CME Group (NASDAQ:CME) — Since mid-2009, this derivatives exchange has traded in an orderly sideways fashion, where rallies and sell-offs eventually reverted to a mean. This is in stark contrast to the stock’s wild times from 2004 to 2008, which saw a massive multi-year rally followed by a crash.
So far in 2013, the stock has enjoyed a healthy rally. More specifically, in late February, CME broke out past a key resistance line that led to a 7% rally in a matter of three weeks.
By mid-March, however, as broader market internals started to weaken, the stock topped, but unlike the broader market, did not follow through to a new 2013 high earlier this month. As such, the stock was flashing negative divergence, not unusual near a medium-term market top given the financial sector’s early cyclical nature.
Monday’s sell-off in CME brought the stock back to the very trendline that it broke above in late February, thus putting it in an interesting spot.
On the closer-up daily chart, the current juncture also involves a key support line that, if broken, may allow for the stock to drop toward its 200-day simple moving average, currently near $56.
Medium-term holders of the stock may want to evaluate the risk/reward of holding the stock through a potential 6% drop, while more active traders could consider a short-side play with defined risk.