Good evening StockBandits!
Strength colored the day green across the board today as stocks lifted right out of the gate and then held onto their early gains. Most of the upside happened in the first half of the session, then things cooled off a bit into the afternoon. The DJIA tacked on triple-digit gains, the S&P challenged its highs, and the NAZ was actually able to push through to a new multi-year high.
The latter index in doing so also created a new pattern which invites a bit of concern for the bulls. Generally when higher highs are being made, it’s a bullish thing. In this case, however, it’s at the moment an isolated event and it brings to light a megaphone pattern. We saw the DJIA negate a similar pattern in early March, so it certainly isn’t a death sentence. Rather, it’s just the latest that the bulls will need to contend with if they’re to keep the rally going.
It’s becoming crunch time for the bulls. Trends are still up for the intermediate term, but with mixed signals emerging (RUT lower highs, NAZ new highs), things could be coming to a head soon. I’m not an anticipatory trader, so it isn’t my style to call for a market move and get positioned in hopes it happens. Instead, I’m simply observing the technical picture as well as sentiment and incorporating it into my decision-making process. I continue to find a similar number of bearish stocks alongside the bullish stocks (see the Bullish Watch & Bearish Watch links at the bottom of the report), and as high-quality setups appear which look ready for moves, I’m setting up the trades – regardless of whether they’re on the long or short side.
This remains a time to respect the bullish tone of the market, but it isn’t yet smooth sailing for the bulls. As such, I’m staying hedged and open to multiple scenarios playing out, whether a breakout higher which lasts, a breakout which fails, continued choppiness, or a reversal lower. There should be opportunities available under any scenario, so I have no directional bias here.
Earnings season is still in full swing, and you’ll see below some setups which look good here but are due to report this week. I’m simply abbreviating my holding time for those particular setups (momentum trades), as there isn’t adequate time for a typical move to pan out in the limited time available. Once earnings season gets behind us, I expect to become much more active on the swing front. Until then, selectivity and patience are just a necessity.
Let’s get to the charts.
NAZ – The NAZ cleared the prior high today by 9 points, making it the only index to achieve a new high in today’s session. Volume was very light, however, making the move somewhat suspect. This index now has a megaphone pattern or broadening top, which generally is considered to be a bearish pattern. This setup depicts growing volatility with limited strength within the pattern, which suggests market participants are becoming a bit restless. The DJIA had a similar pattern which was negated in early March with an acceleration up and out of the pattern, so the NAZ will need to do the same to nullify this as a potentially bearish development.
SP500 – The S&P lifted further today to challenge the recent high, but did not clear it. Volume here was also very light, keeping this index caught in its range. A small lift through 1597 could produce a breakout, although the V-shaped rally with declining volume isn’t the ideal setup for bulls.
RUT – The RUT challenged last week’s high but couldn’t get past the 944 level. This index still has 2 lower highs in place since it peaked at 954, keeping it range-bound. The lower support zone is 894.
DJIA – The DJIA rallied today but stopped short of a breakout. This index isn’t far from new high territory, but with a big rally off the mid-April low and declining volume, it’s difficult to be an aggressive buyer here.
Notable Names:
CHKP is trying to turn higher here after another test of support held last week. This stock could add to today’s gains, although I’m prevented from taking this as a play due to today’s light upside volume. Nonetheless, it’s a stock to keep on the radar in the days ahead if it is able to continue holding support.
ABBV is putting in some needed rest her after a big recent rally. Some continued consolidation in this area would help to not only further validate resistance, but allow perhaps a tighter base from which a trade can be placed.
BEN has been reversal-prone in recent weeks with sharp turns taking place in both directions. Currently it has potential for a lower high to be carved out, but I’m just not real interested in a play due to the limited room back down to support and the capital it requires at this price point.
NTI is facing a bit of a second chance here for a turn higher. Recently it cleared the primary downtrend line, only to fall back and test support. So far, that test has been successful, and now a turn up through the shorter trend line at $26.25 could be embraced. I like this for a momentum play Tuesday above that level, but lately the stock just hasn’t exhibited as much strength as I’d prefer to see for a swing given the broad market bounce and therefore I don’t yet expect a lasting move higher.
WNR is resting on rising support here after a bounce, and a break below the $31 level could bring sellers back into the picture as the correction continues. Earnings are due out Thursday so I won’t be taking this overnight, making it a momentum play for me.
VMW is still churning here above support, and a break below $70 will trigger a short sale for me as a momentum play as price gets through a key level. This is not a swing candidate for me due to the lack of a well-defined stop on the upside should price happen to reverse higher after triggering.
PSX has finished weak in each of the last 4 sessions, giving this bounce a stalled-out appearance. A turn below $61 will trigger a short sale for me as a momentum play only. That’s due to the fact that earnings are scheduled for Wednesday pre-market and I won’t be holding into that news.
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.
BBY is coiling here between converging trend lines and looks ready for a breakout. A turn up through $24.25 could begin a new leg higher within the trend. I’ll be looking initially for a test of the recent high, followed by a rally toward the March high of 2012 as a more aggressive target. Earnings are due out in just over 3 weeks, giving this one some time to make a move.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
