Good evening StockBandits!
The checkmark-shaped V-bounce which looked to potentially be stalling yesterday caught a second wind today. The market ramped again, undeterred by Yellen as shorts scrambled to cover on day 4 of the snapback rally. The last selloff was deep enough that it seemed a lower high was likely on the next bounce, but the big 3 indexes have each blown past their end-of-January bounce highs. The size of the bounce now opens the door for a higher low to form on the next pullback, provided the market does go down again. Sarcasm aside, when these sharp one-way moves happen, it’s easy to lose sight of the market’s back-and-forth nature. Anytime things start to seem predictable, be on your guard for a shift to occur.
We did see a small dip into the bell, but it maintained the higher lows scenario that the rest of the day was characterized by, so it didn’t seem to carry much weight. That said, stocks are very extended here after this quick ramp, and that leaves them in a much higher-risk spot for placing new buys, generally speaking. There are a few names which aren’t as stretched, but the averages and many individual stocks are simply due for a pullback of some degree.
Just because they’re due for a dip doesn’t mean one will arrive immediately, but as traders it’s just important to recognize when conditions aren’t favorable for trading certain ways. Tonight in my view, that really takes out the long side with only a couple of exceptions, and even those are going to be single-day plays for me if they happen to trigger.
Let’s get to the charts.
NAZ – The NAZ is almost 6% off its low of last week, which just isn’t a sustainable pace. This is why I’m so cautious with new longs here, as prices are very stretched and we have yet to see an above-average volume day on the current advance.
SP500 – The S&P also has seen relatively quiet volume on this ramp in price, making it look much more like a short squeeze than what I would call lasting accumulation. The sharper the moves, the more reversal-prone they tend to be, and this may prove to be no exception. Today it did test 1823 to the number, so we’ll see if it shows additional respect in the days ahead.
RUT – The RUT reclaimed 1123 by a few points today and has seen a lift of 4.5% off the low from last week. This index is the lone standout in that it hasn’t cleared its late-January bounce high near the key level of 1147. I’m expecting to see rest soon.
DJIA – The DJIA is sitting over 650 points above last week’s low of 15340, but still isn’t near any key levels tonight. It has another 180 to go before it would challenge 16174, and at the current pace we could get there tomorrow. However, prices are extended and volume has been below-average, so I’m not counting on further strength from here until after a rest is seen.
Notable Names:
GMCR is another example of a stock which held its post-earnings gap and has added to it. There’s no pattern here, just momentum, and I have no interest in fading it or chasing it.
YHOO is back to its breakdown zone after a 4-day lift on light volume. Former support has become short-term resistance, giving us another example of why it can be helpful to maintain lateral levels on charts.
HAR is looking ready for a pop here so I like it for a single-day breakout play if it can clear $105.75 on Wednesday. I’m unwilling to take it for a swing as I’m only interested in participating in the initial move higher. Additionally, a swing stop would belong several points away, and with such an extended market I’m unwilling to accept that.
MA is attempting to carve out another lower high here and showed some relative weakness today. I like the looks of this one for a single-day play on the short side if it undercuts $75.80 with a few points of room on the downside. It has been gappy and fickle, so I’m not interested in an overnight.
YOKU is hugging rising support here and a break below $29 looks likely to trigger some selling. This is on my radar for a single-day short sale for Wednesday if that break occurs. This is another stock that has been reversal-prone, so I’m not looking to stick around for a multi-day move.
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.
GME was listed here two nights ago for a potential swing but did not trigger. The same scenario is present and I liked today’s relative weakness on the downside reversal despite broad market strength. I’ve revised my entry and stop levels, but the same situation is present with rising support being my intended trigger for a short entry.
VMW has hugged rising support on steadily declining volume and that sets up a potential rollover move on any break of the trend line. Today it also posted a tiny decline, showing some relative weakness. I’ll get short for a swing if it breaks $92 with a protective buy stop at $94 (above the bounce high) and will be looking for a test of recent support and then an eventual test of the December congestion zone.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
