S&P 500 Weekly Update: Just A Bounce In A Downtrend?

We are dealing with many of the same themes, so my plan is to keep this week’s S&P 500 weekly update short and to the point. Feel free to go back and read last week’s update for more color. In short, not very much has changed except for the counter-trend rally attempt.

We experienced another week of selling BUT FINALLY crude oil woke up and rallied. This may be a short term low or even a lasting bottom but either way caution is still warranted. The chart has experienced several weeks of controlled selling and has a ton of technical damage so careful.

Same goes with the S&P 500 weekly update chart (but we’ll look at that later on in the article).

Coming into the week, the markets were very oversold. And just as I thought, the charts stayed oversold until we saw the big reversal middle of last week. That occurred after the McClellan Oscillator ($NYMO) hit some historic oversold levels on an intraday basis at -116.

This doesn’t show on the chart because it only shows daily closing prices but either way, the closing was equally oversold around -89.  The Equity only put call ratio hit extreme levels that often provide a good gauge for a stock market reversal. And meanwhile the Volatility Index ($VIX) went over 30 briefly, only to retrace back inside its Bollinger Bands.

As well, investors became bearish – The NAAIM Exposure Index saw bulls drop to 26.32. This is good to see from a contrarian viewpoint. In all, there are ingredients for a lasting bounce… but it is still in the scope of a broader downtrend.

This week is a big week for Corporate Earnings with stocks such as $AAPL, $AMGN, $V, $AMZN, $MSFT, $FB and many more reporting. Earnings news has been secondary of late, so it remains to be seen whether they will provide any sort of catalyst.

Next on the list is the Economic calendar. We have the FOMC on tap along with GDP reporting. We also have some consumer related data with Consumer Confidence, Pending Home Sales, Consumer Sentiment, Durable Goods, PMI etc. Others will be watching the EIA Petroleum report for an impact on Crude Oil prices.

economic calendar week of january 25

Stock Market Breadth Indicators:

From a market breadth standpoint, stocks are still facing an uphill batter. Here are some considerations.

Sector Performance: A Candlestick glance

From a sector performance standpoint, several sectors are out of the oversold levels per their Relative Strength Index (RSI). The Financials ($XLF) has been the laggard along with Materials ($XLB). But this has been this way for a while – would like to see some buying there this week.

stock market sectors rsi oversold charts january

The Relative Rotation Graph (RRG) chart shows leaders and laggards across the 9 stock market sectors.

relative rotation graph sector rotation strength january 25

CBOE Options Equity Put/Call Ratio – $CPCE

The Equity Only Put/Call ratio spiked above 1.1 towards 1.14 last week. That is up near historic levels going back several years. This could be a reversal signal for stocks but as I stated earlier in this S&P 500 weekly update, there is much work to be done. Fear felt real last week, but it was noticeable that the $VIX didn’t spike to a similar degree (just getting over 30 briefly).

stock market put-call ratio chart week ending january 22

NAIIM Stock Market Exposure Index – Drops To 26.32: 

The NAAIM Exposure Index represents the average exposure to the U.S. stock market. The green line shows the close of the S&P 500 Total Return Index on the survey date. The blue line depicts a 2 week moving average of the NAAIM survey responses. Last week’s survey number came in at 26.32.  This is in sync with the decline, but moves us closer to a more meaningful bottom.

naaim investor exposure index chart january 22

 

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Trading Ideas: 4 Stocks To Watch For January 25 $SBUX $CREE $CLX $FRGI

After a big rally to end last week, traders are anxious to see how stocks will hold up. And after such a sharp, quick decline in the stock market to begin the year, it’s hard not to think about the possibility of a bear market rally.

If this quick burst higher is a bear market rally, then it’s imperative that we stay disciplined while executing trades and looking for trading ideas.

We need to stay true to our process for finding quality trading setups – something that can be hard to do after a sharp 3 day rally.  How stocks handle the first pullback will be key. If buyers come in, then we’ll see even more trading ideas and setups emerge.

