Good evening StockBandits!
The major averages spent last week doing very little and the net changes reflected it. The S&P gained 2 points, the NAZ lost 1, and the DJIA lost 11. Meanwhile, the small-cap superstar RUT index tacked on another 1% to again post new all-time highs. That index is typically more lively than the others, and right now that’s certainly the case as it keeps on adding to the 21% gain it has piled up since mid-November.
This week, we have the market closed on Monday for President’s Day, leaving just 4 sessions for traders to make their moves. The last time we had a 4-day week, the DJIA tacked on 246 points, so there’s certainly potential for big moves despite the limited trading. Overall though, the character of this tape is that we keep seeing the big 3 (NAZ, S&P, DJIA) advance incrementally and then move laterally for a little while. That’s definitely keeping the pressure on the bears, but it isn’t providing big momentum in the sense that we’re seeing huge daily rallies and wide day to day trading ranges.
As long as the market continues to behave in this manner, a few things need to be considered.
The first is that the long side is still the one to primarily stick with. The trend is up, and I don’t intend to fight it even if I run across some bearish plays here and there which can serve as minor hedges.
The second is that it’s important to keep weighing risk at all times. Just because the trend is up does not mean stops shouldn’t be tightened along the way. There is still potential for a swift surprise, so it’s wise to keep safety nets in place and keep moving them up as the advance continues. In a slow-grind environment, it can pay better to enter after small dips have been completed and strength begins to return.
Earnings season is largely behind us but it is still important to keep an eye on the calendar to be sure to avoid any surprises.
Let’s get to the charts.
NAZ – The NAZ was able to push past the 3196 level last week a few times, yet never could get clear of the area. Instead, it finished back beneath the big hurdle, keeping doubts raised as to whether or not it will attempt to play catch-up to the other indexes. Should minor weakness surface here, the minor gap from two weeks ago to 3165 would be the first level to watch.
SP500 – The S&P added just 2 points last week and has just been sitting above 1515 since clearing it just over a week ago. This index still has several things going for it technically, but the slowed pace of the rally at this stage warrants close examination on a daily basis.
RUT – The RUT keeps cruising and added another 1% last week. If Friday’s intraday pullback finds follow through, I’ll be watching 912 as the first potential support zone, followed by the uptrend line which currently stands at 906.
DJIA – The DJIA is caught between two well-defined levels here. That’s not such a bad thing, as this rest phase could be resolved with a clean breakout, but we need to see this zone left behind before any continuation can be expected. An upside move would bring the all-time high of 14198 into view rather quickly.
Notable Names:
CPRT is a very clean setup here which I’d ordinarily be interested in for a swing, but earnings are just a few days away and that simply doesn’t give this pattern much time to work. The biggest issue is the fact that I’d be taking the full risk (with an appropriate stop beneath this triangle) but only have limited time for reward, which effectively diminishes the risk/reward profile of this setup.
LULU is still on my radar for a swing on the short side, but it’s again trying to find support against the $66 area. I have no problem with that, but I will look to remove this one if it turns higher through the downtrend line as that would in my opinion negate this pattern.
INFI is building a nice pattern here after an excellent advance during December and early January. This needs more time to tighten, in which case I would then set up a play. However, the stop would just be much wider at this point than I’m willing to give a swing trade, so I’ll continue to watch this setup in hopes it can develop a bit more before it attempts to go.
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.
WY is in a tight triangle pattern here and looks ready for a move. With the trend being up, I’m watching the upper trend line for a turn higher through $30.75 to trigger a buy. I’ll then use the lower support as my stop area, and will be looking for an eventual measured move of the height of this triangle.
NTES has built a little pennant pattern here with a nice recent pop and a few days of consolidation. A turn up through $51.60 would confirm this pattern and trigger a buy for me as it heads toward prior resistance. I also like this tight pennant as it comes with a very tight inherent stop.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
