Good evening StockBandits!
The indexes rallied back last week after the prior week’s selloff. Strength was present all the way into Friday’s session when stocks finally cooled off a bit, taking each of the indexes back toward their recent highs. However, the big story was the fact that none of them were able to achieve new highs, which certainly warrants some short-term caution in the days ahead.
That caution would be based on the lower high scenario which is beginning to set up. By the numbers, that means S&P 1597 vs. 1592, NAZ 3306 vs. 3301, RUT 954 vs. 951 vs. 944, and DJIA 14887 vs. 14768. Those numbers of course are respective of last week’s highs, so should we happen to see some additional strength in the days ahead they would need to be revised. For now, however, the bears are sensing a possible opportunity and the bulls are spending the weekend doing some soul searching to determine whether or not this market is trying to top out.
Lasting turning points in the market can at times be attributed to events, but technically they still tend to pan out as a process. Take 2012 for example. The May 1 “Bin Laden top” as I referred to it shifted the tone to a more bearish slant as the 10-year anticipation for a capture/kill was finally realized. But just prior to that, we saw the S&P, NAZ, and RUT each mark highs in the weeks leading up to that actual event. Resistance had been found, and the event simply set off the change of direction into the summer lows.
It’s certainly possible that a similar scenario is shaping up here on the charts. We’ve previously marked highs in the market, and essentially we’ve churned for nearly three weeks. Should this area go down as a lasting high, we can point to the process we’ve been witnessing lately, regardless of whether or not it’s tied to any events.
I’m not making the case for a market top here, simply staying objective. The intermediate-term trends haven’t shifted, although there’s some potential for short-term trends to become more bearish if we turn lower from current levels and confirm lower highs. As traders, it’s always important to recognize current conditions and stay aware of both sides of the coin.
The swing trading front hasn’t offered much new in the last 2 weeks due to the sharp declines and subsequent rebounds we’ve seen. That has kept many charts sloppy, reminding us to stay patient while waiting for new bases to build. They’ll surface, but in the meantime it’s critical to stay selective and not try to participate in every single move, as this type of environment can quite easily chop up a trading account.
Let’s get to the charts.
NAZ – The NAZ turned lower on Friday, and the pullback filled a gap from Thursday morning before bouncing slightly. That’s normal and healthy, but what we also saw was a short-term lower high created in the process. Time will tell whether that proves to be meaningful or not, but for now it’s definitely something to take note of.
SP500 – The S&P stalled out late in the week last week to create a potential lower high. This index on the last pullback made an incremental lower low when it undercut the mid-March low at 1538, so all eyes will be on the price action of the next few days as we see whether this trading range continues or if instead the bulls can create another breakout situation. One thing is for sure: it’s been an impressive recovery off the last pullback.
RUT – The RUT turned lower on Friday after a 5-day advance, which carves out at least for now another short-term lower high. This index has room down to 894 before major support is found, but there’s an unfilled gap to Monday’s close from last week at 914.80 which price may now gravitate toward.
DJIA – The DJIA is range-bound here but has a shot at a lower high with this stalled-out bounce stopping shy of the 14887 high. Support is still almost 400 points away, so there’s ample breathing room, but this subtle lower high should be watched closely.
Notable Names:
AAPL is bouncing back and attempting to test the $419 level it broke two weeks ago. This stock continues to trend lower and reclaiming $419 won’t by itself change that.
FB is coiling back and forth between support and declining resistance as it approaches earnings this coming Wednesday. A catalyst will be needed to get price outside of this range, so until then it’s difficult to expect much in the way of follow through.
HRS is a nice example of a stock respecting a recent level. A few weeks ago, $44.33 was the pullback low before a bounce. That bounce failed and price broke down, and now is right back to test that level from beneath. The high last week was at the very same level of $44.33, which keeps the sellers in charge here. Price definitely has a memory and it’s always advantageous to monitor recent levels.
GS continues to grind lower since turning the corner in late February. This stock has a propensity to channel, and it has gone from an uptrend channel to a downtrend channel. Note the weak upside volume on the most recent bounce, as that does not suggest a change of character yet.
GLD has been attempting to recover since its major breakdown a couple of weeks ago. On Friday, price lifted to perfectly fill the void which was created with a downside gap on 4/15. Price then reversed lower and now looks more likely to fill some of the gaps at lower levels. This is an excellent example of how shareholders become stuckholders in swift declines, prompting them to sell as prices lift.
PCYC is working on a bull pennant here and I like it for a momentum play on the long side if it can clear $82.05. This stock has earnings due out on Wednesday or else I’d set up a swing in it. There just isn’t time for much more than attempting to capture the initial move out of this small base.
VMW is knocking on the door of support and a breakdown at $70 would interest me for a momentum play on the short side. The problem with a swing trade is that a well-defined stop loss just is too far away (downtrend line).
AEM is resting at support and a break below $30.60 could produce another swift selloff. Here again, the initial move looks most appealing as a momentum trade rather than a swing due to the lack of a nearby stop on the chart ($34). I’m not willing to give it that much room against me as a swing, so I won’t be taking it overnight.
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.
CSC is stalling out here on the current bounce and looks likely to continue trending lower. I like the risk/reward here with a short entry trigger at $45.30 and a stop set just above last week’s high. Earnings are due out in 2 1/2 weeks, giving this one enough time to make a move back down toward support from early Feb.
KSU has found resistance at a lower level in the past 3 weeks since its high was put in March 28. A turn lower from here sets up a shorting opportunity for a swing trade. I’ll be using $106 as an entry trigger with a stop just above recent resistance, looking for tests of prior levels from earlier this year. Earnings for the most recent quarter have already been reported, so the scheduled news is out of the way until July.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
