Good evening StockBandits!
Habits can be hard to break, and we see that in the market all the time. This year, we’ve seen habits of nonstop buying, of dips getting bought, habits of indecision, and now we’re seeing the habit of bounces getting sold. The NAZ, for example, has now created 3 short-term lower highs since it peaked Aug. 5th. Lately, strength has been used for selling – repeatedly – and it’s proving to be a hard habit for the bulls to break. Habits in the market do change, but right now it’s clear the type of rut it’s stuck in.
The bulls have owned this market (literally and figuratively) all year. Actually, more than a year. Going back to last November, we’ve seen numerous intermediate-term higher lows and the creation of higher highs on many occasions. The trend has been up, and the bears can’t seem to catch a break. Until lately. But over the past few weeks, the need for some digestion in this market prompted some profit-taking and suddenly we’re now correcting. Some indexes are holding narrowly above multi-month support zones (NAZ, RUT), but others have broken down (S&P, DJIA) and that’s producing a pretty good battle between bulls and bears.
The headlines provide plenty to worry about, whether it’s Syria, QE/tapering, the return of the debt ceiling, or any of a host of other geopolitical items. BUT, as traders, it’s imperative that we stick to what’s unbiased and completely transparent: the charts. For those of us with shorter timeframes (days to weeks), the trend is working lower and that’s what matters until it changes. It might slow or accelerate, but we’ve got a directional bias to respect at the moment and that means continued caution on the long side until it changes (and eventually it will).
Let’s get to the charts.
NAZ – The NAZ tested 3573 last week, bounced slightly, but now is turning back down toward support. A break there and we could see the gap fill relatively quickly to the 3520 level from mid-July. Volume was quiet Friday ahead of the 3-day weekend, as it tends to be each year prior to Labor Day.
SP500 – The S&P failed to reclaim 1671 last week despite having a chance, which only further solidified that as an important level. It’s trending lower and really has no nearby support level to gravitate to other than a small congestion zone from 1612-1615 last seen in early July.
RUT – The RUT is finally back to test the 1008 breakout zone, which I’ve been looking for in recent weeks. There’s no guarantee that level will hold, and if it happens to fail, this index has plenty of room to retreat further before prior support is found.
DJIA – The DJIA broke a former key level last week at 14887, then validated it from beneath with a failed bounce attempt mid-week before turning lower ahead of the long weekend. This index has room down to the June low or beyond, so continued caution here is advised. The trend is down and that must be respected.
Notable Names:
INVN is pressuring resistance here and could break out at any time. A push through $18.05 on Tuesday and I’ll take it for a single-day momentum play, although I’d prefer to see this base tighten just a bit further before considering a swing (narrower stop).
MCO is resting just above support here and a breakdown at $62.80 could trigger some stops. I like it on the short side for a momentum play for Tuesday, although July support isn’t far away so this isn’t a swing candidate for me.
FSLR is still holding the $36.50 area but if it gets through it, we could see a swift selloff. This stock has been weak for some time now and all eyes are on this key level. I like it for a momentum play on the short side for Tuesday if it breaks $36.50.
IOC was listed here last week but didn’t make much progress on the downside when it undercut rising support. I’m willing to give it another shot for Tuesday, so I’ll take it for a momentum play on the short side if it breaks the whole number at $68. A swing stop would be very wide and there’s room for this one to run, but it’s just a bit more volatile than I generally prefer for a swing.
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.
REXX is working on a very clean triangle here and is nearing a decision point. Given the prevailing trend, I’m looking for a play here on the long side. I’ll be a buyer for a swing if this one clears the trend line at $21.10 to begin a new leg up. I’ll be using rising support for my initial stop, and would like to see volume expand to help confirm a breakout.
AXLL has returned to key support and could trigger a wave of stops should it happen to undercut $39.80 to make a new low. I’ll get short for a swing trade if that breakdown occurs, and will have a protective buy stop above the trend line at $41.15. This one has room to retreat further so I’ll be setting my targets at prior levels on the downside.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
