the bulls are back in town

$SPY finally a week full of earnings, FOMC minutes, GDP, and unemployment data is behind us. That is a ton of data for the market to digest and any one of those events could have been used as an excuse to break us hard one way or the other. Instead, we floated to all time highs, failed to break out above 189, and settled in chopping around a 1 point range for the better part of two days. Last week I talked about the larger intermediate term range I was interested in, 184 – 189 and this week showed us signs the market may finally be trying to resolve higher out of this multi-month pattern but we still need to see a convincing break ABOVE 189 before we can get too excited. I don’t try to front run markets, I like to wait for the market to tip its hand and convincingly show me what it is trying to do before I get involved. My job is to understand the overall market environment and whether or not the environment supports what the market is trying to do (check out my recent post, why I gave up predictions and bowed to the markets). In this case, I think the conditions DO support a breakout higher IF we get it. Here’s my reasoning of why I would buy a breakout above 189.

  • the sentiment on this latest rally has not been very optimistic, most still seem to be trying to fade moves
  • technology and growth stocks have been getting annihilated yet the SPY continues to grind higher
  • growth names have finally showed signs of tightening up their bases and price patterns this past week
  • sell in may and go away? seems like  a perfect month to run higher contrary to this overly cited cliche

So it sounds like I am an uber bull here? Absolutely not. Simply qualifying a potential trade setup IF we get it. As always lets stay objective and view both sides of the market. We remain vulnerable on the downside if we start breaking down below 188 and even moreso 187 next week. I consider there a band of support from 187-188 that the bulls need to hold onto in order to prevent a new probing leg lower and rejection back into this range. In the event we do breakdown from this upper level support, 184.96 is a must hold in my opinion going into the summer months for bulls.

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$AAPL overall the action in Apple this week is still very much constructive for the bull case. In last weeks recap I was bullish on Apple, had a long position in the name that I did flatten this week after some of this follow through momentum simmered down. I think the levels here are pretty clear. On the upside 600 is the level I would look to get back involved long unless a tighter more immediate base forms at a lower price and on the downside 582 will be the mark to watch. Choppy action, after a large move, might not be to in play here this coming week.

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$GOOG so heres an example of some tightening price action and early signs of a bullish reversal. Google had a nice short term reversal leg higher right into the 530 breakdown level from last week. It spent a few days this week wedging up against 530 and next week we want to be on watch for a breakout above this level and continuation to the upside. On the bearish side if we begin to lose 522 then risk opens up to the downside at 502.

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$NFLX strong bullish recovery after probing just briefly sub 300 prices. Netflix is flagging out very nicely after this bullish push and this is certainly a name ill be watching closely next week for upside continuation above 345 or so for a day trade. We can see here the larger risk range is very wide, from 310 all the way to post earnings ramp at 375. Very tradable intraday given this level of volatility but if you are trying to swing trade Netflix just mind your position size given the recent ATR in the name.

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$FB as I mentioned last week Facebook is one of the more constructive intermediate/longer term bases building out right now and it continues to do so after another week of trading. 55 to 63 remains the levels to watch in Facebook and it would be great to see the range compress here and price tighten up near the top end of this range to set up a nice breakout trade. Until we see a resolve don’t overtrade this range.

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$AMZN another name staging a nice reversal this week is Amazon as price tightens up and begins consolidating at near term resistance. Top of my list next week for continuation, I would look to be long of Amazon on a move above 312 or so for a retest of the open earnings gap.

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$TSLA not much has changed this week in Tesla compared to the notes I laid out last week for this stock. The range is being built out and I continue to think this stock could get some legs above 220 or so.  Until we get that more intermediate term resolve of 185-220 its a choppy range day trading vehicle. Tesla and Facebook remain my two favorite setups here for actionable longer term swing setups.

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Evan Medeiros

Evan is the founder of the Trade Risk. With 20+ years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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2 Comments

  1. Peter Harman on 8:35 pm May 4, 2014 at 8:35 pm

    wow, great stuff. All of your notes seem to be right on. I am long NFLX so def hoping for a push to the 350 level, but the 200sma seems to be the main resistance.

    • Evan on 8:43 pm May 4, 2014 at 8:43 pm

      Thanks Peter! Yes 200SMA sitting right above friday’s closing prices. Goodluck on your position, hope you get that push through 350 next week.

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