Mosaic Chart Alerts

S&P 500: Long-term bullish, short-term cautious.

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 growth fundamentals along with a proper chart setup.

Here are my notes from a focus list of setups I’m monitoring.

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📢Before jumping into today’s chart report, I just announced a new premium feature coming to my newsletter:

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The Hub goes live on 10/28, and you can read all the details of what’s included in the Hub here (plus several new features).

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Stock Market Update

A recent pivot by the Federal Reserve sets up a much anticipated payrolls report for the month of September. When it cut interest rates, the Fed made it clear that their focus is now shifting toward maintaining full employment as progress is made lowering inflation. The central bank is looking to avoid policy errors of the past by keeping short-term interest rates too high for too long, thus tipping the economy into recession. Current economist estimates are for a gain of 150,000 jobs last month, with the unemployment rate holding steady at 4.2%.

If the Fed can pull off a soft landing, then a “Goldilocks” backdrop can help support the bull market. As long as the corporate earnings outlook remains favorable, then the early stages of a turn higher in liquidity can be another catalyst supporting stock prices. In last weekend’s Market Mosaic, I highlighted how there are now more central banks cutting rates than hiking weighted by GDP. At the same time, the global money supply is seeing acceleration in the yearly rate-of-change (ROC) in the chart below. It’s the ROC that you want to watch for stock prices, with an improving ROC from a low (or negative) level bullish for equities.

Chart from Otavio Costa on X

But don’t be surprised to encounter some volatility heading into elections. While September avoided bearish seasonality that it’s historically known for, October tends to be much worse during election years compared to all other years. You can see in the chart below that the average return in October is typically positive going back to 1950, but ends up being one of the worst months on average during an election year. I wouldn’t make trading or portfolio decisions based on seasonality alone. But it’s worth noting given several measures of investor sentiment are growing more bullish while there’s modest breadth deterioration happening underneath the stock market’s hood.

Chart from Ryan Detrick on X

At this point, I believe the longer-term bull market remains intact, which is a view supported by chart setups and recent breakouts. Stock prices discount future earnings, and the action in cyclical sectors sensitive to the economy remains encouraging. That includes areas like small-caps and housing, along with retail and industrial bellwether stocks like Lowe’s (LOW) and Caterpillar (CAT) that are breaking out of basing patterns and moving out to new record highs. For this week, I’m removing TAYD from the watchlist as the stock pulls back more than I prefer in the base. I also have several new additions this week.

Keep reading below for all the updates…

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Long Trade Setups

OSCR

IPO from 2021 that’s recently testing resistance around the $23 level. Making a smaller pullback so far off that level which is resetting the MACD at the zero line. The relative strength (RS) line is holding near the high. Watching for a move over $24.

TPH

After rallying to the $47 level in July, the stock has been consolidating gains. Recent series of smaller pullbacks off the $47 resistance level, while the RS line is holding near the high. I’m watching for a breakout over $47 on higher volume with confirmation by the RS line.

SHAK

Peaked at the $110 level back March, and creating a new basing pattern since then. Starting to make a series of higher lows following the pullback into July, with a recent MACD reset at zero just below price resistance. Watching for a move over $110.

WING

Peaked around $430 back in June, and now retesting that level again. Would like to see one more smaller pullback that creates a MACD hook before trying to breakout. Looking for confirmation by the RS line on a move over $430.

NFLX

Stock touched the $700 level in June. Came back to test that level in early August then traded in a tight range. That reset the MACD at the zero line, with price recently moving over $700 with the RS line at a new high. Keeping on watch as the stock back tests the breakout level.

CCS

After moving over the $90 level, the stock back tested that area as support while creating a bullish pennant pattern. Moved out from the pennant, but was not confirmed by the RS line. Now back testing the pennant trendline as support.

CYBR

Trading sideways since February while testing resistance at the $280 level on three occasions. Price tried to move above the $280 level, but was not confirmed by the RS line and price now back in the base. Will keep on watch as long as the most recent higher low at $260 holds.

FG

Broke out of a base back in November and rallied to the $48 area. Consolidating gains since the start of the year and recently rallying back toward $48. Want to see price hold support at the $35 level on any pullback.

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Short Trade Setups

F

Rallying off a test of support at the $10 level. That reset the MACD below the zero line, while the RS line has stayed near the lows. Price now making a bearish flag pattern, with support at the $10.45 area. Watching for a break below the flag with confirmation by the RS line at new lows.

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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.