The bears were growling early and often on Tuesday. Though there were a couple of moments when it looked like yesterday’s meltdown would serve as a pivot, by the time the closing bell rang the sellers were firmly in control even if they don’t actually know why they’re selling. The S&P 500 ended the session at 2641.69, down 1.82% in what was a strangely mixed session.
Yes, there were clearly more decliners than advancers … more than four times as many, in fact. Volume was similarly disproportional in favor of the bears. Apple (NASDAQ:AAPL) led the charge (and set the tone) on both fronts, falling 4.8% mostly because Bank of America cuts its price target on the consumer-tech giant’s stock. Microsoft (NASDAQ:MSFT) was more than happy to follow that lead though, losing 2.8% of its value and inspiring other tech stocks to sink with it.
Yet, among the day’s winners were some familiar names that for some reason didn’t fall in line with the majority. Advanced Micro Devices (NASDAQ:AMD) managed to dish out a small gain, unwinding a sliver of yesterday’s tumble, while shares of the Campbell Soup Company (NYSE:CPB) closed 5.4% higher after reporting encouraging fiscal-first-quarter numbers.
The unusual action should serve as a warning to traders that no assumption is safe, particularly when it’s based on just one day’s movement. Smart traders should still be looking for bigger-pictures setups like the ones they’ll find with stock charts of Hologic (NASDAQ:HOLX), Applied Materials (NASDAQ:AMAT) and Coca-Cola (NYSE:KO).
Applied Materials (AMAT)
Had it not been for a couple of huge-volume buying days, Applied Materials may have gone unnoticed. With such an inordinate and persistent amount of volume behind the turnaround effort though, AMAT has to go on your radar. There’s just too much potential upside not to take note.
There’s one last hurdle to cleanly clear, however.
Click to Enlarge • The daily chart had been in a steep downtrend since June. But, the momentum began to shift early this month, and the complexion of that effort changed dramatically on Friday and Tuesday when the buyers crawled out of the woodwork.
• While the potential is compelling, AMAT shares have not yet been able to close above the key 50-day moving average line, plotted in purple.
• The weekly chart puts the pullback in perspective, explaining just how oversold Applied Materials was, and how much room there is to rebound. The stock may not hit a major ceiling again until the $50/$55 zone.
Just a little over a week ago we pointed out Coca-Cola was at a major technical ceiling. Though the bullish momentum looked and felt solid, it looked and felt solid at other times this resistance had been met. The resistance won every time.
It just won again, forcing KO shares to log a foreboding bar on Tuesday that only underscores the odds of a downside move from here.
Click to Enlarge • The daily chart waves a huge red flag. While Coca-Cola stock rallied as expected once the ceiling at $46.73 was cleared, Tuesday’s outside/engulfing days says traders had a sudden and sweeping change of heart.
• The weekly chart explains how things turned so ugly so fast. KO stock bumped into a technical ceiling that tagged all the major peaks going back to 2013.
• If history repeats itself, Coca-Cola could be at the beginning of a trip all the way back to the lower edge of the trading range. That’s around $42 right now.
Finally, with just a quick glance at a chart of Hologic, it just looks like an erratic, directionless mess.
A second, closer look at HOLX, however, reveals there’s actually a method to the madness. One way or another the stock is working its way into a situation where it will have to break out of its rut. Though not past the hurdle yet, most clues point to a bullish move.
Click to Enlarge • It’s partially evident on the daily chart but easier to make out on the weekly chart. Holigic is trapped between converging support and resistance lines, with the floor extending back to early 2016.
• HOLX lost ground on Tuesday, but only after testing the upper boundary on Monday. And, two weeks ago, Hologic shares actually temporarily broke above that resistance level.
• Though the potential upside is significant, this is one of those scenarios where you don’t want to pull the trigger until the stock in question is decidedly above its resistance levels.
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.