Editor's Note: You may have noticed that the S&P 500 index appears to be building a bearish head-and-shoulders pattern. The neckline to this pattern is near the 880 support area. Should the S&P 500 breakdown under this neckline then the H&S pattern would forecast a drop toward the 810-800 zone, which comes close to the 50% retracement of its bounce from the March lows. Should the S&P 500 break that neckline I would exit any bullish positions that don't get stopped out in the process. Traders may want to start planning now how they can take advantage of this bearish formation. An easy way to play it would be bearish positions on the SPY or bullish positions on the SDS (double short ETF).
Andersons Inc. - ANDE - close: 30.89 change: -0.45 stop: 29.45 *new* The trend in ANDE is still up but if the S&P 500 truly breaks down we have to expect ANDE to follow it. Currently shares of ANDE are close to testing potential resistance at its early June highs near $32.00. If ANDE fails here it would look like a bearish double top. Considering the market's weakness I am not suggesting new positions at this time. The simple 10-dma is at $29.64. I'm raising our stop loss to $29.45. Our first target is $34.00. My time frame is less than four weeks.
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A.O.Smith Corp. - AOS - close: 33.63 change: -0.41 stop: 30.85 After a big rally on Wednesday AOS hit some profit taking on Thursday. More conservative traders may want to raise their stops. Broken resistance near $32.00 should offer some support. I'm not suggesting new positions at this time. Please note that I'm readjusting our first target to take profits to $34.50. Our second target is unchanged at $37.00 but we will plan to exit ahead of the July 17th earnings report.
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Bank of America - BAC - close: 12.64 change: -0.41 stop: 11.85 It's not surprising to see BAC retreat under technical resistance at its 200-dma, especially with the financials showing weakness on Thursday. A dip near $12.50 or $12.00 can be used as a new bullish entry point but we will plan to exit ahead of the July 17th earnings report. Our first target is $14.50, which is where we want to sell 50% to 75% of our position. Our second target is $16.45.
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Bank of Montreal - BMO - close: 41.93 change: -1.10 stop: 39.90 We need to be cautious here. Last Tuesday produced a bearish reversal candlestick pattern. Wednesday produced an "inside" day showing indecision. Thursday was a break lower from the inside day, which is bearish. I expect a pull back to $41.00 and probably a dip near $40.00. Wait for that decline near $40.00 before considering new bullish positions. Our first target to take profits is $44.90. Our second target is $48.00. This could take six to eight weeks.
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Bally Tech. - BYI - close: 29.67 change: -0.97 stop: 27.45 BYI continues to out perform its peers in the gambling sector. Thursday the stock suffered some profit taking with a 3% decline. I would still consider new bullish positions in the $30.00-29.00 zone but considering this market's weakness we're probably better off waiting for that dip near $29.00 before evaluating an entry point. More conservative traders might want to consider adjusting your stop loss to the $27.90-28.50 zone. Our first target is $32.90. Our second target is $34.90. My time frame is six to eight weeks.
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Dell Inc. - DELL - close: 12.97 change: -0.42 stop: 12.45 The rally in DELL could be in trouble. The stock lost 3.1% on Thursday on strong volume. That's not a good sign. I would still consider buying a bounce from $12.50. However, I want to point out that on DELL's weekly chart last week just produced a bearish reversal pattern. It still needs confirmation but we can turn more defensive. Our first target to take profits is $14.90. We have a second target at $15.95 but we want to take most of our money off the table at $14.90. My time frame is about eight weeks. FYI: The Point & Figure chart is bullish with a $20 target but it's also showing potential resistance near $14.50. More conservative traders may want to start taking profits near $14.50.
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Energizer Holdings - ENR - close: 52.25 change: -1.85 stop: 49.90 Right on cue shares of ENR pulled back and hit our trigger to buy it at $52.75. I suspect that if we showed more patience that ENR will hit $51.50 or even $51.00 soon. Keep an eye on the 100-dma as technical support. Wait for a bounce if you're looking for a new entry point. Our first target is $55.75. The Point & Figure chart is bullish with a $64 target. We'll set our second target at $59.95.
