Stocks finally found their ceiling, right where it would have been expected. The S&P 500’s close of 2731.61 was down 0.22% from Tuesday’s last trade, with the 200-day moving average line confirming its role as a technical problem.
Video game companies led the drop. Electronic Arts (NASDAQ:EA) kicked off the meltdown, falling 13% in response to disappointing guidance. Shareholders applied the same doubt to rivals Activision Blizzard (NASDAQ:ATVI) and Take-Two Interactive Software (NASDAQ:TTWO), however, sending them 10% and 14% lower on Wednesday.
All of those moves are far too volatile to chase, however. Instead, tamer stocks charts like those of FirstEnergy (NYSE:FE), Boston Scientific (NYSE:BSX) and Mondelez International (NASDAQ:MDLZ) are shaping up as better, more reliable prospects.
Boston Scientific (BSX)
During the latter third of last year, Boston Scientific shares broke above a long-standing trading range. Though impressive, it also appeared to be a setup for a major pullback.
We got that pullback, though not fully. Since the end of December, MDLZ has pushed its way back above that resistance line. With a tankful of momentum at its disposal, Boston Scientific could forge ahead to higher highs again. There’s one ceiling that needs to be broken first, though it was cracked yesterday.
Click to Enlarge • The long-standing trading range is plotted with white dashed lines on the weekly chart. The renewed break out of that range validates the first bullish wave.
• The more immediate technical resistance lies at $38.60, where shares peaked three times in October and November. BSX closed above that level on Wednesday, but it’s far from set in stone.
• It’s only a fairly recent development, but there’s a large amount of volume behind the buying spree that took shape late last year.
Mondelez International (MDLZ)
Mondelez International shares have been a huge winner since late December, with last week’s 6.6% serving as a big exclamation point. It would be easy to be lured into being a buyer. Given the scope of the move in the rearview mirror, it would be easy to excuse this week’s breather.
There may be more to this week’s pause than just a chance for the rest of the market to catch up, however. A closer, bigger-picture look reveals this is where one would expect the gain to run out of gas and then pull back.
Click to Enlarge • In a long-term, philosophical sense, MDLZ has been in the habit of back-and-forth action. It doesn’t remain overbought or oversold for very long, and the current overbought condition isn’t apt to last long either.
• Bolstering the likelihood that a ceiling has already been hit is the fact that last week’s and this week’s highs around $48 are in line with one of the most frequently hit ceilings going all the way back to 2016.
• In the near term, Mondelez shares have stalled at a resistance level that has now tagged the past three major peaks going back to September. That line is plotted in yellow on both stock charts.
Finally, FirstEnergy isn’t in trouble yet. And, it may not slip into a downtrend — the stock’s still on the upper side of most of its key moving average lines.
When taking a step back and looking at the chart’s performance from a distance, however, it’s difficult not to notice the current tide has shifted from last year’s bullishness to brewing bearishness.
Click to Enlarge • The clues are subtle, but they’re there. Chief among them is the fact that the divergence of the moving average lines we saw early last year has turned into a convergence. FE has also made its first lower high in months.
• In the weekly timeframe, the MACD lines have been bearish since October.
• Though the tide may be modestly bearish, until FirstEnergy falls below and stays below the white 200-day moving average line, there’s still hope for a rebound move.
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.