Good evening StockBandits!
Last week the indexes went 0-for-5 with a Monday through Friday skid to new correction lows. That translated into 3.5% to 5.5% declines for the averages, highlighting the absence of buyers at this stage in the game. The S&P 500 just posted its 11th decline in the past 13 sessions, which really puts into perspective the pervasive weakness we’ve seen in the last few weeks.
With the bulls on hiatus, the big question here is “how far does this go?” That’s a fair question, particularly as this correction reaches double-digit percentages (NAZ and RUT). Since cracking the October-April uptrend line in the S&P several weeks ago, we’ve seen a lower high created, followed by some downside acceleration. At some point we get oversold. That word is measured by some via indicators, but to me it’s an unsustainable pace. We’re in that mode right now, but that does not at all suggest the all-clear is approaching.
Rather, we must respect the market’s ability to get and stay overbought or (in the current case) oversold. The sharper the move, whether up or down, the most ground can often times be covered at the very end. We may be approaching that, although more technical evidence is needed before we can truly trust the long side. We’ve undercut some important support zones with ease lately, so the best bet is to continue preserving capital until things stabilize and some new support is carved out.
As the market becomes short-term stretched to the downside, some kind of a bounce becomes more of a possibility here in the next couple of days. Bears will cover shorts and look to re-enter at higher prices after a bounce, and bulls may look to put some cash to work in case we see a low which sticks. With that in mind, be ready for a little added volatility and more back-and-forth price action in the days ahead. A large gap lower to cap off this particular wave of selling would be in my opinion a favorable opportunity to get long for a trade (market), so I’ll also be on watch for a wash-out move of that nature.
** Housekeeping:
I’m going to be utilizing a written version for the Broadcast quite a bit in the future, although some videos will still be provided. The fact is that the feedback I’ve received from many Bandits states a desire for a written version which can be skimmed and easily reviewed for a second look if needed. So while the video format will still allow me to provide some insights at certain times, a written letter with chart markups will be the primary method of delivery much of the time. I always appreciate feedback regarding what’s provided here, as I’ll be sharing the same kinds of insights either way but want to do it in a way which is most useful for you.
The Hit List will now no longer be a separate post, but will be rolled into the Broadcast so you can skim down below for trade entries, stop and target levels, as well as notes on open positions when applicable.
I also will be largely eliminating the Thursday night Broadcast, at least for the summer. That should help me gain some time to recharge, plus it’s also quite common for summer Fridays to be characterized by incredibly light volume, making for tougher trading days in many cases.
I’ll run through some notes on the indexes here and then share some new plays I’m eyeing.
NAZ – 2887 was given up with ease last week as this index blew through it and continued lower. The October high was 2753, which is the next potential support zone. This decline is accelerating, so we could be in for some sharp bounces, but this index remains in correction mode and therefore caution is still advised.
S&P 500 – 1294 was a key zone throughout 2011 (Feb, Mar, Apr, Jun, Jul, Oct) and then again in January of this year, and we’ve now returned to test that level with Friday’s selloff. This index is becoming a bit stretched here and may need to bounce and/or rest soon, so this may be a logical area for that to occur.
RUT – 784 support was given up last week, as was the 772 zone which proved important throughout 2011. This small-cap index is now seeking support at lower levels, and there’s nothing very clear until about 718. We may not get there, but that’s the next visible support on the chart.
DJIA – 12700 was tested two weeks ago, but the bounce attempt from there was pathetic. It’s no surprise then that last week that level was quickly forgotten as sellers stayed in control throughout the week. We’re now coming into 12300 as the next key level which played a role last July, October, and December. Being fresh off a 1000-pt drop just this month, it could be a logical area for a bounce attempt to kick in.
Charts of Interest:
Below are some charts of interest, from market leaders to example charts:
Tech leader AAPL has suffered considerably of late and remains in a downtrend channel. Potential support is coming into view, but may not hold.
Financials continue to suffer and JPM keeps painting red bars after a slide from the April highs accelerated recently on news of a big trading loss. Confidence is running low as this one seeks buyers at lower levels.
The FB hype is now (finally) out of the way, and boy did this one disappoint on Friday. After pricing at $38 and then opening at $42, it promptly returned to $38 multiple times during Friday’s session. This is a great depiction of the lack of interest from Main Street right now in stocks when every media outlet fixates on a hot IPO like this and it fails to materialize in anything but intraday weakness.
