Good evening StockBandits!
The late-May bounce attempt has struggled to prove itself in recent days, and I’ve noted that here in a few ways. We first saw limited upside on the rebound, indicating the bulls weren’t highly intent on producing lasting upside. Then we saw an inability to reclaim key levels (NAZ 2887, DJIA 12700, S&P 1335), suggesting that the sellers were still in charge. And alongside those two technical issues was the fact that upside volume was poor, even if it came in conjunction with a major holiday like Memorial Day.
All those issues came to a head last week as we saw the final straw with a return of selling pressure creating a new correction low. That solidified the lower-high scenario we’ve been watching here, and it reminds us that this is a time to be leaning short (which we are) or sitting on high levels of cash.
Caution has been the word here for several weeks now, ever since we saw the change of character in April. At that point, dips stopped getting bought with the same aggression we saw throughout January, February, and March, and then we saw the first lower high established on May 1st. Since then, the market has worked steadily lower with a number of technical clues giving us all the necessary signals to avoid trading the long side aggressively.
At this point, the big question on everyone’s mind is how far this will carry. Just over the weekend, I read a couple of articles which were heavily slanted toward the bearish side. One cited the S&P 500 breaking the 200-day moving average on Friday afternoon and the wave of technical selling that could create come Monday morning. Another cited the need (or market’s apparent hope) for Fed intervention via QE3 with the poor econ numbers like Friday’s jobs report, stating that if we didn’t get it then we could melt down on Monday. And yet another was literally a proclamation that the end of the financial world as we know it is upon us in the next 6 months and that there’s nothing that can stop the avalanche of debt worldwide which will cause countries to default, governments to declare bankruptcy, and closings of major banks – including the stock market itself closing.
While each of those scenarios may be a bit overstated (to say the least), they do highlight the current mood quite well. Stocks are getting shunned for the safety of the sidelines while all this uncertainty plays out. Gauging the sentiment, there’s clearly widespread concern at the moment, but the VIX isn’t signaling a peak in fear at this point so we could see the mood remain sour at least a bit longer.
Regarding new plays going forward, I’m still extremely cautious with new longs but this is not the easiest spot to press bets on the short side either due to the lack of well-identified exits. With the trend down, my plan is to lighten up on shorts into favorable moves and look to reload and/or add positions on failing bounces rather than chasing breakdowns.
I’ll run through a few of the indexes here and then share some new plays I’m eyeing.
NAZ – The NAZ failed at the 2887 level last week, then rolled over to break the correction low at 2774, followed by the October high at 2753. This is a classic downtrend we’re seeing right now with lower highs and failed bounce attempts as this index seeks support at lower levels.
SP500 – The S&P’s failure to reclaim 1335 last week opened the door for lower prices, and we certainly got them. Just 3 sessions later, we were well through 1294 and now sit at a new pullback low. This index remains in poor technical shape and now has a pair of lower highs in place since the April peak.
RUT – The RUT pushed briefly through 772 last week, but couldn’t hold it longer than a single day and reversed sharply to end the week at a new correction low. Next levels to watch now are 718 & 705.
DJIA – The DJIA stopped shy of a test of 12700 from below last week, then abruptly resumed its downtrend with a solid break of 12300 – a key level. It now looks bent on a test of the 11700 area which was resistance late last summer then support in late-December.
Charts of Interest:
Below are some charts of interest, from market leaders to example charts:
GS continues to look heavy on this daily chart as it makes a new correction low, and what’s interesting is that this stock isn’t even stretched to the downside yet. Financials in general are struggling, and this one isn’t helping at all.
AAPL I mentioned last week that I did not expect the upside channel breakout to stick given the lack of broad market strength to help support it, and we did see the failure I was referring to late last week as AAPL returned to its channel. This stock, despite its leadership qualities, just won’t go far without some help from the overall market.
TOL has been incredibly strong since last fall, and lately has ignored the market weakness – until last week. We’ve now seen this leadership stock stumble quickly from the high by 12% to post the lowest close in a month with volatility picking up as depicted with this expanding range of late. In a weak market, nothing is safe.
Watch List & Short-term Setups:
Below are stocks which are starting to set up but which are not quite ready for multi-day plays. These may provide short-term moves if the levels highlighted below are crossed, but should remain on watch a bit longer for those with multi-day to multi-week timeframes.
AEM is shaping up here and now faces key resistance at $41. This one looks good for short-term higher prices, but the overall group is getting extended which is why I’m not listing this one for a swing trade tonight. If we see them able to rest a bit, I may relist this for a swing soon.
V is working lower at the moment and may fill this gap from February soon.
AFL is threatening to undercut key support here as it approaches $38.50.
GLNG has held rising support for about three weeks but could break it soon, I’d watch $33.20 for a signal that it’s heading lower in the short term.
WLT remains heavy even after dropping more than $20 in recent weeks. A break of short-term support here could prompt another wave of selling.
New Swing 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.
No new swing trades tonight.
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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.
GRA target 1 hit (partial profits taken) & stop tightened
Open Position Notes:
VECO was holding up pretty well until Friday’s market weakness prompted a fair decline in the stock, and it’s now beneath my entry price. Volume was not very heavy though, and the stock remains above my stop level, so I’m going to stay with it for now and see how it acts on Monday.
ORLY rolled over nicely on Friday with some volume expansion, giving this stock a day of distribution. This stock is now heading toward Target 1, so I’m going to leave my stop as-is for the time being while waiting to see if it can show some follow through. I like how it’s acting so far.
GRA triggered a short sale on Thursday on very heavy volume, but wasn’t able to make much progress until Friday when it produced a very nice gap down and some continued selling. My first target was hit Friday, allowing be to lighten up on this position for a 4.5% profit. I’ve tightened my stop on remaining shares while waiting for a move down to Target 2. Great move so far and I like getting paid quickly!
SYNA triggered s ahort sale on Thursday but finished positive, unwilling to roll over until Friday. Then we saw a nice breakdown on expanding volume, helping to give this daily chart the look of another confirmed lower high within the downtrend. Now I’d like to see some follow through toward Target 1.
Closed Positions:
No closed positions.
