Good evening StockBandits!
Last week we saw buyers shrug off the notion that the oversold bounce was merely short-covering, and as a result we saw wire-to-wire strength in the NAZ and RUT. Key levels have been reclaimed and prices have spiked significantly. While that’s short-term bearish given the current extended condition of the market, it may bode well for bulls in the coming weeks due to the amount of breathing room stocks now have to pull back and still create higher lows.
The NAZ lifted 282 points from its low in just 7 1/2 sessions, leading the way among the averages to be the first to make a new 52-week high by 4 points on Friday. That’s an impressive rebound, but the others still have work to be done to join that elite club. Although the biggest concern at the moment is the overbought condition of the tape, running a near second would have to be the light volume we’ve seen on the way back up. Price is certainly of greater importance than volume, but volume validates the moves in price, and the current lift isn’t being driven by widespread participation.
As we head into a holiday-shortened week of trading, all eyes are on the bulls to see whether they can maintain this torrid pace or if instead gravity will finally have some effect on the indexes. I’ve noted recently that the next pullback should give us a better idea of just how strong this market is, so perhaps we’ll gain some insights into that this week.
There are setups emerging on both sides of the market, which should be good going forward. The violent snapback move we’ve seen has largely created sloppy bases, but some market consolidation should improve the health of the patterns which are currently being constructed and present some good opportunities going forward.
Let’s get to the charts.
NAZ – The NAZ added 2.8% last week and was able to clear the prior high (4246) on Friday by 4 points. That’s not a big breakout, nor did it happen on even decent volume, but it is an impressive rebound from 3968 over the course of just 7 1/2 trading days. It is very stretched here and badly needs rest to digest this move. If not, the risk becomes a sharp downside reversal because the sharper the move, the more prone to reversal it tends to become.
SP500 – The S&P got through 1823 last week, reclaiming the level it broke down from in January. It is still 12 points from the all-time high of 1850, but currently 101 points off the low from the previous week and very extended. Best case for the bulls would not be a breakout in the immediate future, as that would leave prices even more stretched and more vulnerable to a downside reversal (breakout failure).
RUT – The RUT ended last week up after advances every day, but still a long way from the high of 1182. It’s currently testing the 1147 level which was resistance in November and support in January, so this is an important area.
DJIA – The DJIA rallied back to test 16174, easing just 1 point beyond it on Friday before retreating slightly from that level. This is a very important area, so with price being short-term extended it would make sense to see some rest arrive soon. We’ll see.
Notable Names:
C is respecting the breakaway gap it created in January when it undercut the uptrend line. Price is stalling out here after a recent bounce, but hasn’t rolled over yet. My guess is that it’s just a matter of time before this stock rolls back over, so I’m keeping it on the radar.
APOL is also on my radar here but not yet ready for a play. I’d like to see this triangle tighten a bit more, and will be watching the upper trend line since the longer-term trend is up.
MAN is another stock on my radar here but I’d like to see it edge just a little higher to set up a play. That would bring price closer to the lateral trend line it broke a few weeks ago, setting up a potential play on the short side.
HAR is still facing a breakout here so I’m setting up a single-day play on the long side if it can clear $106. With the market so extended, I’m just not willing to enter long swings yet, so I’ll instead opt to participate in the initial breakout move if it happens on Tuesday.
RTN is another breakout candidate I like the looks of here. If price can clear $96.40, a new leg up can begin. I like it for a single-day play if it can clear that level on Tuesday.
HALO is stalling out here after a bounce on very poor volume. This looks very likely to result in a lower high, so I’ll get short for a single-day play on the short side if price breaks rising support at $14.85.
ROST is starting to take on a little bit of a rounded top after the recent bounce, so I like it for a single-day play on the short side if it breaks $68.85. I’d be looking for a quick test of the $66 area which it tested a couple of weeks ago.
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.
AMP is hugging rising support here and a downside break of it could begin another leg lower for this stock which started correcting in January. I’ll get short for a swing if price undercuts $105.70, and will be looking for a test of the recent low as an initial target, and eventually a move back below $100. In recent days it has respected $108, which is where I’ll have a protective buy stop just in case it turns higher after breaking support.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
