Barring some sort of surprise implosion within the next couple of hours, the market is on pace to close out the week barely in the black - the third straight week of gains following a two-week stumble back in late September. Before anybody gets giddy though, let's devote at least a couple of minutes to the potential pitfalls we're facing. I still contend not everything is as rosy as it seems.
When will it happen if it does? It's hard to say, but the closer to the tip of the wedge we get, the closer a breakdown looms. As for why I expect the bottom to fall out sooner than later, the lower portion of the chart will illustrate. We've talked about breadth and depth before, so I won't go into the whole thing again. Suffice it say I'm interested in comparing bullish volume to bearish volume (depth), and comparing the number of advancers to the number of decliners for any given exchange (breadth). The moving averages of those four data sets indicate the true health of the market trend, where the overt market trend can be deceiving. (Click here for the full explanation and lesson.) Well, as our chart shows, depth has slowly turned bearish over the last few weeks, and breadth doesn't appear to be doing a whole lot better. But wait a second.... hasn't the market been headed higher even though breadth and depth have been bearish? Yep, but that's the cool part about this analysis - the index chart alone can be deceptive, but breadth and depth show you the market's underlying trend. Better still, this data is a leading indicator. That's why I suspect we'll be paying a decent price soon for the big gains over the last seven months; breadth and depth are just not supporting the rally any longer. We'll
talk about a landing spot in a future edition.
You may have already seen we've opened a couple of new community page topics.... small cap value, and biotech. Each of those sections has a guest commentator that's a specialist within arena, so we're excited about all the new insightful commentary you'll have access to. Anyway, here's the latest:
Though we don't have any new trades for today, we do have one exit and a few things we want to highlight.
We got off to a great start on last week's short/bearish pick of Alnylam Pharmaceuticals. Our entry price of $20.35 versus the current price of $18.98 means we're up about 7%.... not a bad little profit cushion considering the market's actually up for the same timeframe. However, I also wanted to notify you to expect a delay in the downtrend here, as ALNY is now waffling at the 61.8% Fibonacci retracement line (the one we discussed back on the 16th). It's too soon to assume the Fib line will hold up, and it's way too soon to go ahead and close this trade out. ALNY hasn't given any indication that there's going to be a recovery attempt here, and the stock's actually falling back again from today's modestly higher open.
I mentioned this Wednesday, but I think it bears repeating now.... our EDAP TMS short position is on the verge of paying off, as EDSP shares are on the verge of a major breakdown. As of our prior look, EDAP was trading at $3.71, and attacking the upper support line at $3.70. Now the stock is trading at $3.65, and attacking the next - and last - support line at $3.52. We've already seen a low of $3.58 today, so a meltdown could be on tap. The only thing missing so far is volume. As for where the stock could end up if the breakdown materializes, I still believe the $1.40 is an immensely important consolidation level; EDAP waffled there all throughout the first half of this year.
This is the exit we mentioned above. If you're still in a long trade on NCI Building Systems Inc. (NCS), go ahead and get out now. Actually, you should have been out of any trade back on October 19th when NCS tumbled under the key support line we plotted a few weeks ago. Between the failure of that floor to hold the stock up and the sheer degree of selling volume that day, the clues were pretty strong (not to mention our parabolic SAR 'fail-safe' exit was triggered). Though the selling seems to be slowing down for NCI Building Systems as we approach June's lows, I still don't see the risk/reward ratio being strong enough now to stick with it.
Every time I get close to shedding this little stock - an ADR actually - Grupo Simec manages to do something to inspire me to hold it just a little longer. And so far, I'm glad I've been unable to pull the trigger. The latest round of doubt about SIM was whipped up in late September after the stock made a pullback to a long-term support line. Once touched though, the rebound was quite decisive. In the meantime, Grupo Simec has pushed all the way up to a high around $8.60, where we seem to be hitting a minor ceiling. I don't think $8.60 will be a major problem though. The line in the sand I'm worried about for SIM is the ceiling around $8.80. Given the long-term trend and the recent consolidation, I suspect a tepid move just above that line will turn to fireworks once we're clearly above it.
If you didn't happen to see it then, Edwards Lifesciences shares launched to new 52-week highs on Thursday, and pushed our gain on this trade up to 33%. On the flipside, I have to confess I'd be very surprised if EW didn't give at least some of the gain back. That's just trading - as long as we continue to take two-steps forward and one-step back we can still make good money. The question is, what constitutes more than one step back for Edwards Lifesciences? I want to give it some wiggle room, but I don't want to give back more than I really need to. It seems as if the $70.60-ish area has been support as well as resistance before, so that's probably the ideal spot to place a protective stop on EW at this point. That's it for today. Have a great weekend.
|
||||||||||||||||
Receive weekly FREE trading alerts, research and news updates!
Search SCN
Hot Stock Picks
and Trading Ideas
and Trading Ideas
Current Market Calls
Sign-Up For Our
Free Newsletter
Free Newsletter
To subscribe to our newsletter, please enter your email address below.
Privacy Policy
Current Profiles
Yes,
the
NASDAQ has been spurred higher today by Microsoft's (MSFT) better-than-expected
quarterly results. The inspiration from the software giant didn't drive
the S&P 500 above a critical resistance line though, so it's difficult
to call this rally 'yet-another' breakout move. The nearby chart says it
all. Since March, the market's been framed by a rising support line, and
a less-steep rising resistance line (the blue lines). It's technically
called an ascending wedge, but it's hardly bullish. Rather, it's likely
to be a setup for an eventual pullback, as the bullish swings are less
powerful than the bearish swings.
Alnylam
Pharmaceuticals, Inc. (ALNY)
EDAP
TMS SA (EDAP)
NCI
Building Systems Inc. (NCS)
Grupo
Simec S.A.B. de C.V. (SIM)
Edwards
Lifesciences (EW)
