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Similar Setups in TRW Automotive (TRW) and Sallie Mae (SLM)

Both TRW and SLM have good odds of continuing to the short side in the near term


Video Transcript

Ok, so I found two stocks as I was flipping through the charts yesterday, both with a very similar pattern from a longer point of view, ie. having reached pretty key inflection points. One of them, the first I’m going to look at here is TRW Automotive Group (NYSE:TRW). TRW is the ticker. The other we’re going to talk about is Sallie Mae (NYSE:SLM). The ticker there is SLM.

Let’s first start with TRW. For one, you can see the stock here in a multi-year chart has reached a pretty decent inflection point, or resistance point, in this case near the $61-$62 area. So that’s point one.

Point two, you can see that the stock is fairly well removed from its 200-day moving average being down at $45, and the stock being closer to $60 right now. So these $15. That’s pretty significant extension of that. So that’s a further sign of caution. Thirdly, and this is what finally called my attention yesterday, was the outside day on the candlestick. I’m going to zoom into this a little bit closer. You can see we had an almost shooting star-type of candle two days ago on the twelfth of February followed by an outside day yesterday meaning it opened higher, but it closed lower and actually fully engulfed not only the previous trading day but the previous two trading days. That’s pretty powerful.

So that’s one thing I see here in this specific setup where there’s quite a bit of resistance giving those three things. Of course momentum too has been a little bit diverging from price. The problem is, the only issue is, I should say, is that the 15th of February, which is tomorrow, the earnings are going to come out. Friday, the 15th of February. So whatever the resolution is, if the stock drops lower based on that, it probably should be able to go lower. If it busts above resistance, one is best off waiting to see what the resolution is going to be.

Next up, let’s look at the SLM symbol. Like I said, this is Sallie Mae. And this one too from a longer-term point of view has reached a pretty good resistance point somewhere near the current level. In fact it’s a little bit past the resistance point already. But it had a resistance anywhere between $18 and about $19 or so. So that’s point one.  So from a longer point of view, actually this looks pretty constructive but it has reached that resistance level going back to 2008.

Now second, is the recent break out above the Nov. 2012 highs and also a fairly decent extension from its 200-day moving average. So just like TRW, the stock is pretty far moved from there, but then again, just like the other stock, what really caught my attention here was the shooting star type of formation yesterday, meaning that the stock tried to open higher. In fact it tried to open at a multi-year high, failed, and actually dropped a little bit higher on the day, but certainly far removed from the intraday high.

So there are the two very similar setups in both TRW and SLM ticker symbols, both of which probably have pretty good odds of continuing a little bit to the short side in the near term, but again I would caution with earnings on TRW coming out tomorrow. So I wouldn’t touch that until after the earnings. I hope this makes sense, and take care.

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

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