V is a stock which is worth watching as it’s starting to correct. As a small window into the consumer, it’s struggling to hold up here, but currently sits above an unfilled gap.
Top of the Watch List:
Below are stocks which are starting to set up but which are not quite ready for plays.
PAY has pulled back from its spring highs and currently is holding above short-term support. I’d be eyeing a swing trade here on the short side if not for earnings being scheduled for this week. A new low would be made at $43.30 so it may offer a quick play here. If not, I’ll look to revisit this chart post-earnings.
SLW has been trending lower for a couple of months with every little bounce bringing in more selling. Here it’s off a 3-day bounce but may be starting to slow down. I’d like to see it stall out in this area for a day or two and then consider a short below the $24.40 level for continuation of the downtrend.
New Trades:
These are the stocks I’m setting up for new plays. I will wait for my trigger price before entering, and all stop and target levels are provided below. For those of you who are new here, please see the Swing Trading Strategy for more details on how I manage these trades.
UPL recently carved out some support above the April low, creating at least a short-term higher low. I’m watching the descending trend line at $19.40 for an upside break to indicate this one is ready to climb again, so I’ll be a buyer if that level is cleared. My stop will be set just below recent support and I’ll be looking for a return toward the recovery high from a couple of weeks ago. Detailed levels are outlined on the grid below.
HFC has been finding support in the $28 area and has held it so far. Every bounce has resulted in a short-term lower high in recent weeks, so it appears that while support is holding that the sellers are still in charge here. I’ll get short if this one undercuts $27.90 looking for a play to lower levels, but will keep a pretty tight stop just in case of a head fake. Detailed trade levels are outlined on the grid below.
[table “280” not found /]
Trades Overview:
This list is a look at our current & potential swing trading positions. Stocks we are already in have “triggered”, while those we are considering for plays have not triggered. Click post title to view print-friendly link.
UPL & HFC added
Open Position Notes:
No open positions – 100% cash waiting for new entries.
Closed Positions:
No closed positions.
Jeff,
If I read this post correctly, there are only 2 Swing Trades and no day trades. Is this correct or am I confused by the format. If there are day trades (either here or future) then a table of them as before is highly desired.
Also, in this format, can the chart background at least for printing, be something other than black. When printing black on an injet, the cartridge is used up very quickly. On a laser jet, a lot of toner goes. This is all very “un-green” besides being costly.
Jon 🙂
Hi Jon,
That is correct, and I’m glad you asked. I’m looking to make swings the primary focus here but will highlight other plays via the ‘Top of the Watch List’ and ‘Charts of Interest’ sections for those who are seeking day trades. It’s just that the day trading strategy, while useful, has always prompted more questions than ‘aha’ moments. The fact is that day trades are much more of an art than a science – especially when highlighted the night before not knowing if we’ll have gap conditions – so it’s extremely difficult to even apply a strategy to all trades…some need more room to wiggle, some need less, some days we trend better, some days the volume is lacking, etc., so I just have felt like the day trades have resulted in greater confusion than help, which was never the aim. I have never provided intraday exits on the day trades and do not plan to, so it leaves things a bit vague for those seeking to follow all the plays here. That’s not of benefit to anyone, so I’m wanting to make a positive change here in that regard.
Additionally, the majority of subscribers here are not day trading, so my intent is to be relevant while sharing more plays with a wider variety of risk profiles (for example, with the swings some may have stops of 6-8%, others may be tighter at 2-3%). This way, the part-time traders and the swing traders who make up the majority here are being presented with pertinent info on trades I’m making (not flooded with too many day trade ideas), and those who day trade will have some additional names highlighted if they wish to pursue them, whether via the sections previously mentioned or by way of the Bullish/Bearish watch lists.
The difficulty for me is that while I will continue to day trade (and swing & position trade), if I’m not willing to devote the trading day to following up on those ideas then I’m not really serving well by highlighting entries and leaving the rest up to each person. I don’t think that’s wrong to do (as I have done it for years), I am just looking to provide a more complete picture here going forward. The fact is that previously those who took the day trades may have had a framework/strategy to begin with, but they were still 100% on their own to manage the trade. Going forward, those who are willing to self direct will have setups presented which they can still pursue, they just won’t be labeled ‘day trades’ and therefore less overall confusion will be the result (hopefully).
Does this help to clarify?
And yes in this format I can utilize lighter color charts (perhaps white) for those who wish to print, shouldn’t be a problem to do that at all.
Get ’em this week!