Stock Market Trading on Technicals

On Thursday the Fast Money pros took a hard look at what’s next for stocks with so many key technicals coming into play.

S&P

First and foremost the traders are watching the 50-day on the S&P, now just above 1,328. Sellers crowded around that level for a third day with some investors considering the level strong resistance that prevents any rebound in the benchmark.

Fast Money trader Tim Seymour, however, sees it a little differently.

He's focussed on the market's ability to pare losses and post gains late in Thursday's session. “(By) the close the S&P neared the 50-day, that's bullish,” he says. "If we can hold the 50 we can test the highs," he adds. In other words, into month’s end Seymour thinks there’s room for the market to rally.

US DOLLAR

Also, technical traders are watching the currency markets. The market's ability to sustain an advance seems to ebb and flow with developments in Europe's debt woes.

"Currency strength right now is the major mover of equity and commodity markets," says Michael Yoshikami, president and chief investment strategist at YCMNet Advisors in a Reuters interview.

"No market sector can move away from that," he explains.

Looking at technicals, the 20-day correlation between the S&P 500 and the dollar index was at -0.8. It hit -0.95 earlier this month, with a perfect inverse correlation scoring -1.

In other words, when the dollar gets strong, stocks go lower and vice versa.

CHINA

Fast trader Pete Najarian is watching the technicals elsewhere. He's got an eye on Shanghai.

“It’s edging lower and lower every day," Najarian warns. In fact, on Thursday May 25th the Shanghai Composite fell 10% from this year's highs set on April 18th. Typically a 10% slide from the highs is considered a correction.

"When you see some of the world markets that have supported the rally to the upside, we're seeing something different," says Najarian.

The conventional wisdom is that the S&P can't march higher if the Shanghai breaks lower.

Tim Seymour concedes that Asia has been a leading indicator and because of the action in the Shanghai, "you have to be concerend."

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TECH BACK ON TOP


Turning attention to technology , the sector helped drive the S&P into positive territory on Thursday after strong results from NetApp buoyed investor appetite for risk; the company said an increased interest in cloud computing drove demand for its data storage products.

Also Microsoft was a big mover, after billionaire investor and hedge fund manager David Einhorn called for CEO Steve Ballmer to step down.


How should your trade the Silicon Valley surge?

Joe Terranova thinks there are a few related trades that were generated by these events. “I’d look at EMC as a cloud storage play. I’d go long against $27,” says Terranova. “Also look at Oracle for its exposure for enterprise software,” he says.

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SHOULD BALLMER GO?

As we mentioned above, Microsoft landed on the trader radar after hedge fund giant David Einhron called for CEO Steve Ballmer to step down.

Later, a Microsoft director told CNBC that Ballmer still has the support of the board and no “special” meeting would likely be called in the wake of Einhorn’s comments.

How should you trade Microsoft, now?

Top hedge fund manager Whitney Tilson of T2 tells Fast Money that Microsoft is one of his top 4 positions and “We are not selling,” he says. “We think all this dissatisfaction with Ballmer is more than baked into the company. “

Get all the details. Watch the video now!







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Trader disclosure: On May 26, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Karabell owns (GOOG)l Karabell owns (AAPL); Terranova owns (XOM); Terranova owns (KSS); Terranova owns (CVI); Terranova owns (OXY); Terranova owns (TM); Terranova owns (BJ); Terranova owns (DIS); Terranova owns (PFE); Terranova owns (V); Terranova owns (HPQ); Terranova owns (FLX); Terranova owns (JPM); Terranova owns (MCD); Terranova owns (PEP); Terranova owns (VRTS); Terranova is short (DELL); Finerman and Finerman's firm own (AAPL); Finerman and Finerman's firm own (BP); Finerman and Finerman's Firm own (CMI); Finerman's Firm owns (IBM); Finerman owns (C); FInerman owns (JPM); Finerman's Firm owns (JPM) leaps and (JPM); Finerman's Firm owns (TGT); Finerman owns (UNG); Finerman's Firm is short (IWM), (MDY), (SPY); FInermans firm is long S&P Puts, Russell 2000 Puts

For Zachary Karabell
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