The Rubber and The Road

We have reached a point where the market will have to decide one way or another; the rubber has met the road. Both the SP500 and Dow Jones are probing and holding just below all-time highs resistance, while the Nasdaq and Russell 2000 are barely holding very important intermediate term support levels. Either we see a further breakdown in the riskier stocks that finally drags the large cap names with it or we see breakouts in the large caps through resistance that would coincide with bounces from key support in the Nasdaq and Russell.

Which way this goes is anyone's guess and it is not our business to anticipate, but we should be looking for any hints the market may be offering as to its next intentions. At major inflection points is where using a multi-timeframe analysis can be helpful to determine the risk/reward of the particular outcome to follow. I think it is important to look at both the longer view and then a shorter view to zoom in on the battle of the support zones.

Nasdaq (weekly bars)

As we have discussed previously, the 4,000 level is the line in the sand for the Nasdaq. Currently many of the "hot money" leading tech names are finding very important trend support and likely will provide the catalyst for the resolution of this sticking point for the major index. Names like GOOG, FB, AMZN, TSLA, DDD, etc, these have all made similar moves as the Nasdaq recently and are also at serious trend inflection points. While the look of the longer-term charts are increasingly negative in my opinion, support is support until it is broken.

Russell 2000 (weekly bars)

The Russell, looking nearly identical to the Nasdaq, is sitting right on top of its key support level. There is a bearish price pattern under construction and price is struggling to find buyers while being below the 20 WMA. For continued trend health we are going to need to see this support hold and for price to retake its 20 WMA.  

Here is the long-term RS trend off the 2009 lows: 

You can see how after the massive slide that broke the uptrend of 2013 that now we are testing the long-term uptrend support. This is occurring with the Russell sitting right on its intermediate price support. A breakdown here and this could get really ugly.  

Now let's zoom in on the price action and see what is occurring at this important battle ground. We are going to look at a 30 minute bar chart and add the MACD as our momentum indicator for "under the surface" trend. 

We are seeing momentum building under the surface as price continues to make lower lows into support. This often leads to at least a solid bounce in prices and possibly a bottom forming event. We still don't have the confirmed price action to act on a setup like this, but seeing momentum make higher lows while price makes lower lows is a positive signal that buyers are coming back in at these levels. A move above the prior swing high at 1,119 would confirm this reversal. 

Both the Dow Jones and SP500 look similar to each other as they are holding their uptrend supports, 20 WMA, and continue to trade at the upper end of the recent trading range. 

Here's a look at the SP500 from the weekly view:

SP500 (weekly bars)

Something has got to give in the SP500 very soon. Price has repeatedly tested this upper resistance area and is now being squeezed between the range highs and rising uptrend support. At some point soon one of these levels will break either up or down. I believe the nature of that move will be due to how the Russell and Nasdaq handle their key supports. 

We are in a holding period for the markets and are just waiting for some resolution of the choppy environment. That being the case we had no changes to the Portfolio this week but we do have a couple interesting items of note. 

UNH

Because of last week's only marginal violation of support I gave UNH a one week grace period to see if it could recover. We saw a strong bounce back early in the week and most of those gains held. Price is now back above the 20 WMA and as long as it stays that way we will continue to hold our positions. A breakdown of last week's lows and we will exit. 

HAIN

HAIN saw a strong bounce after positive earnings this week and is now testing very important resistance. Both price and Relative Strength are now kissing the underside of the broken uptrend. We will need to wait for a resolution higher above these levels to have enough confidence that a new position should be entered. A closing price above $94.17 will be needed to break the downtrend. Be ready for that potentially. That would show that the recent weakness was a shakeout move and more upside is to come. 

Nothing is confirmed yet and frankly this is how real breakdowns cement overhead resistance levels; price likes to retest broken support and when it holds as new resistance, look out below. Especially after a positive surprise surrounding the company. Market tops are not made on bad news, they are set by a positive event that "blows off" the rally and buyers dry up. Are we seeing that here? We will know soon by how price handles this inflection level.  

F

Ford should be on your radars here as we have seen the 20 WMA flatten out and turn positive. Price still needs to break its downtrend at $16.50. A move above would also trigger a nice looking reversal formation projecting higher prices, should that occur. 

DDD

That was quite a round trip for DDD since our previous position entry last summer. There is nothing currently saying that the downtrend is over and prices are reversing...Price is well below a steeply declining 20 WMA and still below a nearly vertical downtrend resistance off the highs. What is interesting though is that since the 50%+ correction, price has come all the way back to those prior breakout levels where we were initial buyers. This area also coincides with the long-term uptrend support for the stock going back to late 2011. This is certainly not a momentum buy by any means at this point. But as a place to make a low risk nibble at a long-term potentially life altering technology company at the forefront of 3D printing, you could do a lot worse. 

If you like the 3D printing theme for the future, you certainly have a defined risk level to enter a position against. If it breaks $43ish, you sell and wait for another opportunity. This has been a place prices have rallied from in the past and there is a confluence of support. We don't have much along the order of positive price action for a trade, but as a small entry to build a long-term position, this is a place where risk/reward is favorable. 

Chart of the Week

Tesla Motors (TSLA)

One of my personal favorite companies is Tesla. Not so much for the car (although the Model S is sweet), but more for the company leadership, specifically Elon Musk. The guy is a true visionary in the way Steve Jobs was for AAPL. However Jobs made phones and music players, Musk designs and commands rocket ships via his "Space X" program and is seeking to alter our travel and energy use plans for a sustainable future. 

Needless to say, its pretty badass. Currently the best way to have access to investing into this possible future is through his car company, Tesla Motors. So there is the backstory, electric cars, space ships, Giga-Factories, so nothing huge... 

As for the stock, its been on a whopper of an uptrend since early last year. Granted its been a bit of a wild ride, the stock price has consistently made higher highs and higher lows. Since experiencing a nearly $100 correction from the recent highs, prices have now returned in-line with the prevailing trend support. A lot of people and pro traders have been caught up in this momentum slide (not just TSLA but all the names mentioned above) and were beaten up by it, both emotionally and financially. This creates much displeasure for the "risk on" names at this point. TSLA and the rest of the momo names are being left for dead here right as they trade into critical uptrend support. Will we see bounces here? Its impossible to say. But we know where we are wrong really quickly should the downtrend prevail.