The market may have ended last week with a small loss on Friday, but it managed to remain in the black for the full week. Still, it was an ugly win, with both of the key indices falling back under their pivotal 200-day moving average lines. And, there was far more bearish volume than bullish on Friday, and for the week.
Advanced Micro Devices (NASDAQ:AMD) was arguably the day’s biggest drag, with AMD shares falling more than 11% after New Street Research initiated coverage of the company with a “sell” rating. Then again, the overbought AMD wasn’t a tough target to take a shot at. Traders had been wrestling with the prospect that the stock was overextended anyway. At the other end of the spectrum was Procter & Gamble (NYSE:PG), which gained 8.8% after reporting first fiscal quarter results that offered a much-needed ray of hope that a turnaround was brewing.
There just weren’t enough names like PG to pull the market into the black though. As was noted, selling volume greatly outpaced buying volume on Friday, and there were about three losers for every two losing stocks.
None of that means there aren’t trading opportunities though, and even bullish trading opportunities for those willing to look for them. Stock charts of Netflix (NASDAQ:NFLX), Nvidia (NASDAQ:NVDA) and PPL (NYSE:PPL) are some of those top prospects.
On Wednesday morning of last week, Netflix was all the rage. The company reported a very strong quarter and pleasantly surprised the market with its subscriber growth. The stock started that session out up to the tune of 9%.
There’s a lot to be said, however, about what doesn’t happen after a knee-jerk response to news. In this case, the complete lack of follow-through and the selling in the meantime is a bigger red flag than a tepid response to the earnings report would have been. Now NFLX is testing the waters of breaking below a huge support level.
- The 200-day moving average line, plotted in white, is the make-or-break line in the sand. Netflix shares moved to within striking distance of that line on Friday.
- Though the two big bullish days from last week were supported by strong volume, it’s not like that move wasn’t bookended by high-volume bearish days. The weekly chart’s Chaikin line is now back below zero, and trending lower, suggesting the volume undertow has actually been bearish for some time now.
- Notice there’s no clear prior low that would make for a likely landing point for any pullback. Traders would have to keep their eyes peeled for other clues that a bottom had been made.
If Nvidia rings oddly familiar, it may be because it was one of the three stock charts dissected just a few days ago, when it was teetering on a break below a critical support level around $234.28. Though it was using that floor as a push-off point to try and stage a recovery, that effort was on anything but firm footing.
Thanks to Friday’s 4.2% selloff, NVDA is all the way under that technical floor, with plenty of bearish momentum to keep things moving in that direction.
- Aside from the break under the floor at $234.28, plotted with a dashed line, Nvidia shares are also now decidedly under the 200-day moving average line, plotted in a solid thick white line.
- A look at the long-term weekly chart puts this event in perspective. This is the first time NVDA has been below the 200-day average in years, suggesting something monumental has changed with the way traders perceive the stock.
- There’s certainly no lack of selling volume behind the pullback either.
Finally, utility company PPL is another name we’ve been watching for a while, with the most recent look from Oct. 16 once again pointing out how traders were toying with the idea of a major breakout move.
That finally happened on Friday. And, now that it has, the likelihood of a more consistent rally just grew a great deal given the ultimate backdrop behind the new bullishness.
- The $31.00 area, plotted with a blue dashed line, is the ceiling in question. It’s been tested more than once since September, and in the middle of last week, it looked like the buyers would pause there again. The would-be buyers finally pulled the trigger on Friday though.
- The weekly chart indicates just how big this reversal is and how long the buyers have been working on it. More than anything though, the weekly chart illustrates how much room there is to recover from last year’s unmerited selloff.
- This bullishness (much like last year’s selling) was rooted more in strategic positioning than in any opinion of the company. That is to say, this breakout may be driven by a perceived need for safety. If that rhetoric of the market’s mood changes, this trend could shift.
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.