Good evening StockBandits!
The market put up its worst day of a young 2013 with each of the averages shedding roughly 1% today. Making the day appear even worse, stocks went out at their lows of the day after trending down throughout the session with buyers nowhere in sight. It’s almost as if the bulls decided it wasn’t so bad to book some profits after all!
And it isn’t.
The fact is, a pullback actually sets up an opportunity. While it was no fun to see long positions decline (or stop out entirely) today, the truth is that a one-way market like we’ve had for the past few weeks can actually be the hardest to trade for those of us who exercise some discipline. Those who ignorantly chase higher prices with no regard to the downside get paid in that type of move, but only for so long before they become trapped.
A market which sees movement in both directions helps the astute trader to keep moving. It helps bring forth some emotion, which can lead to better momentum on the moves. It also helps separate the strongest stocks from the also-rans. And perhaps most importantly, profit-taking waves help to create new bases and patterns from which new trades can be placed.
I’m welcoming this pullback even if it clears out some longs, because I understand what can develop after the dust settles. I’m also setting up some new plays tonight, knowing that if the market weakness persists some of these may not trigger anyway. On the other hand, should this dip be met with more aggressive buying, I’ll be positioned to take advantage of a return of strength. Let’s get to the charts.
NAZ – The NAZ broke the short-term high last week only to reverse lower today by 1.5% and break the rising trend line. The failure to make a 52-week high while each of the others did so is really the disappointment for this index.
SP500 – The S&P made a multi-day low today to break last week’s intraday support. This index may now be in for a test of the 1474 level if we see any follow through selling.
RUT – The RUT put up its worst day today since Nov. 14th, two sessions before the big turn took place. This index certainly has the room to correct after such a big run, and I’m watching 894, 883, and 868 as levels of potential support if this dip continues.
DJIA – The DJIA marked its largest decline since Dec. 28th when the fiscal cliff concerns were making the big headlines. This index has room to pull back and possibly test 13661 on this initial pullback, although for the moment it’s trying to hold 13860.
Notable Names:
NFLX was oblivious to the widespread market weakness today, especially that found in the Nasdaq, and instead tacked on 6%. This stock has been working on a rather wide pennant pattern since it cooled off post-earnings, but a print above $177.50 and it’s back on the move for momentum traders.
BBRY is the stock formerly known as RIMM, and this thing seems to be having a bit of an identity crisis in more ways than just the ticker symbol. In recent sessions it has rallied sharply ahead of its new operating system and handhelds, sold off on the news, and then screamed higher again today. I continue to believe this is not a stock to hold overnight on either side, leaving it for the intraday traders only until it can calm down.
KSU looks like it needs a bit more time but I like this high base it’s trying to build. If it can mature a bit, I may be listing this one for a breakout play soon. Until then, it’s on watch.
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.
CYH is in a well-defined channel here as it digests its recent rally. Today the stock pulled back within this channel, and should that weakness continue it could negate this pattern, resulting in no play for me. However, price currently is near the midpoint of this channel so I’m setting up the play. I’ll get long if this one can clear $38.90. Earnings are due out Feb. 21, so there’s a bit of time here.
RGR has based for the past couple of weeks after the December pullback tested the early-November low in the $40 area. A turn up from this base at $52.10 and I’ll get long looking for at least a test of the high, and possibly more. Earnings are due out in 3 weeks.
BIG has a large unfilled gap from last summer which it may finally be ready to start attempting to fill. A turn up through $32.75 clears resistance and opens the door for an upside retracement toward a pair of key levels from last spring and early summer. I’ll have a stop set beneath the small lateral trend line which has served as both resistance and support in the past few weeks.
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Trade Like A Bandit!
Jeff
