Good evening StockBandits!
Another day, another avoidance of downside for the bulls. To them right now, every bit of upside counts. They want to press their edge, which gives them as much breathing room as possible for a pullback to potentially hold above the breakout zones they just recently cleared. It’s true they’ve proven themselves with all this strength of the past few weeks, but equally important is the fact that they also haven’t let prices slip.
With three out of the four big indexes (NAZ being the exception) currently looking somewhat extended in price, many are looking out for a pullback. That certainly wouldn’t be a bad thing. While it would put a little pressure on long positions in the short term, it would be quite helpful for allowing some new bases and patterns to start building. Many stocks at this stage in the rally are simply stretched and need some rest.
Today’s finish in the red for the DJIA and S&P 500 after being positive early in the session has some wondering tonight. I wouldn’t necessarily consider this to be toppy action though, as that would really be the type of environment where we start to see bounces getting sold. Instead, what I think it’s important to watch out for now are signs of fatigue. That would include diminishing upside volume, weak finishes, or a combination of the two. We’ve seen some lighter upside volume in the past few sessions in those two indexes, so it’s something to pay attention to.
Before I forget, I am doing a webinar on Thursday evening called Cracking the Code to Better Trading. It’ll of course be free, and I think you’ll learn a lot from attending. Even if you can’t make it to the live event, there will be a recording of it but only to those who register. More details are at the link, I hope you can make it!
Let’s get to the charts.
NAZ – The NAZ paused at 3161 last week and did so again today. That’s the short-term level for this index before it can test the October lower high at 3171 and the 52-week high at 3196. This rest is the only one among the indexes, which could mean some rotation into tech if the others happen to stall out.
SP500 – The S&P finished in the red today but just barely and the light downside volume doesn’t indicate anything ominous. Instead, this may simply be an attempt to rest, which would benefit the bulls.
RUT – The RUT simply cannot seem to relent and keeps posting strong finishes since clearing 883. Today was another example with just a minor gain but an ending near the high. A pause for this index would be very helpful to avoid becoming too extended, but momentum players seem unwilling to let up just yet.
DJIA – The DJIA ended negative today but it wasn’t a nasty reversal type of a bar. Instead, it was a minor decline on light volume, which suggests more of an attempt to rest than anything real bearish. Headlines could certainly change that, but for now this index still looks strong even on a down day.
Notable Names:
DDD is a great example of a stock that got going parabolic and then suddenly came under big pressure when it failed to move higher. Momentum is a double-edged sword, so it’s imperative to identify when the tide is shifting because in names like this it can mean a giant move. Note the support from last week which was undercut today.
SSYS is another example stock which has made a big move (although not parabolic) and suddenly came under pressure today. The pullback from last week looked to have come to an end with some strength coming back into the stock on Friday, but once Thursday support was broken the selling only intensified.
SHLD negated last night’s setup with today’s lift through resistance. Thankfully this one never triggered a short entry, but it does serve as a chart to learn from as the downside reversal setup simply didn’t come to fruition.
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.
WLL is in a tight wedge pattern here after a nice lift from Nov/Dec support. This presents a good risk/reward setup which I like on the long side using a $48.25 trigger price at the upper trend line.
GPS has been working its way lower in recent months and this multi-week bounce hasn’t changed the overall look of this chart. Instead, it has created a bearish rising wedge pattern which I’m now watching for a short entry if the lower trend line gets broken at $32.50.
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Trade Like A Bandit!
Jeff
