Fibozachi and Chopshop’s proprietary trading methods provide them with ideas for short, intermediate and long-term trades in a weekly timeframe. This report (written specially for Phil's Stock World) discusses potential trade setups they’ll be watching throughout the week for possible entries. Their system is based on technicals of given stocks, but not to the exclusion of the greater context of stock market action. We hope you enjoy this report and as always, we appreciate feedback. - Ilene
Though the weekly trends of US equity markets remain bullish, the S&P 500 ($INX) has almost grabbed our upper target of 1,185 and we at Fibozachi simply do not like the risk/reward ratio of establishing long positions after such an extensive rally has already taken place. While the past two weeks have resulted positive closes and higher highs, volume has continually diminished. The $INX has also registered an “Advance Block” bearish candlestick pattern. This is a 3-bar pattern where price moves higher over each candle, developing a larger upper shadow / wick on each successive bar. This character within this pattern suggests that bullish momentum continues to wane (over 3 weeks now), unable to close the week with the same strength that it began.
The vast majority of stocks have come back into resistance levels from June ‘08 - August ‘08, which will likely prove a good place to pause (at the very least), in the process putting a halt to the current rally that we are enjoying. Several long-term Fibonacci Moving Averages (SMAs & EMAs) are coming into play for many stocks, which will likely provide additional overhead resistance and help cap this rally.
While the levels of 1,200 and 1,230 on the S&P 500 remain possible upside targets, we remain adamant that chasing a few percent pointsafter a blistering 70%+ rally is a fool’s game. Considering where US equity markets currently hover, it is time to either sit on your hands and wait for a fat pitch right down the middle, or (if you are nimble enough) to begin targeting stocks that may be topping at these levels. Across dozens of our proprietary screens, which scan every US stock, ETF and market group (and then some), an overwhelming amount of bearish signals registered into Friday’s close. Even more noteworthy, our screens this weekend were almost entirely devoid of anything bullish. Nevertheless, we scoured the charts to find a handful of good bullish candidates to throw into the mix.
Below is our list of stocks to watch for potential trading opportunities this coming week. Each setup is based on a confluence of technical factors. If you would like to learn more about candlestick patterns and other advanced technical methodologies, check out Fibozachi.com. As you read over our trading candidates, keep in mind the general rules listed below. These rules apply to all trades.
Have a great day!General Rules and Information
- Any of the potential trade setups that we outline should be considered void if the Stop-Loss level is hit before the Entry level.
- It is not uncommon for a stock to move opposite of the intended direction in the beginning of the week, only to later close the week exactly as we had anticipated. If one avoids entering a position too early, it can often lead to a bigger reward and reduced risk. (However, if the Stop-Loss is hit before the entry, the trade is void and going the wrong way. See number 3.)
- Honor the Stop-Loss. If it is hit, get out, and if you’re out, don’t get in.
- More advanced traders are recommended to incorporate and apply their own technical analysis methods to daily charts of the selected symbols. This may enable you to establish better timing and price entries. It may also risk by allowing for a tighter Stop-Loss.
- The Green Horizontal Lines in the pictures illustrate the projected price targets, while the Red Horizontal Lines ( not always drawn ) illustrate Stop Loss levels. The trendlines are drawn at exact highs or lows of important bars and may therefore be slightly different than our written Targets and Stop Losses.
Short Trade Candidates
CTAS: CINTAS (Short-Term to Long-Term)
Current Price: 27.92
Candlestick Patterns: Shooting Star, Bearish Harami, Gravestone Doji
CTAS was one of our longs back on 2/19/10 with an entry of 25.54 and a target of 27.40. The rally was stronger than we anticipated and CTAS carried up to 28.67 last week. The end of the week saw the bullish momentum dissipate, which brought the closing price to within pennies of the week’s open.
Entry: Immediate (with daily confirmation) or with a move below 27.86
Target (Short-Term): 26.00 - 27.00
Target (Long-Term): 21.00 - 23.00
Stop-Loss: 28.70 or higher
Potential Risk: $0.84
Potential Reward (Short-Term): $0.86 - $1.86
Potential Reward (Long-Term): $4.86 - $6.86
Risk: Reward Ratio: 1: 2.2 & 1: 8.2
CLX: CLOROX (Short-Term to Long-Term)
Current Price: 64.56
Candlestick Patterns: Doji, Filled White Candle
CLX has come into prior resistance at the 65 level after rallying for the last 6 consecutive weeks on increasing volume … until last week. A filled white candle and a Doji registered, while CLX moved even higher on almost half of the volume. This is a nice trade setup with a great risk/reward ratio due to the tight stop. If CLX trades above 65.18, we can just leave it alone and forget about it … if it breaks below 64.13, we can get in early with a razor tight Stop-Loss.
