We continue to see some fractures in the market from a technical perspective as the number of companies that are trading below their respective 50-day moving averages in the S&P 500 is on the rise. What does this mean?
Most importantly, the positive breadth that held this rally in place for months is beginning to erode. In addition, it means that the nimble traders may have more opportunities for shorting opportunities as these breaks normally mean an acceleration to the downside.
Today’s three big stock charts looks at the A B C’s of companies that are challenging technical support levels that will result in opportunities for traders.
American Airlines Group Inc (AAL)
Airline stocks have been lagging the market and the transportation sector. As such, AAL stock recently declined into a zone that is forcing a technical squeeze play that should result in a volatile move for the shares.
The last two weeks have seen the stock follow its 20-day trendline straight on a collision course with its 200-day moving average. The longer of these trendlines has been lending support to American Airlines since mid-March.
Unfortunately, the decline has been somewhat low in volatility, slow steps lower in price, which has avoided pushing AAL stock into an oversold situation. This means that there is room for some volatility selling to pull shares lower before they hit a temporary bottom.
This selloff may further be accelerated by a break below $40, which has been support for the stock on a long-term basis a number of times. Bottom line is that American Airlines shares are in a technical make-or-break with the $40 that traders need to maintain an eye on.
Biogen Inc (BIIB)
The biotech sector is fracturing along with the market as this range-bound group of stocks is seeing an increase in volatility again. One of the bigger names to watch in the group is Biogen as the stock accounts for about 8% of the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB).
BIIB shares have been struggling to rebound from an oversold condition that developed a few weeks ago, to no avail. Overhead chart resistance from $275 has acted as a trigger for sellers and now Biogen stock is breaking below the 200-day moving average.
Looking at a longer-term chart, $270 has also played an important role as support and resistance, a level that BIIB shares are trying to maintain prices above right now. One catch is that the daily volume on Biogen shares is on the decline as this level tries holding, indicating that the technicians are putting less money behind supporting this technical level.
Watch for an increase in volume to accelerate prices towards an intermediate-term price target of $250 according to BIIB’s current charts.
Cisco Systems, Inc. (CSCO)
The networking giant has been pulling back of late and CSCO shares are now in position to test their 50-day moving average for the first time since the stock’s staggering rally, which started in February.
Fortunately for Cisco stock, the current readings of the RSI have just dipped into oversold conditions, which means that we may see our first signs of technical buyers coming into the market in some time.
The combination of support from the 50-day and a technically oversold condition last occurred in June last year when CSCO stock took a sharp one-day decline after breaking this trendline. The resulting rally from this volatile move took the shares from $28 to $31 over a one-month rally.
With earning season firing-up we don’t consider this to be likely as traders will approach Cisco stock cautiously to get an idea of how earnings results will start to take hold of the market. However, we do expect the short-term to experience some buying pressure as this technical duo is likely to attract buyers to CSCO.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