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3x Energy Bear ETF - ERY - close: 24.67 change: +0.24 stop: 19.95 The ERY did not disappoint and showed some fireworks on Thursday. Weakness in crude oil and thus the oil stocks helped fuel an 11.2% rally in the ERY. Shares gapped open at $23.24 and quickly hit our trigger to buy it at $23.30. This is a very volatile (triple-leveraged) ETF so we're using a wide stop loss and I'm suggesting readers only trade half (or less) their normal position size. If triggered at $23.30 our first target is $27.40. Our second target is $29.90. My time frame is four to six weeks or less.
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MEDNAX Inc. - MD - close: 42.80 change: -0.59 stop: 39.85 In a sideways or bullish market I would use the bounce from $42.00 as a new bullish entry point for MD. Considering the action we saw in the market on Thursday I would wait for a dip near $41.00 or even closer to $40.00 and its 50-dma before buying MD. Our first target is $47.40.
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Morgan Stanley - MS - close: 26.99 change: -1.37 stop: 24.75 *new* Financials were some of the weakest performers on Thursday. Shares of MS broke down with a 4.8% decline and closed under its rising 50-dma. The action is short-term bearish and MS hit our stop loss at $26.95. I still see opportunity in MS. We're going to record our loss but traders should keep their eye on MS. Shares have a strong trendline of support near its 100-dma and it should line up near the $25.00 level. I am suggesting readers buy MS again but this time at $25.25. We'll try and limit our risk with a tight stop at $24.75. If triggered at $25.25 our first target is $27.75. Our second target is $29.75. We don't want to hold over the late July earnings so the play may close early.
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Vodafone Group - VOD - close: 19.06 change: -0.63 stop: 18.85 European markets were hammered pretty hard on Thursday. The weakness accelerated into the close as investors reacted to the disappointing U.S. employment numbers. Shares of VOD gapped open lower as the stock adjusted to trading overseas. Shares spent the rest of the session clinging to support near $19.00. The intraday low was $18.91. The $19.00 level is short-term support and it's supported by the 50-dma and 200-dma. The English stock market managed a minor bounce on Friday so I'm not willing to let go of VOD just yet. This may end up being a great entry point to buy VOD but remember this is an aggressive trade with VOD under resistance at $20.00. Our first target is $20.75. Our second target is $21.85. The P&F chart is bullish with a $23 target.
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Western Digital - WDC - close: 26.22 chg: -0.58 stop: 23.95 We did get a dip near $26.00, which would normally look like a bullish entry point. Unfortunately, I'm concerned by the action in the S&P 500 on Thursday. If study the daily chart WDC should have stronger support near its rising 40-dma near $24.60. I would wait for a dip near $24.60 and use it as a bullish entry point to buy WDC. Our first target is $29.75.
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Wellpoint Inc. - WLP - close: 49.75 change: -1.50 stop: 47.85 Healthcare stocks were not immune to the profit taking on Thursday. WLP broke down under its $50.00 mark and its 10-dma. I would expect a dip into the $49.00-48.00 zone. Wait for a bounce and use it as our next bullish entry point. Our first target is $54.00. Our second target is $57.40.
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U.S. Steel - X - close: 34.00 change: -0.79 stop: 33.35 This is it. The up trend in X is at a crucial test. The stock dipped to $33.50 near its rising 40-dma and bounced. The bounce wasn't very inspiring but X still pared its losses as the rest of the market accelerated lower. I'm surprised we were not stopped out after news hit that CLF was deferring iron ore production due to requests by steelmakers to better manage their inventory. I would use a bounce from here (over $35.00 or over $35.50) as a new bullish entry point. Unfortunately if the S&P 500 continues to sink on Monday X will probably hit our stop loss at $33.35. This play has been an aggressive, higher-risk trade and the plan was to trade only half or less than our normal position size. Our first target is $39.95. Our second target is $42.50.
