Good evening StockBandits!
Two weeks ago, the market had become a bit short-term extended on the downside and subsequently began to bounce. That bounce took on different characteristics depending on the index in question. For example, the S&P rallied enough to make a new high, as did the DJIA. The NAZ and RUT, however, represent the more speculative names in the market and were each unable to approach their prior highs. As a result, they rallied to lower levels. Then last week after yet another big V-shaped bounce, stocks weakened with a nasty finish on Friday. That left the NAZ at a new correction low, and the reversal gave the S&P a failed breakout just hours after making a new all-time intraday high.
There’s clearly some rotation taking place out there, so we don’t have unanimity among the key averages. However, there is one thing that’s quite clear here: traders are skeptical of strength so cash is starting to get raised a bit more widely. What we don’t know is just how deep the dip will take us or how intense the selling will become. That’s ok though, because as long as we stick with the key levels as our guide and allow the charts to determine the game plan, disasters can be avoided and opportunities can be seized.
Let’s get to the charts.
NAZ – The NAZ got spanked on Friday as it gave up 2.6% with a finish just a few points from the low. It set a new correction low and in the process it confirmed a second lower high since the peak at 4371 early last month. There’s still room to fill the next gap to 4057 from February, although it looks at bit extended here even though it has only declined for 2 days.
SP500 – The S&P made a new intraday all-time high on Friday at 1897 then promptly reversed lower by over 32 points. That left it just 15 points from the 1850 level which has served as support on many occasions in recent weeks. This breakout failure is not bullish, so we’ll see if it finds any downside follow through this week.
RUT – The RUT has a pair of lower highs in place here and now stands just a short distance from 1147. That level was the November high, January support, February resistance, and March support, so it’s an important one. The one thing the bulls have going for them here is that this index is 40 points off its high from just two sessions ago, so it is a bit extended here. However, the overall price action here is anything but bullish and we could soon see a deeper retracement of the February rally.
DJIA – The DJIA cleared resistance temporarily last week but ultimately failed the breakout and finished once again inside the range. There’s plenty of room for a deeper pullback, in which case 16046 would become the support level to watch.
Notable Names:
GOOG is among a handful of former leaders which is now leading the way on the downside. This stock has lower highs in place and now faces key support from January which may not hold. Every dip had been bought, but now every bounce is getting sold.
FB is another former leader which has seen a steady deterioration in the price action in recent weeks. It started with a failed breakout, then a break of rising support, then a break of lateral support, and now every bounce is getting sold. It seems to have a date with the $53.53 unfilled gap from late January.
NFLX is another name which has seen its upside leadership evolve into an all-out slide in the shares. It failed at resistance, broke a pair of lateral levels, and now has filled a gap from January earnings. Momentum cuts both ways, and it always pays to stay attentive to the character of the price action. Ignoring it in belief of perpetually higher prices can cause a lot of pain – just ask those who are stuck in NFLX, GOOG, FB, or TWTR.
TWTR is the final member of the most recent “four horsemen” which was leading the market higher into the end of 2013. Since then, however, it has stumbled, staggered, and completely fallen down as it retraces the big runup move off the post-IPO low, now just a few points away.
BBY made some progress on Friday in the face of an ugly market and now could push past resistance to start filling the big gap from January. I like it for a single-day play here if it can cross $28.30.
CRTO is at the upper trend line here of this steep falling wedge. A turn up here could prompt a quick spike higher, so I like this setup for a single-day play on the long side if it can clear the trend line at $40.10.
DDD is at key support here and a break below $54.50 looks good to me for a single-day play on the short side. A swing stop here would be too wide for my taste, so I’ll wait for support to be broken and just look to participate in the initial breakdown if it occurs.
WAG is painting lower highs in recent weeks and now is hugging rising support. A break below $65.60 looks good for a single-day play on the short side. I’m not looking for a big move here, just perhaps a couple of points, so the risk/reward for a swing just isn’t there for me.
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.
SLW is sitting in a bear pennant here and looking heavy. A break of the lower trend line at $22.65 will trigger a short sale for me as a swing, and I’ll have a protective stop above this base in case of a reversal while looking for some downside continuation to the congestion zone from a few months ago.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
