Good evening StockBandits!
The runup from the February low was downright impressive. The market ramped quickly with persistent strength and several gaps were formed along the way. But anytime price goes too far, too fast, backing and filling becomes necessary. That seems to be exactly what we’re seeing here. Some may blame it on the Fed or the economy or earnings expectations, but from the technical side when price retraces a move it’s called backing and filling. Prices are doing just that right now – backing up and filling in some of those old voids.
Today we saw the NAZ fill the gap to 4057, a level highlighted here in the last couple of reports. It made it just 5 points through that level before a 22-point bounce off the session low to lift it from its worst level of the day. The other indexes each also posted declines of greater than 1%, so traders did not discriminate. The extended prices we have recently seen, the lack of leadership, and now the short-term downside momentum have all combined for an environment where nobody seems interested in becoming a buyer.
Volatility is starting to pick up, but it could be that we need to see the VIX get closer to the “magical” 20 area before we see a lasting letup in this correction. The bears have suddenly gained some confidence, and the bulls have been knocked on their heels. Failed breakouts in the S&P 500 and DJIA each point to a lack of upside conviction right now, although the more speculative NAZ and RUT turned lower first. The pair of lower highs which have been confirmed in each of the latter two indexes is significant, so even though a short-term bounce may come soon, it’s going to take more than a 1-3 day lift to alter the course this market is on.
As far as new plays, tonight there just isn’t much out there to choose from. The V-shaped bounce of last week and the subsequent sharp downside reversal ever since has left many charts in sloppy condition and in need of creating new bases and/or key levels. As such, I’m taking only an abbreviated list into tomorrow’s session and even those will only be for quick-flip cashflow plays.
Let’s get to the charts.
NAZ – The NAZ is short-term oversold here after a very fast 3-day decline from the last bounce high of 5.4%. It just filled the 4057 gap today, a level highlighted here last night and last week, then bounced slightly. It isn’t looking bullish here with lower highs, but it’s too extended to short, so some basing action or a relief bounce is now needed. Next big downside level is 3966.
SP500 – The S&P just put together a pair of declines to retrace 3% off Friday’s intraday high. It’s now back beneath 1850, so 1823 becomes the next support zone to watch. We’ve seen recent attempts to break 1850 which didn’t stick, so let’s see if there’s any follow through to this occasion.
RUT – The RUT is extended here after a 5.2% drop in just 3 sessions to today’s low. It’s back beneath 1147, and now 1123 becomes the next level to watch on the downside. Here again, it’s too extended to chase on the short side but in no way does it look bullish for anything but possibly a quick relief bounce.
DJIA – The DJIA continued its breakout failure from last week and worked lower within the range. It still has 200 points before it would test the most recent support zone of 16046.
Notable Names:
N is an example of why there are very few charts to point out tonight. This stock looks like death, but a closer look shows that the current leg down is similar in size to the previous two declines. That leaves it in need of some basing action here and therefore not a candidate for a trade in either direction.
DPZ is another example of what I’m seeing a lot of tonight, which is a stock that just saw a lower high embraced and some intensified selling pressure. It’s extended here and should not be chased even if there’s no nearby support.
XONE is one more stock that epitomizes many other charts tonight in that it looks to have more downside but is short-term stretched after a 3-day decline of nearly 15% into today’s low. That leaves it extended and not a candidate for me.
DO was hugging rising support but today perked up a bit on strong volume and now may clear resistance. I like it for a single-day play on the long side if price can make a new recovery high at $49.10. If so, the unfilled gap to $50.69 becomes a potential magnet for price.
NSM is another single-day setup for me as we head into Tuesday’s session. Price showed nice relative strength today and has just carved out a potential higher low. I like it on an upside continuation move through $31.55 to see if it can test last week’s high near $33.
JNPR is a bit extended here but is facing a key level so I don’t mind giving it a shot for a single-day play on the short side if it breaks $25. There’s an unfilled gap from January it could quickly work toward if this support zone is cracked.
GMCR is rolling over here and still looks to have some room. I like it for a single-day momentum play on the short side if it shows some downside continuation with a break of $101. There is an unfilled gap from February it could start to get into without much effort.
New Swing Trade Candidates:
No new swing candidates tonight, more basing is needed for most charts at this point so I’ll stick with existing exposure heading into Tuesday.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
