For the past week we have been focusing on the technical action of the S&P 500 and how it has been behaving around both support and resistance levels. We have been telling members we not only needed to break out of this downward sloping wedge pattern but we needed to hold above that old resistance line going back to April 2012 and start creating a base. The first 2 attempts in July failed and sent the S&P 500 back into its 50 day moving average both times. Both times the 50 day moving average turned into support and on the 3rd try the breakout above the downtrend line held.
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This is where we were during last weeks extremely news filled week last week. For those who tried to decipher all the noise you probably got whipsawed around. In times like these we instead focus on how the market itself is holding up and then look to build on that conviction by finding only the highest probability trade setups. This allows us to avoid trading off the 100’s of opinions that can be formed from new data and instead zoom in on how all those opinions are actually voting with their money by looking at 1 thing, the chart.
What started out as a breakout was followed by 4 down days back into support on Thursday. This was finally followed by a big overnight pop on Friday. Now that the base is looking more solid we have a very distinct line in the sand to trade against. This is very important to decipher when one is attempting to navigate such a choppy market like the one we are in now.
So the S&P 500 is in decent shape now we must look at the internals of the markets. This does look pretty bad as a majority of the strongest stocks have even gotten slammed.
All strong markets must have their strong leaders in order to keep the momentum alive. This is the fuel that triggers rallies or keeps momentum going past quick 2-3 day moves higher.
Over the past couple of weeks we have seen more leading names get taken out back and shot then we have seen in a long time. Names like MNST, CMG, SBUX have been extremely strong names for us over the past couple of years where we have made triple digit returns and when they finally went after those names, it is cause for much concern. The bad news is many of those stocks are still getting punished. The good news is some of them have held up at stretched support levels after much their initial selloffs. This gives us hope we can have a more sustainable rally but still leaves us very cautious about many of the higher risk setups that would typically work in stronger markets. The next couple of days will tell us more when we see where the strength is coming from in any rallies.
Will these strong names find bids and get ready to push higher once more or will we see rallies led by short covering off the bottom of lousy stocks?
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Here is a handful of stocks from our watch list that have held up well during this market turmoil.
WYN
PPS
ROST
TJX
AMZN
CRUS
EXPE
NEW SETUPS
We only have a couple trade setups for Monday. We would look to buy the following names on a move to or above the following prices.
HD 52.44
ROST 68.33
Remember to not buy blindly on gaps and not trade through earnings unless you have a large profit cushion
Thanks,
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