. The far more important issue is the debt ceiling, which will be tackled by Congress over the next few weeks. When you have headlines controlling the action and feel no edge in terms of potential market direction, it's best to be very selective and cautious. S&P Source: eSignal View Chart » View in New Window » Checking Up on Recent Long Set-Ups Alexion Pharmaceuticals (ALXN) continues to hold up well and poked its head above the $116.75 action area on Friday. Look for potential extension away from the wedge as the pattern has come to an apex. The biotech/pharmaceutical sector has been leading the market during this correction. Alexion Pharmaceuticals (ALXN) Source: eSignal View Chart » View in New Window » We highlighted bullish set-ups in three small-cap solar stocks last week: Jinko Solar (JKS), Yingli Solar (YGE) and Trina Solar (TSL). All three continue to act very well despite a weak market. Taking a look at Trina Solar, the stock has reached the measured move from the bull flag pattern that we highlighted last week, so it could be due to a rest. However, given the extreme relative strength and high short-interest in this group, you could see them continue to rally, especially if we get a market bounce. Look for dips to potentially buy as well. Trina Solar (TSL) Source: eSignal View Chart » View in New Window » Tesla (TSLA) continues to push higher despite a choppy market. The stock opened lower this morning but extended to new highs for the third straight session after we highlighted another bull flag last week. The recent climb has been methodical so Tesla could make one more push before perhaps needing some rest -- especially if the market finds some footing. It never hurts to trim and trail winners though after three days up. Tesla Motors (TSLA) Source: eSignal View Chart » View in New Window » Checking UP on Recent Short Set-Ups The banks continue to be one of the weakest sectors in the market. Bank of America (BAC) continues to bleed lower since being replaced by Goldman Sachs (GS) in the Dow. While it closed off lows today, Bank of America broke below key support and will need to climb back above that level to prevent potential downside continuation. Bank of America (BAC) Source: eSignal View Chart » View in New Window » Gap (GPS) is hanging ominously at the neckline of a head and shoulders pattern and just above its flat 200-day EMA. A break below those levels could lead to significant downside. Gap (GPS) Source: eSignal View Chart » View in New Window » Notable Candlesticks Today in Stocks Recently Highlighted in the Newsletter Similar to Tesla, Facebook (FB) has continued to make new highs despite a weakening market. We have highlighted bullish set-ups several times in Facebook since the earnings gap, but today's candlestick could lead to some rest. Facebook put in a Red Dog Reversal as it traded up through yesterday's high and then back below it. After a strong run, it would be wise to trim any short-term positions in the stock and wait for a more calculated set-up. Facebook (FB) Source: eSignal View Chart » View in New Window » Lululemon (LULU) has not been a market leader recently after a big gap down on last quarter's earnings report, but looks like it could be getting ready to play some catch-up. Lululemon responded very well to a recent gap down, erasing all of those losses and more. Today the stock put in a bullish engulfing bar and looks like it could now enter the gap out of the bull flag pattern we highlighted last week. Lululemon (LULU) Source: eSignal View Chart » View in New Window »

Off the Charts

Most investors seem to be in wait-and-see mode due to overall policy confusion.

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