Good evening StockBandits!
The indexes paused today, unable to build on the upside momentum of the past 3 weeks. Instead, each of them finished near Friday’s closing levels with volume diminishing as well. We also saw narrow-range bars on the daily charts, which goes to show there wasn’t much of a battle taking place. It was almost an eerily quiet session, but nothing ominous has surfaced yet so it seems the buyers simply took a breather.
This continues to be a difficult tape to fight, as we’ve had virtually no downside since mid-April. The move has been steady but persistent to the upside as each of the averages keep making new highs. What hasn’t changed, however, is the stretched nature of the market here. Although occasional rest days like today have been seen, we’ve not seen a meaningful multi-day pullback and that simply won’t be the case forever.
Rather than attempting to predict a turning point for this market (as so many are predisposed to do), the best bet is to trade primarily in the direction of the prevailing trend but to simultaneously keep risk in check along the way. At the current juncture, new buys are just not easy to come by. Once we see some profit-taking or even more lateral price action as a rest, it will set up many more charts for new plays. I’m eager to see that after the V-shaped moves we saw throughout April and the nonstop lift since then.
Please note that there will be no Tuesday report this week due to some traveling I’ll be doing, so the next report will be on Wednesday this week.
Let’s get to the charts.
NAZ – The NAZ tacked on 2 more points today just for good measure, but finished about the middle of its intraday range and on light volume. This index is extremely stretched and a pullback is very overdue, it simply hasn’t started yet. Once it does, I would expect the unfilled gap between 3370 and 3340 to serve as a magnet for prices.
SP500 – The S&P is basing here between two short-term levels. Although it has rested for a few days and could certainly break higher, this index is also stretched and a pullback would be the most beneficial development for the longer-term health of this rally. It’s just a matter of whether or not the bulls allow it.
RUT – The RUT badly needs rest after a 78-point rally and today did very little to alleviate its short-term overbought condition. A meaningful pullback would allow for a possible test of the 954 breakout zone, but so far the buyers are keeping this index right near highs.
DJIA – The DJIA has moved sideways for a few days, which is good, but this has been one of the easier rallies for this index over the past few weeks. Should we happen to see some profit-taking in the next couple of days, the next downside level to watch would be prior resistance from 14887.
Notable Names:
KERX is lifting here and may go higher, but it’s not one I would chase given its recent history. This is a good example of how looking at the recent price action can serve as a guide for decision-making. It may take off without me and even test or break the high, but it has had a tendency to make 1-3 day moves and if the current rally is within the normal rhythm of the stock, this isn’t a place to be buying. My point here isn’t just KERX-specific though, as this is something I try to recognize on any chart I’m considering.
RTN is potentially topping out here in the short term given today’s new high and the subsequent selloff. That points to fatigue and this stock should be given time to rest after a nonstop rally in recent weeks.
MELI is working on its pennant and even though the stock finished lower today, it still could pop. A turn up through $121.70 may be worth a momentum play, but as a swing this is still a pretty small base given how extended price is over just the last 3 weeks.
BEAM is still looking good as it painted another bar within this base. However, the light volume on the rally doesn’t typically suggest the stock is ready to go. If it does break out, I’ll simply look to capture the initial move as a momentum trade rather than a swing. If this base can mature further and/or volume picks up, I may relist it as a swing in a couple of days, provided price is still beneath resistance.
BBRY may need much more time to complete this large triangle, but if it breaks out here I do like it for the initial move above $16.70. As a swing, however, an appropriate stop is beneath the last pullback low at a minimum ($14.68), which is just too far for me.
RGLD is another one where a well-defined pattern still doesn’t mean it’s a viable swing trade for me due to the distance from an entry to the technical stop. In this case it’s almost 8% away. So instead, a breakdown through $52.90 looks good for a momentum short with a possible test of the recent low.
SLW is a stock that’s threatening to break down here and I like it on the short side below $23.20. A swing stop would be 8.6% away up at $25.25, which is much more room than I’m willing to give it, so I won’t be taking it for a swing but instead for a momentum play if it goes.
New Swing Trade Candidates:
No new swing candidates tonight, waiting for high-quality patterns to emerge but extended market conditions are providing very few at the moment. Patience is critical. The charts above give excellent examples of good setups which just don’t have the risk/reward for multi-day swings as the stops are too wide or the volume is not corresponding with the moves in price the way it should.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
