Good evening StockBandits!
The hope for help from the ECB and renewed anticipation of QE3 picked up today as bargain-hunters rushed back into the market to produce a significant upside gap. In the early going, the futures had ramped higher, then dipped, but held positive. By the opening bell for stocks, the buy-side imbalance created an 18-point gap for the NAZ and we never looked back from there. Stocks lifted steadily in to early afternoon before leveling off and digesting the morning move during the final few hours of the session. We saw one last surge into the close, putting the indexes at their highs by the bell.
Many are making the case that the Fed has no option other than to continue easing and providing stimulus, and while I’m no economist, it’s an argument which cannot be ignored when the market is responding the way it did today. Europe has been an ongoing concern and it seems we’re seeing knee-jerk reactions on nearly a daily basis to the goings-on from across the pond. That’s simply the environment we find ourselves in, so it’s something we have to accept from a sentiment/mood standpoint.
From a technical stance, we still haven’t seen a meaningful change of character. While today’s advance was impressive, no question, the fact is that the bounce attempts we’ve gotten in recent weeks (including the current bounce) have been V-shaped, which rarely make for lasting rallies. Furthermore, the advances in price have been accompanied by weak volume, creating short-term bearish divergences as price moves up and volume moves down. That points to limited participation on the rallies, suggesting they’re comprised heavily of short-covering. Of course there are those who are accumulating shares into these dips, but apparently (as evident in the volume) the big institutions aren’t inclined to keep chasing strength, which leaves us with lower highs on the daily charts.
I’ve just been taken out of a couple of short swing positions on this rebound, but my overall view hasn’t changed much. Until we see a higher high and a higher low (and at some point we will), the trend remains down and bounces are likely to be used for selling rather than dips for accumulation.
My plan at this point is to allow this bounce to play out, see where we stall out, and let the charts build new setups and pivots. I’ll be keeping a close eye on the major averages and they key levels which have proven to be of importance in recent months, knowing that that will have a great deal of influence on how individual names move in the days and weeks ahead.
2 Other Notes:
I will be speaking tomorrow morning at the Dallas Traders Expo and my session will be webcast from 8-9am Central Time. Register here to attend virtually, and those of you who are in the DFW area I’d love to see you there. I’ll be discussing Unique Traits of High Performance Traders, so catch the webcast if you are not in TX.
On Friday & Saturday, I’ll be speaking live at the TC2000 Conference in Denver, CO. Details are here, but if you are in the area make plans to attend, it will be a great show and I have some excellent things to cover!
I’ll run through a few of the indexes here and then share some new plays I’m eyeing.
NAZ – The NAZ has now lifted 118 points off Monday’s intraday low, putting it just 38 points from the previous bounce high and 43 points from the 2887 Bin Laden high from May 2011. This bounce has been swift, but V-shaped rallies are hard to chase and often get met with some backing and filling.
SP500 – With 1294 now back beneath us, the next level to fixate on is at 1335. That was support back in February and early March, and we also saw the last bounce stop just a fraction of a point from that level. A close back above it would negate the lower-highs routine we currently find ourselves in.
RUT – The RUT has seen an impressive 2-day lift off 729 of almost 5%. That’s a sharp v-shaped bounce but this index is still beneath the key level of 772, as well as the prior bounce high at 778. Beyond that is 784, so this small-cap index still has plenty of overhead to contend with.
DJIA – The DJIA is now 376 points off the low set on Monday and back above 12300. However, the previous bounce high is still some distance away at 12611, and the bulls will need to clear that level if they hope to put this market in a positive light. Until then, we still have lower highs intact.
Charts of Interest:
Below are some charts of interest, from market leaders to example charts:
FB lifted today but is still dealing with the downtrend line. Today the stock also marked a new low, serving as a reminder it has yet to truly stabilize.
LNKD broke a key level last week and so far has yet to reclaim it. This bounce is failing to impress, leaving the path of least resistance down for this stock until the $95.50 to $96 zone is cleared on a closing basis.
DE is bouncing in a V-shaped move here but still has yet to change its trend.
VRSN lifted within its channel but the short-term trend is still down until we see an exit from this descending range.
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.
LF has held up very well and may break out soon. I’m keeping this one on the radar but today it lagged and therefore does not look ready.
AOL is also flirting with new highs but today the stock finished off its highs and isn’t acting like it wants to go just yet.
ALL is turning higher here and trying to leave this narrowing wedge-like pattern to the upside. Price needs to clear last week’s highs to get free.
CCI cleared its downtrend line today and has a shot at some upside continuation here. A move through $55 could invite short-term buyers into the picture, but at the moment it still has some recent overhead to contend with in last week’s highs.
KMB is leaving this high channel to make new highs and could see some continuation in the next day or so. This belongs on the radar for momentum players with a projection from here of about $82.50 if this pattern plays out.
NFLX remains in a downtrend channel and today the upper trend line was validated again. It may offer a quick short if it breaks $64.80 to move lower within this channel.
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.
ORLY stopped
Open Position Notes:
GRA bounced today but underperformed the indexes. This stock is also still beneath last week’s gap down, which leaves the sellers in a position of power for the moment. I’ve already booked partial profits here and have tightened my stop, so I’m letting this one bounce for now and staying patient.
Closed Positions:
ORLY was acting well as it rolled over from the recent bounce high on expanding volume. This indicated a lower high was being put in, and this trade as a short had approached Target 1. The stock stopped less than 1% from my first target, but I had allowed it some room to bounce just in case, and today the stock lifted enough to push beyond resistance and stop me out for a 2.5% loss. The stock at this point seems to be in an identity crisis, as today’s lift in price wasn’t accompanied by much volume, indicating that this strength may not last. Nonetheless, I’m out for now and will wait for a new pattern here before considering another entry.
