Given Thursday’s lull in the shadow of a clearly overbought condition, it’s not too surprising the bears followed through on Friday. The S&P 500 gave up 0.71% of its value on the last day of the trading week, led lower by General Electric (NYSE:GE) and Ford Motor (NYSE:F). The former fell 1.3% largely in response to news that it may end up selling its power-conversion unit — at a loss — after only buying it in 2011. Ford shares slumped on reports that sales in China are dramatically slowing.
None of those names are your best trading bets to consider as the new trading week begins, however. It’s stock charts of D. R. Horton (NYSE:DHI), Packaging Corp of America (NYSE:PKG) and Cardinal Health (NYSE:CAH) that offer the most trading potential. Here’s a look at why.
D. R. Horton (DHI)
D. R. Horton isn’t quite where it needs to be yet in order to be in full-blown rally mode. But, it’s close enough to look at in that light. One or two more bullish days and it will be over a key technical hump.
Plus, there’s a subtle but important hint that’s taken shape over the course of the past few weeks that confirms the bulls are slowly but surely taking control.
Click to Enlarge • The “hump” in question is the 200-day moving average line (white). The buyers peeled back from it in late July, but they’re taking another shot as of last week.
• This renewed bullishness materialized in the shadow of a curious reversal effort in late July. It looked like DHI was accelerating into trouble last month, falling into new 52-week low territory. On July 26, though, the buyers stepped into it in a huge way. That effort faded pretty quickly, but as of last week has been renewed.
• On the weekly chart we’ve got a bullish MACD divergence as well as a fresh cross of the Chaikin line above zero. It’s also on the weekly chart of D. R. Horton, however, we can also see there may be a ceiling at $46.40.
Packaging Corp of America (PKG)
Packaging Corp of America is a fine company, on pace for earnings and revenue growth this year as well as next. But, if the market had decided it’s a flawed prospect, it doesn’t pay to stand in front of a train … even a train that’s headed in the wrong direction.
To that end, PKG is headed in the wrong direction. A little more downside action and the rug could be pulled out from underneath it, accelerating the bearishness.
Click to Enlarge• The line in the sand is $108.50. That’s been (or been close to) all the major lows made since November of last year. Since June, however, we’ve also made a string of lower highs. The end result is a lead-up to a standoff. The bears have momentum on their side though.
• Zooming out to a weekly chart we can put things in perspective. The profit-taking pressure is ultimately the by-product of an impressive rally that unfurled in 2016 and 2017. There’s still a lot more ground to give up.
• Should the floor at $108.50 fail, there’s little left in the way of support to help stop the bleeding anytime soon.
Cardinal Health (CAH)
Last but not least, Cardinal Health has been one of those names that seems like just when you think things can’t get any worse, they get worse. What’s so impressive about the bearish scenario is that it has repeated itself over and over again.
There’s nothing inherently wrong with the company, mind you. In fact, there’s a decent value-based bullish argument to be made. Revenue and earnings will both grow this year, and next. If traders are convinced there’s no upside on the table though, they’ll act accordingly.
Click to Enlarge • The weekly chart of CAH speaks for itself — the stock’s in a freefall. It can bounce nicely every now and then, but the bigger-picture trend is increasingly bearish.
• Just within the past few weeks technical support has developed at $48.23. It’s under pressure again as of the end of last week, but if it fails to hold up as support, another wave of selling is apt to be unleased.
• Sooner or later, Cardinal Health shares will crash right into a capitulation, becoming a buy. We’re not quite there yet though.
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.