Mosaic Chart Alerts

Rising bond yields pressure growth stocks; energy names breaking out. Several updates to the watchlist.

Oct 19, 2022

Welcome back to Mosaic Chart Alerts!

In this newsletter, I’ll focus on the best 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 trade ideas.

And to select these ideas, a lot of work goes on behind the scenes to find stocks offering the right combination of fundamental attributes along with a proper chart setup.

These are my notes from a shortlist of setups I’m monitoring.

Weekly Recap

A hotter-than-expected consumer inflation report is fueling another bout of huge price swings in the S&P 500. The market saw an intraday move of over 5% last Thursday when CPI was released, and has continued to trade in wide daily ranges since then.

But perhaps the most consequential action is occurring in the fixed income markets. The yield on the 10-year Treasury hit 4.13% today (chart below), , which is the highest level in 14 years. This week also saw the difference between the 3-month and 10-year Treasury yield go negative. Other measures of the yield curve have already been inverting, but I discussed here why the 3-month/10-year is my preferred measure. It’s another recession signal sounding the alarm bell, which makes it hard for me to believe that the stock market has found a bottom. That’s something I discussed in this week’s The Market Mosaic in case you missed it.

These market conditions and cross-asset signals are why I remain heavily invested in cash. But I am taking positions that breakout, and several ideas are working among both our long and short setups. DINO, IRDM, and BOWL are all making nice upside moves out of their bases, while NC jumped higher out of its pattern today. Our short setup in FVRR is playing out, and I noted the setup in SE in The Market Mosaic last week. I’m removing NCLH and UAL from our short setups. Travel-related stocks have been strong this week, and that’s invalidating their patterns. See below for updates to both our long and short watchlist, and remember sound risk management with your open positions!

Long Trade Setups

TDW

Another energy sector stock that’s been consolidating in this triangle pattern. Breaking out over the $26 level today on higher volume.

Pattern since start of 2021 has a deeper than ideal structure, but the more shallow consolidation since testing the $85 breakout level in August is a nice sign of relative strength. Would like to see MACD reset before attempting to take out $85.

LYTS

Higher risk small-cap stock, but showing nice growth rate in sales and earnings. Keeping this one on watch as it looks to test the 50-day moving average again. Watching for a breakout over the $8.50 to $9.00 area.

IRDM

Two big levels in play as the stock breaks out from a lengthy consolidation pattern. Want to see this stock hold over $47, and breakout over $50 next to set up a test of the prior highs at $55.

BOWL

Recent IPO that saw an initial breakout over the $13 level, but price fell back inside the pattern to test the 50-day moving average. Successful test has sent the stock over the $14 level that I highlighted in prior weeks.

Volatile coal stock that’s setting up another breakout. Found support at trendline and 50-day moving average. Jumped higher today and is testing the prior 52-week highs at $60. Position size accordingly with this name.

Short Trade Setups

Tested the $20-21 support level several times since May. Basing period setting up the next move lower on a breakdown of support.

Stock broke the bigger trendline, then back tested that resistance level. Now starting to break below the $30 trigger level.

Put this one in The Market Mosaic over the weekend. Noted the importance of breaking the $53 level, with strong follow thru today.

FVRR

Found support around $29 in May and has tested that level several times since then. Finally broke lower this past week and tested the break down level.

Rules of the Game

If you haven’t noticed yet, I trade breakouts! I trade 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.
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 will cover my short.

For updated charts, market analysis, and other trade ideas, give me a follow on twitter: @mosaicassetco

The Market Mosaic