Good evening StockBandits!
The indexes took 2.6-to-3.1% haircuts in the last 2 sessions to end the holiday-shortened week in very poor technical shape. What a difference a day or two can make. Just Wednesday, we were in a situation where upside breakouts were already taking place in the RUT and NAZ, with the S&P less than 6 points from a new all-time high. Instead, each of them rolled over hard to break some critical levels without any attempt to reclaim them (or even bounce) ahead of the weekend.
The market has long been overdue a correction, and what we’ve just seen may very well constitute the beginning of one. Prices haven’t retreated deeply yet for the averages, but they’re sliding quickly all of a sudden and that’s grounds for elevated caution in the short term. News of China or Argentina or earnings announcements or even this week’s FOMC meeting might be the focus of attention for “why” this is happening, but the technicals are what we watch because they develop in real time for everyone.
In recent days and weeks, we’ve seen some mixed signals from the broad market. The NAZ and RUT have continued building bases above prior bases and pushing through resistance levels, but the S&P 500 has on multiple occasions failed at resistance (1849-1850). The DJIA has been the standout weak index and hasn’t even threatened December resistance. These factors have contributed (along with extended individual stocks) to a lack of swing setups lately, keeping me doing quite a bit more single-day trades than swings. That will change sooner than later, but this market decline has validated those mixed signals and we now know that the blue chips were sending an important message with their lack of participation.
Many traders face the temptation here to predict what will happen next. Throw the crystal-ball mentality away, and focus on the charts instead. Keep looking for great setups, and they will surface. Tonight we’re a bit extended on the downside after a swift decline, so we’ll take what the market has to offer. Staying in the game is far more important than trying to be right or calling the next move.
I’d also like to mention that with the indexes having covered lots of ground on the way down the last two sessions, a bounce may be in order soon. Rather than place importance on the bounce, I think the pullback which follows will be the most telling. Snapback rallies can be violent and decisive, but it’ll be critical to see whether a bounce results in a lower high. If so, expect rallies to provide selling opportunities in the near future.
Remember it’s earnings season out there, so keep a close eye on the earnings calendar(s) for any stocks you’re aiming to hold overnight. I use EarningsWhispers and Yahoo! Finance primarily, and prefer to check multiple calendars to add validity to the dates listed.
Let’s get to the charts.
NAZ – The NAZ took a dive right off its fresh multi-year high from Wednesday of 4246 to finish 118 points lower by Friday’s close. In the process, it gave up 4177 and now stands just 24 points from next key multi-week support of 4104. This is a breakout failure on heavy volume, which is a big shift for this index. Increased caution is warranted for now.
SP500 – The S&P never could clear resistance despite numerous opportunities, including last week. It turned south on Thursday then hit the dirt on Friday to finish 60 points below 1850. This hard breakdown from the multi-week trading range (1823) was accentuated by the decisive break of rising support going back to last October. This index is not in good shape with price action like this, so the bulls are on their heels. Next support is 1775, just 15 points away.
RUT – The RUT was just 5 points from a measured move target of 1187 as of Wednesday, but a hard selloff on Thursday and Friday left it not only below the 1167 breakout but also below the low end of the range at 1147. This is a huge failure for the small-caps, and now a former high at 1123 is the next level to watch on the way down.
DJIA – The DJIA shed 318 on Friday alone, but was down all 4 sessions last week. This index has been the clear laggard, and the failure to hold 16400 was quickly followed by a break below the former high of 16174. Now we need to watch 15703, the December low, as next potential support. This index is short-term stretched to the downside, so we could see a relief rally arrive soon. If so, 16174 could serve as resistance.
VIX – The VIX is the CBOE volatility index, a.k.a., the “fear index.” It’s been bumping along historical lows near 12 lately but lifted in a big way on Friday as the market sold off hard. Now through 18, it’s approaching a big level – 20. While that’s not a historically high number (40 is), we have in the past 18 months only seen 4 closes above 20 in the VIX – none of which were on consecutive days. Worry is clearly on the rise after prolonged extreme complacency, so we’ll continue to monitor this index if it continues to spike.
Notable Names:
FCX is short-term oversold here and is holding slightly above a key level which has served as both resistance and support since last August. Although this is a logical spot for a bounce, in this environment nothing is a given. This is just an example, but the lesson is stay vigilant and keep new trades on a tight leash while this market sorts out its differences.
BID had been on my radar with this well-defined channel, but it never broke out so thankfully I never initiated a trade. It now looks like many other broken patterns with this downside break from the range. Waiting for breakout confirmation isn’t a bad thing!
WYNN had been acting like it may never go down again, but last week that changed. First, it broke rising support to show a change of character, then accelerated late in the week to continue the pullback. I have no interest in buying a dip like this, as it now needs to establish some new levels – namely support.
ROVI did hold up well and now looks poised for a quick pop. I’m not very trusting in this market, so I’m sticking with single-day candidates for Monday. I like the looks of this one if it can clear $22.40 with $1 of room to rally back toward the recent high.
DLR may need a little more time but I like this for a single-day play on the long side to participate in an initial gap-fill attempt. I’d like to see it clear $53.30 to clear short-term resistance and get going.
VEEV is not a bullish chart, per se, and in fact is still in pullback mode. However, price has stabilized in recent sessions and now there’s a descending trend line just a short distance from current levels. A push above it could spark a short-squeeze type of rally, so I like it for a single-day play if it can clear $32.10.
UA is looking heavy since its breakout failure a few weeks ago. This one may also need a little more time to base, but I like it for a single-day play on the short side if it turns down through $82.70 on Monday.
SODA has sold off considerably of late, but another break of support could happen any day now. I’m only interested in a single-day play on the short side, but will be using $36.25 as a trigger for a breakdown play.
IOC is trying to break rising support here so I like it for a single-day play on the short side for Monday if it shows any continuation to Friday’s weakness with a break below $52. The bars look small, but only because of the large gap in December. A swing stop would belong above the bounce high, which would be roughly 6% away, and that’s too far for my preference.
New Swing Trade Candidates:
No new swing candidates tonight, back to 100% cash waiting for new setups to build. The second half of ISIS was closed on Friday as it undercut the adjusted stop.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
