A Few Stocks Poised For More Upside

SP500 Daily 

First things first, if you only remember one thing from this post, just focus on 2,025 as the key level. This is the ballgame folks, its right here. Above 2,025 the Bulls are in charge and new highs are within reach. Below, the range continues where another move back through 1,900 is likely.

A breakdown appears to be the low probability trade in my opinion. For those who think this rally will end just like the last one I believe crucial differences exist from the October rally:

-Sentiment is worse as most are now caught in the cycle of "what goes up must come down". On November 5th, AAII Bearish Sentiment was at 18.6%. For the 1st week of June AAII Bears were at 29%. After the recent pullback Bearish Sentiment has risen to 37%, the highest number of Bears since the February lows. The last time 37% of respondents were bearish was the week ending February 19th. The market then rallied 200 points over the next 8-weeks.

-Uptrend participation is higher currently than it was late last year.
In October the number of SPDR Sector Top 10 stocks > rising 20 WMA was 39 out of 90. Currently the number is at 69 of 90. The breadth is reaching an intial overbought reading, but in 2013 and mid 2014 there were readings in the 79-81 range. This means 81 stocks out of 90 of the largest SP500 stocks were trading > than their rising 20 WMA's, which is my definition of an uptrend.

In strong markets we want participation from a broad group. This shows the market is supported by many stocks' momentum rather than a select few. Thinner markets are more prone to breakdown, as we saw after the October rally. Currently the health of the recent uptrend is much stronger than the previous instance.

-The October rally peak was immediately followed by a series of lower lows/lower highs

-The currently rally has not set a lower swing low, and is now pulling back from a higher swing high.

 -Uptrend remains intact...ABOVE 2,025.

-Something bearish to report is that the latest swing high was met with a divergence in momentum vs the April high. Price made a higher high but momentum (MACD) made a lower high. Some could be looking at the April and June peaks as a potential Double Top formation. I agree this is possible, but again for this to confirm price would have to fail the swing low at 2,025.

-To refute that slightly, the MACD remains above the Zero line which suggests the uptrend remains intact.

-Overall the structure remains positive, attitude toward the market continues to be skeptical, and the Federal Reserve is currently Easy. Despite all the reasons that the market should be crashing, its not. The SP500 is only a couple percent below its all-time high. 

With what I consider to be a positive trading backdrop here are a few stocks I like should the market cooperate in the near future:


WYNN

The weekly view above shows a positive base development. I see a clear Inverse Head/Shoulder formation which confirmed with this week's higher closing high. By moving above the April highs there is now a confirmed higher low as well. The 20 WMA is below price and rising and above the 50 Week SMA for the first time since 2014.

We saw a clean breakout on Friday in a weak overall market. The stock made the highest daily closing price since August of last year. It should be noted also that while the market has been weak over the past 7 trading days, WYNN traded in a sideways consolidation and broke out to fresh closing highs Friday.

In terms of Relative performance vs the other major Casino companies WYNN has crushed LVS and MGM since the February lows.

The next major resistance should come in near the gap at 130.48. That would be a reasonable target for those looking to measure risk/reward on this entry signal. A move to $130 sets up almost 30% upside potential from here.

 I'm currently Long WYNN

JOY

At the most basic level of analysis (which you know I prefer) JOY has turned the corner. JOY is trading above its rising 20 Week SMA for the first time since 2014. Following a two-year period where the stock fell from $60 all the way down to $9, it has now formed consecutive higher lows and higher highs.

Also note the general trend action over the past 2-years. From 2014 until the lows in January 2016, any rally formed a bearish "flag" pattern and resumed lower once the short-term trendline broke. This pattern occurred several times during the decline providing many opportunities to either exit trapped Long trades or initiate Short positions. However since the bottom at the beginning of the year we've seen the "bear flags" turn into "bull flags" which is indicative of a positive trending environment.

Trading Volume has changed dramatically in the last year as well. There was a substantial escalation of selling pressure in the 3rd and 4th quarters of 2015. Sellers were capitulating as huge numbers of shares were sold into and near the ultimate lows. Heavy selling by itself doesn't mark major bottoms. Setting a permanent low requires heavy buying. Fortunately for JOY buyers have been flooding in. Volume has been much higher on rallies than on declines so far in 2016, this shows accumulation by major holders and is the kind of action you want to see when a major bottom is being created.

