Although it's the antithesis of reasons for investor care, an abundance of well-intentioned headlines drove the tape on Wall Street during Wednesday's sessionâkind of like what we saw last Friday. In this instance, though, crowd-pleasing catalysts were made available and that was evidence enough to snap up shares. A couple of headline earnings trumps from the likes of Deere (DE) and Applied Materials (AMAT) certainly helped. A key upgrade of FedEx (FDX), which trumpeted that a bottom for the economy has been established, also helped investors with the buy side decision process, particularly in the Dow.
There were other factors involved in Wednesday's buying spree as well. Black Gold sinking into its trading range (nearly two weeks in the making) possibly inspired some investors to think about a stronger consumer and a more vibrant corporate environment. A few technicians could point to the "3-Day Presidential" cycle. Meanwhile, their theoretically-inclined brethren could have cited the ol' expiration bias as a legitimate argument for Wednesday's gains. And lest we forget, there was "key!"(so I'm told) testimony from Fed Chief Bernanke, up there on another sort of related Hill.
You might say that all told that the market played Cupid for many investors on Valentine's Day. The Dow ($INDU) for one, glittered like a holiday gift as it dazzled with fresh all-time-highs. Elsewhere, the results were also quite decent. There were however, as always, plenty of reminders to not to take for granted gifts received. On that note and one unassisted by drum banging cheerleaders, I'd like to give traders more reasons to envision the market like a box of chocolates.
Figure 1: Russell 2000 (IWM) Weekly
I think Forrest Gump would have made a fine trader. The character from the box office smash reminded folks that you could never know for certain what lay inside a scrumptious-looking piece of chocolate. All told, taking a bite could end up being bad for your health, or at a minimum, not quite like you had anticipated. As traders, maybe that bit of wisdom can be remembered as a reason to use limited risk strategies, as you never quite know what's up the market's sleeve next.
The truth is, we can have expectations based on past experiences and calculated probabilities of some event occurring once more, but that's no guarantee. Shown above, is one of my not-so-scrumptious market delights. Just like some folks enjoy coconuts, others like me don't. And that taste differential adds up to about -1.60 or 2% thereabouts, with this particular sample of counter-trend trading. Readers might recall that my observations for the Russell 2000 had been cautiously appreciative for potential upside, until the weekly pivot was broken. That event happened to trigger in Monday's session.
We can see from the chart posted above that a weekly Gravestone Doji was the topping signal generated, which happened to coincide with the prior range highs. By Wednesday's session and during the "Bernanke Effect", the IWM reversed course hard enough to just barely take out the highs of the same topping candle. Is there something, I need to be aware of? Not really. It's just one directional trade in a long list of such endeavors. While not profitable, it could have been made all the more palatable by hedging for those occasions when the hard-to-handle delta is otherwise out of control.
Heading into Thursday's session, "Bernanke Speak" part deux is on tap. So is a slug of "key" economic reports. The possibility of course is that fresh testimony or one of those data points disrupts the running of the bull and investors newfound sense of ease over the interest rate environment. For other likeminded individuals like me, with corrective action long overdue the current rally becomes more difficult to appreciate those headline-terrific gainers by the major averages. Short-term this means the general approach towards the market emphasizes that 52-week breakout and momentum type entries are not likely candidates to participate in and the most âat risk' when inevitable hiccups like last Friday's drop occur.
On the weekly chart of the Russell 2000 (IWM), not much has changed as far as key supports and resistance are concerned. The latest weekly action the index proxy has put in an engulfing, albeit slightly (thanks), doji pattern which is representative of indecision. Of course, there's still two days left to change the shape of the current candlestick. However, if decisive movement isn't found in Thursday's session, Friday is likely to keep directional strategists unsatisfied until next week. That observation is based on expiration sessions typically leading to a whole lot of nothing, besides extra wiggles and giggles.
Figure 2: NYSE Group (NYX) Weekly Low
From last week's radar of stocks assuming a bovine stance, Syneron (ELOS), the highlighted stock of the prior two reports has continued to make the bulls happy off a Wave 4 trigger, amongst other technical confirmations. Elsewhere, the action has been decidedly more mixed, with Daktronics (DAKT) earnings-related plummet being the chief offender. It's also a prime example of why traders need to qualify directional biases with limited risk strategies, should they be inclined like me, to go that route in stocks that are thought suitable by their own determinations.
Highlighted above is the weekly chart of NYSE Group (NYX). It's been hailed as James Cramer's "Stock of the Year" for 2007. He did quite well with catching the momentum trend in Alleghany (ATI) last year and is thought to do his fair share of homework on the fundamental side. That being said and since he professes to not looking at charts, I thought I'd deliver my observations for NYX on that particular front. Heading into Thursday's session NYX has established two daily chart inside days within a rather large engulfing bar. The weekly view appears as a potential hammer low. The anticipated reversal bar is made interesting as it sets up a rather nice looking (to some) base. The depth from pattern highs to the current ugliness is 21%. That's within IBD's prescribed 30% to 35% âhealthy' window for the inevitable bouts of profit-taking. Further, the low would establish an "undercut" double bottom pattern, which is also seen as a stronger âcleanser' of weak hands, before a move higher might occur. And finally, I've found plenty of potential support levels based on Fibonacci and important price pivots (gap fill, prior highs) to think NYX is one worth monitoring for a low.
As for other not-so-mad money situations that might still demand our attention, a few on the radar that sport either classic technical continuation patterns or reversal characteristics include Jeffries (JEF), Mindray Med (MR), Trident Micro (TRID), J. Crew (JCG), Genentech (DNA) and Morningstar (MORN).
Figure 3: F5 Networks (FFIV) Daily Topper
"Game over?" Not yet, on last week's highlighted stock Gamestop (GME). However, its consolidation keeps that analysis still intact. Others on the bear radar include Caci Intl (CAI), Celgene (CELG), UPS (UPS), Harley (HOG) and SanDisk (SNDK).
Shown above is F5 Networks (FFIV). It's a fresh stock viewed as being of the bearish persuasion. Elliott Wave doesn't concur, as the PS prognosis is for higher prices after triggering from a Wave 4 low. My own brand of discretionary pattern analysis emphasizes a possible Head & Shoulder top. With the formation centered at the prior weekly all-time-highs, a price break would likely have decent follow-through, as âhappy holders' look to simultaneously bail. The secondary indicator shown is the RSI 14, which is being interpreted as confirming the H & S top. We can see that much like the price pattern, that this oscillator is showing similar development. That being said, a belief in the topping pattern still needs to be respected. Often enough, broken right shoulders can eventually become double tops and other technical formations used to rationalize a losing proposition.
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The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.