Happy Memorial Day StockBandits!
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The indexes saw their first multi-day pullback last week since mid-April following a straight-up month-long advance. The shakeup left autopilot bulls wondering what suddenly happened, but the fact was the market was long overdue for some profit-taking at the very least. It coincided with Fed news, but conditions were ripe for some selling and Bernanke’s comments on tapering the QE program were as good a reason as any to initiate it.
We did see some strength early in the week, but overall the selling was enough to produce net declines for each of the averages following 4-week streaks of upside. The result was basically a 1% decline for the NAZ, S&P, and RUT, while the DJIA gave up about half that. When viewed in that context, it wasn’t exactly a terrible week for the bulls.
I’ve noted here quite a bit lately that a pullback would be healthy for the market, and at the very least we’ve gotten a small one here. The knee-jerk response to a couple of down days after such persistent strength is to ask whether we’re now going to trend lower. It’s much more likely that this simply kicks off essentially a rest phase, as the bulls just don’t often lose faith quickly after a 6-month rally, especially when they’ve been paid so handsomely to buy every dip. That isn’t a prediction that this dip will see a similar fate, but simply an objective statement that the trend hasn’t technically changed yet – we’ve simply seen a small pullback off the highs so far.
Sentiment should be the interesting factor in the near term. Psychologically, the bears now have their first glimmer of hope in several weeks, so it could shape up to be a pretty good battle in the near term to set the tone for the early summer. At the same time, the bulls have certainly enjoyed a nice run so should they happen to raise more cash ahead of the summer, who could blame them?
My reduced activity in recent weeks has been due to the straight-up nature of the move. I’m not one to chase prices higher indefinitely, and there has been so little basing lately that very few patterns have emerged on the charts. I am glad to see even a minor dip to help shake things up, and we now have some levels to utilize in the coming days as short-term support and resistance. As a result, I expect to see more charts setting up imminently.
Let’s get to the charts.
NAZ – The NAZ shed a little over 1% last week, but more importantly it established some levels we can work with. Price is holding between Thursday’s low of 3422 and Wednesday’s intraday high at 3532, so we’ll see if this range is maintained or broken. Should we happen to sell off from here, the unfilled gap beginning at 3370 would be the next level to possibly be tested.
SP500 – The S&P also shed 1% last week, and may have created a 52-point trading range in the process. If price falls out of this range to the downside, I’d expect to see a test of 1597 (former resistance).
RUT – The RUT cleared 1000 last week and topped out at 1008 on Wednesday before a swan-dive reversal to the downside took it quickly to 970. Price is now caught between those two levels, so it’s the operating trading range until proven otherwise. A rest here was long overdue, and finally came.
DJIA – The DJIA saw some subdued price action compared to the other indexes last week, yet still established a short-term trading range to give us a pair of levels to monitor early this coming week.
Notable Names:
FB has repeatedly tested the $25 area and finally broke down late last week. This is a very important break for the stock, although it’s not really in a position to be shorted here after declines in 7 of the last 8 sessions. A bounce back toward support would offer a better setup, but this is a technical break and should not be ignored.
GLD has simply marked time since testing support and may break down again soon. Support buys should not be made when in a downtrend like this one, and support should instead be watched for a breakdown.
MSFT saw a small pullback last week similar to one we saw 3 weeks ago, but overall it remains in an uptrend. This may offer bulls a chance to reload, although the more important element here is the index importance of this tech giant, as a turn back up would help out the NAZ.
BYD is a nice setup here and is getting tighter by the day. As it currently stands, a technical buy at $12.90 is just a bit too far from a swing stop which would go beneath this base. As such, I’m interested here in a momentum play on the long side rather than a swing. If price can stay in this base for just another day or two, it would bring the risk factor down enough to set up a swing.
WNR has a shot at a rally here if it can clear the trend line at $31.55. This isn’t a viable swing for me due to the risk/reward as next resistance isn’t far enough away compared to short-term support for a stop. Instead, I’ll take it for a momentum play if it clears the trend line Tuesday.
LYV is facing resistance here and could see a pop. However, a swing stop is 6.3% away, which is too far for my liking. Instead, I like it for a momentum play to capture the initial move if it can clear $14.25, but it will not be an overnight play for me.
AU hasn’t bounced and instead is just resting on support. A break below $16.20 sets up a momentum short.
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.
MPC has pulled back for a few days after creating a couple of short-term higher lows since the May low. A turn up through the trend line at $82.45 could see this stock gather momentum for a return to resistance from March. I’ll get long above the trend line for a swing and will utilize last week’s low as a stop.
SLW has bounced a bit from its recent low but is now stalling out and starting to weaken again. A breakdown from this rising wedge at $22.55 will trigger a swing short for me as it begins another leg down. I’ll have a protective buy stop above the base in case of a reversal, and will be looking for a similar selloff to the one out of the previous base.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
