Good evening StockBandits!
The blue chips added to their recent breakouts in a holiday-shortened trading week as the bulls went 4-for-4 in the DJIA and S&P 500. The RUT and NAZ each went 3-for-4, which wasn’t at all bad with the RUT ending at new all-time highs while the NAZ rebounded from a real hammering in AAPL.
The bulls therefore maintained their edges – both technical and psychological – over the bears as the market digested the first big wave of earnings reports. Many more are yet to arrive, but it’s the technical shape of this market which deserves the most attention right now. Three of four indexes that I watch have broken out to multi-year highs (sans NAZ). They’ve added to those breakouts, putting some distance between current levels and former resistance zones, which allows for some short-term profit-taking to be sustained – provided it ever happens!
Whenever the market gets moving with momentum like it has in recent weeks, it’s easy to lose sight of the fact that it will at some point go the other way. Bulls are strutting right now, and for good reason, but they’ll be humbled eventually. I’m not calling for a bearish market or predicting that we’re approaching a topping stage. I’m simply reminding myself and you that although buying your initials in recent weeks may have shown easy gains, that it’s still important to consider the risk that’s inherent in the market. Tighten stops when it’s appropriate, book some paper gains to make them real, and become a bit more selective when the broad market starts to get stretched.
Let’s get to the charts.
NAZ – The NAZ added 15 points on the week, which isn’t impressive but it did shrug off tremendous weakness in AAPL, which is a heavyweight stock for this index. It’s still sitting nearly 2% shy of breakout territory at 3196, so unless the bulls get in gear quickly to propel this index higher soon, we might see the other averages relent before this one breaks out.
SP500 – The S&P posted its 8th consecutive advance on Friday, which left it 28 points above its breakout level from 1474. That’s about 2% of breathing room for this index, so a little profit-taking wouldn’t hurt if we saw that in the near term. This index essentially hasn’t pulled back at all since the end of December and has simply put in some rest along the way. The all-time high is at 1576 from 2007.
RUT – The RUT is just flat-out impressive here as it blew through 900 last week, leaving 883 and 868 in the rearview mirror. This index has added 8.8% since the close on December 28th, and 18.6% from its low on November 16th! It’s becoming stretched as this isn’t a sustainable pace, but momentum is present and that doesn’t always arrive with logic. I would still expect profit-taking to get met with buying, as it’ll take more than a little pullback to spook away the bulls in this index.
DJIA – The DJIA is now about 300 points from its all-time high from 2007 after a nice run last week. This index has posted just a single decline in its last 12 sessions. It’s starting to look a bit stretched and volume has diminished, which to me means it might be time for some profit-taking. I’d expect to see the 13661 area defended on the next dip with that being the breakout zone it just cleared.
Notable Names:
HFC is sitting in a high channel pattern within a longer-term uptrend. This points to eventual continuation if the stock can clear $48 resistance. That would project an initial lift of about $5, which is a measured move of the height of this channel. I’d love to see it base for a few days first in order to establish some short-term support to give this a better risk/reward as a swing setup, as currently there’s no well-defined stop loss on this chart.
NFLX is a great example of what can happen around earnings time. The stock had been channeling higher and I shared it last week, but the post-earnings move both made some people overnight rich and others overnight poor. Earnings is a coin-toss! It’s not something to risk your account on, regardless of a hunch. The information field is not level like the technical analysis field, so playing for a fundamental news event is truly risky. It might pay off, but there are times it will do irreparable damage. I avoid holding into earnings announcements for that reason, despite the NFLX’s of the world which make it look so appealing to roll the dice on an announcement.
JCP is getting compressed by price here with rising support and descending resistance trend lines. After taking a 50% haircut from its September high, this stock may be in the process of confirming a bottom, but it needs to resolve this wedge to the upside. Given the bigger picture potential for a lasting turn and the distance from entry ($19.70) to a stop (rising support near $17.50), this is much more of a position setup than a swing setup. Earnings are 1 month away, so I don’t intend to take this one for a swing unless this wedge tightens further.
New Swing Trade Candidates:
These stocks look ready for imminent multi-day moves. Pattern confirmation occurs with a move through the entry level. Initial stop and target levels are also provided.
GT is holding above prior resistance (now support) and acting well. A turn higher through $14.05 would clear the short-term trend line and set this one free to head higher. I’ll get long there with a stop beneath support.
GPOR broke out a week ago from what had been a still-developing ascending triangle. Since then, it has held steady to create a new base with narrower risk, so I’m setting up a swing trade here to get long through $42.60 as this one heads for new highs.
SHLD has rallied up to challenge former support for the past 2 weeks but it looks to be failing, which opens the door for a swing trade on the short side as this one moves back toward the lower end of its range. I’ll look to get short upon a break below $44.85 with a stop just above the January high.
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Trade Like A Bandit!
Jeff
