The best week for the market in months generated little in the way of technical clarification for the market as the number of stocks that are falling out of lockstep with the broader market industries is growing. We use the term “stocks aren’t correlating” to refer to it, but it simply means that stocks are going in all kinds of directions, like herding cats.
These non-correlated markets created environments where stock pickers thrive as both long and short opportunities present themselves. For those nimble enough to take advantage, the technicals offer a load of daily fodder for both bulls and bears.
Today’s three big stock charts uncover short-term trading opportunities in Alliance Data Systems Corporation (NYSE:ADS), Capital One Financial Corp. (NYSE:COF) and AutoZone, Inc. (NYSE:AZO) as they are mixed bag of bullish and bearish charts.
Alliance Data Systems Corporation (ADS)
The hack of Equifax has all companies that collect, maintain and use customer data for anything on edge and their stock prices on the decline. Shares of Alliance Data Systems have been in technical trouble as the stock had lost its relative strength leadership earlier this year on poor earnings results. Now, ADS shares appear ready to dive into a new bearish trading pattern offering an opportunity for traders.
- Shares of Alliance Data Systems have tried for more than a week to find round-numbered support at $220. The failure to hold this price is luring a new round of technical sellers into the market to pressure shares lower.
- A week into September, the ADS stock experienced a “Death Cross.” This pattern often suggests that the transition into an intermediate-to-long-term bearish trend is strengthening. This indicator compounds the failure of $220 to hold as support.
- Momentum indicators like the MACD and Chande Trend Meter (CTM) are indicating further weakness for Alliance Data Systems shares. This, in addition to the break into technical bear market territory, is happening as ADS stock moves below its 20-month moving average (chart below), which is indicative of another 10% move lower to $200.
Capital One Financial Corp. (COF)
Financials have seen a great two week period as the Financial Select Sector SPDR Fund (NYSEARCA:XLF) has rallied more than 4%. There were some financials left on the sidelines, including Capital One Financial. Shares of COF only rallied a little over 3% and they have already started turning lower on increased volume.
The charts suggest that traders will want to avoid or short the shares in preparation of the next move lower.
- The 50-day moving average for Capital One’s stock just transitioned into a bear market trend. This is a similar pattern to what COF stock saw in March 2017 ahead of a move from $87 to $77.
- Capital One’s stock is trading in a negative momentum environment as indicated by its MACD and Chande Trend indicator. Some buying has come into the market of late as COF stock bounced from an oversold reading of its RSI, but the continued pattern of lower highs and lower lows indicates that the sellers remain in charge of the stock for now.
- Traders will focus on the $76.50-level as this is the site of the stocks’ 20-month moving average. A move below this trendline will indicate the shift into a bear market for Capital One, increasing pressure to move lower.
AutoZone, Inc. (AZO)
Years ago, AutoZone was one of the stocks that was always on our bullish list as the stock outperformed the market climbing up the Wall of Worry.
New car sales and an improving economy took the wind out of AZO’s sail, but now the stock’s chart is suggesting a technical turnaround worth more than just a look.
- While the recent hurricanes will generate new car sales from replacements, there will also be a large amount of repairs done to vehicles. This should provide a long-needed fundamental boost to companies like AutoZone and O’Reilly Automotive Inc (NASDAQ:ORLY).
- From a chart perspective, AZO shares are benefiting from a shift in momentum as the stock has put in what appears to be a long-term bottom at $520. The recent activity has reversed the stock’s 50-day and it has it trending higher, which is a bullish indication.
- As of now, AutoZone appears to be entering a short-term volatility rally which will fuel higher prices. Sentiment remains bearish, meaning that this stock has a Wall of Worry to climb.
- Currently, overhead resistance is clear until AZO starts to reach its 20-month moving average. This trendline is more than 14% above current prices, meaning that the stock has “room to run.”
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.