Leave it up to traders to drive intraday action that makes it impossible to get a read on the market.
Had stocks started Tuesday anywhere near Monday’s close and then proceeded to a loss, it would be easy to presume more selling was in the queue. But with the horrific open and the partial bounceback at mid-day to leave behind only a small loss, it would be easy and rational for the market to proceed in either direction. It’s possible the only purpose of the recovery move was to go back and close the opening gap. With that mission accomplished, the bears have room and reason to resume their selling effort.
Bank of America (NYSE:BAC) ended up doing most of the net damage, losing 1.3% of its value by following through on Monday’s selling that adversely impacted most banking stocks. At the other end of the spectrum was General Electric (NYSE:GE), which gained 2.5% as more and more investors start to believe that it can recover under its new CEO.
Neither name makes for a compelling trading prospect right now though. In fact, the broad market’s recent volatility has shaken up most stocks so much that they’re best left avoided until the dust settles. PulteGroup (NYSE:PHM), Kroger (NYSE:KR) and Boeing (NYSE:BA) are a trio of only a handful of names that look reliable enough to take a swing at … and even then, caution is advised. Each will require careful babysitting.
One high-volume gain following a pretty severe selloff doesn’t inherently make a stock a bullish candidate, although it certainly doesn’t hurt either.
Besides, the bullish case for PulteGroup is bolstered by some surprisingly encouraging news that most investors will be willing to latch onto.
Click to Enlarge• Tuesday’s gain wasn’t just a big win, it was an outside day bar, marked by an open and a close that completely engulfed Monday’s low-to-high range. These dramatic swings often indicate a transition.
• The weekly chart puts the severity of the selloff in perspective. Both the stochastic lines and the RSI indicator suggest PHM shares were oversold and ripe for a bounce.
• The catalyst for the turnaround was a solid third-quarter print, but the news may well be enough to convince investors their pessimism surrounding the home-construction market may have been mostly unmerited.
The last time Kroger was in the trading spotlight was early September, when shares were bumping into major technical resistance that set the stage for a big pullback.
That happened. KR shares fell 17% from that peak to the low made last week. That low, however, took shape at a well-established support level that could have easily put the bigger uptrend back into motion.
Click to Enlarge • Kroger is trapped in a narrowing trading range, framed with yellow dashed lines on both stock charts. The stock only had to kiss the lower edge of that boundary to get back in bullish mode.
• The weekly chart also indicates that Kroger was and still is oversold. It’s not stayed oversold for very long.
• With Tuesday’s modest gain, however, KR stock has pushed back above a long-standing falling resistance line, plotted with a white dashed line, that had been holding it down since 2016. Though it’s taking a while, there’s a bigger-picture rebound also in play here.
Last but not least, Boeing is well positioned for a bright, long-term future. The air travel market is poised to grow at an brisk clip for the next 20 years, prompting the delivery of more than 42,000 new passenger jets during that span. For perspective, there are only about 22,000 commercial jets in operation right now, and Boeing remains the top name in the business.
That long-term growth trajectory won’t stave off short-term corrective moves from BA shares, however, and BA stock is flirting with a floor that it can’t afford to break.
Click to Enlarge • The support level in question, plotted with a red dashed line on both stock charts, has tagged all the major lows since late March. That line was tested again on Tuesday, and though Boeing shares pushed up and off of it, the sellers will get a chance to take another shot.
• In the meantime, the white 200-day moving average line is also under attack. BA closed above that line on Tuesday as well, but not before making an intraday low below it.
• The weekly chart puts it all in perspective. Boeing shares have gone a little too long without a major, healthy correction. If the support line breaks, the would-be sellers may make up for all the selling they haven’t done since 2016.
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.