Mosaic Chart Alerts
A dovish Powell boosts stocks, key test for the S&P 500, and breakouts setting up.
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 trades.
These ideas are the result of my process to identify stocks offering the right combination of fundamental attributes along with a proper chart setup.
Here are my notes from a shortlist of setups I’m monitoring.
Weekly Recap
In a highly anticipated speech on inflation and the labor market, Federal Reserve Chair Jerome Powell struck a surprisingly dovish tone. Specifically, Powell signaled that a slower pace of rate hikes could be just ahead. And despite trying to temper his comments by noting restrictive monetary policy will be around for a long time, investors cheered the pivot toward smaller rate hikes that could happen as soon as December’s meeting. Stocks responded by shooting higher, with the S&P 500 closing up 3.1% on the day to test its 200-day moving average and trendline resistance as you can see in the chart below. That sets up a crucial test for the market.
But despite today’s jubilation, I’m still taking a cautious approach when it comes to position sizing trades. We’ll see what Friday’s November jobs report has in store, but today’s ADP private sector payrolls report showed slowing job gains while jobless claims are now starting to inch higher. I’ve also recently discussed other warning signs for the growth outlook here. Outside of a sharp slowdown in the housing market, the economic impact of the Fed’s actions are only starting to be felt in the real economy, which still has implications for the earnings outlook.
Regardless of my opinion, I ultimately follow price action and will keep taking both long and short trade setups as chart patterns complete. There are no new additions or removals to the watchlist from last week, but I am updating charts and key levels to monitor…keep reading for updates.
Long Trade Setups
KEYS
Creating a resistance level around the $177-$180 area since August. With today’s strength starting to breakout over $180, which could set up a test of prior highs at $210.
CVI
Don’t like the relative price action over the last couple days, but will keep on watch for now. The MACD is resetting and price is holding the 50-day moving average. Still using a close over $42 as a trigger.
ARCH
Trading in a consolidation pattern since April. Starting to show signs that another breakout could be developing. Watching for a move over the $165 level.
RNGR
Price resistance around the $11.50 level tested several times over the past 16 months, and could now be setting up a key breakout. Would prefer to see MACD reset at the zero line. A more speculative smaller-cap name, so position size accordingly.
NSP
Basing pattern going back a year creating resistance level at $120. Prefer to see the $110 level hold while it trades within the pattern.
AMN
Ascending triangle pattern that has developed over the past year. Nearing the apex with resistance around $129. Don’t want to see trendline support lost while trading in the pattern.
Short Trade Setups
CUBI
Crypto-linked bank testing the $30 level several times in the last couple months; still trading in a bear flag pattern.
AMZN
Price previously tested the $105 breakdown point, where a move above would invalidate the setup. A move under the $90 level would be the next trigger.
W
Backtested trendline support around the $40 level, which was a significant level that gave way in September. A move above trendline resistance would invalidate the pattern. Next minor support is recent low at $28.
DKNG
Stock has tested the $11 support level several times since rebounding off the lows in May. Keeping on watch as this descending triangle pattern develops. A move above trendline resistance would invalidate the setup.
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 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 newsletter.