Good evening StockBandits!
The correction continued to run its course last week despite a couple of attempts to bounce. Oversold conditions led to lifts on Tuesday and Thursday, but in each case the upside failed to produce follow through the following session. The indexes are still hovering near key levels, making the week ahead a potentially pivotal one as we wait to see whether those levels will hold or instead trigger accelerated selling with a second leg down.
To say the least, we have seen a major change of character in the market over the past two weeks. Having just made (or hovered near) multi-year highs, to see stocks slide so far and so quickly shows us that the aggressive dip-buying that has driven this market for such a long time is no longer in place. That isn’t to say that the market will continue lower and never again make fresh highs, but simply that conditions have changed dramatically and it’s a giant reminder to stay on your toes out there. The correction so far has been a shallow one, but any continuation lower could bring intensified selling, so it’s never a bad idea to keep stops in place on longer-term holdings just in case.
Despite the volatility of late, I was encouraged this weekend at the number of charts which are trying to set up with patterns. There are a couple of new swing candidates I’m eyeing tonight, alongside a few cashflow candidates for single-day plays as we head into Monday. Be safe if you’re out this evening for Super Bowl parties!
Let’s get to the charts.
NAZ – The NAZ bounced twice last week but each was followed by weakness. This gives the index the look of a wide bear flag as it continues to wrestle with 4104. A new pullback low (4043) could invite a test of 3966, which would be next support.
SP500 – The S&P also has a bear flag pattern here after failing at 1850 and rolling over hard. It’s currently seeing a battle take place for 1775, so a downside break there would bring 1746 into view as next potential support.
RUT – The RUT is holding above 1123 for now, but it may only be a matter of time before this bear flag is confirmed and that level gets taken out. If it does, 1099 and 1079 are the next levels on the way down.
DJIA – The DJIA is starting to break down again here as it takes out the December low. It’s still within a few points of it for now, but the downside momentum in this index has yet to abate. It failed to challenge resistance and was the first to show signs of weakness, and here it is again being the first to break down after an attempt at a rest earlier last week.
VIX – The VIX still hasn’t cleared 20 but it’s turning back up here and could do so soon. We’ve only seen 4 closes above that level in over 18 months, but historically a VIX north of 30 or 40 has been a more reliable signal that fear has risen enough to potentially mark a turnaround for the broad market. The theory is that once fear climaxes, the selling has already been done and the path of least resistance for stocks at that point is up.
Notable Names:
ZU is a good example to highlight as it gave a couple of indications lately that it didn’t have what it needed to continue higher. First it failed at resistance, then broke rising support. Take note of events like this because they can provide early signals to increase caution, lighten up on a position, or exit entirely.
X is working on a rising wedge here within a downtrend but looks like it may need another day or two before it’s ready for a play. I’m keeping it on my radar for now but I like the weak bounce on light volume and this wedge should tighten by the day.
ISIS is facing short-term resistance here and looks good for a quick breakout play. Because this base is still loose, I’m only going for a single-day play here but I like it long above $57.90 for Monday.
DAL is facing a descending trend line that has marked the pace of this short-term pullback. I like this setup for a single-day play on the long side for Monday if price can clear the trend line at $31. A swing stop is wider than I’d prefer and upside volume still needs work before I’d consider it for a swing.
OII is sitting in a bear flag pattern here and looks good for a quick breakdown play if it undercuts $67.50. This will be a single-day play for me as I’d prefer to participate in the initial breakdown and then be out by the end of the day.
DDD is trying to turn lower here after a bounce last week failed to reclaim former support. A break below $77.30 could see the selling intensify, so I’ll grab it for a single-day play on the short side if that level is broken.
TSL is also stalling out after a bounce and that has created this rising wedge pattern. I’d prefer to see this pattern tighten further for a swing, but if price breaks $14.60 on Monday I’ll go for a single-day play on the short side as the selling pressure returns.
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.
APOL is trying to stabilize here after a pullback. A turn up through the trend line at $32.65 will trigger a buy for me as a swing. I’ll keep a stop just beneath the pullback low and will be looking for an eventual test of the high.
ITT has an unfilled gap from October which price could soon target. I like this setup for a swing on the short side if price breaks below this rising wedge at $40.50 with a stop just above last week’s high. Earnings are due out in 12 days so I’ll be aggressively tightening my stop if this one triggers an entry.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