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Dentsply Intl. - XRAY - close: 29.84 change: -0.64 stop: 29.40 *new* The breakdown and close under $30.00 is definitely a short-term bearish development. Yet XRAY should still have support near $29.50 where the 20, 30, 40-dma and its exponential 200-dma all converge. I'm raising our stop loss to $29.40. Wait for a bounce back above $30.00 before considering new bullish positions. Our first target to take profits is $33.90. The Point & Figure chart is very bullish with a $47 target.
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DuPont - DD - close: 24.78 change: -1.02 stop: 27.05 So far so good. More conservative traders may want to lower their stops to just above new resistance near $26.25. I'm leaving the stop above the 200-dma near $27.00. Thursday's decline looks like a new bearish entry point. Our first target $22.25. Our second target is $20.25.
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iShares Mexico - EWW - close: 36.18 change: -1.01 stop: 38.05 The bounce in EWW is finally rolling over. This looks like a new lower high and a new entry point to launch bearish positions. More conservative traders can lower their stop toward Wednesday's high of $37.61. Our target is $30.25.
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Gamestop - GME - close: 21.07 change: -1.39 stop: 24.25 *new* After several days of churning sideways GME finally broke down again. I am lowering the stop loss to $24.25. If you haven't taken any profits yet you may want to do so now. The stock has already hit our first target at $22.05. Our second target to take profits is $20.25. Our third target is $18.15.
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Gen-Probe - GPRO - close: 41.54 change: -1.38 stop: 44.05 After weeks of slowly churning sideways GPRO finally looks ready to begin the next leg lower after last week's failed rally near $44.00 and its 200-dma. Our first target is $38.05. Our second target is $35.25. FYI: The P&F chart is bearish with a $32.00 target.
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iShares Materials - MXI - close: 45.86 change: -1.23 stop: 48.05 *new* If you dissect the action in MXI last week you'll see a small bearish reversal engulfing candlestick on Tuesday. A failed rally and inside day on Wednesday and a confirming breakdown under $46.00 and its 50-dma and exponential 200-dma on Thursday. This looks like a new entry point for bearish positions. I'm lowering our stop loss to $48.05. MXI has already hit our first target at $44.00. Our second target is $41.00.
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Raytheon - RTN - close: 43.01 change: -1.88 stop: 45.75 *new* Defense stocks sold off hard on Thursday and RTN lost more than 4%. Shares broke down from their sideways consolidation and dropped toward the 100-dma. I am lowering our stop loss to $45.75. Our first target is $40.25. The P&F chart is very bearish with a $13 target.
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Homebuilders ETF - XHB - close: 11.36 change: -0.41 stop: 12.55 The homebuilders are rolling over. The XHB spent most of last week failing to breakout over the $12.00 level. This looks like a new lower high inside its bearish pattern. More conservative traders might want to consider a tighter stop near last week's high of $12.08. Our target is $10.10. I am tempted to set a longer-term target in the $9.00-8.00 region.
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Joy Global - JOYG - close: 34.33 change: -1.92 stop: 28.70 I'm pulling JOYG off the play list. The plan was to buy a dip at $31.00, which has not yet happened. So why pull it now? JOYG is a very high beta name. What does that mean? It's going to move twice as fast as the rest of the market. It's just a suspicion but if the S&P 500 breaks down from its bearish head-and-shoulders pattern JOYG will overshoot the $31.00 level and potentially trade near $27.50. I'd rather move JOYG to the watch list and wait for a dip into the $28.00-27.00 zone. Nimble traders could try bearish positions but at this point wait I'd wait for a failed rally near $36.00 to open bearish plays.
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Legg Mason - LM - close: 24.00 change: -0.59 stop: 23.49 I'm also removing LM as a bullish candidate. We've been waiting for shares to hit our trigger at $25.75. I'm starting to think a better entry point might be a dip near $22.00 or even $20.00 of the market really corrects. Consider putting this stock on your watch list.
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Pharma Prod. Dev. - PPDI - close: 21.87 chg: -0.88 stop: 21.95 I thought that the action on Wednesday looked rather ominous. PPDI's retreat on Thursday produced a 3.8% decline and the stock hit our stop loss at $21.95.
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