Mosaic Chart Alerts
Mosaic Chart Alerts
More sectors confirming the rally.
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
Following a catalyst filled week that saw the Federal Reserve successfully push out expectations for the first rate cut along with a strong January payrolls report, stocks are responding by marching higher. The S&P 500 is quickly shaking off a sharp pullback in the Fed’s aftermath, and instead seems to be favoring the positive economic message contained in the jobs report and in other reports on activity. While the S&P is making fresh all-time highs again this week, it’s the action in transportation stocks including logistics and freight companies that has my attention. The economic link to the sales and earnings of those companies is apparent, and the IYT transportation ETF is breaking out from a recent range and is now just below the highs from 2021.
I’ve argued that good news for the economy is good news for the stock market, despite the fact it might help push out rate cuts. You’re continuing to see many cyclical sectors lead the way higher, like with homebuilders and industrials in addition to transport stocks. If there’s one concerning feature about this rally, it’s the narrowing breadth that has been present for much of this year. That’s evident by the percent of stocks trading above their 20-day moving average (MA) across the market. Even as the S&P keeps making new highs, fewer than half of stocks on the major exchanges are in short-term uptrends.
I’ve previously discussed how weak breadth is a condition, and shouldn’t be interpreted as a signal. I would feel much better about the short-term outlook if the average stock and small-caps were participating better. But that alone isn’t a reason to sell positions or ignore breakouts. I ultimately follow the price action, particularly when the presence of increasing volume and relative strength (RS) is confirming price signals. I also find that using moving averages to exit positions is a great way to eliminate the stress of guessing what will happen next, while riding the trend. For this week, I’m removing MDB as the stock breaks out and completes the chart pattern. I’m also removing THR following its post-earnings pullback. I have a couple new additions for this week.
Keep reading below for all the updates…
Long Trade Setups
AAON
Broke out over the $70 resistance level in December then back tested that level. Trading in a tight range for the past month which reset the MACD with new resistance at $75.
AXON
Created a saucer-like basing pattern from March to December last year. Broke out over resistance at $230 and went back to test that level. The MACD has reset with the RS line holding near the high. Moving over new resistance at $260 today.
RCL
Basing just below the $130 level over the past month following a big run that started in October. The pullback has been shallow, with the RS line holding near the highs while the MACD resets. Want to see support at $116 hold, and watching for a move over $130.
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.
ERJ
Recently testing the $20 level, which is resistance from 2021. Pulling back from that level while also finding support near the $16.50 area along with a MACD reset. Watching for a move over $20 with confirmation from the RS line.
IOT
Consolidating gains since the start of December after the breakout to new highs over the $30 level. The RS line has weakened more than ideal, but support at the $30 level is being respected. Looking a move to new highs over $35.
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.
APP
Trading in a range since September with resistance at the $45 level. The MACD making higher lows on each pullback in that range. False breakout last week, which was not confirmed by the RS line (a great example of how I filter on RS). Need to see the RS line strengthen on a breakout attempt.
GES
Keeping on the watchlist for now as long as support at $20 holds. Still watching resistance at $24, which is a level tested several times going back to 2021. Series of higher lows since last October’s bottom. A breakout could target the prior high near $29.
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.