After a monstrous rally on Friday and a continuation on Monday, the markets are finally taking a pause on Tuesday. That’s got investors wondering, are stocks consolidating before another rally or are we in the midst of a dead cat bounce?
We’ll try to navigate this tricky landscape as best we can as we eye our top stock trades for Wednesday.
Russell 2000 ETF (IWM)
Click to Enlarge One reason this market is tricky? Because a few weeks ago, market participants were under the belief that the Federal Reserve would continue hiking interest rates at a time where the yield curve was about to invert and the economy would eventually tumble into a recession.
After printing a monstrous jobs report on Friday and after the Fed came out with a more dovish tone on the same day, investors are rethinking their outlook for the U.S. After a big rally in stocks though, many names are coming into key levels as we’re only about a week and a half away from earnings. Then there’s President Trump’s speech on Tuesday night regarding “the wall.” Like I said, tough sledding.
The Russell 2000 ETF (NYSEARCA:IWM) has been one of the leaders when it comes to market direction. Meaning its direction has been the early tell on what the overall market is doing. Lately, it’s been strong and that’s a good sign for bulls. However, it’s coming into a big-time prior support level now.
$145 was a key level through 2018. Some may say that the February and April bounces were a result of the 200-day moving average. I would say that it was likely that both levels played a role.
In any regard, the IWM has rallied eight of the last nine sessions while rallying about 12.5% in that time. To see $145 and the 50-day moving average act as resistance would come as little surprise at this point. If it does, I would love to see the 21-day moving average act as support.
Union Pacific (UNP)
After the stock’s massive gap-up, it leaves traders who weren’t in the trade in a tough spot. Do you chase up here or take a pass? I would love to see a $5 pullback into the mid-$140s. UNP has a chance to find support from the 50-day and 200-day moving averages down near this level.
On the upside, it could run into the backside of a few prior uptrend support lines between $150 and $155. Ultimately though, I’m more interested in how UNP handles $157.50.
I’m not a big head-and-shoulders guy, but this one has similar makings of a bullish inverse head-and-shoulders setup. Although I would feel better about a healthy pullback down to the $135 to $138 area before recharging higher, the $147 level is proving it will be pivotal. A push through the “neckline” could spark a breakout rally.
Considering the last few months though, I would be more inclined to take profits in CRM and wait for a pullback than bank on a breakout.
Click to Enlarge Shares of Tilray (NASDAQ:TLRY) had been stuck in a big downtrend since September. All of its large rallies were met with sellers at downtrend resistance (black line), while buyers have buoyed the stock near downtrend support (blue line).
Jumping 12.5% on Tuesday, the stock is popping over downtrend resistance for the first time in months. It’s also over the 21-day moving average. Bulls can use a stop-loss at ~$75 and target the $95 to $100 range.
After going from ~$1,300 to $1,650 in just a few trading sessions, I am not a buyer of AMZN stock up 27%. If downtrend resistance doesn’t slow AMZN, I expect the 200-day moving average to slow its roll.
So where will it pullback to? That’s a tough question because it depends on what the overall market is doing. I would love to see $1,540 to $1,600 hold up as support, but that represents a decline of just 3% to 6%. In a market like this, we can see that in just a day.
But where to buy Amazon isn’t my main concern, it’s not buying it at this point. Wait for a better setup before chasing Amazon $350 off the low and into resistance.