Mosaic Chart Alerts
S&P 500: Tracking seasonality into year-end.
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
Macro headlines are set to take center stage once again, starting with jobs data. Yesterday’s job openings figure (from the monthly JOLTS report) fell to 8.7 million, which was well below expectations and is the fewest number of openings since March 2021. That will make Friday’s payrolls report for November all the more anticipated. We’ll also get an updated report on consumer inflation with CPI the day before the Federal Reserve concludes its last rate-setting meeting of the year. Regardless of the narrative that will emerge to explain the stock market’s movements, it’s worth noting that seasonality trends are tracking quite well for the S&P 500 this year.
If seasonal trends keep tracking, then you would expect the S&P 500 to take a break over the next week or so before finishing strong into year-end. A pause would certainly be welcome to reset momentum for another move higher. You can see in the chart below that the MACD (middle panel) and RSI (bottom panel) remains extended to the upside, indicating the potential for a mean-reverting move lower. Many mega-cap stocks that drive the cap-weighted S&P have a similar look as well, and are in the process of consolidating near all-time highs. But right now, I expect those consolidations to ultimately resolve to the upside and drag the S&P higher as a result.
But it’s not just mega-caps driving recent performance. A strong rotation into smaller-cap and more speculative areas of the market show improving risk sentiment. That’s showing up in breadth figures, with net new 52-week highs staying in positive territory this week. I also recently highlighted key resistance levels to watch in the IWO small-cap growth ETF, which are being broken to the upside. For this week, I’m taking IOT, SN, and AXON off the watchlist as those stocks breakout and complete their patterns. That clears the way for several new additions.
Keep reading below for all the updates…
Long Trade Setups
Trading in a basing pattern since mid-June, with a failed breakout attempt in September. Has traded in a similar range since then, with resistance around the $30 level. The MACD is resetting at the zero line, while the relative strength (RS) line stays near the high.
Consolidating after making a new all-time high back in July. Somewhat resembles a base-on-base pattern after testing the $150 breakout area. Price back near the highs, where I’m watching for a breakout over $195.
Making an ascending triangle since March with resistance around the $490 level. Made a recent breakout attempt, but the MACD was already extended and the RS line didn’t confirm. Now prefer to see a MACD reset then breakout attempt over $500.
Big run over the past couple weeks to test resistance around $60. Need to see momentum reset for another move, so ideally the stock trades sideways for a period to reset the MACD at the zero line. If that happens, I would look to buy a breakout to new highs confirmed by rising volume and the RS line at new highs.
Making a quick move higher over the past month off support around $34. My ideal trade setup is price tests resistance around $45 then does a small retracement of the rally. Look for MACD to reset at zero in that scenario, followed by an attempt to breakout over $45.
Price starting to rally again after testing the post-IPO highs around $45. In an ideal setup, price trades sideways to reset the MACD at the zero line. That sets up a breakout over $45, which should see rising volume and confirmation with the RS line at new highs.
Pulled back after reporting earnings. Will keep on the watchlist for now as long as support at $20 holds. Still watching resistance at $24, which is a level tested several times going back to 2021. Series of higher lows since last October’s bottom. A breakout could target the prior high near $29.
Trading in a bullish flag pattern following the rally from $27 in May. Looking for a move above trendline resistance around $47. The RS line is staying close to 52-week highs.
Uranium stocks could be basing for another move higher. The URNM uranium ETF is pulling back this week after testing resistance again at $50. May need to see another MACD reset before a breakout attempt.
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.