Tuesday was tough, to put it mildly. Fears of a lingering trade war and the corresponding impact on corporate earnings translated into a 3.24% slide for the S&P 500. But, worse than that, the abrupt pullback has obliterated any budding trends. With Thursday’s action kicking off with what amounts to a clean-up of Tuesday’s meltdown, it’s largely unclear which names will end the week strong, and which ones will end the week on a bullish foot.
Leading the bearish charge was Square (NYSE:SQ), by the way, down 11.7% mostly in response to a lowered price target from Stifel. United Rentals (NYSE:URI) was off by 10.9%, being pegged as one of the more vulnerable names should the China/U.S. trade war linger on.
And yet, there were some winners, particularly from the energy and utilities sectors. The most noteworthy winner on Tuesday, however, was from the consumer-retail arena. Restoration Hardware (NYSE:RH), formerly known as Restoration Hardware, gained 10.9% after dishing out a big third-quarter earnings beat.
As for today’s top prospects, as was noted, Tuesday’s drubbing has made it difficult to determine what’s truly in store from here. Fortunately there’s still a handful of stock charts that can be read. The best of those best are American Electric Power (NYSE:AEP), Unum Group (NYSE:UNM) and Emerson Electric (NYSE:EMR). Here’s why, and what to look for.
Unum Group (UNM)
After getting hit hard in early May, the past several months have offered the occasional glimmer of hope that Unum Group might recover.
As of Tuesday’s close, however, the odds that UNM will be able to avoid another round of selling are looking uncomfortably low.
Click to Enlarge • Context is everything. In this particular scenario, it’s suspicious that Unum never really rallied with the rest of the market, leaving the stock on the verge of news lows for weeks.
• Worse, the selling volume is starting to accelerate now. That’s something that had been sidestepped thus far.
• Taking a step back and looking at the weekly chart of UNM, it’s actually clear there’s a downtrend in place, framed by well-marked guideposts that form a converging wedge pattern. The lower edge of that shape is at $32.06, and falling fast.
American Electric Power (AEP)
As was noted, utility stocks performed reasonably well on Tuesday, most likely because they’re seen as a safe-haven in turbulent times. A closer look, however, reveals that the sector’s stocks have quietly been inching higher anyway, with at least some investors anticipating weakness like Tuesday’s.
American Electric Power wasn’t one of Tuesday’s winners, but the recent strength for the entire sector may not have served any other stock as well as it’s served AEP, pushing it deeper into an uptrend we first discussed back on Nov. 8.
Click to Enlarge • The key here is the bullish trading range plotted on the weekly chart. AEP pushed up and off the lower edge of that channel in June, and since then has used key moving average lines to extend the move.
• The upper boundary is around $82.50 right now, though rising fast. That’s the most plausible target, particularly if the overall market remains in jeopardy.
• Given its recent history and Tuesday’s bar, don’t be surprised to see American Electric Power shares dip just a little from here.
Emerson Electric (EMR)
Finally, Emerson Electric has been on the defensive since October, though was never out of the fight. And, it’s still not. Tuesday’s strong selloff, however, has pushed EMR to the brink of a short-term technical breakdown, and it’s already snapped a longer-term support line.
Click to Enlarge • The near-term floor in question is around $65.30, plotted with a red dashed line on the daily chart. That’s where Emerson made its April low, and more or less made its low last month and in October.
• The weekly chart’s support line that tagged all the major lows going back to early 2016 was broken three weeks ago. For a short while it looked like the rally would survive, but Tuesday’s dip marks the second move below that line.
• Notice on the daily chart that the highest volume days since October have been bearish days. The sellers may have already tipped their hand.
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.