Good evening StockBandits!
Earnings season is officially underway, but the real news is, well, actually not yet official at this point. We’ve only gotten a verbal deal out of Washington on the debt ceiling and government shutdown, although stocks rallied big again today on hopes of a final-hour deal. What’s more motivating than a deadline?
I’m not often a contrarian, but in the current tape, I just don’t see any other short-term scenario if a deal gets inked other than a sell-the-news response. We’ve rallied big and sharply since the lows of last week, representing a lift of greater than 5% in as many days for the NAZ, S&P 500, and RUT, while even the DJIA tacked on 4%. It’s been a straight-up ramp in expectation of a deal, making me wonder just how high the bar has been set. Is there a high likelihood of the news sparking more heavy buying? I really just don’t see it. The Street is short-sighted and there have been some swift advances, making for some quick profits to be locked in.
There have been many times in the past when “good news” had been baked in and stocks failed to rally further once the actual headlines hit. One that comes to mind is the Saddam Hussein statue topple when we invaded Iraq, with the market rallying nonstop into the actual moment when the statue came down, taking stocks south. Another was the May 2011 news of Osama Bin Laden’s death, which hit Sunday night May 1, 2011. The following day stocks gapped higher then retreated for more than the next 9 months. Just when the news can’t get much better, there’s nobody left to buy. And just when the news can’t get much worse, there’s nobody left to sell. That’s how turning points happen, whether short-term or intermediate-term.
Tonight I’m sure not calling for a long-term or even intermediate-term top, I’m simply stating that in recent days we’ve ripped higher and if a deal becomes official, I’d want to be a net seller in the short term expecting the peak to be in place for the current advance (from last week’s low). That simply sets the stage for a much-needed rest.
There are only a few setups out there looking bearish, so this is a time when turning to the index-based ETF’s can prove useful. Watch closely how any upside gap gets treated tomorrow, as a turn downward could quite easily spark some sigh-of-relief profit-taking.
Let’s get to the charts.
NAZ – The NAZ retreated from short-term resistance yesterday but gapped higher this morning then added to the early gains by easily clearing the 3819 area. There are now a pair of unfilled gaps to 3794 and 3677, respectively, which this index could eventually work toward on a decline. In the short term, it’s clearly strong but has become extended here and is due for a rest. That could quite easily coincide with an official deal on the debt limit and government shutdown, so watch out for a sell-the-news response if the deal becomes official.
SP500 – The S&P respected 1709 the last couple of days but today cleared it with ease, going out just a short distance from the all-time high from last month of 1729. This index has just tacked on 5% since last Wednesday, making it extended and ripe for some profit-taking, perhaps on a debt deal – we’ll see.
RUT – The RUT stretched to a new high today of 1092.91 and saw a strong close just a fraction of a point off the high of the session. This index has a gap to last night’s close at 1079, as well as a gap to 1043 which are each unfilled. A turn lower could easily fill the first gap, so any sell-the-news response could make that the first level to watch.
DJIA – The DJIA respected 15400 in July and early August and is now just a few points from that level once again. This index is now 654 points off the low from last week, which is to say it has run quickly higher and is in need of a rest, particularly as it approaches a logical technical area to do so.
Notable Names:
PHM is sitting just beneath a multi-week descending trend line here having just tested and held last week’s support. This stock has not participated in the rally but still looks poised for a quick rally if it can clear the trend line. I’m not interested in a swing trade here, but I like the prospects for a single-day play above $16.25 if cleared.
MCO is still sitting near highs here but hasn’t yet broken out. Given the extended market, this one could still go but may have difficulty showing follow through. Rather than take it for a multi-day swing, I’ll instead look to participate in the initial break above $72 as a single-day play if it takes place.
WWWW sold off hard from its recent high then bounced and has now stalled. A turn down through short-term rising support looks likely to trigger more stops, so I like this setup for a single-day play on the short side upon a break below $29.80.
XONE is well off its October low and the bounce looks to be stalling out here. A multi-day low with a break of $51.40 to the downside looks good for a single-day play on the short side as profit-taking kicks in.
ANGI is sitting on short-term rising support here after a major decline, but could still wash out some longs if $14.90 gets broken. I like it for a single-day play on the short side if that rising support is undercut.
JAZZ is well off its recent high after a hard turn lower and a feeble bounce off the low of last week. A break of short-term rising support here at $82.35 could spark more cash-raising so I like this one for a single-day play on the short side upon a break of the trend line.
New Swing Trade Candidates:
No new swing trades tonight, market has been gap-prone and is currently very extended with the debt deadline tomorrow. Next week looks much more likely to provide some swing candidates but this week the focus has been on Washington and the headline risk has been considerable, making it much more difficult to manage overnight risk.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
