The selling in the US stock market on Wednesday was well absorbed as the major averages and futures closed well above the day's lows. For example, the S&P futures closed 14 points off the day's lows.
The negative market internal on Wednesday has caused further deterioration in the technical studies for the NYSE Composite and S&P 500 while the Nasdaq 100 is still acting much stronger. Many of the key ETFs have already gotten close to their daily starc- bands, which favors a bounce over the short term. The weekly close will tell us more about the year-end trend and the wild card is the monthly jobs report.
If the overall market is building a short-term top, then now is an important time to review your portfolio and exit those positions, which are not working or have deteriorated technically. It is also time to take profits off the table and to adjust stops so that damage is minimized if we do get a deeper correction.
Here are four examples.
- The following day it dropped to a low of $27.85 before closing at $28.63, which provided an excellent entry opportunity (see arrow).
- The relative performance had just moved above its WMA, and several days later, it overcame its downtrend, line c.
- The RS line is rising sharply and the weekly (not shown) is also positive.
- The OBV moved above its WMA the day before the buy and has continued to rise sharply.
- The OBV has continued to confirm the higher prices.
- Sold 1/3 of the position at $31.18 on November 21 as the daily starc+ band was being tested (see arrow).
- The next target is the 127.2% Fibonacci retracement at $33.92 with the quarterly R2 resistance at $35.41.
- There is initial support at $31.85-$32.30 and then at $31.
Mattel Inc. (MAT) was recommended on a pullback in September as it was approaching the daily starc+ band.
- The initial buy level at $42.76 was hit several days later and the second buy level in early October (see arrows).
- The stop was placed at $39.83 and luckily the low on October 8 was $40.00.
- MAT had dropped to the 38.2% support from the May high at $48.28 and was entering a strong seasonal period.
- MAT has tested the daily starc+ bands twice in November, and in the last portfolio review, I recommended selling 1/3 of the position at $46.33 for a 10% profit.
- The high on November 27 was $46.46, and MAT has subsequently dropped back to its 20-day EMA.
- The relative performance is just in a shallow uptrend, line f, and is not showing any great strength.
- The daily OBV has been acting much stronger as it confirmed a bottom when it moved sharply above the resistance at line g.
- The OBV has been moving sideways and is now slightly below its flat WMA.
- The rally appears to have stalled at $46.47, which is the quarterly R2 resistance.
- The monthly pivot at $45.57 is now being tested with the projected monthly support at $44.54.
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- The daily chart shows the initial breakout above resistance at line a in the middle of October.
- The breakout was reaffirmed the next month as it surged to the $108 level in the middle of November.
- The pullback from the highs held the 20-day EMA was followed by a new rally before prices collapsed in reaction to the FDA action on 23andme.com.
- Prices dropped well below the prior low at $103 and the breakout level (line a).
- The relative performance had not been impressive on the rally as it failed to confirm the price highs before dropping below its WMA.
- The on-balance volume (OBV) did overcome its long-term downtrend, line d, in early November and appeared to be in a solid uptrend.
- The heavy volume decline has taken the OBV below the September lows.
- I tweeted before the opening on 12/2 to sell 1/2 at $132.40 or better as it was down in pre-trading due to a downgrade.
- The high for Monday was $132 and it hit a low of $125.15 in Tuesday's session.
- It has closed the past two days below the daily starc- band and looks ready to rebound.
- There is first retracement resistance in the $128.77 and the 20-day EMA.
- The relative performance did confirm the highs before plunging below support at line f.
- The OBV looks much stronger as it confirmed the highs but has now dropped below its rising WMA.
- Once below $125, there is weekly support at $122.40.
What It Means: I hope these examples of the stocks in the Charts in Play portfolio will provide a learning experience.
So far it appears that Tyson Foods, Inc. (TSN) and Mattel Inc. (MAT) have been managed well. For TSN, I will likely hold on to remaining longs until there are signs of a top or we reach the monthly starc+ band.
The deterioration in the technical indictors for Mattel Inc. (MAT) sends me a message that it will need to be watched closely.
I should have looked to take some profits in Laboratory Corp of America (LH) after the quarterly R1 resistance at $105.30 was overcome. Instead, the entire position was stopped out at $101.59 for a small profit. This was just under the minor 61.8% support but a tighter stop would have protected more of the profits.
The drop in 3M Company (MMM) really caught me by surprise as the severity of the decline was unusual. MMM should rebound, and I have recommended selling ½ at just below the 20-day EMA in order to reduce the exposure.
How to Profit: No new recommendations but for updates on the portfolio, as well as new sell advice, be sure to monitor my Twitter feed for portfolio updates.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.