Last week the S&P continued its rally right up to the prior 820 support area. The internals favored the bulls with an especially strong Monday and A/D Lines of +1000 the entire week. If we look at week 13, we can see a long shadow on the weekly bar. The fact that the bulls were able to break out over that bar in week 14 is quite bullish.
Our next target level is the S&P 875 area with a support level at 805. The dailies are forming a bull flag so any break over $833 should constitute a move higher, as always watch for confirming internals, increasing volume, and a retraction in the VIX to confirm a breakout move.
CPSI – Pulled back to support making for a great entry point.
CCK – An ascending triangle is forming on CCK. We typically trade a move like this in one of three ways, an anticipatory trade here, buy the breakout, or buy the retest of support.
GMCR – Very nice triangle consolidation pattern forming. A break in the direction of the trend should result, which in this case is up.
LINC – A buy over the hammer at $17.50 with a stop under the low at $16.50 allows for an easily managed trade.
RIG – A bounce off support here provides a great entry.
HMSY – Bear flag pattern forming. Notice how the current rally is on declining volume and has not retraced more than 50% of the “pole.” An anticipatory entry or an entry on the breakdown of $29.50.
SIGM – An easily managed trade with an entry below the low of the inverted hammer and a stop above its high, the low volume on the prior rally adds confirmation that the stock is likely to decline more.
The breadth ratios on the advancing days (Tuesday and Wednesday) we’re relatively stronger than the declining days (Thursday and Friday). Monday’s action was mixed after Ben Bernanke said it’s possible the recession may come to an end this year on a CBS Television interview Sunday night. With many investors and Hedge Fund Managers sitting on the sidelines through these uncertain market conditions, bargain hunters are back on the prowl.
We will be looking at the S&P 750 level as support and the 800 level as resistance. A pullback would be expected and would be nice to see as this would act as a breather and any move sideways would form a stronger support level for future retests.
This is a contrarian indicator, meaning it has an inverse relationship with the market. A ratio of 1 means the market is at parity, above 1 indicates more volume is flowing into declining stocks, and below 1 indicates more volume is flowing into advancing stocks.
After a week in Las Vegas, we're back and ready to fire up the trading again. A lot has happened in the prior week and a lot more is to come in the week ahead. Enjoy!
Last week’s rally looks small on the longer term chart. With a strong S/P previous support at 800, it seems likely that we would turn lower before breaching this point. That 800 level also happens to be where the 50-Day MA is currently sitting, for those of you who use Moving Averages. The indices broke their down trend line and closed above their 10 and 20-Day Moving averages and are sitting just below the 30-Day MA.
The VIX broke its current trend line to the downside last week. Whenever a trend is broken it is usually retested. That once support, will then act as resistance when retested.
For those of you that are bullish, a buy signal printed on the NYSE Bullish Percent Index on March 12. The BPI is applied to a group of stocks as compared to another and charted using Point and Figure Charts. Since we received this signal in an oversold state, it does give higher probability of success to bullish positions taken at these levels. While the chart may not make much sense, it is based off the simple rules of supply and demand.
Using a Fibonacci Retracement from the previous swing high we’re sitting right between the 38.2 and 50 retracement levels. Fibonacci Retracement’s are quite subjective on the level at which the study is drawn, therefore we will use these numbers as a loose range of support and resistance with the 38.2, 50, and 61.8 holding the most weight.
GEOY - Buy on a break of $20.30 (Resistance). The trade can be easily managed with a stop below $18.60.
SVR - Emerging breakout. A move over $15.80 on good volume should send the stock higher.
ADBE - If we begin to roll over look for ADBE to fall hard as it approached its down trend line and is showing weakness.
The S/P and Dow both broke down and closed below the prior lows set back in 2002, while the NASDAQ and Russell are considerably well off those levels. Nonetheless, the month of February was quite bearish. Earnings, Economic Data, and President Obama’s Stimulus Plan were all contributing factors in the month’s volatility.
Even though we are primarily swing traders, it is important to back out and review the indices and individual positions on a larger timeframe as prior levels of support and resistance can come into play matter how far out they may be.
The internals do not paint a clear picture of last weeks price swings (Click on the image to read more about the A/D Line and Breadth). With a fake out to the upside mid-week, the bears finished the week on top. Economic news was grim as news of the federal government taking over Citigroup along with a weaker than expected fourth quarter GDP of -6.2% on Friday sent stocks lower.
As we continue making these new lows, the VIX (Volatility Index) is remaining steady with no major price swings. It seems that investors are not in all out panic mode day-to-day and rather accepted the markets slow grind lower.
As we wrote about on February 18th, we are in an area with very little support, looking back 12 years to even find a point where the SPX was at these levels. Straight lines (moves higher without consolidation) don’t make for good support levels so we may not see a significant support level until the S/P 650 area.
A move lower seems likely, but we are still setting up with some long positions because we feel the risk/reward is such that a sharp rally to the upside will occur at the most unexpected time. The next level of support is not clear cut so be prepared for a strong move in either direction. Keep an eye on the VIX for confirmation of the move (a move down with a spike in the VIX or a move up with a retraction).