$SPX Reversal
Each evening we focus on the most interesting aspects for the upcoming trading day. The comments are based on observations of the nightly updates of the Stocks/Sectors and Market Bias pages. They are provided for educational purposes only and are not intended to be direct trading advice. Also, keep in mind that these remarks are made up to 12 hours in advance of the markets opening. Therefore, overnight events may alter the outcome of these observations.
At the time this is being published, the S&P Globex Futures are trading .30 points lower and the bond market is trading up 4 ticks.
Last night (see archive), I talked about how the cash S&P [$SPX.X>$SPX.X] looked vulnerable as it hit all time highs but reversed to close poorly. As you know, today, led by an overnight Globex Futures rally, the S&P’s rallied to hit and close at all-time highs. This suggests that we will continue to rally through option expiration tomorrow. However, continue to use caution at these lofty levels as we are overbought as measured by tonight’s CVR III and CVR VI sell signals on the Market Bias Page.
On the Pullback List, several look interesting to me tonight. Qualcomm [QCOM>QCOM] is in its first pullback since its parabolic run (a). Stocks in this position normally either challenge their old highs or fail. Right now, it looks like it may attempt to challenge its old highs (around 400*). Interleaf [LEAF>LEAF], in the strong Software Sector [$CWX.X>$CWX.X], is a pattern I call a Trend Knock Out (TKO). This is where a strongly trending stock sells off and takes out (at least) the prior two lows. This often shakes out the weak hands and clears the way for the stock to trade higher. AnswerThink Consulting [ANSR>ANSR] closed well today reversing yesterday’s sell off and looks poised to resume its uptrend. Spyglass [SPYG> SPYG] appears to be pivoting back into the direction of its uptrend. And finally, Filenet [FILE>FILE] is a three bar pullback that looks like it has potential.
Silknet Software [SILK>SILK], mentioned last night, still looks like it has the potential to rally out of a high level cup with a pennant formation (see archive from last night). Just wait for a resumption of the uptrend (i.e. for it to take out the prior 1-2 bar highs) as it did close poorly today.
For you breakout players, ISS Group [ISSX>ISSX], in the strong Software Sector [$CWX.X>$CWX.X], gapped higher (a) and rallied today out of a high level consolidation (which is also a “micro†cup and handle). The theory here is the consolidation forms a “launching pad†for the stock.
On the short side, Unilever [UN>UN], mentioned last night, broke to new lows on an expansion of range. Continue to look for a shorting opportunity here.
Best of luck with your trading on Friday!
PS – Reminder: Protective stops on every trade!
*I realize that this stock is extremely expensive but I thought it was worthy as an example.