Ouch. Though the 0.58% setback the S&P 500 suffered on Monday wasn’t horrifying on the surface, somehow the complete decisiveness of the matter is daunting. Stalwarts like Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB), both of which set the pace for the rest of the market, continued last week’s tumbles.
There were some winners. Progenics Pharmaceuticals (NASDAQ:PGNX) hammered out an 8% gain following news that one of its drugs won an approval from the FDA, and Advanced Micro Devices (NASDAQ:AMD) advanced more than 2% on Monday, still fueled by last week’s impressive earnings beat. There just weren’t enough of the right stocks making forward progress. There were almost 50% more decliner than advancers, and Monday’s “down” volume was roughly 50% greater than the session’s “up” volume.
It’s a scenario that makes things tricky as Tuesday’s action gets going. The two-day rout could be a setup for a bounce, or it could be the beginning of a long-overdue correction.
With that as the backdrop, the stock charts of Netflix (NASDAQ:NFLX), Unum Group (NYSE:UNM) and Dentsply Sirona (NASDAQ:XRAY) say they’re the best-grounded trading setups … at least as it stands right now. Here’s why.
Two weeks ago, Netflix got rocked on an earnings report that more than hinted at slowing subscriber growth … a proverbial kiss of death for a growth story company. Even on the day it was plunging though, bargain hunters were trickling back in, recognizing that even slow growth by Netflix standards was still pretty good.
That bounceback effort never really got good traction, but it never really faded away either … until Monday, when the NFLX stumble yanked the stock under a newly forming support line and to new multiweek lows.
Click to Enlarge • The key floor was $355.50 (red, dashed), where NFLX had found support least week, and once back in early June. Now broken, there’s no prior high or low nearby to use as a plausible reversal point.
• There is a fairly organic support level to watch, however. On the weekly chart, the $329.40 area is a key Fibonacci retracement line in the sand. If it fails to act as support tool, there’s nothing left to keep the stock propped up until $273 … though $273 is a major support area for a couple of different reasons.
• Either way, Netflix is inherently choppy because it’s so closely watched and heavily traded. It would be surprising if the bulls didn’t push back. It’s what happens after the bulls push back that will determine whether or not the setup is worth trading. The volume trend says there are more bears than not, though.
Unum Group (UNM)
Unum Group is anything but a household name, but traders may be more familiar with it than they realize. The insurance and employee benefits provider protects 36 million people in the U.S. and Europe, and the company’s been a picture of consistent (even if slow) growth.
That didn’t mean a thing earlier in the year, when UNM shares started to fall in earnest on the prospect of rising interest rates, and then plunged in early May on concerns that its previously-written long-term care policies may end of costing more than initially thought. The chart’s recent action, though, suggests traders are starting to think they overshot.
Click to Enlarge • The weekly chart just formed a bullish MACD crossover. That chart hasn’t yet forced the Chaikin line above zero, but it’s en route, and the accumulation-distribution line’s strong rise on the daily chart confirms there’s enough bullish volume on the table now.
• Horizontal resistance at $39.65, plotted on the daily chart, is the make-or-break level. If it’s breached, a closure of the May 2 gap becomes likely.
Dentsply Sirona (XRAY)
Last but not least, Dentsply Sirona has been working on a turnaround for some time now. Last week was a big week to that end, with shares clearing a key technical hurdle. Monday’s follow-through, however, confirms that last week’s advance has some healthy momentum behind it.
At least part of the rekindled bullish undertow has to be attributed to steady revenue and sales growth, and an affordable forward-looking P/E of 16.9.
Click to Enlarge • The horizontal technical ceiling is the $46.74 area (red, dashed) plotted on the weekly chart. That’s where XRAY struggled to move any higher in May and June, but finally hurdled that line last week. A much bigger and longer-term that had been steering it lower since the beginning of the year was cleared several weeks ago.
• In the daily timeframe, Dentsply Sirona shares continue to press up and into their upper Bollinger band. This is a noteworthy difference than previous encounters with the upper band, which up until now has prompted a pullback.
• On both stock charts of XRAY we can see there’s been far more bullish volume than bearish volume.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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