That’s four winning days in a row for the S&P 500, though there’s no denying that each advance has been tougher to muster than the previous one was. Micron (NASDAQ:MU) and General Electric (NYSE:GE), amazingly enough, did the bulk of the heavy lifting. Micron was up 3.9% as the steady sellers finally lost their nerve, while GE gained 2.8% thanks to investors deciding matters can’t get much worse from here.
Winning wasn’t exactly rampant though. The day’s losers were led by TD Ameritrade (NASDAQ:AMTD) and J M Smucker (NYSE:SJM), both of which were hit hard in the wake of alarming news. Ameritrade and its peers were rattled by reports that JPMorgan Chase (NYSE:JPM) was developing a platform that would offer 100 free stock trades per year, while Smucker fell short of its first-quarter estimates, sending the stock lower by nearly 7%.
The moves were not-so-gentle reminders that we’re still not in an environment where anyone can afford to be wrong.
With just a quick glance at a chart of Prologis, it looks like Tuesday’s tumble could be trouble in the sense that the sellers were clearly in control, and there were plenty of them.
That may not actually be an omen of what’s to come, however. As counterintuitive as it may seem on the surface, Tuesday’s wild and mostly bearish action may have actually cleared the decks, so to speak, that will very likely lead into further gains … perhaps with a little less erratic behavior than we’ve seen in the recent past.
Click to Enlarge• The first big clue is the volume surge on Tuesday. These volume spikes are often seen as a flushout of sorts. In this case, the move flushed out all the would-be sellers, leaving behind only the buyers.
• The shape of Tuesday’s bar is also telling. While not dramatically so, the bulls were already pushing back before the closing bell rang, dragging the stock measurably above its intraday low.
• The undertow was bullish anyway, suggesting — as has been the case for weeks now — that any pullback to the key support line (dashes) will ultimately lead to higher highs.
Charles Schwab (SCHW)
As was noted above, TD Ameritrade and many of its brokerage firm peers ran into trouble on Tuesday following news that JPMorgan Chase was working on a service that would offer free trading. Online-trading firm Charles Schwab was one of those peers.
While it would be easy to dismiss the 2.9% setback that SCHW shares suffered on Tuesday to bad luck that will blow over sooner than later, there may be more going on here that’s working against Schwab shares. The stock was already in a downtrend. Tuesday’s action just pushed the chart to the brink of the breaking point that could open the selling floodgates wide open.
Click to Enlarge • Though Tuesday’s close of $50.17 wasn’t below the aggregate technical support line near $49.72, the stock briefly traded below that level. That makes it easier to move below that floor again, and the next time it happens, it may be easier for the sellers to keep it below that floor.
• Although it’s not a perfect one, the shape of the action seen since late last year is a loose head-and-shoulders pattern. If the neckline at $49.72 breaks, not only is there not another floor below that level to stop the bleeding, the selloff could unfurl much faster than it has thus far.
Last but certainly not least, the past couple of weeks have clearly been rewarding ones for Centurylink shareholders. A stellar second quarter earnings beat catapulted the stock out of a narrowing trading range, up nearly 30% from its pre-earnings price.
Nothing lasts forever though, and the telltale signs that this rally is running out of gas are starting to show up. In fact, on Tuesday we see a major sign that it was the pivot … from an uptrend into a downtrend.
Click to Enlarge• Tuesday’s pivot clue is the shape of daily bar. With an open and close near the middle of a relatively narrow high-low range, we have good reason to think the bulls and the bears may have found an equilibrium en route from a net-bullish to a net-bearish environment.
• Underscoring the idea that the rally is losing steam is the fact that the higher CTL climbed, the weaker the buying volume became.
• While a good early warning (and there’s clearly not doubt that Centurylink is overbought and ripe for some profit-taking), the clues in hand require a confirmation. That will come in the form of a move lower, and higher volume behind that dip. Even just one bad day would be enough confirmation.
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.