The market didn’t start the new trading week nearly as bullishly as it ended the previous one. When all was said and done, the S&P 500 ended the day a tad in the red, led lower by no stock in particular. The most noteworthy losers were Ford Motor (NYSE:F) and Chesapeake Energy (NYSE:CHK), which are noteworthy names, but not exactly heavy hitters.
So how did the 4% gain from Bank of America (NYSE:BAC) and the 2% pop from Advanced Micro Devices (NASDAQ:AMD) not lift stocks out of the hole Monday? Subtly, but decisively. Most observers don’t recognize that on the first trading day of this week, decliners outnumbered advancers, and down volume outpaced up volume. Decliners outpaced advancers by a ratio of almost two to one.
Investors still have to work both sides of the aisle, not knowing what’s in store from the broad market for the foreseeable future. To that end, Tuesday’s top trading prospects are stock charts of Walt Disney (NYSE:DIS), Eastman Chemical (NYSE:EMN) and Sealed Air (NYSE:SEE). Here’s why.
Walt Disney (DIS)
If the name Walt Disney rings a bell, there may be a reason — it was one of the stock charts dissected last week. The key finding then was, DIS shares were working their way into the tip of a converging wedge shape, which was building up a major move to unleash at some point in the future. What was unclear at the time was which direction that catapult action might fling the stock.
We still don’t know for sure, but it’s increasingly looking like the undertow is accelerating in a bullish direction.
Click to Enlarge • The daily chart’s upper Bollinger band doesn’t seem to be much of a technical ceiling for the stock here, in the shadow of several bullish moving average crosses we saw just last month. The divergence from the convergence into June’s pivot is a pretty typical setup from a period of significant movement after a long period of non-movement. Again, the new direction seems to be bullish, though we need to see about two more points’ worth of gains to confirm it.
• The converging wedge pattern is most evident on the monthly chart, where it’s framed by dashed lines. The stock has rushed toward the upper boundary of the pattern though, and a break above the ceiling is within sight.
• The volume behind the budding bullish effort has been impressive, suggesting traders are on board with the breakout thrust and all of its underlying reasons. The higher it goes, the higher it’s able to keep going.
Eastman Chemical (EMN)
Eastman Chemical doesn’t have a valuation problem, priced at just a little more than 10 times its trailing income and a little more than 10 times 2019’s expected per-share profits. If the perception is going to change though, then there’s little that the valuation metrics can do to stop the result of that swing.
And just within the past month, the perception has taken a sharp turn for the worst. One more down day could pull the rug out from underneath the stock’s already-waning price.
Click to Enlarge • The tumble began in earnest in the middle of last month, with the move below a 100-day moving average line that had been a technical floor. Since then, we’ve seen shorter-term moving average lines slide below longer-term ones.
• The selling paused late last month to start defining a support level around $98. That line has since become even stronger, with the 200-day moving average line (green) coming up to augment that support in the meantime.
• In the monthly timeframe, Eastman Chemical shares just broke below a long-standing support lines that’s largely responsible for the rally coming out of 2016’s low.
Sealed Air (SEE)
Finally, although Sealed Air is another name that holds plenty of value by typical valuation standards, that’s not necessarily going to be enough to sidestep a pullback that seems like it’s been brewing for months now. One more misstep could push SEE over the edge of the cliff.
Click to Enlarge • The underpinnings for the pullback have been building since 2016, when the stock began trading is a sideways range (framed by dashed lines on the monthly chart below), but one that also includes a couple of falling resistance lines.
• On the more near-term, daily chart, we’ve just formed something like a head and shoulders pattern that just started a breakdown by virtue of a move below the neckline around $43.
• We’ve already seen a so-called “death cross,” where the 50-day moving average line falls under the 200-day moving average line. In fact, we’ve seen several bearish moving average crossunders within the past few weeks.
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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