Good evening StockBandits!
Last week can best be described as damaging. We saw a nasty breakdown in gold and the deepest market pullback since the lows were established back in mid November. Beyond that, we had the Boston marathon bombing, the Texas fertilizer plant explosion, ricin-laced letters arriving in D.C. and other suspicious packages popping up elsewhere. That caused extensive damage to many families, and didn’t help the confidence of the American public. By Friday, the Boston suspects were both taken care of, but the damage had been done.
The market of course didn’t like any of the events, and the lack of blowout earnings reports from the early companies this season also failed to inspire buying. Some say this pullback is overdue, some are actually surprised to see it. Either way, it’s here, and it’s going to create some opportunities. Those may be on the long side once this dip is completed, or they may be on the short side if the selling intensifies, or perhaps a little of both if we carve out a high-level trading range with some greater volatility than we’ve seen in recent months.
From a technical standpoint, we have some mixed signals. The DJIA is holding up best, while the small-cap RUT has deteriorated the most. Meanwhile, the NAZ and S&P each created lower short-term lows on the pullback, raising some eyebrows in the process. Is this the end of the big run? No telling for sure, but the bulls are at the very least taking a well-deserved breather.
My hedged approach in recent weeks paid off well last week with several shorts achieving their targets to create some gains and offset pullbacks in long positions. There have been a great number of weak stocks showing up lately (which I’ve discussed and shared via the nightly Bullish/Bearish lists) despite the broad market strength, and I expect we’ll continue to see good setups emerging on both sides of the tape. Rather than make any big bold predictions on where we’re headed next, I’ll simply keep taking the best setups as they arrive and keep a close eye on key index levels. As a trader, that’s the best way to stay nimble and flexible.
Heading into this week, there are very few setups which interest me as of tonight. That may change in a day or two, but currently I’m primarily seeing stocks which have been beaten up in recent days and now are attempting to bounce. I’ll give them their time and wait for new patterns to develop. There also is roughly 1/3 of the S&P 500 reporting earnings this week, so that simply reduces the number of available swing trades due to my unwillingness to hold positions into earnings reports. Good trading sometimes requires patience, so I’m exercising that now rather than forcing new positions or chasing extended moves.
Let’s get to the charts.
NAZ – The NAZ just created a lower low last week as it undercut 3168 on Thursday to reach 3154 before bouncing. This sets up a potential shift of trend should this bounce (1) see some follow through and (2) result in a lower high vs. 3306 in the days ahead. At the very worst, we’re now seeing a 2-way market, and that means opportunities on both sides.
SP500 – The S&P pulled back hard last week but was able to hold lateral support at 1530. The uptrend channel is in jeopardy after a close beneath it on Thursday, despite reclaiming it on Friday with a bounce. The high is in for now at 1597, so this next bounce will carry significant importance as we see whether or not it results in a lower high.
RUT – The RUT has already carved out both a lower high and a lower low. Last week it was able to narrowly hold above key support at 894, keeping it within its multi-month lateral channel, but on the low end.
DJIA – The DJIA pulled back last week to leave it 340 points shy of its recent high, but still above multi-week support at 14380. This index will likely take its cues from the others going forward.
Notable Names:
LGF is range-bound but exhibiting some bullish action with volume spikes in particular. That may indicate we’ll see an upside resolution to this period of indecision, although right now it’s still shy of resistance so it remains on watch for me.
PKI is another stock which is caught in a range here, but it is showing some bearish clues with a lower high and some volume spikes accompanying not rallies but selloffs. Perhaps in the next couple of days we’ll see whether support will hold once more. I’m not interested in bidding for this one against support as the last bounce didn’t carry high enough and wasn’t accompanied by bullish volume. Additionally, earnings are due out this Thursday.
GMCR is moving laterally here between a pair of key levels. I don’t see a play yet but the longer this channel stays intact, the more valid these levels become. That should at some point provide a play, although here it’s not leaning one direction over the other yet.
KRC has a cup and handle pattern tonight, which is also found within an uptrend. That makes this a continuation setup, although the height of the cup is only slightly more than $2. That makes this setup not very appealing, so despite a clean pattern it is still not a play which appeals to me based on the limited move I would expect from it.
FSLR is building a pennant pattern here following its big surge higher two weeks ago. A turn up through $39 paves the way for another pop, although the stop which would be needed for this pattern isn’t much different from the breakout zone to a new high. That makes this a non-swing setup for me, so instead it’s a momentum setup whereby the initial move through $39 might offer some limited but quick gains.
DDD is still respecting the short-term descending trend line here, but rising support is catching up rather quickly. A turn up through $34 looks good for a momentum play, but with this stock just now starting to recover I would expect it to struggle with several levels on the way up. That’s why I don’t like this setup for a swing.
KERX is starting to turn up again after a modest pullback, and may see a quick spike higher if it can clear $8.10 to produce some follow through to Friday’s gain. I don’t like the chart for a swing, but it may provide a play here as a momentum setup which active traders may take interest in.
PXD is resting after a recent pullback, and it needs more time to carve out a pattern or base. Should it happen to break down again here through $109, it could offer a nice quick play on the short side with next support coming in near $102. The problem with a swing entry here is that there’s not a well-defined upside exit.
New Swing Trade Candidates:
No new swing candidates tonight, sticking with existing positions while waiting for new bases to develop.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
