Good evening StockBandits!
The indexes all reached new milestones again last week by tacking on more than 1.5% across the board. Selling was virtually non-existent as the only declines we saw were extremely minor and quickly erased with more strength. That has been par for the course since the market turned higher April 19th, as it just hasn’t looked back since then.
I’ve been a bit of a broken record lately discussing the stretched condition of the market, and that still hasn’t changed. The back-and-forth moves simply offer more opportunities than the nonstop moves like we’ve had now for 4 weeks. Those who are willing to chase the big moves and throw caution to the wind by having no downside exit strategy have fared well, making those of us who do place importance on risk management look overly cautious. However, as a trader, survival is my top goal. That is done by preserving capital whenever possible, by staying objective as often as possible, and by putting capital at work in quality setups whenever they’re available. The bottom line is that there are momentum stocks and not much else of late, which simply translates into very few swings.
My aim has never been to predict where the market is moving or when it will get there, and that has not changed. Instead, my approach is to identify lower-risk opportunities with potential reward that’s some multiple of that risk. Lately, with the lack of basing activity, it’s been difficult to identify new entries but even more difficult to determine downside exits should those plays happen to fail. We still have some room for the indexes to complete their measured moves out of their multi-week trading ranges, and the trends are still up, which is bullish. But there still isn’t much to choose from unless you like stocks which have been rising at about a 70-degree angle for 4 straight weeks without rest. Those don’t appeal much to me, so I remain cautious here with initiating new buys and at some point my patience and caution will be rewarded. The only long swing I’m adding tonight has in fact pulled back lately, giving it room to lift again should its pattern resolve higher.
Let’s get to the charts.
NAZ – The NAZ is up 10.4% since the mid-April low, leaving it very extended with this nonstop move. Regardless of the near-daily upside progress, getting long after a run of this magnitude simply involves greater risk as profit-taking will eventually arrive. Friday’s strong close hints at nothing but more strength, but at some point this steep advance will get met with some rest and/or profit-taking, and that will benefit us to a great degree by allowing some overdue basing action to begin.
SP500 – The S&P had a measured move projection to about 1665 out of the 67-point trading range it left behind when it cleared 1597, and on Friday it achieved it plus a couple of points with a close at 1667. The momentum might last a little longer, but this isn’t a spot to be adding much long-sided exposure until at a minimum some rest has taken place. I wouldn’t expect to see the market turn abruptly lower and fall apart right off the highs, so don’t misunderstand me. It’s likely to be an uptrend for some time, as there’s considerable space for a dip from current levels before the prior pullback low from mid-April would be threatened. That allows for a higher low to form once we do get some selling, and likely another buyable dip.
RUT – The RUT is pressing 1000 for the first time ever and is now within 19 points of its measured move to 1015. This incredible 4-week run has lifted this index nearly 11%, leaving it very extended and well overdue for a breather. Nonetheless, it keeps climbing so respect is due. It’s just a matter of finding new buys after a run of this size, as there just aren’t many which have failed to participate. Among those which have, they’re generally in downtrends and subsequently aren’t buy candidates anyway.
DJIA – The DJIA has nearly met its upside projection as well, closing just 26 points from it as of Friday. This index is moving at a more sustainable pace (or angle) than the others, but it’ll take cues from them. As they appear very stretched, caution is warranted in this index as well – particularly after this 500-point breakout in just over 2 weeks time. It’s likely to take its cues from the other averages, placing its importance at the bottom of my list. But Main Street is certainly pleased with the Dow above 15k and that’s not likely to inspire much fear-based selling anytime soon.
Notable Names:
DE is a good reminder of what can happen when momentum disappears and the mood shifts suddenly. This stock had rallied 15% over the course of just a few short weeks, and then in just 3 sessions gave back half that move. I’m not suggesting the market is likely to do the same, but rather that there are individual stocks out there which have had big runs of late and are vulnerable to a quick reversal. Given the lack of profit-taking over the past month, elevated caution is absolutely warranted.
GLD is testing support here and although it’s a bit short-term oversold, it certainly could break down and head for lower levels. If so, the next one to watch is the $127.80 level from 2011.
CONN is still trending higher but the last breakout wasn’t overly impressive before more rest set in. A push through $49 could free it up for another pop, but given the maturity of this trend I’d prefer to just grab it for the initial push rather than as a multi-day swing.
APA is trying to turn back up here on stronger volume (Friday) compared to the diminishing volume seen on the small retreat in price earlier last week. With ample momentum ahead of this small rest phase, this stock may prove capable of another quick pop. However, a congestion zone from late-January / early-February isn’t far above which could restrict the overall movement, making this a momentum play for me rather than a swing.
ANF is also working higher but the multi-month breakout left something to be desired with just a 2-day advance before a week of rest. This doesn’t point to exceptional strength, but this is a well-defined level so I like it for a very short-term setup. I’m looking to take this as a momentum play above $54.65 but it’s not an excellent setup as a swing given the stretched condition of the broad market.
LOCK is coiling beneath short-term resistance and a push through $10.25 could set up a quick lift toward prior support near $10.80. This base would need to tighten further in order to interest me as a swing.
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.
GPOR is still in an uptrend but has done something few stocks can boast over the last 2 weeks: it has pulled back. This has set up a falling wedge pattern and an upside resolution through $49.45 sets up a play on the long side. I’ll take it as a swing looking for a test of the recent high with a stop beneath the wedge. I like the fact it isn’t stretched like the overall market, and I like the risk/reward as a swing.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
