Good evening StockBandits!
The market edged higher again today, and although the gains were rather tame, each of them closed at their highs of the session. The NAZ continued to challenge the upper (rising) trend line of the megaphone pattern highlighted here last night, while the other indexes remained beneath their recent highs. Once again, the upside came in the morning with the afternoon consisting of choppy, range-bound trading.
From a technical standpoint, the averages are still a bit short-term stretched from their lows of April 18 (two Thursdays ago) with the NAZ and RUT both having jumped 5% since then. We’ve not seen much rest, which still makes this V-shaped rally somewhat suspect and ripe for some profit-taking. However, it hasn’t arrived yet. The highs haven’t been cleared in the DJIA, S&P 500 or RUT, so each of them are respecting their trading ranges. Toss into the mix the lack of impressive upside volume on this bounce prior to today, and it’s certainly not easy to be aggressive on the long side here.
We’ve got more earnings scheduled ahead which could keep things somewhat reactionary, as well as econ reports slated for this week (ISM, Jobless Claims, Nonfarm Payrolls), and an FOMC announcement tomorrow to top things off. Needless to say, there are no shortage of potential catalysts in the coming few days, so it’s definitely a time to stay on our toes. It’s possible that even with the current bounce stretched that we could see new highs across the board, simply because we’re not far from breakout territory. However, there’s room to the downside for a bit of a breather, so we need to be prepared for anything.
On the swing front, it continues to be a tricky environment with the reversal-prone tape we’ve had of the past few weeks as well as scheduled earnings reports. I’m still working the charts daily in search of high-quality plays, and will have them here as they arrive. Last night’s setup in BBY was negated with a giant gap higher this morning following a headline, and hopefully you received my email alert to that effect. The risk/reward had drastically changed for the trade, hence my passing on the play as per the Swing Trading Strategy gap rules. Those who took it were able to capture some quick gains even at an inflated entry price, but the aim is to manage risk effectively so anytime my profit targets get that close to my entry (and the stop loss becomes that much farther away), it immediately becomes a play I’m not interested in putting on.
Chart requests are already starting to come in for this week, so if you’d like to participate be sure to shoot me an email with the tickers you’d like to see reviewed. I’ll send out a reminder tomorrow as well.
Let’s get to the charts.
NAZ – The NAZ lifted further today to reach the upper trend line of the megaphone pattern. This pattern is broadening rapidly, so there will be a bit more room to rally tomorrow and still stay within the trend lines. Either way, this index needs sympathy breakouts from the others, and to negate this as a broadening top it will need to accelerate higher ala the DJIA back in March. That’s a tall order fresh off a 5% lift since 4/18.
SP500 – The S&P is pressuring resistance here with an incremental new high set today (fraction of a point). The close at 1597 opens the door for a breakout, which could mean a measured move of 67 points out of this trading range. However, this index is in need of some rest after being up 7 of the past 8 sessions, making it very difficult to warrant (or find) new buys here.
RUT – The RUT remains shy of its prior highs of 954 and 951, although today it did edge past the 944 high of last week. This index is also short-term stretched and in need of rest after a 5% lift in 8 sessions.
DJIA – The DJIA is nearing the upper end of its 500-point trading range and could head toward 15k any day now. This index is the least stretched of the bunch, but is likely to follow the lead of the others rather than pull them along with it.
Notable Names:
JNJ has slowed down in recent days and tonight is resting just above uptrend support. A break below it would not in itself change the trend, but it would change the pace of the trend and warrant increased caution in the days ahead. There are many stocks which have seen big runs like this and are due for rest, but haven’t yet seen any lasting profit-taking.
MA is working higher once again as seen on this weekly chart. These steady uptrends which are of the 45-degree variety can last a long time, so they are never worth fading. Look to short weak stocks, not the strong ones.
BBY was highlighted here last night with a $24.25 buy point as a swing, and today there was an early headline regarding a broken deal which left the stock in demand ahead of the bell. That produced a 6% gap up on the open, taking it well beyond the trigger price. Whenever that happens, I defer to the Swing Trading Strategy gap rules which have a 3% gap as my threshold for taking a trade. In this case, the stop was simply too far away and the profit targets too close by to warrant an entry, so I just turned right around and closed out the position. Others who took the trade made some quick profits, but the point was simply that a swing was no longer warranted so I wiped the trade and sent out the email notification to that effect. If you are not on the email list please let us know and we can be sure you receive such notices.
ABBV is challenging resistance here and looks like it could go any day. A swing here would warrant a 5.3% stop, which is a bit wider than I would prefer. However, rising support would mean a tighter stop in just 1-2 days if price can avoid clearing resistance. If it goes tomorrow, it’ll be a momentum play for me above $46.40 with no overnight hold.
LNG is bouncing back after a dip last week. A turn up to a multi-day high at $28.85 presents a momentum play here, but there is no clear stop to be set for a swing basis.
LGF is coiling here beneath a small trend line and a turn higher through $24.95 presents a momentum play opportunity. Here again, a swing stop just isn’t very clear and I’m reluctant to add long exposure with the broad market looking so extended.
VMW is still looking ripe for a breakdown so I’m listing it again for a momentum short sale below $70, just as I’ve done the last two nights. It continues to act heavy and a break of support could spark a quick round of selling.
New Swing Trade Candidates:
No new swing candidates tonight, sticking with existing positions for now while waiting for new setups to develop.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
