Good evening StockBandits!
Just a day after the Tuesday streak was extended to 19, we saw some very meaningful Wednesday withdrawals take place today as stocks snapped back in a rather dramatic recoil right off fresh new highs.
Today had “the look” of a highly important reversal day, and the volume certainly added validity to what price spoke so loudly. This morning, stocks ramped sharply after a modestly positive open. It was the price spike after such a large and persistent run these past 4 1/2 weeks that looked like a bit of a last gasp. We saw a mid-morning pullback which was quick and sharp, and I tweeted at 10:01 AM CST that perhaps that was it for now. A short time later, we got a downside follow through move along with heavy and steady selling into the final hour. The 3:30 PM EST bounce was predictable for short-covering, but it didn’t erase much of the day’s losses.
From the intraday high to the low, the NAZ gave up 86 points, the S&P 39, the RUT 31, and the DJIA 277 points. In the end, we saw the indexes paint some nasty outside reversal bars, suggesting that this might have been the finale for the current rally. There was absolutely nowhere safe to hide as stocks, bonds, gold, oil – all of it was red.
So…do we head straight down from here? That is not a foregone conclusion. It’s going to take quite a bit to actually reverse the current uptrend, and barring a crash, that wouldn’t happen in a day. However, it’s this sort of a day that brings a different character to light which absolutely deserves our respect. An inside day on Wednesday would come as no surprise after today’s big turnaround, but it’s best to let this pullback run its course before looking to aggressively buy. I wouldn’t touch this pullback yet with a 10-foot pole.
A great lesson from today’s turnaround was that price reached a new extreme intraday in the direction of the trend and then reversed. Today it was new highs in the morning and then a shift of the tide to the downside. Last November, we saw a new pullback low on 11/16 intraday before a finish in the green which led to a lasting low. That isn’t to say that this high will last a long time, as only time will tell. It’s too early to know, but at the very least a line in the sand has been drawn and we’ve now got a reference point as resistance to use going forward until it’s cleared.
I’d expect a pretty decent battle to now play out in the coming days as bears sense an opportunity while bulls look to defend the trend they’ve worked so hard for 6 months to preserve. With Memorial Day weekend coming, we could see traders quietly slip away after Thursday to start enjoying their long weekend. Right after that is June and summer vacations for many, so this would be a logical time for a breather. We’ll see if we get one or not.
Let’s get to the charts.
NAZ – The NAZ daily chart shows a big change of character today with the wide-ranging bar for a hard break below the rising channel. We could now see a test of the unfilled gap from earlier this month.
SP500 – The S&P looks vulnerable to more selling here as well after a large bearish engulfing bar today. Today’s high at 1687 is the new resistance to watch as we see if price can retreat further into its uptrend channel.
RUT – The RUT didn’t quite meet its projection to 1015, but got within 7 points of that level which was mentioned here on May 5. It’s now in retreat mode after today’s reversal, and next downside support was former resistance at 954.
DJIA – The DJIA got north of 15542 today and then fell back to finish near 15300. This index already met its projection out of the trading range as of yesterday, so now we’ll see if a pullback to test the breakout zone is in order.
VIX – Volatility picked up a bit today, but still has tons of room to expand further. One day does not a trend make, but a little fear is starting to perk up a bit for the first time in several weeks.
Notable Names:
GLD saw more liquidation today as price marked a new multi-day high only to reverse lower. It’s now near short-term support and could break down further below $130.50.
TLT depicts today’s outflows from bonds as this ETF reached a new multi-week low. Traders were clearly most interested in raising cash today rather than rotating into other sectors or asset classes.
TSL is a solar stock which saw a big change of character today like many others in the group. The shine is off these stocks now after huge runs and nasty downside reversals, suggesting the run for them is over for now.
FB has been grinding lower and today got to the key $25 area it has tested several times in recent months. This stock doesn’t act like it’s ready to perk up, leaving it vulnerable to a major breakdown if it closes beneath this level.
YY looks like several other stocks tonight after seeing increased volatility of late, new highs, and then a subsequent downside reversal. This look shows how fickle the hot money can be at a time like this, and serves as a reminder to stay selective and not chase excessive strength if you want to avoid getting slapped.
LBTYK is still a setup to watch for a potential momentum play in the next couple of sessions. I listed it here last night but it hasn’t cleared resistance yet at $71.25. That’s the number to watch for an upside pop, although it’s critical to wait for the break especially if this market weakness continues.
FTK held up well today and I’m still interested in a momentum play if and only if it can clear $17.80. I don’t love this setup for a swing trade, particularly in an extended market and ahead of a 3-day holiday weekend, so I’d only be interested in grabbing the initial move.
AAPL actually posted a gain today, but still looks vulnerable to a quick retreat to at least test the $419 level. I like it as a momentum play on the short side beneath rising support at $437.50.
ISIS has stalled out here and now is hugging rising support. A break below $20.20 opens the door for a quick selloff, making this a momentum setup on the short side. A swing stop is too far away (above today’s high at least), so I won’t take it overnight.
ENDP is also resting on rising support and could see a quick drop back toward a prior key level if it undercuts $33.25. The risk/reward isn’t ideal for this one as a swing, as well as the fact it’s a drug stock and I’m just highly selective with those on swing trades due to their ongoing potential to gap.
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.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
