Mosaic Chart Alerts
S&P 500: Breadth expanding on new highs.
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
A pair of mixed inflation reports did little to dampen the mood of investors. The Producer Price Index was up first, with a year-over-year gain of 2.2% in April while the core figure that excludes food and energy prices increased 2.4%. While both figures were roughly in line with estimates, the increase in the headline PPI was the largest in a year. But then came the Consumer Price Index (CPI), which offered some relief for investors after the hotter PPI. The headline CPI increased 3.4% in April compared to last year while the core figure gained 3.6%. And although both figures matched consensus estimates, the core reading was the lowest in three years as you can see in the chart below.
Stocks responded with strong gains across the board on increasing bets that easier monetary policy is back on the table. Odds for a rate cut by the Federal Reserve at their September meeting increased to 75%, leading the S&P 500 to jump 1.17% on Wednesday while the Russell 2000 Index of small-cap stocks added 1.25%. And while the positive market reaction to still high inflation data might have caught investors by surprise, conditions were already evolving to support a rally when you look under the stock market’s hood as I outlined late last month. Despite the “sell in May and go away” mantra, the NYSE ratio of advancing to declining stocks saw three consecutive sessions earlier this month where the ratio was 3/1 or higher. That shows stronger participation in the rally, while net new 52-week highs are expanding and are at the highest level since the last time the S&P was making new highs (chart below).
Following the S&P 500’s pullback of 5% from the late March peak to the April low, the index is right back to all time highs. The expansion in net new 52-week highs across the stock market points to a constructive environment for trading breakouts. During the recent pullback, I’ve been monitoring stocks showing relative strength that are trading inside sound basing patterns. With the rally to new highs for the S&P, now’s the time to prune your watchlist for stocks not keeping up and focus on better setups. With that in mind, DUOL, LFMD, and CRC come off the watchlist due to their recent pullbacks that’s invalidating their setups. I’m also removing STNG as the stock holds onto its breakout to compete the chart pattern. That means there are several new additions this week showing better relative strength.
Keep reading below for all the updates…
Long Trade Setups
EGO
Gold-mining stock that recently moved above key resistance at the $13.50 level, now back testing that breakout as support. That “base on a base” pattern is resetting the MACD, with a new resistance level $16. The relative strength (RS) line is also holding near the high.
TTD
Making a series of higher lows since January while testing resistance around the $90 area. The MACD recently resetting at the zero line as the stock makes a smaller pullback. A break above $90 could target the prior highs just below $115.
ALKT
Progressing in an uptrend for the past year, but consolidating gains since February after hitting $26. A recent jump took the stock over that level, and is pulling back to test support inside the base which is resetting the MACD. Now watching for a move over $27.50.
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. The MACD is holding near zero while the RS line is near the 52-week high. Watching for a move over $42.
URA
The uranium miners 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. Now starting to move over resistance at $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.