Good evening StockBandits!
The bulls have been hoping for a Green Christmas, and thanks to the response to last week’s FOMC announcement, they got the Santa Claus rally they were looking for. It’s not often we see such high expectations actually get met by the market, as it simply doesn’t tend to accommodate the masses. However, last week it certainly did.
The jubilant reaction to the “just right” tapering by the Fed took each of the averages to new heights by the end of the week with the S&P 500, DJIA, and RUT each reaching all-time highs while the NAZ stretched to levels not seen since 2000. Having tested the lower ends of their respective trading ranges on Wednesday morning, by that afternoon they had screamed higher. That was followed by a day of rest Thursday and then a breakout on Friday to end the week 2.5-3.5% higher.
Heavy volume tied to expiration Friday and index funds rebalancing accentuated the breakout, but perhaps the most notable event was the simple fact that yet another short-term dip was bought. Throughout 2013, dips have been short-lived and shallow and each has been aggressively bought. Eventually that routine will come to an end, but the bulls are basking in their success without a concern for now.
The week ahead will be unusual. It’s Christmas week (Merry Christmas!) and that means just 3 1/2 trading days (market closes early on Tues. and is closed all day Wed.). Expect very light volume for the few sessions we will have, understanding that the majority of traders have other things on their plate besides trading with family time, travel, etc. Add to it the year-end cross currents, and fewer available setups at the moment after last week’s turbulent dip-and-rip, and I’ll be treading lighter than usual. There are a handful of names which interest me for Monday, but I won’t be forcing entries.
Let’s get to the charts.
NAZ – The NAZ cleared resistance on Friday to exit its 115pt trading range of the past 6 weeks. This opens the door for a potential rally toward 4196 if a measured move unfolds (height of range added to breakout zone). The first order of business for the bulls, however, will be to maintain this breakout and not let it fail. Quad witching and index fund rebalancing delivered giant volume on Friday, but I’d expect it to fall well below average this week due to Christmas.
SP500 – The S&P pushed past 1813 on Friday to break out to a new all-time high. The finish off the session high only left this index 5 points above the breakout zone, which isn’t a lot of breathing room. The bulls will want to build on this breakout now to avoid a failure, but a measured move to 1851 is now on the table (height of trading range added to breakout zone).
RUT – The RUT tested 1099 less than two weeks ago but rallied right back to make an incremental new high on Friday as it cleared 1147 by a fraction of a point. It ended the week within a half point of that level, so a more convincing breakout will be needed if this is to avoid the look of a failure at resistance. The bulls do have momentum though, so we’ll see if they can propel the small caps higher.
DJIA – The DJIA faded from its session high on Friday but still managed a 3% jump on the week to reach a new all-time high. The quick turn back up on Wednesday post-FOMC found follow through in both of the next two sessions, which shows the bulls are taking care of business. There’s less than 50 points of breathing room for this index from current levels to the previous high, although it is a long way down to the December pullback low.
Notable Names:
UA is an example I wanted to point out. Technically, it tried three times to break out through resistance, but couldn’t get it done even in the midst of a very strong market rally. It may simply be a technical failure, but this just stood out to me as an example of a stock where something else is likely going on (tax-related selling, funds unloading into strength, etc.). This is the type of unusual price action we sometimes see this time of year.
JAKK is an example of a stock coming out of relative obscurity to catch fire and scream higher. Friday’s gain of 7.1% was certainly out of the ordinary, and it just goes to show that a rising tide can sometimes lift even the smallest of boats.
TSLA is still struggling after a hard downside reversal last week and a subsequent break of rising support. On Friday it bounced back slightly, but remains beneath the broken trend line. That could mean more downside for this former leader in the days ahead, particularly with an unfilled gap to $124.17.
DECK is challenging the descending trend line here and a break above it at $85 could free up this stock for higher prices. I like it for a single-day play on the long side as it wouldn’t take much to run back up and test the recent high.
VIPS is also challenging a descending trend line here and a break above $81.50 looks good for a single-day play. This stock has been volatile in recent months and therefore I’m just not interested in taking it for a multi-day play. However, the last break above a similar trend line gave a nice 1-day pop, so that’s all I’d be looking to participate in here.
AEGR is not a textbook bullish setup, but it may be setting up for a bit of a short squeeze type of move and that’s what interests me. The trend has been down but a recent test of support held. There’s now a descending trend line, which if cleared at $66.10, could interest buyers and prompt short covering as well. I like it for a single-day play above that level if it clears it on Monday.
CRM keeps bouncing and failing and once again a similar pattern has emerged here. A break below rising support at $53 looks good for a single-day play on the short side. I’m not interested in a swing here as a move back toward short-term lows just doesn’t offer a real attractive risk/reward compared to where an appropriate stop would belong.
New Swing Trade Candidates:
These stocks look ready for imminent multi-day moves. Pattern confirmation occurs with a move through the entry level. Initial stop and target levels are also provided.
QIHU has been on my radar for weeks but I missed the initial breakdown. It has bounced back toward the breakdown area and now any turn lower could see selling accelerate. I like the risk/reward here for a swing, so I’m setting it up. I’ll be getting short upon a break below $78.25 (below intraday support on Friday) with a protective buy stop above this bounce, and will be looking for a retreat back toward a pair of levels from late summer. Those may even prove to be conservative targets if this large head and shoulders pattern plays out.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
