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
In his semiannual appearance on Capitol Hill, Federal Reserve chair Jerome Powell is delivering remarks to Congress this week on monetary policy and the state of the economy. With the latest FOMC rate-setting meeting happening just last week, there isn’t anything substantially new in his comments. Powell reiterated that inflation remains too high and to expect a couple more rate hikes before year end. But in the grand scheme of things, I believe the Fed is nearly finished with this tightening cycle and can pause rate hikes altogether if inflation continues moderating. And stocks could use a pause as well.
The S&P 500 is pulling back following Powell’s comments today, but the truth is that stocks are due for a breather. The S&P’s strong breakout over the 4200 level has taken the index 4% above the 50-day moving average (black line) while the MACD and RSI in the bottom panels of the chart below reach overbought levels. I also discussed in last week’s Market Mosaic that near-term breadth is becoming overbought while investor sentiment is extremely bullish. I’m not expecting a return to the bear market, but a correction in price or time would be constructive here and setup the next batch of chart breakouts to watch.
Ever since participation in the market’s trend improved in early June, I’ve been more aggressive on position sizing breakouts. I’m trailing open positions with a moving average stop loss, while waiting for another round of chart setups to develop. With that in mind, I have a couple new additions to the long watchlist I’m making this week. I’m also removing MBLY as recent price weakness is invalidating the setup.
Keep reading below for all the updates…
Long Trade Setups
IOT
There’s a lot of eyes on this stock, so I want to give my quick take and plan. Price has rallied right back to the post-IPO highs around $30. Currently, the MACD is too extended for my liking if the stock tries to break out. I want to see the stock start trading sideways, and reset the MACD closer to the zero line with the relative strength (RS) line staying near the highs. A breakout over $30 with the RS line at a new high and the MACD turning up from zero is my ideal trade scenario.
NABL
Another recent IPO testing the prior highs around $15.50. Prefer to see the stock hold the $14 support level while it consolidates. Watching for a breakout over $15.50 with the RS line confirming to new highs.
LTH
Trading in a range since late April, and just below the post-IPO highs at around $22. Recent consolidation helped to reset the MACD, where a breakout over $21 resistance could lead to new highs. Don’t want to see much more price weakness or the setup will be invalidated.
SWAV
Price is currently consolidating after another test of the prior highs around $310. The MACD is turning up from zero while the RS line is holding near the highs. Impressive string of quarterly sales and earnings growth.
SKX
Tested the highs from 2021 at the $55 resistance level and pulled back toward the 50-day moving average. The $50 level was also good support from a prior breakout. Looking for a move to new highs.
CIVI
Energy exploration and production company still trading inside this triangle pattern. Watching if price can move above the $72 level followed by new all-time highs.
NOVT
Making a series of higher lows off the October bottom. Recently creating resistance around the $170 level, where a developing breakout could target the prior highs.
NVGS
Trading in a consolidation pattern since last June, creating an ascending triangle. Very volatile price action over the past couple weeks, but will keep on watch for a breakout over the $15 level since it remains within the pattern.
Short Trade Setups
KEY
Creating a bear flag pattern. Lower highs and lower lows since the February breakdown still intact. The MACD has reset at the zero line, and would prefer to see the RS line make a new low on breakdown from the pattern.
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 Twitter: @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.