Entry: Immediate (with daily confirmation) or with a move below 64.13
Target (Short-Term): 62.00
Target (Long-Term): 59.00
Stop-Loss: 65.18 or higher
Potential Risk: $1.05
Potential Reward (Short-Term): $2.13
Potential Reward (Long-Term): $5.13
Risk: Reward Ratio: 1: 2 & 1: 4.9
AET: AETNA (Short-Term to Long-Term)
Current Price: 34.32
Candlestick Patterns: None
After a 5-week decline followed by a 5-week rally, AET registered a very narrow range on minor weakness just above the 35 level. This level has provided resistance on multiple occasions, so we are looking for a quick drop back to towards the 31 level, with a possibility of additional weakness down to 28.
Entry: Immediate (with daily confirmation) or with a move below 33.91
Target (Short-Term): 31.44
Target (Long-Term): 28.00
Stop-Loss: 35.32 or higher
Potential Risk: $1.41
Potential Reward (Short-Term): $2.47
Potential Reward (Long-Term): $5.91
CRM: SALESFORCE.COM (Short-Term to Intermediate-Term)
Current Price: 74.95
Candlestick Patterns: Shooting Star, Gravestone Doji
CRM is now up into strong resistance surrounding the 75 level, precisely where it has failed to move higher on the last two attempts back in January 2010 and 2008. A picture-perfect shooting star candlestick pattern has now registered after a 6-week rally, heightening the chances that CRM will fail to breakout (for the third time) with a strong close above 75 - 78.
Entry: Immediate (with daily confirmation) or with a move below 74.59
Target (Short-Term): 66.00
Target (Long-Term): 60.30
Stop-Loss: 78.22 or higher
Potential Risk: $3.63
Potential Reward (Short-Term): $8.59
Potential Reward (Long-Term): $14.29
Risk: Reward Ratio: 1: 2.4 & 1: 3.9
DOV: DOVER (Short-Term to Intermediate-Term)
Current Price: 46.07
Candlestick Patterns: Tweezer Top, Doji
Dover has been stuck in a tight range over the last 4 weeks, which has created a nice, clear trade setup. We will be looking for a moderate down move to previous levels of support from 40-43.
Entry: Immediate (with daily confirmation) or with a move below 45.54
Target (Short-Term): 43.00
Target (Long-Term): 40.50
Potential Risk: $2.14
Potential Reward (Short-Term): $2.54
Potential Reward (Long-Term): $5.04
Risk: Reward Ratio: 1: 1.2 & 1: 2.4
LSTR: LANDSTAR SYSTEM (Short-Term to Long-Term)
Current Price: 41.40
Candlestick Patterns: Shooting Star, Doji
DNR: Denbury Resources (Short-Term)
Current Price: 15.60
Candlestick Patterns: None
DNR showed strength last week, closing strongly with a bullish thrusting candlestick pattern that held above the 15.00 level. While a cluster of targets exist overhead, our focus is on an upside move towards 16.50-17.50. Although DNR (historically) likes to chop around sideways before breaking out with quick thrusts in price action and normally requires a bit of patience, this setup should work from the get-go. Either way, so long as the trade isn’t voided before entry, a stop below 15.00 ought to do the trick.
Entry: Immediate (with daily confirmation) or with a move above 15.75
Target (Short-Term): 16.60 – 17.50
Target (Long-Term): 18.84
Potential Risk: $0.78
Potential Reward (Short-Term): $0.85 - $1.75
Potential Reward (Long-Term): $3.09
Risk: Reward Ratio: 1 : 2.2 & 1: 4
XRX: Xerox (Short-Term)
Current Price: 9.70
Candlestick Patterns: None
Xerox has recently managed to grab another swing high over the last few weeks, continuing a series of higher highs and higher lows. Its chart appears to be less “toppy” than the vast majority of other individual issues and, if it can breakout over 10.17, retains the possibility to continue its drift higher.
Entry: Immediate (with daily confirmation) or with a move above 10.17
Target (Short-Term): 11.53
Target (Long-Term): 12.30
Stop-Loss: 9.34 or lower
Potential Risk: $0.83
Potential Reward (Short-Term): $1.36
Potential Reward (Long-Term): $2.13
Risk: Reward Ratio: 1: 1.6 & 1: 2.6
FXI: iShares FTSE/Xinhua China 25 Index (Short-Term - Intermediate-Term)
Current Price: 40.83
Candlestick Patterns: Two Hollow Reds
While the longer-term outlook is rather unappealing, we think that FXI can move higher over the next few weeks. The past two weeks have registered red hollow candles, signifying that bullish momentum remains present … buying strength appears poised to overcome sellers for a few weeks. Again, while we’re not thrilled with FXI’s long-term outlook, its internal and relative strength remains buoyant.
Entry: Immediate (with daily confirmation) or with a move above 41.74
Target (Short-Term): 44.33
Target (Long-Term): 46.66
Stop-Loss: 39.89 or lower
Potential Risk: $1.85
Potential Reward (Short-Term): $2.59
Potential Reward (Long-Term): $4.92
Risk: Reward Ratio: 1: 1.4 & 1: 2.7
Disclosure: potential trading