Good evening StockBandits!
The stock of the year has been NFLX, having tacked on over 300% YTD and more than 450% since a year ago today. It has certainly assisted the NAZ in its ascent, and has been the picture of a “bubble” stock from the previous internet era of 1999-2000 with its astronomical gains, hot momentum, and high price tag. Last night, NFLX reported earnings and the stock opened higher by nearly $33, leaving it $105 off the low of just – are you ready for this – 9 trading sessions ago when it traded at $282.80. But for some reason today, traders alas decided it was too much, too fast, and the stock crumbled throughout the day. The exhaustion gap brought near-immediate selling pressure which never relented, and by the end of the session the stock had slipped more than $66 off its session high to finish down over $32.
So, why all the talk about Netflix? Great question, I’m glad you asked! It has been a huge leader for techs. There have been also-rans like LNKD or FB, but NFLX trails only TSLA as the leader for the past year in terms of massive gains for a highly liquid stock. To see it paint a last-gasp type of bar today and retreat decisively is something not to ignore in a market environment that has been so one-way for the past 2 weeks.
The straight-up ramp off the Oct. 9 lows has of course prevented basing action in most names, but it has made it look too easy – as if you can buy your initials and expect higher prices no later than tomorrow. Whenever that’s the case, it is a temporary thing. It will end.
To be clear, I’m not saying we tank and enter a new bear market right off these highs, or even that we see a deep correction. I have no desire to try to short a strong market like this either. I’m simply expecting an end soon to what has been a nonstop 2-week rally. Prices will eventually look inflated to everyone and start to lose appeal even to the dumb money, in which case some profit-taking finally arrives. It might not be a nasty selloff, and in fact I’d actually place higher odds on a relatively shallow dip given the bulls’ confidence here and eagerness to put cash to work. The bears also have motivation to cover shorts, as the lack of downside has left them in pain they’d love to alleviate at virtually any lower prices. But eventually, we’ll see some exhaustion kick in not just for the momentum names like NFLX but for the broad market itself, and that will be a healthy thing.
Today we did see a lot of morning strength followed by a hard selloff which actually took the NAZ and RUT temporarily negative. Although we lifted from those lows, the morning high was not approached and that in itself may also point to some fatigue setting in. I’m rooting for some rest, as that will create new bases and eliminate the stretched-rubber-band conditions we currently find ourselves facing.
Let’s get to the charts.
NAZ – The NAZ made a new multi-year high again today, just as it has in each of the prior 5 sessions. It backed off from its session high this morning, however, and may finally be gearing up for some rest. Should some selling happen to arrive Wednesday, I’ll have an eye on the unfilled gaps below with the first being at 3863.
SP500 – The S&P made a new all-time high today for the 4th straight session and actually only finished a few points from its session high. This index is nonetheless extended here and due for rest. With each passing day that becomes a greater likelihood, so should we happen to see one on Wednesday I’ll have an eye on 1733 at the small unfilled gap, followed by 1729, the prior high.
RUT – The RUT finished weak Monday then finished off its high today again. It’s quite extended here and badly needs rest, so perhaps the price action so far this week is indicating we’ll finally see one. Should it happen to pull back from here, I’ll watch 1102 and 1079 as unfilled gaps which could get tested on a dip.
DJIA – The DJIA respected 15400 the last few sessions then pushed through today. At its high today, this index was 799 points off the low from 2 weeks ago, so even though it paused for the last couple of sessions it has still made huge strides and therefore some rest would do it some good. The all-time high is at 15709.
Notable Names:
NFLX painted perhaps the mother of outside reversal bars today with a high shortly after the open at $389.16 and a low just a few hours later at $321.50. Needless to say, this stock spooked some people away today so it will likely need considerable time before it’s ready to run again. The low of 2 weeks ago near $282 could get tested in short order after a punishing day like today.
FB is another leader which has begun to retreat after testing the same area in each of the past 3 sessions and then filling the gap from last Friday morning. It is still holding the breakout zone, so it may simply move laterally here, but it’s in need of rest and as a leading stock it’s important to keep an eye on it.
AAPL is another name that has performed well of late with an upside breakout from a triangle pattern and then a push through key resistance at $514 yesterday. Today it pulled back enough to fill the gap from yesterday morning, then lifted to reclaim the breakout. It doesn’t look weak here but is acting like it could stand to rest. Today’s decline of $1.49 broke a 9-day streak of advances.
TSLA has been THE leader for the past year, putting up more than a 500% advance. In recent weeks though, it has struggled to make any headway and instead has retreated from its September high. The lateral line is near $158, so the stock still has room before support would be threatened, but this is yet another leading stock that is stalling out after a tremendous run.
STX is an example of what I keep seeing in the charts each evening, which is a near-nonstop rally for a number of weeks. Rests have been brief and sloppy, making it a requirement to chase strength in order to participate in this type of move.
CSIQ is another with a similar look but in another industry. Here again, the runup has been very streaky. Though it has been impressive, chasing strength was the only way to be involved in this type of move, and that means buying without a point of reference for a downside exit should the music happen to stop. That’s simply not my style and as a matter of fact, I don’t know a trader who has lasted over time who operated in that manner.
LNG is yet another with virtually the same parabolic-type of runup, and this is in yet a third industry. The same story is being told across many charts right now, which is keeping more setups from appearing for moves across multiple timeframes (day + swing).
TSL was listed here last night but only made minimal progress through resistance. It still looks capable of accelerating higher from here, so I’ll give it another shot for a single-day play on Wednesday if it can push through $17.90.
NXST has an inverted “h” pattern here with a nice recent advance, a minor retreat, and a turn back up to challenge resistance. A break above $48.25 looks good for a play on the long side, although I’ll simply go with a single-day play here as the upside volume just isn’t ideal for a swing setup.
FLIR has earnings due out on Thursday this week according to Yahoo! Finance, but still looks good for a play on the short side if it can break $28.75. I’ll just go with a single-day play as the prior low isn’t too far away and I have no interest in holding a stock into an earnings report.
WWWW is starting to break down from a rising wedge here and could easily continue lower to test the October low. I like it for a single-day momentum play on the short side for Wednesday if it breaks $29.65 to show some follow through.
New Swing Trade Candidates:
No new swing candidates tonight, highly extended broad market conditions have left very few stocks to consider for plays and of those they simply look to offer the most as intraday plays rather than multi-day swings based on either their patterns or risk or upcoming earnings announcements. As I find new swing trades, I’ll share them here. I’m eager to have some exposure on that timeframe, but will maintain high standards for the plays I’ll allocate capital toward.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
