Mosaic Chart Alerts
Mosaic Chart Alerts
S&P 500: Are the bulls back in charge?
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
Recent weaker than expected economic reports are shifting the outlook for monetary policy. While the Federal Reserve is set to slow the pace of its balance sheet runoff starting in June, speakers from the Fed this week are also messaging that the next move on interest rates is more likely to be a cut rather than a hike. Current odds favor a rate cut in September, and a total of two quarter point reductions for this year. At the same time, economic data isn’t so bad as to raise fears over recession. That’s putting the “Goldilocks” scenario back on the table for investors, where a dovish tilt towards monetary policy is coupled with economic and corporate earnings growth. If anything, recent evidence suggests that the weak first quarter GDP report was a blip, and growth could pick back up. The Atlanta Fed’s GDPNow report for the second quarter GDP is tracking at 4.2% annualized as you can see below.
Stocks are responding favorably with the S&P 500 recapturing most of the 5% drawdown from the late March peak through mid-April low. But conditions were already in place that could support a rally, including oversold breadth, positive breadth divergences, and bearish investor sentiment. Despite the recent rally, CNN’s Fear & Greed Index remains in “fear” territory with sentiment still providing a tailwind. It’s also worth noting that high yield bonds with the HYG and JNK exchange-traded funds are recently breaking out to new all time highs, which is another bullish signal. There are a couple levels and indicators to now watch in the S&P 500 chart below. Price recaptured the 50-day moving average (MA - black line) and is trading close to the March peak. If the S&P 500 tests the prior highs, I’ll be following the action in the MACD and RSI in the bottom panels. So far the MACD is having a bearish reset below the zero line while the RSI is near the 60 level which can signal overbought in a downtrend. I would also watch if the RSI makes a lower high on a retest of the 5250 level, which would be a bearish divergence.
Those are a couple scenarios to keep in mind as the price action evolves. Instead of guessing what the next move in the S&P will be, I read and react to conditions as they evolve. Investor sentiment and the breakout in high yield bonds are bullish tailwinds for the stock market, but the S&P needs more constructive price action to clear up the possible bearish divergences in momentum indicators. For this week, I’m removing ITRI from the watchlist as the stock breaks out to complete its pattern (I reviewed ITRI’s setup in more detail on my video update here). I’m also removing DDOG as recent price weakness invalidates the setup. That clears the way for a couple new additions.
Keep reading below for all the updates…
Long Trade Setups
GCT
Consolidating gains from a big rally since the start of March. Price creating a resistance level at $42, which has been tested several times over the past two months. Recent MACD reset at zero and turning up while the relative strength (RS) line is near the 52-week high. Watching for a move over $42.
STNG
A larger base breakout happened over the $60 level back in December, with price basing again over that level. New resistance being created at the $74 level, with price moving over that level yesterday on higher volume.
DUOL
Consolidating since initially taking out the post-IPO high around $200. Making a higher low in mid-April with price nearing resistance just under the $250 level while the MACD crosses above the zero line. Would like to see the MACD reset at zero before a move over $250.
LFMD
After breaking out from a larger base over the $9 level back in March, the stock is back testing that level and consolidating for another run. The RS line is already near a new 52-week high while the MACD reset at the zero line. Watching for a move over $12.
CRC
Oil and gas stock that’s consolidating since last September. Created a resistance level at $58, which was recently tested again. Would prefer to see the RS line strengthen further and support at the $50 level hold. Watching for a move over $58.
URA
Putting uranium miners back on the watchlist. The ETF recently testing resistance again at the $32 level, which is a key level going back to 2021. Would now like to see a MACD reset at the zero line followed by a breakout.
TRMD
Broke out over a prior resistance level at $32 and now back testing that level as support. The RS line is near the high while the MACD is trying to turn up from zero. Watching for a move over $37.
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.