Good evening StockBandits!
Stocks vaulted higher off their Oct. 9th lows to finish strong in the week prior to last on hopes of a debt deal in Washington, D.C. before one ever even came along. There’s nothing like a deadline though to get things done, apparently even for our nation’s leaders, and so in true-to-form last-minute style, on the eve of the first default in some 200 years, a deal was struck. Not a deal in the sense that this is all behind us, mind you, but rather a deal to get by until we deal with the same deal again early in 2014!
The Street celebrated, however, and in a big way. Rather than getting a sell-the-news response like so many of us expected, stocks ramped further throughout the week, save for a Tuesday hiccup which was quickly forgotten. The S&P 500 and RUT set new all-time highs, while the NAZ continued retracing the 2000 decline to reach its best level in 13 years. Meanwhile, the DJIA returned to the key 15400 level highlighted here numerous times, staying well shy of its September peak past 15700.
Those without regard to risk have enjoyed a big run in a very short period of time here. Chasing strength is not the defining mark of traders, as we generally prefer to enter when there’s some defined risk as well as the short-term potential for a larger move than what’s being risked. The long-term crowd does not, and therefore doesn’t think twice about chasing performance despite a +7% lift over the course of just 8 trading sessions. As a result, the indexes remain very strong here despite being extremely stretched in the short term.
The difficulty I’ve found lately is the lack of basing action which has left very few trading setups to consider. In addition, the highly news-sensitive nature of the environment we’ve been in the last few weeks has created frequent gaps in both directions, making overnight plays (swing trades) of higher risk. Now that the big issue is off the table for a little while, my hope and expectation is that we’ll see a slightly quieter market that caters better to short-term trading than what we’ve had for the past 2-3 weeks surrounding the government shutdown, debt ceiling, and threat of ratings agency downgrades of U.S. debt.
It is still earnings season, however, so it’s wise to keep bookmarked a couple of earnings calendars in order to avoid overnight surprises when trading individual stocks. Personally, I use EarningsWhispers and Yahoo! Finance, and prefer to compare dates on them for any stock I’m considering holding overnight.
Let’s get to the charts.
NAZ – The NAZ temporarily undercut support two weeks ago but abruptly reversed higher on hopes for a deal and continued past 3900 well after the news. This 7.2% lift leaves this index stretched but given its recent strength, it’s hard to say when a rest will arrive. We could see continuation toward 3945 for a measured move as explained on the chart, which isn’t far from current levels. In the last 7 sessions, we’ve seen finishes at the highs in 6 of them as the buying pressure stays on.
SP500 – The S&P saw a higher high last month by 20 points and a higher low earlier this month by 21 points. If that rhythm continues, we could see this index stretch toward the 1749 area, which is now just 5 points away. It’s been a big run off the lows of just 8 sessions ago with a 6% lift for the blue chips. Having just run 98 points, some digestion sooner than later would be healthy to see.
RUT – The RUT made a new all-time high last week as it ran to 1115, or 7.4% off its low from less than two weeks ago. That tested a key level, just as we’ve seen many other times with this index, but now it’s looking stretched here and due for some rest and digestion soon. Even some lateral price action would help to alleviate the overbought conditions as this pace simply isn’t sustainable.
DJIA – The DJIA finished the week less than half a point from 15400, a level highlighted here multiple times as having been respected since this summer. This index is still 310 off its 2013 high, making it the laggard of the bunch, but it just bounced from a key level and then finished last week at another. Being only 30 stocks, it’s of less importance to me but still an index to keep an eye on as Main Street is most familiar with it.
Notable Names:
GOOG tacked on $122 on Friday on the heels of earnings Thursday evening. That certainly helped the NAZ with a 13.8% rally in this tech giant. It’s now in 4-digit territory at $1011 per share, similar to PCLN. More interestingly, this stock kept validating the mid-$840’s as resistance in the spring, then support throughout the summer and into early fall. That kept shares in an $80 channel, which it just broke out from on Friday and fulfilled more than the measured move by clearing $1008 ($928 prior high + $80). It just started a new leg up, although it’s hard to justify an entry here until after some rest is put in to digest this giant pop.
CNX is a stock on my radar tonight but doesn’t look ready for a play yet. I’d like to see this high consolidation continue a bit more with either price getting closer to the trend line or upside volume starting to expand to suggest a move is imminent.
EVHC is another stock on my watch list tonight but also does not look ready for a play. It has on 3 occasions respected the $30 area, only to turn away from it on Friday. Some rest in this area could build up some steam for a lasting breakout, but it looks like it needs more time.
GDP is also on watch for me as price coils beneath short-term resistance. An eventual breakout could occur through $28.60, but I’d prefer to see price closer to resistance and stronger upside volume than we saw on Friday to suggest it’s on the verge of a breakout.
HIMX does look ready here and I like it for a play for Monday on the long side if it can clear $11. This will only be a single-day play for me though as a swing stop would belong beneath the base and tonight it’s just a bit too broad for the risk I’m willing to take right now. So instead, I’ll look to participate in the initial breakout but won’t be keeping it overnight.
UTHR also looks good for a play here after holding its recent uptrend line last week. A turn up through $83.05 would be a new multi-day high and could pave the way for a quick test of the recent high near $86. This stock just hasn’t exhibited exceptional strength the last couple of weeks, so it’s not a swing candidate for me in an extended market environment like we’re in.
SWI looks ripe for a play on the short side here as it hugs rising support. A turn down through $35.60 could trigger some selling, so I’ll take it for a single-day play for Monday. Given that the last break of support wasn’t able to hold but 2 days, I’m not comfortable holding this one for a multi-day swing.
PCYC looks ripe for a play here on the short side if it breaks the steep uptrend line at $130 on Monday. This stock is a very fast mover, which means it requires wide stops for a swing. That’s not my preference with a bearish setup in such a strong market environment, so instead I’ll simply look to participate in an initial breakdown should it happen on Monday.
New Swing Trade Candidates:
No new swing candidates tonight as there are no setups I’m interested in taking for multi-day plays yet. I’m back to cash on an overnight basis having been stopped out of LGF on Friday. I expect to see more swings setting up soon, but with market conditions to extended and the V-shaped patterns many stocks are exhibiting, I’m opting to exercise some patience here. As new setups emerge, I won’t hesitate to share them here.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
