News out of China this weekend impacted the equity markets and the S&P 500 futures on concerns of a pneumonia-like virus spreading across Asia. In addition, Moody’s downgrade of Hong Kong’s credit rating continues to weigh on sentiment. As a result, many stocks are pulling back in early trading, representing what could be a buying opportunity this morning if futures continue to rally.
The coronavirus claimed four lives over the weekend, with hundreds of confirmed cases reported across China, raising fears of a rerun of the SARS epidemic many years ago.
S&P 500 Pullback Opportunity
SPY is extended so hedging into the rally last week was a good idea in hindsight. S&P Futures are (-10.00pts +/-) in early trading, showing signs of buyers as the index futures rise from the morning lows.
SPY will most likely test the 9ema if weakness persists, so we have that as a potential buy zone should price action retreat.
A reminder, in the watchlist indices section we post the expected moves for the week, which for SPY is 328.96 or 334.94 (2.99 +/-). Coincidentally, the lower values are near the 9ema. These numbers are derived from SPY options closing prices the previous Friday.
Opportunities on the Pullback
Many stocks are pulling back this morning, representing a day trade opportunity if buyers show up. Chinese stocks are lower across the board, with potential day trades in BABA, BZUN, CWEB, JD, IQ, HUYA, MOMO, PDD, VIPS, WB and Luckin Coffee (LK) among others.
There are additional stocks we’re watching this morning as well, chief among them, AAPL, FB, and NVDA. Weakness this morning should be an opportunity for day trades in the FANG stocks.
Luckin Coffee (LK) has rallied more than 144% since the November breakout (21.00 +/-). The recent flag (44~47) is being tested this morning. If this flag holds we’d expect to see buyers and an opportunity to trade with them. RVOL needs to exceed (+2) for confirmation.
LK is trading down (-2.08) in the early hours, at 47.90.
We mentioned LOW as a potential trade on Friday, as such some members took a bit more risk and bought calls on the prospects of a potential bullish follow through day.
Bollinger Bands are tight and showing signs of expanding, top and bottom. This suggests a fast move is imminent. Recent examples, CGC and BYND exploded when these conditions presented a trade setup similar to LOW. In addition, expectations are elevated given Home Depot’s (HD) performance last week.
RSI is rising, as a function of price, and volume created a pocket pivot. Volume exceeded the previous 10 days selling volume, suggesting institutions were active in the name.
Wait for the opening range (9:30 AM ~ 10:00 AM) before entry, then place a stop under the low of the opening range to start, or under a flag or consolidation if the stock breaks higher immediately this morning.
Stocks on the watchlist need to hold the levels noted as support therein. We will wait until the opening range has traded out before doing anything with these candidates.
Netflix (NFLX) Earnings will be reported after the close.
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