Good evening StockBandits!
The market put together another rebound attempt today with an upside opening. However, the early strength was again used for selling as we saw a partial gap fill for the first hour of the day. Prices lifted a bit from there, but weren’t able to get very far beyond the opening highs, which left us range-bound for the majority of the session. An afternoon lift in the final hour was met with selling into the bell, negating the effort. In the end, the averages finished green on the day but closed almost exactly where they opened (post-gap).
The key point right now is that although the market is trying to stabilize, each of the major averages are beneath former support zones. Seeing those levels get broken last week and subsequent bounce attempts fail to reclaim them in recent days is disappointing for the bulls. Days like today where we bounce but don’t reclaim those zones serve as a reminder that rallies serve the purpose of selling for now, at least until more bullish technical conditions arrive. Former support is now resistance, or overhead. For now, we’ve broken down and are simply churning, which is still bearish even on an up day.
Something about a rebound like this that comes right on the heels of a huge multi-day move and where price finishes well off the highs seems to scream “dead cat” to me, although I’m going to respect the bounce for now. The fact is that I’d prefer to see a bounce carry a bit farther, as I expect we’ll see plenty of bear flags and pennants forming over the coming few days after the sharp declines of last week. Some stalled-out price action after bounces will set up much better conditions for shorting. I’m also looking to tread lightly on the long side while waiting for the dust to settle a bit.
Let’s get to the charts.
NAZ – The NAZ bounced back some today, but peaked at 3358, 12 points shy of the 3370 key level it just broke. That’s overhead until this index can get back above it, and even then it’ll have considerable room left for creating another lower high.
SP500 – The S&P respected 1597 today from below, which is the big number to watch on the way back up.
RUT – The RUT added 1% today but remains in questionable shape here after a quick 6% decline last week following the lower high. I’m watching 970 on the way back up, as it could pose as resistance for this bounce.
DJIA – The DJIA added 100 points today, but finished without vigor and saw quiet volume accompany the bounce. Former support at 14887 may now serve as resistance, so that’s the next level on the way up I’ll be watching closely.
Notable Names:
LEN is a good example of what can happen once a major technical break occurs. Last week it broke below its wide channel, then today had positive news which gapped price back above former support. The strength was quickly sold, and the stock finished much closer to its low of the day than its high, sliding $1.36 between the opening bell and the closing bell. Respect breaks, they tend to happen for a reason.
WAG is a good look at a megaphone pattern or broadening top. The stock had made an incremental higher high a few weeks ago, then a lower low, then bounced back but failed to clear the prior high. Today it sold off hard and now bounces are likely to get sold for a while.
PMF is a closed end bond fund and there are many others like this (DSM, MUE, EIM, NMO, etc.) which had been somewhat stable names and have suddenly been crushed. It may not be done, but I’m showing this to demonstrate the pain some folks are in right now who thought they were in “safe and stable” instruments only to see bonds fall apart. Whether it’s a trade or an investment, always respect support and when it gets broken, expect lower prices.
DDD resolved its wedge lower last week and now is bouncing back to test the trend line from below. It needs to lift a bit further to validate the trend line from below, but I’m seeing quite a few charts like this which could produce some shortable setups for swings in the days to come.
AXP is challenging its descending trend line of this falling wedge and a break above $73.80 could invite some buyers to the picture. I like it for a momentum play above that level for Wednesday, but this setup isn’t compelling enough for a swing (note today’s quieter upside volume for example, which suggests a quicker trade could be best for now).
NXST was shown here the last two nights and could finally be gearing up for a push through short-term resistance at $34.50. I’ll take it for a momentum play Wednesday if it can clear that level, but a swing stop is still a bit too wide for me (~6%) at this point.
SODA is just beneath a trend line which has marked the pace of the short-term dip off the highs. A turn up through $71.10 could set it free for a quick lift, so I like it for a momentum play Wednesday if it can clear the trend line. A swing stop is too far away for me at the moment, unless this base tightens in the coming days.
DVA is at rising support and just carved out a lower high. This could be a pivotal next day or two for this stock, so if it breaks $121.20 I like it for a quick short as a momentum play at least for a move back toward $117. There is no clear upside stop for a swing, so if it goes on Wednesday I’ll just take the single-day move.
New Swing Trade Candidates:
I’m back to cash tonight after closing out my last short this morning (FSLR). I’ll put on more swings as they come available, but right now the weakness is too pervasive to get long and we’ve come a bit too far too fast to add shorts until a slightly better bounce takes place.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
