Good evening StockBandits!
So much for last week’s strength being questionable. I say that half-sarcastically, of course, because the way in which we rallied was definitely suspect given the weak finishes in 3 of the 4 sessions. But this week so far we’ve seen nothing but follow through with a trend day yesterday and continued strength today to make a new recovery high. The S&P rallied to less than 1 point away from the 1685 gap I pointed out last night, while the NAZ added to Monday’s breakout.
The confidence the bears were beginning to feel in the last few weeks is quickly eroding with this resilient market, and why shouldn’t it? It’s been said that the most bullish thing the market can do is go up, and it’s been doing a lot of that lately (8 of the last 9 sessions). When the NAZ saw 3573 defended to the number and the RUT hold 1 point above 1008 two weeks ago, a bounce was to be expected but we’ve gotten much more than that. Caution has been thrown out the window and traders don’t seem the least bit concerned about Syria (or tonight’s Presidential address) or anything else. It’s a bull market and cash is not being left on the sidelines.
What’s difficult here is that the market is exhibiting this persistent strength but aiming to join the move that’s already in progress naturally entails higher risk. Given the trading ranges, some back is to be expected with all this forth. Chasing extended moves is a recipe for being late to the party, and the current move is certainly becoming extended (RUT up 5% from the low 5 days ago).
I’m not overly bearish here but I am going to exercise some caution in terms of adding new long-sided positions until we see a pullback or some rest. My inclination is to seek out some shorts over the next couple of days in names which either have stalled out or are exhibiting some relative weakness, as they seem to be the higher probability setups at the current juncture. There will still be some long-sided opportunities, I just want to be mindful of the conditions under which I’m entering new buys.
Let’s get to the charts.
NAZ – The NAZ broke out yesterday and continued higher today on heavy volume with a strong finish. This index is becoming extended, however, so a rest or some profit-taking at this juncture would be healthy to see. Even a pullback to test the breakout area would be of benefit, but with the bulls running it’s hard to say when that happens.
SP500 – The S&P is nearing completion of its gap fill to 1685, and tonight finished just about 1 point away from it. Here again, the one-way nature of this lift over the past 9 sessions has price getting extended and due for a rest.
RUT – The RUT is back to the 1056 area tonight after ramping through 1036 yesterday. This index has made great strides since the low of 1009 last week, and despite the strong closes of the past 2 sessions a rest is becoming increasingly likely.
DJIA – The DJIA sits some 431 points above the August low as of tonight’s close, which is a big lift considering its very recent inability to hold a bid. There’s still room to rally before the 15400 former support level is reached, but a pullback before then would be healthy given the size of this quick rally.
Notable Names:
FB still keeps cruising higher but rising support serves the role of a trailing stop for those playing the long side. I wouldn’t initiate a trade up here, but if I were long I’d be utilizing the rising trend line as it has set the pace for the current move.
AAPL was the big story today but despite all the excitement it still sits between a pair of key levels tonight. Until it exits this range, a lasting move cannot be expected.
LNKD is another stock which has rising support setting the pace for its current advance. Like the FB setup above, this isn’t setting up for an entry here but rising support can serve as a trailing stop.
HAR is trying to turn up here and some stronger volume could do the trick. I like it for a single-day play above the $66.30 level, but the lack of upside volume prevents it from being a swing candidate for me.
PWRD is also perking up here and volume was strong today. There’s not a ton of room of upside but a test of the highs could happen in short order so I like it for a single-day play above $21.10 if price clears that level on Wednesday.
BBBY is sitting on short-term support here and a break below it could trigger a wave of selling. This looks good for a single-day play on the short side below $71.50, but there isn’t a lot of room for it to retreat so the risk/reward for a swing isn’t compelling.
TSO is at key support and has struggled to lift from it in the last couple of weeks. A swing stop would be farther away than I would prefer tonight, so instead I’ll just look to play it on the short side as a momentum play on Wednesday to participate in the initial break of support should it happen. I would deem that to have happened if $45.30 gets broken to the downside.
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.
CME has been in quiet pullback mode for a couple of months but price has stabilized lately and could clear the downtrend line any day now. I’ll look to get long for a swing if it clears $74 with a tight stop and an eventual target near the summer high.
WDC has bounced back to test the downtrend line and also has a steep rising trend line just below. This sets up a compression pattern so if price breaks $65 to the downside, I’ll get short with a stop above the descending trend line. I’ll be looking for a retreat near the recent low as a final target.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
