Good evening StockBandits!
Once again today we saw a modestly higher open this morning unable to hold with the morning gap filling quickly and stocks coming under pressure. They continued to get sold until late morning when a relief bounce finally arrived, lifting the indexes from their lows. That corresponded with the 1036 area for the RUT and a peek-a-boo break of the August low for the DJIA (41 points), but an oversold bounce got underway to alleviate the stretched nature of the market after this swift move lower.
Interestingly, today’s bounce seemed to be purely technical as it did not overlay with any positive talk or developments out of Washington, at least on the debt ceiling or govt. shutdown front. The only real headlines out of D.C. today pertained to Obama’s widely expected nomination of Janet Yellen to succeed Bernanke as the next Fed Chair. We did see the indexes fail to impress, which means that so far this shaky bounce attempt has simply marked a short-term low. The late-day slip was evident of continued nervousness. Just two of the 4 main indexes closed positive on the session (S&P 500 gained a measly 1 point, DJIA gained less than 30), so this market is still a long way from being out of the woods.
As the debt ceiling deadline of Oct. 17 draws closer, the market will become increasingly sensitive to any related headlines. Like others, my expectation is that once a debt ceiling deal arrives we could see this market temporarily rip higher. However, until that occurs, the upside is going to remain difficult to trust. We’ve seen consistent selling in the S&P 500 and DJIA for 3 weeks now, while the NAZ and RUT each just saw accelerated declines to point to a negative change of character. As a result of those conditions, strength is likely to be used for selling into, at least until the dark cloud of Washington worry lifts.
Tonight I’m again going to spend some time pointing out some example charts just because there’s so many of them. Additionally, there are very few setups at the moment worth examining, and I’m going to stay very selective with new swings. We have a market struggling to bounce but somewhat oversold, which makes new trades on either side a bit higher risk. The only plays I’m setting up tonight will be for single-day plays.
Let’s get to the charts.
NAZ – The NAZ just saw a quick 4.4% decline off the high of just last week, which is a rapid descent from multi-year highs. This initial pullback gave back just over half of the advance we saw off the August low. That means it took this index over a month to gain that much ground but only 5 days to erase half of it. Just another example of why traders often say stocks take the stairs up and the elevator down.
SP500 – The S&P gave up 4.8% from its high 3 weeks ago at 1729, and today bounced from the session low (1646). The prior key level at 1671 which was broken on Tuesday is now to be viewed as technical overhead until it’s reclaimed. We saw a late-August bounce fail within 2 points of that level and it has repeatedly served as support since mid-July, so for price to be beneath it is important to consider.
RUT – The RUT has seen 1036 respected from both sides since the second half of July, and today this index got to 1037 before bouncing. Following a quick retreat of 4.6% off the high from just last week, that was a logical spot for the selling to abate. Now we’ll have to see how far a rebound can carry and just how widely embraced the strength is. Should it stall out, expect more cash to get raised from speculative small-cap names.
DJIA – The DJIA undercut its August low today by just 41 points before reversing higher to end the day in positive territory. This failed breakdown is much like I caution against in uptrends when price is extended and clears resistance, as normal profit-taking can quickly undo the breakout. With this index having declined in 11 of the previous 14 sessions and some 990 points off its high of 3 weeks ago, it qualified as oversold. Now it will be a matter of how convincing the bounce is (strong closes, heavy upside volume) that we’ll need to monitor as we weigh whether or not this low can stick or if instead it looks likely to get tested.
VIX – The VIX crossed 20 on Tuesday but I noted here it has had trouble the last two times (June & December) holding above that level on a closing basis. Today it slipped back beneath it, keeping true to recent form. The jury is still out, but this is one thing we’ll need to continue to monitor as there’s ample room for this fear gauge to climb much higher – and it will if stocks continue to slip.
Notable Names:
LNKD accelerated lower on Tuesday after repeatedly failing to clear resistance, then continued lower today to fill the gap from August. From there it lifted slightly, but for now it’s respecting that level. This is what “backing and filling” looks like. Many other stocks respected prior levels as well.
P is another name which saw perhaps a bit of short-term exhaustion today on the downside as it got within $0.02 of the low from a few weeks ago to maintain the unfilled gap from mid-September. I don’t see a play here but anyone involved in the stock who paid attention to $23.03 was given an excellent opportunity to maneuver.
GLW also tested a key level today as it approached multi-month support. The descending triangle pattern is still under construction, but the $13.80’s are still being defended for now.
ACAD is a good example of why it’s best to buy after a dip rather than into one. Yesterday this stock shed over 15%, then nearly repeated that decline today as it gave up 14.76% to burn anyone who bought into weakness on Tuesday. Waiting for stability and signs of some continued upside is often better than getting what looks to be a substantial discount, because momentum is extremely tricky to step out in front of.
GOOG is again respecting the low end of its range with today’s $1.02 move through $844 before a reversal back up to finish in the green. This isn’t a bullish setup based on recent price action, but there’s still a well-defined level to utilize here.
CAMP has pulled back quietly in the last 3 sessions but hasn’t given up much ground compared to the prior runup. There is a small trend line here, which if cleared could produce a quick pop. I’d prefer to see a larger pattern for a swing, but will take this for a single-day play if it can clear $23.
EVHC is another stock which has pulled back quietly here to create a small descending trend line. A turn up through $29.25 could invite buyers back into the name, so I’m eyeing it for a single-day play if that level gets cleared on the way back up. Here again, this is a rather small base and therefore not a swing candidate for me.
YPF has declined in each of the last 3 sessions but in each of them price has finished off its lows and volume has remained light. A turn up through $21.25 sets up a single-day play on the long side as momentum returns. Last week it cleared a descending trend line and only moved for 1 day, so that’s all I’m looking for here.
New Swing Trade Candidates:
No new swings tonight, sticking with existing positions until better opportunities surface.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
