As we turn into September, the market continues to favor those investors that are willing to turn away from index and sector investing and dig into the charts for opportunities at the stock level. We’ve watched as the correlations of the major indices continue to decline, indicating that stocks are travelling less in a pack and more independently.
The good news is that watching the charts daily uncovers opportunities in all sectors as we continue to see bullish and bearish trading opportunities every day. Today’s scans uncover AutoZone, Inc. (NYSE:AZO), Dollar Tree, Inc. (NASDAQ:DLTR) and Twitter Inc (NYSE:TWTR) as potential trades to profit from in this splintered market.
AutoZone, Inc. (AZO)
Automobile stocks and other related stocks were the darlings of the market through 2015 as they displayed relative strength and strong bullish trends. Now, a year later, many of these stocks are struggling as fears that a slowdown in the industry is on the horizon. Autozone shares are basically flat for 2016 after multiple years of 20% plus returns and the technical signs aren’t showing any improvement on the way.
From a short-term perspective, AZO stock just saw a bearish cross-under of the 20- and 50-day moving averages. This pattern is indicative of continuing weakness in the stock as the trendlines transition into bearish trends. The last two instances of this pattern resulted in 6% declines in the shares’ value.
From an intermediate-term perspective, AZO stock crossed below its 200-day moving average last week. The break of this major technical trendline drew sellers into the market as the stock declined more than 4% over the last week on heavy volume.
Now, Autozone shares are perched on their 20-month moving average. This trendline is considered the line of demarcation between technical bull and bear markets, so a break below this trendline will cause another rush of selling pressure to hit the stock. Right now, this trendline is sitting at $638.
Back to the short-term, the stock has hit a short-term oversold condition, suggesting that we should see some technical vultures come in to buy the shares while they’re down, but this buying is likely to be temporary given the overhead technical pressures. Watch for the $638 level to be tested soon as AZO stock struggles to maintain its weakened trends.
Dollar Tree, Inc. (DLTR)
We covered the chart on Dollar Tree on Aug. 22 ahead of their earnings report as a bullish chart (story here), we were wrong. Dollar Tree came out with earnings that sorely disappointed the Street, causing the stock to decline more than 13%.
The decline in DLTR shares have knocked Dollar Tree shares down to a short-term tradable level, but it is not for the faint of heart.
Dollar Tree now sits with three potential bullish catalysts. 1) Shares of the discount retailer are now sitting on their 200-day moving average. This trendline has been supportive of DLTR stock, the last time in May before a rally took the stock from $74 to more than $90.
Number two, Dollar Tree shares are now sitting at chart support from the $83 level. This is a price that acted as strong resistance for the shares for the first half of 2016. It is often the case that strong resistance turns to support so we are watching this level closely.
Finally, DLTR shares are deep in technically oversold territory with an RSI reading of 14. This is the lowest reading of the RSI that comes up in the recent past for Dollar Tree, suggesting that there is a vacuum of sellers in the market and very few buyers will get the stock moving higher, albeit temporarily.
Twitter Inc (TWTR)
Rumors and speculation have helped drive Twitter shares higher. On Aug. 15 our Three Big Charts commentary (story here) identified TWTR stock as one that had transitioned into an intermediate-term bullish trend. Now, this trend is strengthening with support building below current prices.
In that article, we identified $20 as a level of resistance. Since then, this level has acted-out as the shares traded back to $18, but support at that level is now convincing bullish traders that TWTR stock is likely to break even higher.
Currently, the $18 level benefits from double-barreled support as the 50- and 200-day moving averages are converging at this price, making this a technical stronghold for Twitter.
The convergence of these trendlines also implies that we will see (within the next week) a golden cross pattern from TWTR. These bullish patterns often result in outperformance over the following three months as the improving trend, and attention from the golden cross, engage more technical buyers.
Momentum on Twitter stock is improving, suggesting that the next attack on $20 is likely to be successful and shift the near-term price target to $22.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
