Mosaic Chart Alerts

S&P 500 on the verge of breaking down. Adding new short setups to the watchlist.

Oct 12, 2022

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 trade ideas.

And to select these ideas, a lot of work goes on behind the scenes to find stocks offering the right combination of fundamental attributes along with a proper chart setup.

These are my notes from a shortlist of setups I’m monitoring.

Weekly Recap

The past week has delivered several data points that underpin the driver behind this bear market, which is a Federal Reserve that is tightening aggressively. The Fed reinforced that stance in the minutes of their latest meeting, where members on the rate-setting committee voiced concern over doing too little versus doing too much when it comes to hiking rates. Those views were driven home when the September producer inflation report came in hotter than expected with an 8.5% gain compared to last year. Now all eyes turn to the Consumer Price Index that will be released tomorrow morning before stock exchanges open for trading.

Those headwinds continue to weigh on the S&P 500, which is trading right around critical price support at the 3,600 level. I’ve included a chart below of the index, where you can see that level has been tested several times going back to mid-June. If this level gives way, you also have the VIX Index set to break out over an important resistance level. Please see my commentary here on why this VIX level is important.

The action over the past week means I’m still mostly watching and waiting from the sidelines. It’s encouraging that several of our recent breakouts on the long side continue to hold up well, including CCRN and HLIT. DINO is back testing its breakout level around $54-55, while holding above key short-term moving averages. Several other long setups are still showing constructive patterns as highlighted below. But there’s not much expansion in the list of long setups that I’m monitoring. I’m also removing PCTY, which never triggered and is invalidating the setup with recent price weakness. Finally, I am going to add a couple tickers to our list of short setups. If the S&P 500 support level gives way and the VIX breaks out, then I would expect these positions to breakdown.

Long Trade Setups

Pattern since start of 2021 has a deeper than ideal structure, but the more shallow consolidation since testing the $85 breakout level in August is a nice sign of relative strength.

LYTS

Higher risk small-cap stock, but showing nice growth rate in sales and earnings. Most recent pullback able to bounce off the 50-day moving average. Watching for a breakout over the $8.50 to $9.00 area.

IRDM

Breaking out from the consolidation pattern that’s formed since start of 2021. Testing a recent gap higher, while still trading around the $47 resistance level.

BOWL

I will keep this stock on the watchlist for another week. Recent IPO that saw an initial breakout over the $13 level, but price fell back inside the pattern. Has respected the 50-day moving average and turning back higher. Keeping $14 as the trigger.

Volatile coal stock that could be setting up another breakout. Finding support at trendline and 50-day moving average. The $55 level is initial resistance followed by the 52-week highs at $60. Position size accordingly with this name.

Short Trade Setups

UAL

Showing the daily chart here with triangle consolidation pattern. Looking for a break below trendline support at $32.50.

Stock broke the bigger trendline, then back tested that resistance level. Now watching for a break below $30.

NCLH

The $11 level has been tested several times since June, making it my trigger for a short trade. Price has rallied off that level this week, which could reset the MACD at the zero line to help support a breakdown.

FVRR

Found support around $29 in May and has tested that level several times since then. Literally closed right on that level today. Will evaluate a trade once tomorrow’s CPI report is out of the way.

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 will cover my short.

For updated charts, market analysis, and other trade ideas, give me a follow on twitter: @mosaicassetco

The Market Mosaic

Discussion about this post