Mosaic Chart Alerts
Another breakout that can boost stocks.
Welcome back to Mosaic Chart Alerts!
In this post, I’ll focus on setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trades.
These ideas are the end result of my process to identify stocks offering the right combination of fundamentals along with a proper chart setup.
Here are my notes from a focus list of setups I’m monitoring.
Stock Market Update
Stocks yawned at a hotter than expected inflation report. The Consumer Price Index for the month of February increased by 3.2% compared to last year. The core measure that strips out food and energy prices rose by 3.8%. Both figures were higher than economist estimates, and the more recent trend is concerning as well. The three-month annualized gain in the core measure has now increased to 4.3% (chart below). The monthly CPI report has become one of the most widely anticipated economic releases due to the impact on monetary policy, especially as Federal Reserve officials seek more evidence of lower inflation before cutting interest rates. And yet market-implied odds favoring a rate cut in June barely budged following CPI as I noted here.
But the stock market mostly ignored the inflation report, and did the opposite of what you might expect. Stocks finished Tuesday with strong gains across the board, with the growth-heavy Nasdaq Composite posting a 1.5% gain on the day. But as I’ve been noting recently, it’s the action in other areas of the stock market that are more speculative and sensitive to economic developments that’s encouraging. Like the breakout in small-cap stocks from a bottoming base that goes back two years, or the move higher in retailers. Now there is another breakout to add to the list, and that is with high yield bonds. The JNK exchange-traded fund (ETF) that tracks high yield bonds is recently moving out of an ascending triangle pattern going back to late December (chart below). The move higher puts JNK just below the prior highs, while HYG is another high yield ETF breaking out of a similar pattern and is moving out to new all-time highs.
The move in high yield adds more weight to the evidence that this bull market still has room to run. There will be pullbacks along the way, but stocks can keep moving higher considering there’s an improving rate of change in key economic data, a regime of net new 52-week highs, breadth thrusts late last year, cyclical sectors (like semiconductors and homebuilders) leading the way, and now speculative breakouts in areas like small-cap growth and high yield. In my opinion, the market is discounting a strong economy ahead which should be positive for the earnings outlook as well, and that’s offsetting any concerns around monetary policy at the moment. And it’s also creating a trading environment that remains supportive for breakouts. For this week, I’m removing CAVA and IOT from the watchlist as both stocks break out and complete their chart pattern. That means there are a couple new additions to the list this week.
Keep reading below for all the updates…
Long Trade Setups
LI
This setup needs more time to base, but wanted to get on the watchlist. The stock made a quick move to test resistance at $45 which is the post IPO highs. Pulling back which is allowing the MACD to reset. Would also like to see the relative strength (RS) line improve before trying to breakout.
MPTI
Testing resistance around the $44 level since the start of January, while making an ascending triangle pattern. Recent MACD reset on the most recent test, while the RS line is holding near the highs. Watching for a breakout over $44.
NXT
After the gap higher through the $50 level, the stock has been trading sideways which is allowing the MACD to reset at the zero line. While the RS line is holding up near the highs, I would prefer to see more time basing before breaking over the $60 level to new highs.
CUBI
Consolidating the gains after hitting $60 in late December. Would prefer to see the RS line take out the December peak on any breakout attempt. A move over $60 could target the prior high from the start of 2022.
PATH
Attempting to emerge from a bottoming base going back nearly two years. Stock basing since December after breaking out over the $20 level. Don’t want to see support at $21 give way, which would invalidate the pattern. Watching for a move over $27.
STNE
Starting to emerge from a bottoming base going back two years. Took out resistance at $15 and now consolidating the gains. Trading sideways since late December, with a new resistance level near the $19 level. Want to see support at $16 hold in the pattern.
BX
Since peaking back in 2021, the chart has the appearance of a large saucer-type pattern. Price recently nearing the prior high at $140 and now pulling back. That’s resetting the MACD while price holds support at $115. Watching for a move to new highs over $140.
Short Trade Setups
None this week!
Rules of the Game
I trade chart breakouts based on the daily chart for long positions. And for price triggers on long setups, I tend to wait until the last half hour of trading to add a position. I find that emotional money trades the open, and smart money trades the close. If it looks like a stock is breaking out, I don’t want a “head fake” in the morning followed by a pullback later in the day.
I also use the RS line as a breakout filter. I find this improves the quality of the price signal and helps prevent false breakouts. So if price is moving out of a chart pattern, I want to see the RS line (the green line in the bottom panel of my charts) at new 52-week highs. Conversely, I prefer an RS line making new 52-week lows for short setups.
Also for long positions, I use the 21-day exponential moving average (EMA) as a stop. If in the last half hour of trading it looks like a position will close under the 21-day EMA, I’m usually selling whether it’s to take a loss or book a profit.
For short (or put) positions, I trade off a four-hour chart instead of a daily. Why? There’s a saying that stocks go up on an escalator and down on an elevator. Once a profitable trade starts to become oversold on the four-hour MACD, I start to take gains. Nothing like a short-covering rally to see your gains evaporate quickly, so I’m more proactive taking profits on short positions. I also use a 21-period EMA on the four-hour chart as a stop. If there is a close above the 21-period EMA, I tend to cover my short.
For updated charts, market analysis, and other trade ideas, give me a follow on X: @mosaicassetco
Disclaimer: these are not recommendations and just my thoughts and opinions…do your own due diligence! I may hold a position in the securities mentioned in this post.
Watching PATH as they had earnings last night. Has potential
I'm in MPTI since $33, hoping to add. Thanks for sharing.