More signs of "risk-on" sentiment.

Feb 28, 2024

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

Much of this week’s key economic events are still ahead, including January’s PCE inflation report while several speakers from the Federal Reserve are scheduled to deliver speeches. While investors will focus on the forward path of monetary policy, it’s the action in more speculative corners of the capital markets that has my attention. Like Bitcoin for instance, which is grabbing headlines as it builds on the breakout over $48,000 earlier this month. The cryptocurrency looks destined to test the prior highs just below the $70,000 level as you can see in the monthly chart below that goes back five years.

But it’s not just Bitcoin that’s putting in important price moves. The XBI exchanged-traded fund (ETF) that tracks biotechnology stocks is taking out an important resistance level that stretches back to the start of 2022 as you can see below. I posted earlier today about the breakout taking place in retailing stocks, while several small-cap ETFs (including IWM and IWO) are once again testing key resistance levels that I outlined here just the other week.

The movements in speculative corners of the capital markets and sectors more sensitive to the economic outlook (like with retailers) is another encouraging sign for the trading environment. Despite the headwinds posed by interest rates for those areas of the market, breakouts from long-term ranges and bottoming patterns are significant. It’s yet another sign of the stock market’s character change since 2022’s bear market, and suggests that risk sentiment keeps improving. That’s being reflected in our breakout setups, where positions are trending and following through from their basing patterns. For this week, I’m removing AXON and GES from the watchlist as both stocks breakout to complete their pattern. That clears the way for several new additions.

Keep reading below for all the updates…

Long Trade Setups

CAVA

Recent IPO that’s testing last year’s high around the $58 level. Rising volume over the last several trading sessions while the MACD is just turning higher. Would prefer to see more sideways trading before attempting to breakout.

INTR

Basing since November just below the prior highs near the $6 level. Recent MACD reset at the zero line while the relative strength (RS) line holds near the high. Watching for a breakout to new highs.

CELH

Stock consolidating since early September following a run to new highs. Initial resistance at the $63 level, but would like to see the MACD reset at zero before attempting a breakout over $70.

PATH

Attempting to emerge from a bottoming base going back nearly two years. Stock basing since December after breaking out over the $20 level. Now watching for a move over $27.

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. Pulled 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.

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.

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.

The Market Mosaic

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