The market was in a good position to end last week with a gain. But, when push came to shove on Friday, investors didn’t want to hold so many stocks into the weekend. The S&P 500 ended the session down 1.91%, logging its lowest close in months.
Johnson & Johnson (NYSE:JNJ) set most of the bearish tone, losing 10% of its value on reports that it has known for decades that some of its talcum powder was tainted with asbestos. Costco Wholesale (NASDAQ:COST) wasn’t far behind, however, off to the tune of 8.6% after falling short of its fiscal first quarter estimates.
There were some winners on Friday. There just weren’t enough of them making big enough gains to keep the market out of the red.
As the new trading week kicks off, stock charts of Dollar Tree (NASDAQ:DLTR), Scana (NYSE:SCG) and Mastercard (NYSE:MA) merit the most attention. They each ended the week in a position that plainly points to what may lie ahead.
Back on Nov. 13 we pointed out — and not for the first time — that a range-bound Scana was actually gearing up for a breakout thrust. It just needed to break above a technical ceiling at $41.90 to achieve escape velocity. That ended up happening on Nov. 15, and the buyers never looked back.
As of Friday’s close though, not only are SCG shares up more than 21% from that ceiling, Friday’s action strongly suggests that day was at least a short-term top.
Click to Enlarge • The big red flag is the sheer scope of the gain and the volume behind it. Big high-volume moves tend to suggest the last, not the first, of the buyers are finally piling in.
• Bolstering the bearish argument is the weekly chart’s RSI indicator. It just tiptoed into overbought territory.
• Although there’s lots of room for profit-taking to pull Scana much lower, keep it in perspective. The bigger-picture trend is now bullish, and if SCG finds clear support at one of its key moving average lines, it may well be a buying opportunity.
Dollar Tree (DLTR)
Just because a stock ends the day up when most other stocks are down doesn’t inherently make that stock a buy. But, given the persistence Dollar Tree shares have shown of late while the rest of the market is losing ground certainly doesn’t hurt the bullish case for DLTR.
Either way, there’s a caveat. While Dollar Tree stock may be working its way higher, it’s largely because of the growing sentiment that we’re running into an economic headwind. If that sentiment changes, so too could this underlying bullishness.
Click to Enlarge • Unlike most other stock charts during this time, DLTR has logged a string of higher lows and higher highs since early October. This range is marked with white dashed lines on the daily chart above.
• Zooming out to a weekly chart of DLTR, we can see a much bigger trading range is in play. The stock just bumped into a technical floor that extends all the way back to late-2012.
• It would take a very particular set of circumstances to move there in a straight line, but history say DLTR could move to the upper edge of a long-term trading range around $130.
We’ve looked at Mastercard several times in recent weeks, pointing out how the bears were chopping away it. After each look though, the stock found a way to bounce back.
Thing is, those bounces have been short-lived, and since then the sellers have had opportunity to inflict incrementally more damage. This past week we saw even more red flags start to wave.
Click to Enlarge • A week and a half ago when MA moved to a new multi-week high above $208.80, hopes were raised. The gap set the stage for a pullback though, and that pullback has been capped more than once by the gray 100-day moving average and the purple 50-day moving average lines.
• Friday’s modest setback also pulled MasterCard shares under the white 200-day moving average line for a third time since October. The bulls may be tired of staving off the selling efforts.
• It would take a true economic headwind and/or a technical bear market to realize this, but MA could slide all the way back to its 38.2% Fibonacci retracement level at $165.71 before finding a firm floor.
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.