No man’s land

Although we had a small bounce on Wednesday, the markets continue to reel from the onslaught of higher oil/energy costs as a result of the turmoil in the middle east. While we are still trading in the broadening wedge that has characterized the action so far this year, we are dangerously close to losing it to the downside. Looking at the S&P 500 through the etf SPY, we can see that right now we are clearly in no man's land.

Price action is having trouble holding above the 20 day moving average and is likely to start churning between it and the 50 day moving average. However, the underlying trend is still up, and there is clearly potential for a significant move either up or down. So, do we make new highs or new lows now? Your guess is as good as mine. (My guess is that we'll see $128 on SPY before we see $135) Regardless of my beliefs, I will trade what the charts show me, and at the moment they aren't showing much. The broader market isn't giving us an edge one way or the other, and I would recommend sitting in cash if you are not an experienced trader as this is the kind of environment that sucks away trader's profits.

As I mentioned in my last post though, a good trader should always be prepared for whatever the market throws at him. Below are a few charts I am looking at incase the bulls catch the bears off guard yet again and we have another stealth rally over the next few days. In the event that we lose Wednesday's lows, I will likely sit out and wait to see where we find support. I am not interested in shorting any individual equities at this time.

RealD Inc. (RLD) had nice move after its earnings report on February 4th, but has been steadily sold down since then. It recently broke down below its previous pivot low and retested a gap from its first big breakout last year, but was able to quickly recover. It now finds itself testing several levels of resistance at just under $24. If it can break through this level, It should be able to work its way back to the top of its multimonth range. This chart has UTEP Two Step written all over it, the only thing missing right now is a tighter stop out area.

Tesla Motors (TSLA) is in the process of forming a UTEP Two Step pattern very similar to RLD. In fact, it is actually a couple of days ahead of it as it has already broken above two key moving averages as well as its descending trendline. Coincidentally, it is also being held in check by $24 and is a good long if it can clear the last two day's doji candles. A close below the 20 day moving average would be a sign that perhaps TSLA isn't yet ready to resume its uptrend.

Apollo Group (APOL) has shown great relative strength comared to the broader markets over the last month or so, and is now in the process of consolidating in a bull flag. It now has a rising 20 day moving average to support it as well as the important 200 day moving average that it was able clear last week.

American Public Education (APEI), a peer of APOL's is also in the midst of a bull flag as it consolidates after a similar move to break through its key moving averages. This is another chart that has shown great relative strength over the last month, and should continue upwards if we are able to shake off the oil induced weakness of the last week.

Aetna (AET) has is yet another chart showing great relative strength as it forms a bull flag after a strong gap up on February 4th. It now has its rising 20 day moving average getting ready to converge with the recent price action and should begin to test new ground.

Wellcare Health Plans (WCG) also sports a similar pattern to its peer AET as it has been flagging after an explosive move in early February as well. Notice the huge volume as it shot up, followed by the very light volume as it has drifted slightly lower as traders take profits. Volume should be a big tell on this one.

As I stated previously, be very cautious right now as I think there is a very strong chance that we have a really ugly down day in the near future. Although I will be watching all of the above charts in the event that we can sustain upward momentum in the markets I will likely only chose one (if any at all) while limiting my risk as the first priority for all traders right now is to preserve their capital.

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Posted in Commentary, General Trading