Mosaic Chart Alerts
Bulls Vs. Bears: Who will prevail?
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
Following last week’s flurry of economic reports and Federal Reserve meeting, investors are receiving a much needed break from headline volatility. That’s also allowing the stock market time to digest last week’s gains, and set up the next big move. The backdrop for stocks remains favorable, with long-term breadth staying oversold, investor sentiment still running at bearish levels, and positive calendar seasonality into year-end. Positioning among the pro’s could also deliver a boost, with commodity trading advisors (CTAs) sitting on a $52 billion short position in equity futures. That’s the largest short position in at least five years, where short-covering after last week’s rally could fuel more gains.
But if the S&P 500’s rally since late October is nothing more than a dead cat bounce from oversold levels, then this is a logical spot for the downtrend to continue. There are several items to note in the chart below. First, the S&P is filling the gap from the breakdown through support around 4400. Following the breakdown, support is now being tested as resistance and I would note the same level is the last “lower high” of the correction since July. Several price oscillators are also at key spots. The MACD is resetting beneath the zero line, while RSI (green line) has rallied to 60 which is often the overbought level in a downtrend. The stochastic in the bottom panel is now overbought as well. I wouldn’t be surprised to see a pullback following such a strong run, which ideally holds above the October low around 4110 to keep the prospect for a new uptrend alive.
As I concluded in last week’s Market Mosaic, many stocks on my watchlist are still setting up in their basing patterns. I have no issue waiting patiently on the sidelines until I have a firm signal that a breakout is taking place. That’s especially the case with the market still struggling to generate net new 52-week highs across the major stock exchanges. This week I’m removing DBX from watch as price dipped below the $26 support level discussed in the last update. I also have several new additions to the list this week that could be setting up breakouts.
Keep reading below for all the updates…
Long Trade Setups
Creating a resistance level just below $230 at going back to March. Price also making a series of higher lows since July. MACD turning up from the zero line and large volume on today’s move. Only drawback is that the relative strength (RS) is not at a 52-week high.
Trading in a range since July as part of a consolidation following May’s breakout to new highs. RS line already close to a new high as price nears resistance at $915. Looking for a breakout over that level.
Consolidating year-to-date gains by trading in a range since July. Made a recent higher low with the RS line now near 52-week highs. Watching for a breakover over resistance at the $330 level.
Basing since February while creating a resistance level around the $220 area. Attempted to breakout last week although the RS line did not confirm. MACD now resetting at the zero line.
Trading in a bullish flag pattern following the rally from $27 in May. Looking for a move above trendline resistance around $45. The RS line is staying close to 52-week highs.
Uranium stocks could be basing for another move higher. The URNM uranium ETF is trying to rebound after pulling back to the 50-day MA. That pullback allowed the MACD to reset. Watching for a breakout over $50 with the RS line at new highs.
Redrawing the triangle after a failed breakout from an earlier pattern. RS line is holding near the highs, and want to see $18 hold on any pullback. Now watching for a move over the $20 level around trendline resistance.
Trading in a sideways range after a breakaway gap over the $14.50 resistance level. RS line holding near the highs but the MACD is weakening. Still watching for the uptrend to resume with a breakout over $17.75.
Price firming up in a base that extends back over a year. Making a run toward resistance around the $15 level. MACD in a good position to support a breakout, with trendline resistance being tested recently.
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.