It could have been worse. On Tuesday, the S&P 500 lost 1.42% of its value, ending the session at 2632.90. But, that was off the intraday low, and all it took was a kiss of the 50-day moving average line to put the selling on ice. Today will be a telling day.
General Electric (NYSE:GE) set the pace, losing 4.4% of its value on worries that its intended Capital Aviation Services (GECAS) may not command the price previously expected. Altria Group (NYSE:MO) actually lost more ground, however, falling 6.9% in response to a Morgan Stanley downgrade.
One noteworthy winner … eBay (NASDAQ:EBAY). Shares of the online-auction giant jumped 6.1% after activist investment firm Elliott Management showed some interest that could be a prelude to a serious — and beneficial — shakeup.
Headlines generally don’t make for good trading, however, as they tend to be flash-in-the-pan events. Rather, top trading prospects generally take shape over the span of several days, like the stock charts of CenterPoint Energy (NYSE:CNP), Prologis (NYSE:PLD) and Mohawk Industries (NYSE:MHK) have of late.
CenterPoint Energy (CNP)
When we last looked at CenterPoint Energy back on Jan. 7, it was once again knocking on the door of a break out of a sideways trading range, between $27 and $29. That happened in the meantime. But, even then we were hesitant to view it in a fully bullish light.
After Tuesday’s action, though, the breakout move was tested, and passed the test with flying colors.
Click to Enlarge • The big bullish clue is yesterday’s low near $29. The bears had a chance to up-end the rally effort, but the former ceiling has become a floor, sparking a gain on a day most other names lost ground.
• Underscoring the strength of the uptrend is more buying volume than not. Although choppy, the rising accumulation-distribution line says there’s been more buying interest than selling interest since the rally got going in November.
• The next plausible ceiling is the $30 area, marked with a red dashed line. That’s where CNP peaked a few times in late 2017.
Prologis is another name we’ve dissected more than once in recent months, for largely the same reason as CenterPoint Energy. That is, though range-bound, a breakout was possibly brewing within that range.
PLD has fallen out of its range, however, with no avail either way. But, Tuesday’s bar offers up several clues that the rebound since late November may have run its course and the stock’s now ready to pull back.
Click to Enlarge • Yesterday’s bar is called a doji, and a spinning top in particular, where the open and close are both right at the midpoint of an usually tall bar. This level of indecision is often seen at the end of a trend and the beginning of a trend in the other direction.
• Bolstering the possibility that a reversal is taking shape is where this spinning top materialized. It’s right at the intersection of the gray 100-day moving average line and the white 200-day line, where one would expect the bears to make a stand.
• Still, this is the kind of trading setup that usually requires some proof of a pivot, ideally in the form of a decisive move lower today.
Mohawk Industries (MHK)
Finally, now’s not the time to be making new, blind bets on Mohawk Industries. The company is expected to report earnings in early February, and the last two times the flooring company posted quarterly results, the stock was crushed. It may well happen again.
Nevertheless, the chart’s action over the course of the past few days means it’s worth adding to your watchlist. The bulls are testing the waters in front of major news, and that news may well get MHK over a huge technical hurdle.
Click to Enlarge • The hurdle in question is $127.80, plotted in yellow on both stock charts. Though Mohawk hasn’t been able to push above it, it has been repeatedly trying to since earlier this month.
• Underscoring the budding bullish effort is the above-average bullish volume seen in two of the past three trading days, and the fact that the blue 20-day moving average and the purple 50-day moving average line are in a position to act as support.
• If for some reason Mohawk shares respond bullishly after last quarter’s earnings are posted, that will likely be the beginning of a more prolonged rally. That doesn’t necessarily mean would-by buyers have to jump in right away, however.
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.