Good evening StockBandits!
The indexes gained some ground last week, but once again it was primarily by way of overnight gains. The NAZ, for example, gained nearly 185 points from the low of June 24th to the high on Friday, but over 125 points of that move came via overnight gaps. That means we’ve seen pretty limited intraday strength (between the bells) on the current rally, despite the size of the bounce.
Friday’s action was erratic to say the least. The nonfarm payrolls number boosted gains which were already present in the key index futures ahead of the open on Friday, but from the opening bell there was zero strength and cash got raised from the opening levels. The market temporarily went negative and then promptly reversed back up to finish at its best levels of the day.
All eyes are on the prior highs and whether or not this bounce has the strength needed to eclipse (and then hold) them. Given the magnitude of the current 8-session lift, new long-sided trades are higher risk, generally speaking. There are plenty of bullish charts, but with the broad market somewhat stretched, I’ve got no interest in chasing the bounce here. In addition, open long positions may be ripe for some profit-taking, so don’t be afraid to lighten up if you’re still long. The indexes remain beneath major resistance zones for now.
Despite my lack of trust and the reasons behind my skepticism of the current rally, the fact of the matter is that stocks haven’t rolled over yet. It may be just a matter of time, but it’s been said that the most bullish thing the market can do is go up, and we’re seeing exactly that even if it’s in the form of a V-shaped, light-volume bounce. Friday’s “positive news” getting sold was yet another indication that there’s limited conviction on this rally. We’ve got unfilled gaps down below which could easily be revisited in the coming days and weeks, but at this point there are lots of mixed signals.
What’s so difficult here is that shorting into the move requires stepping out in front of this steep rally. That’s not my style, per se, and therefore I’ve stayed light throughout this bounce. The holiday-related volume of last week also keeps things a bit tricky on the technical side, and it’s never paid me well in trading to force new positions. Instead, I’m planning to let the dust settle a bit more on the charts and await more mature patterns.
One last note is that I am taking a week of vacation starting tomorrow. This will be my first break of the year, so it will be quite nice to have some down time! Each of us need to interrupt the routine periodically to rest and recharge, and that’s what I aim to do this week. Given the current market conditions and mixed messages on the charts, this seems like an ideal time to step away. I will have limited access to email but will not be updating the site again until I see you back here next Sunday, July 14th.
Let’s get to the charts.
NAZ – The NAZ tacked on about 75 points last week, with nearly half those gains coming overnight in the form of gaps. Of the past 44 sessions, this index has closed inside the range from 3370 to 3532 on 40 occasions. So it’s still range-bound here but in the short-term it has rallied more than 5.6% off the June 24th low, leaving it a bit extended as it approaches the prior bounce high. There’s plenty of technical overhead left, making this bounce a chance to raise some cash for many.
SP500 – The S&P rallied again last week but still has a ways to go before the prior bounce high at 1654 would be threatened. This index still has much to prove after this V bounce on light upside volume.
RUT – The RUT has exhibited exceptional strength of late and now is just 3 points shy of its all-time high. No other index is anywhere near this close. I could say the others have some catching up to do, but they’ve not exactly slacked off in the past 8 sessions. Instead, this one may be a bit overheated. Any breakout that results from this extended move would be vulnerable to failure whenever natural profit-taking kicks in next.
DJIA – The DJIA finally finished strong on Friday, but volume was far below normal. This bounce has carried a significant distance, but it still stands more than 200 points shy of the previous bounce high.
Notable Names:
These are the stocks I think belong at the top of the radar this week while I’m out.
NFLX is wedging here and even though this pattern could tighten much further, the stock may not wait for it. The upper trend line sits at $229 and declines daily, and lower lateral support is at $204. This one is plenty liquid and also optionable, so it could offer the momentum trader an opportunity soon.
GOOG is another big mover sitting in a wedge. Here again, it could certainly tighten further, but there are two trend lines to watch closely here for the start of the next move.
XONE is trying to base here and a bit more time in this area sure wouldn’t hurt. A breakout would occur above $67.10 and could see this stock regaining some of its recent momentum.
INVN is resting just beneath multi-day resistance which coincides with resistance from February. A breakout through $16.05 could draw attention to this name on the long side, although it would need to occur on better volume than we saw last week.
CSIQ is coiling here in a tight pennant and a breakout to a new high at $12.25 could jumpstart the next move. I like how nearly all the volume spikes in the past few months have been on advances in price, helping to confirm this uptrend.
ZLC is pulling back but seems to be stabilizing. A turn up through the trend line could confirm a higher low on this daily chart, ideally through the $9 whole number.
ACAD is resting over the past few weeks but has only pulled back slightly. It’s still sitting well above the previous breakout zone, and a turn up through the trend line at $18.70 would be needed to begin another leg up.
SCCO is still caught in a downtrend and a break of support at $26.40 would likely run some stops once again in this beaten-up name. Note its inability to bounce in recent days.
AGU is wedging here up against resistance but overall is still in correction mode. The current bounce has come on diminishing volume as well. A turn lower through rising support at $86.80 could trigger a retreat back toward the recent low, and there’s a well-defined upside stop just above resistance in the $89 area.
FFIV is hugging rising support here and a breakdown at $68.20 could see more market participants dumping shares to continue the downtrend.
New Swing Trade Candidates:
I will not be adding any new swing trades this week while I am out. My open position in FB will stand as-is with my existing stop and target levels.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
