The bulls charged pretty firmly early in Tuesday’s action, reversing a two-day rout. By the time the closing bell rang yesterday, though, the buying effort wasn’t quite as robust. After dishing out a solid three-day post earnings gain, Advanced Micro Devices (NASDAQ:AMD) shares peeled back to the tune of 5.6%, while Baidu (NASDAQ:BIDU) fell nearly 2%.
There were winners, obviously. General Electric (NYSE:GE) advanced more than 3.5% in response to news that it was seeking to sell a software division, and Twitter (NYSE:TWTR) finally started to find a bottom. There just weren’t enough of the right leaders — or laggards for that matter — to shake things up for good or bad for the overall market.
That’s not a bad thing, mind you. A lethargic environment means there’s less of a threat to the budding trends that show up on stock charts most people aren’t looking at. As Wednesday’s action begins, the stock charts offering the best odds of a predictable, trade-worthy move are Procter & Gamble (NYSE:PG), Under Armour (NYSE:UAA) and Cummins (NYSE:CMI). Here’s the deal.
Procter & Gamble (PG)
The past few weeks have proven surprisingly bullish for the consumer staples sector, and Procter & Gamble hasn’t been an exception to that trend. In fact, P&G could be considered the pace-setter and leader for the trend.
Either way, the trend has developed a life of its own, so to speak, and is finding all the right help it needs in all the right places.
Click to Enlarge • The daily chart’s ascension is framed by rising support and resistance lines (dashed), though it’s clear the 20-day moving average line (blue) has acted as support when the rally needed help moving along.
• Zooming out to the weekly chart of PG, we can see shares have already hurdled the first of the key Fibonacci retracement lines … the 38.2% retracement level at $79.15. This sets the stage for a test of the next one (at least) at $84.20.
• The rally effort since May has also been marked by mostly bullish volume, and decidedly bullish volume on days the stock makes the most forward progress. There are apt to be more would-be buyers waiting in the wings.
Under Armour (UAA)
What’s the one thing worse that a decisive downtrend with plenty of momentum? A failed effort to break out of that downtrend. Failed recoveries generally confirm the weakness and embolden the sellers.
Under Armour shares are in that kind of confirmed downtrend right now, having squandered a couple of opportunities to snap out of the selloff before it got going in earnest. The bulls look powerless to stop it now.
Click to Enlarge • The failures to follow through on a pair of rebound efforts are marked with pink arrows on the daily chart. Both times, the pushback dragged UAA to lower lows.
• In both cases, another key technical line in the sand aided in the rollover. In the first instance it was a kiss of the upper Bollinger band that up-ended the turnaround effort, while the second time it was the 50-day moving average line (purple) that refused to be cleared. Notice how the lower Bollinger band is now unable to serve as support.
• A bearish MACD cross has taken shape in the weekly timeframe, for the first time in months.
Last but not least, all too often a strong price surge on a volume spike — particularly when they take shape in response to earnings — quickly peters out and even reverses course.
Somehow with that kind of move Cummins shares logged on Tuesday, however, it looks built to last. Not only did the bears take their early shot at quelling the budding rally, in retrospect it looks like the sellers overshot their target during the first half of the year. That left CMI ripe for a rebound anyway.
Click to Enlarge • The shape and position of Tuesday’s daily bar is a big clue. It’s an outside engulfing day where the open and close completely engulf Monday’s low-to-high range. Engulfing bars tend to indicate a decisive change of heart.
• Tuesday’s gain was doubly meaningful in that CMI pushed up and off the 20-day moving average (blue), once again finding support at it, and moving back above the 50-day moving average line (purple) in the process.
• Though it’s not yet happened, a bullish MACD cross on the weekly chart is almost inevitable (although the reversal in that timeframe is evident even without a MACD crossover).
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.