Mosaic Chart Alerts
The next stock sector for base breakouts.
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
A holiday-shortened week features a return of key macroeconomic data including purchasing manager indexes (PMI’s), minutes from the Fed’s last rate-setting meeting, and the June payrolls report. But alongside these reports, I’m watching if the recent strength in cyclical sectors can sustain the momentum and keep leading to improving participation. I covered the expansion in breakouts among key cyclical sectors in last week’s Market Mosaic. At the same time, several measures of breadth are turning up like the NYSE McClellan Summation Index below (plotted with a 10-day moving average). This metric is built from an oscillator that tracks advancing versus declining issues on the NYSE.
The next area I’m watching is the small-cap growth space. While the S&P 500 is only 8% off its high, the more speculative corners of the stock market have been basing off the lows for a year now. But there are emerging signs that breakouts from these bases could be underway. The IWO small-cap growth ETF is a great example of the setup. After bottoming in June last year, IWO has made a series of higher lows but is encountering resistance on each rally attempt as you can see in the chart below. But price is now back to the high end of the range, where a breakout could take shape based on strength in other areas of the market. Similar base breakouts are developing with other ETFs tracking speculative growth areas like with ARKK and IPO.
If smaller-cap growth stocks start taking off, it’s yet another sign that a better trading environment is taking shape. We’ve seen another round of our long setups holding their breakouts from various cyclical sectors, like with CVLG, FTI, and IESC. So those names are coming off the long watchlist as they complete their pattern. One pocket of weakness has been with biotech stocks, where SWAV is drifting lower so that name comes off watch for better opportunities. That means there are several additions to the watchlist this week.
Keep reading below for all the updates…
Long Trade Setups
Consolidating since January as part of an overall bottoming base. Looking for a move over $10 to signal the start of the next move higher. Recent MACD reset at zero is constructive as well.
Creating an ascending triangle pattern since March. Recently took out a resistance level at $65, and now watching for a breakout to new highs over the $69/70 area with confirmation by the relative strength (RS) line.
After spiking to new highs in early February, the stock has retraced the gains from the last base breakout. Now price is hovering near the highs with the RS line in a good position. Would prefer to see a bit more sideways action to reset the MACD before a breakout attempt over $55.
After gapping above a major resistance level at $65, price is consolidating with an ascending triangle pattern. Attempting to breakout over $75 last couple trading sessions on good volume. Would prefer to see the RS line at new highs.
Making a series of higher lows off the October bottom while finding resistance around the $540 level each time. A breakout over that level could target the prior highs around $570 for a bigger move.
Price rallied to the post-IPO highs around $30. With the recent pullback from that level, the MACD is resetting at zero with the 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.
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.
Tested the highs from 2021 at the $55 resistance level and pulled back toward the 50-day moving average. The $50 level is also good support from a prior breakout. Looking for a move to new highs, and don’t want to see $50 give way.
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.
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 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.