Mosaic Chart Alerts
S&P 500 rejecting off key resistance again. Is this time different?
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 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 shortlist of setups I’m monitoring.
Stock Market Update
The S&P 500 got off to a hot start this year, returning 4.2% through yesterday. But those gains have taken the index right back to a key chart level that has ended four prior rallies. Since the peak in the S&P, you can see the dashed trendline resistance in the chart below. And since August, that trendline has been closely followed by the 200-day moving average as well. With the S&P down 1.5% today, it would seem as if those resistance levels are prevailing once again. But this time, there is reason for hope.
During prior trendline tests, underlying participation in the stock market’s rally was quickly weakening. That’s a red flag for stocks as I’ve covered frequently in the past (most recently during the December trendline test). But this time around, participation is not yet deteriorating while the presence of “breadth thrusts” has accompanied the recent advance. A thrust can be measured in many ways, but it comes down to seeing a surge in advancing stocks relative to declining ones. That kind of buying power usually indicates that institutional investors are actively scooping up shares. I posted this update about one of my preferred gauges:
Conditions can change quickly, so I will continue to be adaptive in my approach and objective in analyzing the market. For this week, we’ve seen a strong move from TEX out of its pattern, so I’m removing it from the watchlist. KLXE is also coming off as the stock never triggered a trade and is now taking out support levels. From the short setups, DKNG is being removed as the stock’s rally has invalidated the chart pattern. That of course means there are new additions to the long and short watchlist this week.
Keep reading below for all the updates…
Long Trade Setups
In case you missed it, I put together a special report on this setup. I wanted to provide a “behind the scenes” look at how I evaluate trade ideas. As noted, I’m watching for a move above the $10 level.
Working on a “saucer” type base since peaking in late 2021. Using a trigger around the $72 area while expecting a new high in the relative strength line.
Strong move off the October lows quickly brought the stock back to the $30 resistance area. Rejecting off $30 resistance again last week, though another reset in the MACD would help this breakout setup.
Watching for a move over the $74 area which is the trendline resistance level. Daily MACD shows momentum picking up as relative strength is making new highs.
Trendlines show a triangle consolidation pattern. Attempted a breakout this week then faded into the close (which is why I trade the close!). Price still right at trendline resistance with the MACD turning higher.
Price resistance around the $11.50 level tested several times over the past 16 months. Still trading in a tight range just below that level. A more speculative smaller-cap name, so position size accordingly.
Short Trade Setups
Showing the daily chart where price is rejecting off the 50-day MA while the MACD is resetting under the zero line. Watching for a break of support around the $43 level.
Bouncing off the $40 support level for the third time since June. Simple setup and trigger level.
The $40 support level tested several times since May is still in play. Using a close below as a trigger level.
Continue to watch for a breakdown through the $121 support area to complete this descending triangle pattern.
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 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 newsletter.