Good evening StockBandits!
Stocks turned lower today led by small caps – the same group which has consistently underperformed since the week of Easter. The FOMC proved to be a non-event, and feeling uninspired, the bulls raised cash. Having reached the top end of the trading range this week, it’s not ironic to see the old adage ring true for at least a day to “sell in May.” So far, we’re only a single day into the month, and much remains to be seen. But with resistance having held for now, the short-term path of least resistance is down.
Lately we’ve seen the NAZ able to achieve new highs without the participation of the other indexes, while the RUT lagged considerably. Mixed signals like those always keep things tricky. Another aspect of the recent price action is the fact that we’ve seen turning points produce several days of one-way moves. That happened with abrupt moves such as the rally off the April 5th low, the selloff from the April 11 peak, and another rally from the April 18 pullback low. The zig-zagged nature of late has kept many charts sloppy, preventing the basing action which is so often needed to create new trade setups.
I’ve been selective of late due the limited number of available plays as well as all the scheduled earnings releases. As earnings season winds down in the coming days, I fully expect to become more active on the swing trading front. Until more plays come available though, it’s highly important to exercise patience rather than chasing the moves in such a reversal-prone environment. That means either abbreviated holding times for trades or less activity while waiting. The year is long, and many opportunities will surface. The key is not becoming impatient along the way. Needless mistakes happen most often via forcing trades out of a desire to just be involved, which then results in lost objectivity.
Let’s get to the charts.
NAZ – The NAZ couldn’t produce an upside acceleration move today out of this wide megaphone pattern, keeping it caught between this pair of trend lines for now. That also leaves the door open for this broadening top to play out, particularly with the lack of new highs from the other indexes. Today’s reversal erased Tuesday’s gains, and the path of least resistance is now down after this sizeable bounce.
SP500 – The S&P retreated today after challenging the highs yesterday at 1597. This index is still range-bound with plenty of room to retreat before support would be reached.
RUT – The RUT sold off hard today, giving up 2.4% on the session. This index has 2 lower highs in place since topping out at 954, and speculative money looks like it has no interest at the moment. There’s a gap to 915 which could fill next, and key support is at 894.
DJIA – The DJIA failed to break out today and turned lower, keeping it range-bound. This could also be viewed as an incrementally lower high, although the lateral channel is of greatest importance for now.
Notable Names:
PG is showing a bearish pattern here but in my view there’s limited payout due to the nearby support from February and March. That removes my interest in a play here, as I always find it helpful to look left for levels which might interfere with a trade’s progress.
STT got close to stopping out today but then turned lower to go out just a few cents off the worst levels of the session. This is encouraging and helps to validate my stop, aside from giving the stock a bit more of a short-term bearish look. Now downside follow through will be the key.
HUM has been very gap-prone since mid-February. Tonight it isn’t at all set up for a trade, but even if it were I would pass. Anytime I see frequent gaps like this, it tells me the stock is very reactionary to headlines, and that there are lots of them. With so many stocks to choose from, I’d prefer to select a different personality than one like this which is so prone to frequent shifts of direction on an overnight basis.
RAX is looking like it’s trying to carve out a bottom here after leaving the falling wedge pattern to the upside last week and then clearing the prior bounce high today. I’ll now pay particular attention to the next dip to see if a higher low can be established, which would add credibility to the argument of this being a lasting turning point for the stock.
AGU may be ready to break down here after basing beneath broken support. A move below $89.60 sets up a momentum play on the short side, but with earnings due out next week there just isn’t much time to justify a swing trade.
EVR is stalling out here after a bounce and could see a retreat back toward the April low soon. A swing stop would belong above this high, which makes the reward/risk about 2:1, so this is a momentum setup for me.
MCD is another one which essentially has a 2:1 reward/risk here as a swing stop would belong above the $102.60 area and key support comes in at $98 ($1.60 risk for $3 downside potential). I’m not satisfied with that for a swing, so I like it better for a momentum play here if price breaks rising support at $101.
VMW has been listed here the past several nights with relative weakness, and yet today with the market selling off it somehow avoided a breakdown. I’m giving it one last shot for a momentum play if it can crack $70, as I would expect a number of stops to fire if support gets undercut.
New Swing Trade Candidates:
No new swing candidates tonight.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
