Good evening StockBandits!
The previous 4-day trading week we had in January offered plenty of movement, and last week’s holiday-shortened week was no different. What was different, however, was the fact that we finally saw more than a day’s worth of good profit-taking. The indexes set their highs early in the week and then turned over a new leaf with hard declines on Wednesday and Thursday on heavy volume. Friday delivered a snapback lift, but it only retraced a portion of what was lost mid-week and it also did so on weak upside volume.
This certainly shakes things up a bit in the near term, which isn’t bad at all. As traders, it’s a strength to be able to stick and move, and 2-way markets allow our flexibility to truly shine. Last week I had some short positions which helped offset some longs which pulled back with the market, and that’s not something the buy-and-hope crowd can claim. And as we move forward, I expect we’ll see a bit more of a battle shape up as we wait to see whether more profit-taking is on the way or whether the 2-day dip will simply end up being another tiny hiccup in the ongoing rally.
One thing I think it notable is the test of the broken uptrend lines from below that we’re currently seeing on the NAZ, RUT and S&P 500. Uptrend lines (and downtrend lines for that matter) don’t last forever, so it’s not the end of the world (or the trend necessarily) when those breaks occur. After all, price can in fact simply move laterally and produce such a break. At any rate, Friday’s rebound served to bring price back up to those trend lines to test them from below. It could be that early this week we’re able to determine whether those will be reclaimed or if they’re being kissed goodbye for a little while should the bounce happen to fail.
In the short term, the shake-up on the charts makes for a few more messes, but it will soon lead to new bases being built and better levels to trade against. The smooth, nonstop uptrends can be more difficult to participate in than those where we see rhythmic dips along the way. So a little give and take can be a good thing, and this week we’ll need to be objective enough to see if the tide has shifted in the short term. For Monday, I’m staying selective and only setting up a couple of new plays until more technical clues roll in.
Let’s get to the charts.
NAZ – The NAZ saw a little 95-pt selloff from Tuesday’s high to Thursday’s low, and those are going to be the big levels to watch in the days ahead (3213 and 3118, respectively). For Monday and possibly Tuesday, how the broken uptrend line (red) gets treated will be particularly important as a short-term tell.
SP500 – The S&P gave up a quick 2% from its high early in the week into Thursday’s test of the 1495 area, a level I’ve highlighted here a number of times in recent weeks. With the uptrend line having been broken, we’ll need to monitor it as well since it’s currently being tested from below. Should price be unable to reclaim that trend line, then 1495 is going to be the big level to watch.
RUT – The RUT dropped a swift 3.2% from its high on Tuesday to Thursday’s low, reminding us that this small-cap index is not in fact bulletproof. It’s been a one-way street for it since November, with rallies and rests being all we’ve seen (save for a couple of one-off declines measuring about 1% each). This is the first follow-through selling, and it’s possible this index may finally be due for a rest. It is also testing the broken uptrend line after Friday’s bounce, so that will be the focus as we head into Monday. Should more selling kick in, there are a few levels to watch on the chart.
DJIA – The DJIA continues to churn in this relatively tight channel of about 200 points. It seems to be waiting for a cue from one of the other indexes, although 14,000 is still the level Main Street will be watching when they get home and turn on the evening news.
Notable Names:
V is consolidating in a bullish fashion within a longer-term uptrend. This one may be ready for a move if it can clear the upper trend line at $160, although it tends to move rather slowly and at this point it ties up considerable capital. For those reasons, I don’t plan to swing this one, plus the prior high is less than 3% away.
APOL is knocking on the door of support here and could produce a nice breakdown. However, the trouble I see here is that a viable stop loss is just too far away, making this more of a momentum setup than a swing at this point. Should this pattern tighten over the coming days I may revisit it for a swing but right here I’m just not willing to give it that much room.
ADTN is constructing a bull pennant here but this pattern needs more work. That may mean re-drawn trend lines, which is entirely alright, but it doesn’t appear ready just yet. It is holding up well though, so it’s on my radar for a possible play in the coming days.
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.
MCK is in a well-defined triangle pattern or wedge here, and with each day price gets squeezed a little tighter. That could produce a decisive move out once it gets underway, so I’m setting up a play here. With the long-term trend up, I’m looking to get long if the upper trend line is cleared at $104.60. I’ll use rising support as my initial stop, and will be looking for a measured move of the height of the triangle as a target.
NDAQ has tightened this symmetrical triangle (or bull pennant) and may be gearing up for a move if Friday’s strength and pickup in volume is any indication. I’ll get long through $31.65 for a swing trade, using rising support at $31.70 as my initial stop loss and looking for a push toward $34 as a target.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
