Good evening StockBandits!
The indexes each reached new highs last week, but the way they did it left something to be desired. After tremendous multi-week runs (with virtually no rest), the pace has noticeably slowed. That’s for good reason, as few seem inclined to sell yet but there’s not much desire to buy up here either. That leaves traders at a bit of a standoff, and throw into the mix mid-summer vacations and major earnings announcements and it’s grounds for caution.
We’ve now seen similar-sized moves to the rallies off the April lows into the May highs as well, lending some credibility to the notion that markets tend to move with a rhythm. The RUT, for example, just rallied the exact same amount off the June low as it did from the April pullback low to the May peak (110 points). That doesn’t in itself mean that it’s done or that it cannot go higher, but it does give reasons to exercise some restraint here when it comes to deploying capital on the long side. Markets usually have memories.
I’ve been limited in my activity for the past few weeks simply because the move has been so nonstop. Prior to Friday, the NAZ had gone 15 of 17, so you’d have to put your track shoes on to chase down that kind of a move. This has been a market that has rewarded a lack of concern for risk, as there’s been no basing activity to speak of (meaning very few consolidations) and no back-and-forth for a contrarian style either. The buy-and-hope crowd has done well, but among active traders the extended nature of the market and the narrow intraday ranges we’ve seen of late has translated into fewer opportunities.
We did see a rest on Friday, primarily due to some heavyweight tech stocks exhibiting some weakness. That delivered the first little dip in the NAZ in several weeks, although the other averages essentially held their ground. Some profit-taking at this juncture would come as no surprise, but I’m reluctant to short it simply because the bulls seem so likely to defend any pullback.
Let’s get to the charts.
NAZ – The NAZ didn’t quite see as big of a move off the June low as it did from April to May, although this move has been very similar in size (330 points vs. 378 points). That gives no guarantees for a rest, but Friday certainly may have been the beginning of one and it would benefit the longer-term health of the rally if this index could pause here.
SP500 – The S&P also has seen a similar-sized rally to the April-May lift (151 points from low to high) since the June 24th low (133 points). This index has also just advanced in 15 of the last 18 sessions, which isn’t a sustainable pace. It is sitting at new highs here though, so a pullback could remain relatively shallow once it arrives. The gap to 1652 from two weeks ago is the first downside level to watch should this index happen to slide.
RUT – The RUT just put up a duplicate rally to the April/May rally off the June low with each of them being 110 points from the low to the high. Granted, this index may not be done yet, but I’m confident I’m not the only one recognizing this fact. That could bring some short-term reluctance to press the long side here in small caps, which is something to consider with this index so extended. I’d be extremely cautious on any gap higher at this point, as it could point to some short-term exhaustion.
DJIA – The DJIA isn’t nearly as stretched as the other indexes, leaving it in better technical shape as it sits at the top end of its range. However, it’s likely to take its cues from the S&P 500 and NAZ and therefore appears less likely to suddenly take the lead in the momentum category.
Notable Names:
AAPL is turning lower here after potentially carving out another lower high. It has ample room to retreat further toward the key support at $385, although with earnings due out Tuesday of this week anything is possible. Any further weakness would weigh on the NAZ.
MSFT still has the ability to impact the NAZ, as we saw on Friday after a negative response to earnings sent this old-school tech stock south to the tune of 11%. It may not be done selling off either, as this was a major negative change of character.
GOOG is holding uptrend support after another test on Friday post-earnings. Any breakdown from here would put the $1000 charge on hold for the time being. For now, the breakout attempts have trapped some recent buyers given that that breakout didn’t stick.
DDD looks good here for a move higher but there’s not enough time for a swing since it’s due to report earnings a week from Tuesday. Therefore, it’s a momentum setup for Monday and a turn through $47.50 gives it room to run a few points before next resistance is met.
SNTS perked up Friday after a multi-day dip and a push through the small trend line at $25.15 sets up a momentum play for Monday. It’s been a bit erratic in recent weeks, making it less than ideal for an overnight swing.
GRMN could clear resistance and start to fill the gap any day now. I’m looking to take it for a momentum play Monday if it clears $37.10, although earnings are due out a week from Wednesday and that’s not enough time to warrant a multi-day swing for me.
MELI is resting on rising support and a break below $104.90 sets up a momentum short for Monday. Earnings are due out a week from Monday, so it’s not a swing candidate given the brief window of time it would have to move and I’ll therefore just look to capture the initial breakdown if it occurs.
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.
CLDX has been highlighted here a few times lately as I’ve been stalking this setup during the development of this base. The pennant has tightened enough here to warrant a play, so I’m setting up a swing on the long side. I’ll get long if it clears the upper trend line at $21.65 to get back on the move, and will have a protective stop beneath the base. I’ll be looking for a target that’s slightly more conservative than the width of this triangle. Earnings are due out in two weeks, so there’s a little time for it to go. I’ll look to adjust it aggressively along the way as earnings approach.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
