Good evening StockBandits!
The oversold bounce arrived today with a snapback rally that left each of the averages in positive territory on the day. The only problem for the bulls was that it really paled in comparison to the swift declines of the past three sessions. We saw a small gap higher to begin the day (except for the NAZ softness on the heels of last night’s AAPL report), but on an intraday basis there was just no momentum. The DJIA and S&P were able to erase Monday’s losses, but the NAZ and RUT were not. There seemed to be no urgency on the lift, and what we are left with now is the look of a dead-cat bounce.
Whenever that takes place, it’s often times simply a rest phase before the prior momentum returns. In this case, that would be to the downside. It doesn’t exclude the chances for a continued lift, but today’s action wasn’t exactly frightening to the bears, either. Rather, a temporary lift from short-covering and dip-buying that takes place on weak volume and recovers little ground many times can result in a give-up mentality on the part of short-term bulls. The lack of momentum can bring about an attitude of “they’re not ready to bounce yet, so I’ll move back to the sidelines and take another shot after the next slide.”
We’ll see if this time pans out that way, but so far it’s looking like a real possibility. Two things the bulls do have going for them is the longer-term uptrend and key levels holding on the RUT and S&P, so it may be premature to declare the bull market’s end. As traders, it’s always wise to stay objective and consider both sides of the coin.
I will say that I’m surprised by how limited my watchlists are tonight on both sides of the market, and only have a few plays I’m eyeing as we head into Wednesday. When the market is making bigger moves, it’s easy to want to get more active, and sometimes the charts are more conducive to that. However, tonight anything beyond the few setups I’ve shared below would feel like a big stretch. Occasionally trading is just that way, so I’ll stick with what’s available and patiently wait for some new setups to surface. I can say with a high degree of confidence that having few setups to choose from is a nice problem to have right now, as there are a ton of traders who just got caught long in the last downdraft and wish that too much cash on the sidelines was their problem.
Tomorrow is a Fed day with the FOMC announcement at 2pm ET, which will be the main event of the day. Tonight we have the State of the Union address, so we should have a better handle on the domestic mood by this time tomorrow.
Let’s get to the charts.
NAZ – The NAZ bounced back today, but only by 14 points. It also stayed shy of 4104, a big level it broke yesterday. Today’s volume was light, and the inside day and partial recovery simply don’t look bullish.
SP500 – The S&P bounced from the 1775 level it tested on Monday, but here again we saw an inside day on light volume. This index looks to be respecting 1775 for now, but today’s bar likely will get few people excited about the long side in the short term. The FOMC is likely to be the deciding factor tomorrow.
RUT – The RUT lifted today after holding 1123 on Monday, but today’s upside wasn’t enough to erase yesterday’s losses. This index is still beneath 1147, which keeps the small caps on their heels for now.
DJIA – The DJIA saw a relatively small bounce back today, gaining 90 points on light volume. It’s still well shy of 16174, the big level it broke on Monday, giving today’s bar a ‘dead-cat bounce’ appearance.
Notable Names:
CLF gained $0.41 today, but had been up by $2.46. Momentum is a difficult thing to stop, so after a big slide in recent weeks in this stock, the positive news it gapped on this morning pulled out the sellers who saw an opportunity to lighten up at better levels. We see this often in beaten-up names and indexes, as big slides get met with bounces and upside traction becomes difficult due to trapped bulls who bail out when given the chance.
LVS held a big level yesterday and rebounded today, but it was an inside day and happened on very light volume. This look is widespread tonight, and is not the type of setup that typically inspires lasting upside.
FB is beneath its recent base after a hard breakdown last week, and today despite a bounce it’s still well shy of the area it broke down from last week. Today’s lift, once again, came on light relative volume as compared to the downside volume we’ve seen of late. I would expect former support to now serve as resistance for this stock and others which have similar appearances.
AAPL gave up $44 today after reporting earnings last night. The gap was significant, and it took the stock back below $514, a level it has respected many times going back to last January. These breakaway gaps can take considerable time to fill, so this one may need more time to stabilize before some sort of support is formed. Next level to watch is the $498 area where it left a wedge last October.
MRVL was listed here last night but didn’t trigger today. This still looks ripe for a rally but price needs to clear the trend line to get moving. I like this one for a single-day play on the long side for Wednesday if it can clear $15.10 with room to rally back toward the January high.
MON is resting here after a hard breakdown last week from a head-and-shoulders pattern. The projection would take this stock down closer to the $103 area, so it still has a little room. With that in mind and this small base, I like it for a single-day play on the short side for Wednesday if it can undercut $107.25 to make a new low and trigger more selling.
BBY is still looking heavy despite a huge drop two weeks ago. This one looks vulnerable to more selling, however, if it can make a new low at $24.10 by undercutting short-term support. I’m interested in it for a single-day play for Wednesday if that occurs, but will not be holding this one overnight.
New Swing Trade Candidates:
No new swing candidates tonight. There are very few stocks tonight which have identifiable patterns at all, so the charts need more time to create some new multi-day setups. I’ll have them here as soon as they arrive.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