Below I have put together 4 trading ideas that are on my radar for the week of January 25. These four stocks have trading setups that look interesting and may bear fruit for disciplined traders. I’m waiting for the “triggers”.

4 Stocks To Watch

Cree Inc. $CREE

CREE formed a double top in October 2013 and started falling lower.Ever since that event, it slowly moved lower and well below its 200 SMA which is a bearish sign. CREE has formed a big base consolidating since June 2015. The base ranges about $6 between 21.75 and 28.

The move lower created a decent sized gap and at least on 2 occasions, CREE has tried to move higher but in vain. But this past week, the stock spiked higher on heavier volume and has closed over 200 SMA in a very long time. This is positive sign. Ideally I would wait for a pullback for a quick retest of the 200 SMA and then move higher to fill the gap which closes around 30.20 to start with but there are other gaps to fill higher too. Since the base measures around $6, I would look for a move towards 34-35 in due course, well above the first gap fill zone.

The Relative Strength Index (RSI) is bullish while MACD has crossed up and rising. Cree Inc. (CREE) doesn’t report earnings April 19th.

cree stock chart bullish pattern setup trading ideas january 25

Starbucks Corp. ($SBUX)

SBUX has formed 2 formations – one is a descending channel and the other is the symmetrical triangle ascending slightly. Starbucks stock price sold off on the 22nd of January after their earnings were released but recovered nicely. While I want to lean towards the bullish side, I want to be clear that the triangle formation can break either way. So better to wait for the break higher or lower and then enter if you do not have a position already.

If Starbucks (SBUX) can break above 60.15, its first resistance zone, then I would look for at least a $3-4 move towards 63.79 or even the next resistance at 64.55. MACD has just made a bullish cross and RSI is right at median. Starbucks has already reported its earnings results this quarter and hence, we don’t have to worry about it for now from an earnings report standpoint.

sbux starbucks stock chart bullish trading ideas january 25

Clorox Co. ($CLX):

CLX is one of the stronger names that has shown relative strength during the downtrend. Clorox stock price has been consolidating near all-time highs with a rising 200 SMA. RSI is just above median and MACD is trying to turn up for a bullish cross. On a weekly timeframe, CLX has formed a bull flag and is riding above the 50 SMA. RSI on this timeframe is firmly bullish but MACD has just crossed lower but well above median. If you don’t have a position in this name, one could look for a long entry over 127.08 with a stop near 124.90. There is no specific price target to be specified for CLX but I am considering this as a longer term trade idea. Clorox (CLX) pays a dividend of $3.08 annually and they report earnings on February 3rd.

CLX Daily Stock Chart

clx clorox stock chart technical support levels january 25

CLX Weekly Stock Chart

clx clorox weekly stock chart bullish pennant pattern trading ideas january

Fiesta Restaurant Group, Inc ($FRGI):

Fiesta Restaurants stock price started its decline steadily from end of July but bottomed in November and moved higher. But that was short-lived as the stock continued to fall but at a slower pace with volume contraction.

FRGI has formed a cup or a saucer like formation. The stock price has formed a bull flag after moving higher during the downtrend in the broad market and has shown relative strength during this time. Looking at a long entry on a move over 38.56 with a stop around 37. FRGI has resistance at 41.27 then 43.94 is where the 150 SMA is. If the stock has more strength, this move can see it’s declining 200 SMA at around 46.02. The main resistance though comes in at 39.30 where the weekly 21 SMA. Above that is the weekly pivot around 45.14. Momentum indicators are bullish and the Bollinger Bands have opened upwards, supporting higher prices. Fiesta Restaurant Group (FRGI) reports earnings on February 18th.

frgi fiesta restaurant stock chart bullish trading ideas january 25

Thanks for reading.

 

Twitter: @sssvenky

The author does not have a position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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