Good evening StockBandits!
Last week we saw a bit of a trampoline effect as the indexes each continued lower from the previous two-week declines to mark new pullback lows off the May highs. Thursday morning provided the ideal scenario for bulls, however, as the indexes came into key levels. With the “mat” a bit short-term stretched, prices sprung higher quickly from those key areas. Shorts covered and bulls to put cash to work, producing a sizeable intraday bounce on Thursday. Then on Friday, the highly-anticipated jobs number didn’t disappoint, and the strength which followed provided enough fuel to lift each of the averages well into positive territory for the week.
The big question now is whether this is a bounce that will soon fail by stopping shy of the May highs, or if it’s simply another dip which has been bought like all the others that will soon lead to more new highs. It’s too early to determine, and fortunately we don’t need a crystal ball as traders. Our job is to identify good opportunities to put capital at risk when there’s apparent potential to make a multiple of what we’re risking. It also involves a willingness to wait for those opportunities when few are prevalent, as they have been lately with all the back and forth that has accompanied this trading range.
Follow through isn’t found when prices are caught between boundaries, so we get frequent reversals and very limited moves in terms of duration when trading ranges like this come along. In time that will change and we’ll exit the range (that rhymed!), but for now it’s the state of the market we find ourselves in. One positive about it is that we’ve spent a few weeks doing something other than the nonstop upside grind, so new bases are being constructed and that will benefit us once they reach maturity to give us some new levels to trade from.
This weekend in reviewing my watchlists, there were many stocks which have rebounded sharply in the last two sessions but which have recently shown a change of character. That leaves me suspect of chasing strength here. My plan is to stay selective and wait to see if this bounce results in a lower high, as the recent trading range breakdowns don’t at all rule out that possibility.
Let’s get to the charts.
NAZ – The NAZ saw a sharp bounce off the Thursday morning low which nearly tested the unfilled gap from early May. The rebound was marked by strong finishes both Thursday and Friday, leaving this index just above the middle of the range. Follow through is hard to come by when caught in a range like this, and recent sessions have reminded us of that. Stay on your toes out there and be willing to trade both sides as opportunities arise. The fact is that with frequent reversals, that can serve as a natural hedge.
SP500 – The S&P pulled back into Thursday morning to within 1 point of the 1597 level I’ve highlighted here lately. That was resistance in April which gave way to the May breakout, and also coincides with the uptrend line off the November low. The convergence of those two levels and a pullback of roughly 5.3% provided enough incentive for the bulls to step in and put cash to work once again. How far this bounce carries will tell us quite a lot in the days ahead as to the resolve of the bulls to continue the uptrend.
RUT – The RUT undercut the trading range low of 970 last week on Wednesday, but immediately reclaimed it on Thursday and moved higher on Friday to push back toward the center portion of the trading range. 970 is the downside zone to watch, whereas 1008 is upper resistance.
DJIA – The DJIA briefly undercut former resistance at 14887 on Thursday, spending only about an hour beneath it before reclaiming it with a sharp bounce. The lift into Friday’s close from Thursday’s low was over 400 points, putting into perspective just how sharp the lift was. Nonetheless, this index remains another 300 points shy of a new high, so we’ll monitor the situation closely to determine in the coming days whether or not this V-shaped rebound is just like the others and results in another leg up, or if instead it fizzles out shy of the highs. If we witness the latter scenario, a lower short-term high could shift the mood and warrant continued caution. For now, the uptrend remains intact.
Notable Names:
WTW is a stock to watch in the days ahead as it is starting to show some positive signs after a big correction. If it’s able to hold recent support (a higher low), the next turn up could begin a fresh uptrend for the stock as a recovery/position play. I’m waiting for now but I like how it’s shaping up.
OSTK is an example of a stock that has been lively of late (volatile). I listed this one last week as a momentum play above resistance, but I didn’t like the prospects of holding it overnight mainly due to the wide stop it would require. Last week it cleared resistance and then promptly failed, serving as a reminder that nothing is a given in the current market. It had held up during the recent market pullback, then when the market lifted and it broke resistance it still wasn’t able to hold onto the breakout. This is a time to stay alert and vigilant due to moves like this.
QIHU is still working on this base and needs a bit more time to tighten up. Price is currently right between the trend lines, so it doesn’t appear as though it’s quite ready to move. That could change in a day or two, so I’m keeping it on watch.
YY is pressuring a trend line here and a push through $29.05 sets up a momentum breakout play here. Given the distance from that technical entry to a stop, I’m not interested in taking it for a swing. I will instead just look to participate in the initial breakout move if it occurs Monday.
VSH is nearing a decision point within this wedge and if it gets resolved higher through $14.70, I like it for a single-day momentum play. The recent high is within the realm of a normal day’s move of about 3%, which could produce some cash flow.
EVEP is trending lower and has paused just briefly in the past few days. A break to a new low at $36.60 looks good for a momentum short sale, but there’s no clear-cut stop for a swing so I won’t hold this one overnight.
DK may need a little more time to threaten support but given the relative weakness in the last couple of sessions, this is one I’m watching for a breakdown out of this multi-month range. If that happens Monday, I’ll just take it for a momentum play on the short side below $33.60.
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.
GT stabilized after its recent dip and a turn up through the trend line at $15.05 will trigger a buy for me as a swing trade. I like how mid-May resistance served as a support area in the past few days, and higher lows have remained intact for many weeks.
SCCO has trended lower and more recently has rested just above support. The failure to lift from this area suggests another move lower may be imminent. I’ll get short for a swing trade below $30.60 with a stop just above multi-day resistance in case it happens to turn back up. Otherwise, this has room to continue lower.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
