Good evening StockBandits!
Sometimes the market needs to break out before it can correct. We may have just seen that occur, although more evidence will be needed. The S&P 500 and RUT each reached new all-time highs last week while the NAZ painted new multi-year highs. Short-term, each was somewhat extended after a nearly nonstop rally from the February low, yet each managed to push past their prior highs. However, we saw some selling arrive on Friday as concerns grew over the Russia/Ukraine situation. That may prove to be a short-term catalyst for some selling, but the bulls are still sitting in the driver’s seat for now.
The DJIA has lagged the other averages, but also remains the least important since it’s comprised of just 30 stocks. Still, traders prefer to see unanimity among the averages, so at this point the breakout is only seeing 75% participation. It may only be a matter of time before the senior index joins the fun, but for now it still stands well below the Dec. 31 high.
What will be so important for the week ahead is how Monday morning gets treated. As I write, we’re still a few hours away from the futures opening to give us some indication of where the mood currently stands. I will say that on social media there are a lot of traders expecting or rooting for a downside gap to kick off the week based on the Russia/Ukraine news flow. That may prove to be accurate or it may be underinvested bulls and suffering bears simply rooting for lower prices. Either way, all eyes will be on the opening price action and what will immediately follow it. The big question to me is if we gap, does it get filled quickly or does it spark additional selling.
Regardless of the news flow, from purely a price action standpoint, a pullback would be the most healthy thing this market could do at this stage. Time will tell whether it happens sooner vs. later.
One last note… some of you are not on the email list and therefore did not receive the report I posted on Friday on Aggressive Swing Trade Management in Volatile Stocks. Just wanted to point you to it in case you’re interested in my thoughts on a couple of recent swings.
Let’s get to the charts.
NAZ – The NAZ reversed to finish lower on Friday after reaching new multi-year highs. It still managed a gain on the week, keeping the rebound in motion off the February low. The pace has slowed, but we’ve yet to see a real dip, despite the desire for one on both sides (bull/bear).
SP500 – The S&P finally broke above 1850 last week, but not by much as it closed at 1859. That’s not a real convincing breakout, particularly after Friday’s weak finish and on the heels of a 7.4% rally in just over 3 weeks. 1850 should still be watched closely.
RUT – The RUT closed 1 point above the former high of 1182 last week, keeping the recovery rally intact with the creation of new all-time highs. Friday’s poor finish came on geopolitical worries, but also coincides with prices being very extended. Rest would be good.
DJIA – The DJIA rallied to 1058 points off the Feb. low last week as the recovery continued. Nonetheless, this index remains the one which hasn’t cleared prior highs, making it the laggard of the bunch.
Notable Names:
YHOO is a great example of how former support can become resistance. A few times during Dec. and Jan. we saw the same level support prices, but once it was broken we’ve now seen two returns to it from below without success on a closing basis. The market has a memory and these lines in the sand are not quickly forgotten.
CRM has been steady with a clean uptrend the past few months until Friday’s nasty outside day. The bearish engulfing bar saw price reach a new high and then reverse lower to close beneath the prior day’s low and undercut the uptrend line. This is not something to ignore when you see it, as it many times is the catalyst for a change of character.
SLW is a stock on my radar this week but doesn’t look ready for a play just yet. I’d like to see upside volume improve and price close a bit stronger to imply some stronger upside pressure mounting.
SWFT is a setup I like here for a single-day play on the long side if price can clear $24.70 to make a new high. I like the quiet volume during the recent rest phase in price.
GT is attempting to work higher within this base but hasn’t broken out yet. I like it for a single-day play on the long side if it can make a new high at $27.30. It may need another day or two but Friday’s surge in volume gives me reason to set up this play now in case it goes on Monday.
PKG is another stock sitting in a high-level base. A breakout through $73.45 looks good to me for a single-day play as price is freed up to move again. This stock had been volatile before the earnings gap a few weeks ago, so I’m just not interested in a multi-day play and would prefer to just participate in the initial breakout move if it occurs.
NUS is so news-sensitive right now that I’m not interested in an overnight position. Instead, I’ll take it for a single-day play on the short side if price undercuts rising support at $82.90 to signal some profit-taking kicking in.
TWTR is at short-term support and a new low at $53.90 could bring a quick test of the $50 area. This stock has shown no follow through lately so I don’t trust it for a multi-day move and will instead opt for a single-day play on Monday if it goes.
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.
MU is stabilizing here after a pullback and may be carving out a higher low. This one could easily reach a new high if it turns back up, and I like the risk/reward for a swing with a stop just beneath this dip. I’ll get long if price breaks the descending trend line at $24.50 on its way back up.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
