Good evening StockBandits!
The RUT provided some meaningful clues last week with its refusal to break out, despite the other indexes putting up new highs. The more speculative of the bunch, it instead remained range-bound and then this week has exhibited considerable relative weakness. Last night I noted it could see a quick retreat to the 916 level to fill the gap from early March, and today it did exactly that with a hard breakdown from its high channel to mark a potential tipping point for this 4 1/2 month rally.
Meanwhile, the NAZ, S&P 500 and DJIA each saw minor weakness early in today’s session quickly given up. That paved the way for a trend day lower, and even with a final-hour spike off the session low as shorts rushed to cover ahead of the bell, each of them finished decidedly lower and back inside their respective trading ranges. These reversals back into the channels mark a failure of the breakouts, which may be cause for additional concern in the coming days for the bulls. It’s been quite a while since we saw any real profit-taking, but clues are emerging from a technical standpoint which at the very least warrant considerable caution for now on the long side.
I’ve seen very few new swing trade candidates surface in recent days, and perhaps this is why. The added volatility of the past several sessions, the back-and-forth I’ve noted in the S&P with all the green/red/green/red alternating days, the split performance between the former leader of the rally (RUT) and the big 3 (NAZ, S&P, DJIA), and of course the resulting sloppy charts simply have left fewer setups which look appealing. Additionally, those which looked to have some directional bent to them have lacked either nearby stop loss levels associated with them or have had poor reward potential relative to risk, leaving me uninterested in adding exposure.
Tonight that’s still the case. My method is a numbers game, and I prefer to take more trades rather than fewer, but when the landscape gets slippery and the good setups evaporate, I will maintain a high standard and therefore will not rush the establishment of new positions. Even my watch lists are showing a distinct lack of leadership at the moment, as most of those names are secondary-types of stocks. If the market is indeed entering into more of a two-way environment where we’ll see some actual back and forth as opposed to the one-way street we’ve had since New Year’s Eve, it’s going to benefit me and plenty of plays will surface soon. The key is to stay patient for a few days if necessary to let better entries come to light.
Let’s get to the charts.
NAZ – The NAZ fell back inside its channel in each of the last two sessions and today after one last failure it sold off hard down to 3210. This index bounced slightly late in the day but still looks poised for a test of 3200. A break of that level is likely to bring a quick gap fill down to 3182.
SP500 – The S&P gave up 1% today as it slipped back beneath 1564 after flirting with that level in each of the past few sessions. This index now has room down to prior resistance at 1530 as next potential support if today’s selling finds follow through.
SP500 monthly – This monthly chart of the S&P 500 shows the range-bound nature of this index going back to 1997. It’s very interesting that the move this index has made off the 2009 low mimics the size of the rally from 2002-2007, it just took 1 year less time to achieve that in the current rally. Time will tell whether we see a deeper correction or a lasting exit from this range, but either way it’s hard to ignore the fact that this index hasn’t seen any meaningful corrective price action in recent months, leaving it a bit ripe for some profit-taking.
RUT – The RUT has been my focus in the past several days with its refusal to clear highs while the others have pushed through. I have noted that repeatedly, and now we’re seeing some real relative weakness in this speculative small-cap index. This points to a diminishing appetite for risk, and today we saw a gap fill to 916 as mentioned here last night. Next key support for this index is the 894 level where the last multi-day pullback found buyers in late February.
DJIA – The DJIA gave up yesterday’s gains to fall back inside its channel and now has room down to 14380 if we see continued selling on the heels of today’s breakout failure.
Notable Names:
NUE is changing directions here, although it’s a bit stretched in the short term to consider for a play. Many stocks are taking on this look tonight with a subtle lower high and lower low having developed in the past few weeks.
BMY has made an out-of-character momentum move higher in 2013 but now is hugging the lower end of this steep uptrend channel. A turn lower could spark some needed profit-taking, although I’m not interested in shorting strong stocks as dip-buyers can often be stubborn.
JNJ is another stock which has seen a rare acceleration higher going back into January. Over the past few days it has left this steep uptrend channel on the top side, and now looks to have run a little too hot with today’s downside reversal. This might mark a temporary high as price settles down a bit.
CPB is typically seen as a defensive name but lately it’s been moving like a hot technology stock or something more exciting than a soup maker. Here it’s starting to threaten a breakdown from this steep uptrend channel, which could prompt a healthy correction for this stock.
EMN is another stock which is quietly changing its trend from up to down. I will be watching for the next bounce to stall out to potentially create another lower high and a play on the short side at that time.
INFI is potentially setting up a double top here. Often times traders misdiagnose this setup by failing to wait for a break of the low between the peaks. Lately this stock has shown more wide-ranging bars, which points to a potential character change, and now we’ve seen price fail at resistance. Today’s decline was substantial, but momentum players may have more room on the downside if today’s low gets broken.
GLD is hitting the dirt here, no pun intended, and seems set to test major support at $148. The wide trading range up to $174 remains intact for now, although the next few days will prove critical as we see whether buyers will provide support at the lower end or not.
CFX is one setup which is acting well here with a quiet retreat from its highs and similar closes in the past few sessions. Today this stock showed some relative strength by finishing positive despite broad market weakness. I’m watching this one to see if it can edge up toward the descending trend line, at which point I may set up a play. For now it’s simply on my radar as price is not yet challenging the trend line.
New Swing Trade Candidates:
No new swing candidates tonight, waiting for better trade opportunities to surface.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
