Faced with the reality that the tariff war might not be ending so soon after all, traders unwound a pretty good chunk of last week’s stock gains on Monday. The S&P 500 pulled back to the tune of 0.56%, ending the session at 2,888.80.
Leading the charge lower was Apple (NASDAQ:AAPL), which lost 2.7% despite word that it would at least partially escape the impact of recently imposed import tariffs. Clearly there were more losers than winners though. In fact, the day’s down volume was almost twice as strong as its up volume, and decliners greatly outnumbered advancers. Of roughly 7,700 listed U.S. stocks, 4800 of them ended the day’s action in the red. Netflix (NASDAQ:NFLX) was the most notable loser, falling 4% on continued worries that it will be one of the first to implode if the market hits a serious headwind.
Headed into Tuesday’s action, stock charts of Fortive (NYSE:FTV), General Mills (NYSE:GIS) and Macy’s (NYSE:M) are the most interesting trading prospects. Here’s a closer look at why, and what to watch for.
It can be dangerous to be against any well-developed momentum, so caution is advised for anyone looking to sell into the strength Fortive shares have demonstrated of late. The stock’s up 10% for the past month, and has gained nearly 30% for the past year.
On the other hand, it would be short-sighted to ignore the fact that FTV stock is overbought, and that we’ve just seen a couple of big hints that a top is being formed.
• The shape of the past two daily bars is also telling. In both cases, the close was well under the high, suggesting more than a few traders are starting to sell into this strength. More may crawl out of the woodwork if it merely looks like FTV shares could roll over.
• That being said, this is still a potential trade that would need to be confirmed, in the form of an even-higher-volume pullback and close for a sizeable loss.
General Mills (GIS)
It was only a week ago we pointed out that General Mills was knocking on the door of a breakout thrust, if it could just get above a major technical ceiling. It hasn’t done so yet. But, the fact that it continues trying merits another look at both the daily and the weekly stock charts. The bulls tipped their hand in a big way on Monday, and this stock is still very much “in the hunt.”
• Monday’s key “tell” was the bullish volume behind the gain, and the context behind it. Even though General Mills shares haven’t made a higher high in weeks, they continue to make higher lows.
• This strength may have as much to do with the perceived need to migrate from risky growth stocks to safer havens like food stocks, which is the natural tendency when it feels like the overall market is fighting a losing battle. If that rhetoric changes, the underpinnings of this brewing momentum could fade without warning.
Finally, credit has to be given where it’s due. Most retail stocks, including Macy’s, ended last year with a bang and dished out more big gains during the first half of this year. By late May though, it began to become clear that the stock had rallied about as far as it could go. While it’s still more or less holding on, thanks to Monday’s loss M shares are back on the edge of the cliff. One bad day could push it over.
• In the meantime, the blue 20-day moving average line has fallen below a couple of other key moving averages. This confirms a downtrend has fully taken shape.
• In the weekly timeframe, the rising support line that guided Macy’s high since the middle of last year was broken two weeks ago. Monday’s weakness puts the final touches on that technical damage.
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.