We will be continuing to take bullish action on rallies and looking to add to positions as the stock consolidates and resumes higher.

Measuring JOY against its primary competition CAT and DE, you can see the huge discrepancy in performance since the February low. Granted JOY has been much more volatile, but if you can manage the swings it offers much more upside than its peers.

I'm currently Long JOY

FCX

For the first time in 2-years FCX is pulling back to and holding its rising 20 Week SMA. I believe the trend is turning higher here and substantial upside appears likely. The recent consolidation comes after a monster run off the ultimate $3.50 low from January. It is now creating a bull flag formation and this could very well also be the final construction of a Right Shoulder in a larger Inverse Head/Shoulder base.

We are still awaiting confirmation of this thesis as a trade through the yellow downtrend line triggers an initial entry. Then a breakout above $14.40 sets in motion the large bullish pattern.

Momentum via the MACD is also now holding above the Zero line for the first time in 2-years. A resumption in price soon would suggest longer-term momentum has turned positive and the ensuing rally could be fierce. The base pattern itself targets a move to near $25 which would be a nearly 40% upside move from the $14ish breakout level.

I will be taking action on a close above $11.60 and breakout over trendline resistance. A move above that triggers initial positioning and I would be even more aggressive on dips occurring above the $15 neckline area.

For now patience is the best course as nothing has been confirmed just yet for our thesis. Yes the stock has rallied sharply off the lows. But its not necessarily about where a stock has been, its more about where its headed next that matters to us. To me it appears the major secular trend is shifting and a new bull market may now be only in the early innings. 

LOW

Lowe's has had a nice pullback/shakeout of the recent base breakout. This week saw a sharp move back into the prior trading range only to find support above a rising 20 WMA and rally right back to close above the breakout resistance.

The Daily chart shows the throwback in more detail. As you can see prior resistance has become new support. Should this week's low fail to hold on any further weakness it would be a sign that the breakout is in real trouble. But if price remains above this level its a bull market, breakout mentality.

I'm currently Long LOW and will be looking for further upside to confirm my bullish thesis. Consolidations above the $77 breakout would be opportunities to increase positions and trail stops. 

GE

GE staged a textbook bullish consolidation into the rising 20 WMA and is now breaking higher. This kind of action makes our movements very straight forward and simple. We want to increase positions on this move and can use this week's low as our stop. A weekly close below that swing point would invalidate the additional bullish thesis and we would take a more cautious posture. Above it however the stock remains in a higher high/higher low uptrend. We want to be aggressively long above this confirmed breakout.

 The Daily candle chart shows the sentiment behind this new breakout. It appears while the base consolidation was under construction, the multi-month downtend line was broken. The Right Shoulder low came on a retest of that trendline breakout. The ensuing price action appears very bullish to me. Tuesday was the igniter of the move; the wide body nature of the trading range nearly engulfed all of the action back to late May, the previous 13 trading days. There was then upside follow-through Wednesday but strength was sold and appeared to be looking to reverse the new breakout. Early Thursday GE got taken lower by almost 2% but then managed to close all the way back through Wednesday's close. My suspicion is this "reversal of the reversal" likely trapped a lot of Bears and they used Friday's morning decline to close out those losing short positions. Friday, once again in a weak market managed to close back near its highs and > than the 50 DMA.

Putting a stop at Thursday's low seems like a good way to play this shorter-term. Should the stock trade back lower and through the reversal low it would be a sign of great indecision. In that case I would rather let someone else figure out which way it go and step away from the action.

I am currently Long GE

-Note: Many of the above stocks have higher volatility. Be sure to know ahead of time what you are getting yourself involved in. If you trade JOY be ready for swings of 3-5% on any given day. You must size smaller and either keep stops very tight or step back a little bit. We must always use protective stops. Regardless of how positive we may be on a position, anything can and WILL happen in the market. The best we can do as participants is identify strong risk/reward scenarios and position ourselves to profit from those setups. Should those setups fail to materialize and reverse against us, it is our responsibility as risk managers to notice the change and adjust accordingly.


If you like what you see above, do know that I am making available to regular readers to provide this kind of factual evidence on any of your individual holdings or stocks you may have on your watchlist. Should you like a personal rundown on a certain position (ZenTrends style) send me an email at ztanalysis@yahoo.com. I am willing to provide this service at a small fee for my time and labor. If you are interested shoot me an email and we can discuss specifics further.

Thanks for reading
-ZT