Good evening StockBandits!
Happy July 4th! We live in a wonderful place, and although some like to complain about political issues and/or the state of the economy, the fact is that we enjoy numerous freedoms as citizens of the United States and we are blessed to call it home. That’s reason enough to be thankful. If you have ever served our country through the armed forces or are currently serving now in any capacity (active duty or reserves), I want to say thank you. I appreciate people like you doing that so that people like me don’t have to. And I hope everyone is able to enjoy a safe and fun Independence Day with those you love the most. We have plans to take in a parade, hit the pool, cook out, play games, and enjoy fireworks – does it get any better?
Turning to the market, it’s a tough week to get real active given the historical tendency of this week to be so light on volume. That said, we’ve seen a day of rest (Monday) and then another solid advance with Tuesday morning providing a strong surge higher. The current move has now put each of the indexes back above key levels (DJIA 12876, NAZ 2946, S&P 1370, RUT 784), and the bulls have the upper hand.
The creation of higher lows in the past few weeks was something I pointed out multiple times, and while it was no prediction, it was simply an observation that dips were getting bought. It’s our job as traders to observe without bias what’s taking place, and that’s what I’m aiming to pass along to you here with each report. There will be head fakes, but staying objective will on balance serve us well and help in the management of risk.
At this stage, it would certainly benefit the bulls (oddly enough) to see some profit-taking kick in. Higher lows have just been confirmed with higher highs, and the technicals favor those who are long. However, the more stretched a stock (or index) gets, the more prone to a reversal it becomes, and the bulls don’t want that. Some ebb and flow would allow the weaker hands to turn over shares to those with stronger conviction. It would help prevent this move from overextending, and thus create the potential for another higher low on the next dip. As earnings season approaches, that would be better for the bulls than a big run up which opens the door for a sell-the-news response.
As we head into the end of the week, I’d like to see a pullback but we may or may not get it. The volume is likely to be light as traders step away for some rest between now and next week, and many individual stocks are in need of some basing. A pause would refresh, and while many stocks are looking strong here, the difficulty lies in trying to ascertain an appropriate exit (stop loss) with an entry here. Therefore, I’m looking at a few names for short-term moves and one new swing candidate (which is not at all extended), but generally but am not looking to build my overnight inventory until we get a bit of rest and some new pivots are created.
I’ll run through a few of the indexes here and then share some new plays I’m eyeing.
NAZ – The NAZ is acting well here with a higher high and another confirmed higher low. It’s now through the 2946 level with some room to pull back if needed, which is all very positive. However, in the short term it is running a bit hot after a 3 1/2 day lift to the tune of 157 points. It could certainly stand to rest, and the likelihood of it doing so is quickly increasing.
SP500 – The S&P is now back above 1370, the high from May 2011 which posed as resistance and support in recent months. This index has also just seen a sizeable lift over the past few sessions, so if we see 1370 given up it won’t be a major issue now that higher lows and higher highs are in place since the June low.
RUT – The RUT is on fire here and now stands 12% higher than the June low. We’ve seen 5 straight closes at the high of the day, and it’s now back in the 815-833 range from this spring. A rest and/or some profit taking would be healthy at this point, but the odds now heavily favor another higher low on the next pullback given all this strength.
DJIA – The DJIA is pushing toward 13000 here after a big lift from the lows of last Thursday. This index has room to rally up toward 13300 before next resistance is met.
Charts of Interest:
Below are some charts of interest, from market leaders to example charts:
NFLX is an open position of mine and I’ve noted here several times in recent days (in the Open Positions Notes) that the stock, while sluggish of late, still looked like it could rip higher if it happened to catch a bid. On Tuesday, this stock screamed higher to make multi-week highs and it did so on above-average volume (on a half day!). Time will tell where this one goes, but my stop was not violated while I waited around and now the technical emergence of another higher high appears very positive for this stock. I have more notes below, but this one is back in play for now.
GS has lagged for some time now, and despite a 5-day lift from support it still stands more than 23% off its spring high. Price is attempting to clear this low-level channel to the upside, but only 1 day of this advance has been confirmed by volume and this rally is therefore still suspect. I would not trust this one yet, and would rather wait to see how deep the next pullback carries. If and when a higher low is established, that will be the lower-risk entry for those eyeing the long side for a lasting change of direction.
MAN briefly undercut the December low (and held above the November low) before stabilizing in recent weeks. This comes after a big correction in price off the spring highs, and now the stock has the look of a potential rounded low. That opens the door for a turn higher, although there’s still some short-term indecision present with the recent volatility. This is one to keep on the radar, and if it’s able to hold above recent support on dips then that would be bullish for the coming months (barring major news).
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.
LGF still looks good for a quick pop here if it can clear resistance, but longer-term resistance is not far above so I won’t be taking this one for a swing.
AFFY tried to clear the descending trend line on Tuesday but couldn’t make much headway. I don’t mind giving it another shot for a quick trade if it can clear $13.50. There’s some resistance from a few weeks back which prevents this from being a swing setup for me.
FB is challenging the upper trend line of a small channel here and may see a quick lift toward recent resistance if it can clear $32.
WYNN is struggling to make any upside headway and that leaves this one looking vulnerable for a deeper decline. A break of the rising trend line at $100 opens the door for a quick decline.
CTRP is at support here and a break of it could offer a nice quick selloff.
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.
DNKN cleared resistance a few weeks ago, followed through, and has pulled back to successfully test that same area (now support). This offers a defined-risk play on the long side (with a stop beneath support) so I’ll be looking to get long if it clears $34.60 for a push toward the recent high. Details on stop and target levels are on the Trades Overview grid below.
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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.
DNKN added, HAL removed (pattern negated without triggering)
Open Position Notes:
CINF rested on Tuesday with a very small advance and an inside day on the daily chart. This is healthy price action and just what I want to see for a stock which just made a big move. As long as it holds Friday’s gap from last week, this is positive and favors the bulls with the existing uptrend in the stock.
NFLX finally got going on Tuesday, and in a big way. The stock tacked on over 6% to mark multi-week highs and exit the base it’s been caught in for the past 2 weeks. Even more impressive, with only a half session to move it saw above-average volume accompany the advance in price. This is highly encouraging and I am now watching for follow through toward my targets (located near prior bounce highs) in the days ahead.
JBHT posted an inside day on Tuesday with a very small decline on weak volume. This stock is simply resting and digesting the rally from last week, which is healthy. I also like the fact that the gap from Friday is being held, indicating there’s a bid beneath this stock while it pauses.
Closed Positions:
No closed positions.
