Good evening StockBandits!
A 3-day pullback to kick off last week left bulls itching to put cash to work, and that’s just what they did. By the close on Friday, the RUT, S&P 500 and DJIA had each broken out to new all-time highs. That keeps the pressure on the bears as we head into a holiday-shortened week of trading (which, by the way, frequently has a bullish slant), and the question remains whether this is the year-end melt-up or simply the start of one.
On one hand, a case could certainly be made that we’ve just had a melt-up. The S&P just added almost 10% in roughly 6 weeks. That’s an excellent year by many measures and it took only a few weeks to achieve it. The DJIA just tacked on 1345 points from the October low, which is another amazing run not to dismiss. In recent weeks, we’ve also seen a bit of rotation as small-caps have paused while financials and blue-chips have advanced, something which is often associated with healthy rallies. It’s hard to argue the strength! And by that measure, anyone with outsized gains as the end of the year approaches may have some added incentive to lock in those gains should some profit-taking start to kick in. That could dash the hopes of a Thanksgiving or Santa Claus rally, so it’s a scenario to keep in mind just in case it plays out that way in the days and weeks ahead.
On the other hand, however, is the possibility that the action heats up even more. With the RUT and the NAZ each having just based for several weeks and now starting to clear resistance, there’s clear potential for some acceleration. That could make for some fireworks in terms of market performance between now and the end of the year, although when it comes to leadership stocks there are very few which are not already looking very extended. The difficulty lies in finding quality opportunities to put cash to work in names which have well-defined downside exits (in case of failure), as it just feels like a chase in so many cases to be a buyer at current levels without more basing activity.
It’s a trader’s conundrum here, and frankly, not something we even need to predict or be correct about. Choosing a scenario outlined above – or any other – doesn’t ensure any higher level of success should it happen to play out. Rather, our success will boil down to finding opportunities to allocate capital with some defined risk and with a potential reward that’s some multiple of that risk. That’s all it comes down to. And the real-life application of that comes down to working the chars in search of those plays, day after day, and being consistent in that process. Not lowering standards or buying our initials in hopes of nonstop strength or trying to time a reversal. Discipline is always critical, but especially so if things become more emotional in the market from here on out.
Keep in mind that this week is Thanksgiving, which in market terms means extremely light volume which only thins out as the week progresses. We have 3 1/2 trading sessions (closed Thursday, closing early Friday) and this week rivals July 4th for lightest trading volume of the year. I’m expecting to keep my timeframes abbreviated and my size reduced with that in mind.
Let’s get to the charts.
NAZ – The NAZ gave up 3966 last week, the prior breakout zone, then quickly reclaimed it to finish just 4 points off its multi-year high. Following several weeks of basing activity, this index may be poised for another big run despite the lack of profit-taking we’ve seen since early October. Note the higher low just established this past week which shows that dips are still being aggressively bought.
SP500 – The S&P has added 9.6% since the low on October 9th, making this one very impressive run for the blue chips. We’ve recently seen a little rest, but virtually no profit-taking, and that leaves this index with a bit of a stretched appearance. However, last week we saw 1775 validated via a pullback test, followed by the creation of a new all-time high. The trend is up, it’s just wise to trail stops along the way when the air starts to get thinner.
RUT – The RUT had led the way higher for the past year of this rally, but in recent weeks it has stalled out. There was a potential lower high in play as recently as last Monday (1119 vs. 1123), but that scenario was eliminated with the creation of a new all-time high on Friday as the small caps pushed through resistance. This breakout is for now only incremental, but it’s a step in the right direction for the bulls who seem to have no plans as of yet to leave the party.
DJIA – The DJIA just keeps grinding higher since its false breakdown on October 9th, adding some 1345 points since that day of just over 6 weeks ago. It just painted a new all-time high with Friday’s advance, keeping it firmly within its uptrend channel. Until that changes, there’s no reason to expect anything different but brief, shallow dips on occasion with otherwise steady strength. A shake-up will eventually come, but technically there’s no indication it’s imminent.
Notable Names:
WNR is on watch for me as it continues to build this bull pennant pattern. It needs more time to tighten, for price to pressure upper resistance, or for upside volume to improve (or all of the above). As of yet, it’s still under construction so I have no plan for a trade yet.
ICON is also still on my radar as it keeps building this bull pennant or ascending triangle pattern. Price is sitting right in the center of the two trend lines, so it’s not acting like it’s quite ready to leave the base.
WLL is bouncing here but remains in correction mode overall with several weeks of declines and failed bounces. The current bounce looks to have a fair shot at creating another lower high, so I’m watching rising support. Price has finished near its session high in each of the last two sessions, so the bounce may be able to continue a bit longer. Once it starts to hesitate or stall out, I may look to set up a play. For now, it’s on watch but I wanted to bring it to your attention.
AOL was highlighted here last week as it was building the bull flag but I was waiting for price to pressure the upper trend line. Friday’s lift puts it in that position now, so I’m setting up a single-day play for Monday on the long side if it can clear $46.05. Upside volume isn’t strong enough on the last two advances to warrant a swing, so I’ll simply look to participate in the initial breakout attempt if one is made and look to be out same day.
TASR is at the upper trend line of this wedge after a solid advance on Friday. A push through $17.70 could produce a quick pop, so I’m interested in a single-day play above that level for Monday. A swing stop is just too far away, as it would belong beneath the primary uptrend line, plus the last similar upside break of a trend line only resulted in a single-day advance so that’s all I’m looking for here.
SCTY is working on lower highs and lower lows and currently sits not far from support. A break below $45.50 could prompt another round of selling, so I like it for a single-day play on the short side for Monday if it undercuts that level. A swing stop would belong nearly $4 higher, which is just too wide for my taste.
CRM has bounced since its hard downside reversal early last week, but the bounce has been feeble. A turn down through the small trend line at $54.30 could bring a quick test of the $52 area, making this a candidate for a single-day play on the short side for me for Monday’s session.
FB may need a bit more time but it’s coming into a big level here and we could see a large move unfold. A swing stop here is too wide, but I like the potential for a break of the key $45 area for a single-day play on the short side for Monday. I’ll use $44.90 as my trigger and will look to participate in the initial breakdown should it happen to occur.
New Swing Trade Candidates:
Tonight there are no new swing candidates to add to my existing list. It’s Thanksgiving week, which will not in itself prevent me from adding swings, but it will make it more difficult due to the very light volume we tend to see this week. It rivals July 4th week as the lightest volume of the year. I’ll continue to stay selective and tonight am content with my current positioning.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
