Good evening StockBandits!
The market took a breather for much of last week with multiple declines on the heels of the Thanksgiving rally. Pullbacks to some key areas of support (S&P 1775, RUT 1123) left stocks poised for another bounce, which they got on Friday following a highly-anticipated jobs report. The lift was enough for a new incremental high for the NAZ with a gain of about 2 points on the week, while the S&P returned to the area of recent resistance after giving up less than 1 point on the week. The RUT and DJIA each lagged for the week, giving up 11 points and 66 points, respectively. In every case but the DJIA, another higher low was established.
At this point, it appears the same old playbook is still working for the bulls as the buy-every-dip approach is again paying off. Conditioning is a powerful thing, both away from the markets and in the markets. Traders have been conditioned to buy dips aggressively, which keeps the pullbacks both brief and shallow. Until there’s some real hand slapping that takes place as a result of dip buying, it will likely continue. There are a host of macro arguments that can be made for why it should stop, but the fact of the matter is that the charts have the final say because they’re based on price. The bulls are still firmly in control for now.
Longer-term investors have an opportunity to “sell high” here, but few seem interested in doing so. Just as when we’re in the midst of a deep correction and the opportunity to “buy low” is present, few are willing to out of concern that the slide may continue. At market highs, momentum is present and there’s a fear of missing out (a.k.a. greed). As such, there’s very little net selling and prices stay afloat. The combination of those conditioned to buy dips and getting rewarded for doing so alongside a reluctance to raise cash into strength contributes to the ongoing rally. That’s also why market tops tend to be more of a process than an event, as it can take some time for attitudes to adjust even once prices struggle to make headway or hold their ground.
In terms of individual stocks, leadership is mixed as plenty of high-beta names are in rest phases at the moment. The basing of the past week should help to establish some new setups and key levels for new trades, although tonight my watch lists remain limited on both sides of the tape. I’m still sitting in a handful of swing trades, but I’m not looking to force new entries for the sake of activity. Setups should be clean with defined risk (downside exits) and the look of potential for a move that’s some multiple of what’s being risked. Without those conditions, adding exposure comes at the expense of lowered standards.
Let’s get to the charts.
NAZ – The NAZ made an incremental new high on Friday, clearing the prior high by 0.16. That’s hardly a breakout by any standard, but tonight this index sits just a short distance from that level and it wouldn’t take much follow through to get it done. We did see another higher low last week with the pullback to 4004 and subsequent bounce, so the bulls are still in the driver’s seat here.
SP500 – The S&P put up a solid advance on Friday to leave it just about 8 points from its high of 1813. This index sits in a high trading range of about 38 points, which could be added to an upside breakout for a measured move projection. The first order of business for the bulls will be upside follow through, as right now this index is still range-bound.
RUT – The RUT held 1123 last week despite multiple tests and attempts to break it. It bounced on Friday, although it lagged both the S&P and DJIA, leaving it 1.5% from breakout territory. For now, higher lows are intact, including another one set last week at 1111.
DJIA – The DJIA broke below its uptrend channel last week, showed downside follow through, then bounced nearly 200 points on Friday to reclaim the area of the channel breakdown. It doesn’t have much breathing room, and it’s still 154 points shy of the high, but the dip is being bought and that opens the door of possibility for the channel break to end up being a head fake.
Notable Names:
BITA is a good example chart I wanted to highlight tonight. My style is such that I prefer to wait for confirmation of a breakout/breakdown before entering positions, which is the opposite of making anticipatory trades. With the latter style, better entries can be had, but other losses can also occur. BITA was in a bullish pattern (triangle within uptrend) but never confirmed with an upside break, instead rolling over with a downside break on Friday. I prefer to wait, but the biggest key is to be consistent in your approach, whatever it may be.
ULTA is another example I wanted to highlight. I make it a point to frequently discuss the personality of a stock, which can be seen on the chart just by reviewing the recent months of price action. In the case of ULTA, large gaps are frequent, so Friday’s big one on the downside meets the status quo for this stock. Price had recently rolled over and a multi-week low was established last week before the gap, so there really was no reason to be long this stock on a technical basis anyway. Surprises will happen, but they can be avoided when it’s a gap-prone stock like this.
SLCA is still working on this triangle pattern and apparently needs more time. Price has tested the upper trend line but has yet to produce a meaningful break, so I’m still keeping it on watch in case it’s able to start closing stronger to suggest it’s about ready to go.
CBI is trying to turn up here after a pullback and some stabilization over the past few weeks. Upside follow through with a push past $77.10 looks good for a single-day play on the long side for Monday. The recent high was $80.14, so there’s a little room for a possible test to occur.
CZR is a reversal-prone stock, so I’m not interested in taking it for a swing. However, this falling wedge could produce a quick lift if resolved higher, so I like it for a single-day play for Monday upon a break above $19.90. The recent high of $21.30 could get tested with relative ease.
SCTY just saw a pair of weak finishes after a big multi-day rally, and now rising support is getting tested. A break below $52.40 looks good for a single-day play on the short side for Monday, but this is a volatile stock so I’m not interested in a swing.
AEGR is at short-term support here and a break below it could see price heading quickly toward the recent low. I like it for a single-day play on the short side below $66.70, but given its volatility and sector (biotech) I’m just not enough in love with this pattern to take it for a swing.
New Swing Trade Candidates:
No new swing candidates tonight, waiting for better risk/reward opportunities to surface than what is currently available. Sticking with existing exposure heading into Monday’s session.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
