Good evening StockBandits!
Just when it seemed the market might actually stagnate forever, last week rolls in and we finally get a character change. This time, it was on the downside as multi-week support got broken following a NAZ rejection at the highs. Surprisingly, the Dow actually was the first to undercut support, making it for the moment the leader of this move. The selling coincided with some negative news Wednesday evening and Thursday morning, and soon enough we saw a short-term correction begin.
On Friday, a soft open was met with some buying which took the market positive, although it couldn’t stick and by the end of the session each of the averages painted another red bar. That constitutes some follow through, and a defensive posture is warranted here. Technical damage has now been done and the bulls now shoulder the burden of proof for the first time in awhile. On the flip side, the bears feel rejuvenated for once and that could produce some greater volatility for us at long last.
What I’m watching for now is a possible bounce back toward broken support or perhaps even toward the unfilled gap which extends to Wednesday’s close to create a short-term lower high. That should provide a better shorting opportunity for the indexes and many other stocks.
I was able to put on a few shorts last week, but they came alongside some longs I had which I was stopped out of. I mentioned that I was naturally hedged and that once an exit from the range took place, it would help to eliminate one side of the market for me (in this case the long side) and ideally help me be primarily positioned in the direction of the new short-term trend. For now, that appears to be down, so I’ll maintain that technical bias until the charts tell a different story. There will be long-sided opportunities, I just want to be careful not to be positioned net long while the market is correcting.
Speaking of charts, let’s get to them.
NAZ – The NAZ undercut its first level of support last week and held beneath it. The rejection from the highs earlier in the week was one catalyst, along with headlines (CSCO being one of them) and weakness in other indexes all worked together to create a break. Now we’ll see which downside levels price gravitates toward in the days and weeks ahead. Given the size of this initial pullback of nearly 100 points in just a couple of days, I would expect to see bounce attempts used for raising cash and establishing new shorts.
SP500 – The S&P undercut 1671 to exit its 5-week range to the downside on heavy volume. This index is now starting to retrace some of the July advance and here again I expect bounces to be used for selling in the short term given this negative character change.
RUT – The RUT gapped and ran lower mid-week after failing to reclaim 1056. It now faces a gap fill to 1020, followed by a potential test of prior resistance at 1008. Bounces should be utilized for selling after the failed breakout and subsequent hard breakdown we just saw.
DJIA – The DJIA left the 15400-15600 range last week with a hard break lower and now is holding just above 15000. Next level to keep an eye on is 14887. Bounces will be for selling in the near term given this index’s inability to hold the 15600 breakout.
Notable Names:
AAPL has become extended here after some nice outperformance and filling a good portion of the gap from January. A pullback could eventually prove buyable, but this one looks due for a rest here after blowing through prior bounce highs (seen via the lateral trend lines).
GS failed its breakout attempt but now has taken on the look of a cup & handle. Price will need to clear the upper trend line first and then make a new high to confirm it, but this is a setup to keep an eye on as this chart hasn’t deteriorated much yet.
CSX is still sitting just beneath this descending trend line, which is rather steep. A turn up through $25.35 could be worth a momentum play on the long side for Monday as price breaks free for a quick rally. This chart just isn’t compelling enough for a swing though.
FLR is at key resistance and a new high at $67.20 interests me for a momentum play on the long side. This stock has been rather reversal-prone so I don’t intend to hang around, but it looks to be building up some pressure here with this pennant and could see a quick burst of buying if a new high is made on Monday.
SHLD is another stock that tends to reverse frequently. However, here it looks ripe for a quick play on the short side if it breaks $40.60. The risk/reward for a swing isn’t appealing, so I’ll just take it for a momentum play on Monday if it goes.
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.
VALE just made a higher low then rallied sharply through its primary downtrend line. This points to a big change of character and now price is flagging. A turn up through $15.75 will trigger a buy for me as a swing with a stop beneath the pullback low, looking for another spurt of strength as a turning point gets embraced.
DIS has remained range-bound and just sold off to support. A turn up through $62.55 would suggest support has held, so I’ll get long there for a swing trade, looking for a return to the upper portion of the range. Should it happen to reverse lower and break down, I’ll stop out.
CCJ has bounced quietly off its recent correction low but hasn’t done so convincingly. This bearish wedge looks like it could resolve lower any day now, so I’ll get short upon a break of $19.60 looking for a retreat toward the spring low with a protective buy stop above short-term resistance.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
