The market may have started the new trading week on a bullish foot, but it certainly didn’t end Tuesday in the same mood. With some time to think about it, the bears tore in yesterday, driving the S&P 500 to a 0.84% loss. The close of 2,802.39 leaves the index just above a huge technical floor.
It just wasn’t enough to offset dips from the likes of equally influential names like Kraft Heinz (NASDAQ:KHC) and Teva Pharmaceutical (NYSE:TEVA). The food company’s stock was off to the tune of 6.6%, extending last week’s weakness that was largely prompted by a planned but still distasteful failure to submit its quarterly accounting statements to the SEC. General weakness from most food stocks didn’t help matters either. Teva Pharmaceutical shares fell 12.4% in response to news that a lawsuit alleging price-fixing for its generic drugs had been filed. That report follows news that the company had settled with the state of Oklahoma for its part in an opioid abuse case.
Juniper Networks (JNPR)
In late March, I cautioned that Juniper Networks was slipping into trouble. Although not past the point of no return, the undertow was bullish. The one saving grace was that there was a strong support level dead ahead. It had been proven as a floor more than once.
That floor has since been tested, more than once. In fact, it has been given a major test just within the past few days, including yesterday. One more slip could turn the tide decidedly for the worst, and by some measures JNPR stock has already fallen past the point of no return.
- The technical floor in question is, of course, the $25 area plotted in yellow on both stock charts. Juniper shares were driven to that level again yesterday.
- Zooming out to the weekly chart it’s clear that the rising support line that had driven JNPR higher since 2014 has already been broken.
- The undertow is already bearish, with or without technical breakdowns. It’s easy to overlook, but on the daily chart, all four key moving average lines are now sloped downward, suggesting a bearish trend in multiple timeframes.
Hormel Foods (HRL)
As of last Thursday, Hormel Foods shares were almost an interesting (even if somewhat risky) bullish prospect. Although HRL stock ended that day in the red, the intraday recovery effort on the heels of a huge plunge spoke volumes. Friday’s bullish follow-through bolstered the bullish case.
That potential buy clue was completely negated on Tuesday, however, supplanted by a new and much more convincing sell signal. All Hormel shares had to do was kiss a couple of key technical ceilings to slip into a tailspin.
- The pair of technical ceilings are the purple 50-day moving average line and the brush with a previous key low right around $40.50. The encounter is highlighted on the daily chart.
- Underscoring the bearish case is the shape and scope (and placement) of yesterday’s bar. Tuesday’s open was above Friday’s high, and Tuesday’s close was below Friday’s low. This bearish ‘outside day’ points to a sweeping change of heart.
- Zooming out to the week chart it becomes clear the stock was already in trouble, having broken under a key long-term support line plotted in yellow as of mid-April.
Eli Lilly (LLY)
The last time we looked at Eli Lilly back on March 1, the chief concern was that it had rallied too far, too fast, leaving it vulnerable to a pullback. Although not in a straight line, that’s exactly what took shape over the course of the next couple of months.
It looked like it might come to a close and begin to rally again earlier this month. But, with some help from the market’s tide, yesterday’s action put the stock back within uncomfortable reach of a critical support line that hinted of a bullish reversal just a few days ago.
- The big line in the sand is the 200-day moving average line, plotted in white on both stock charts. The selloff was stopped cold there in early May, but the bears dragged it back to near that mark yesterday.
- If the 200-day moving average at $115.10 can’t continue to hold up as support, the next-nearest floor is right around $110. That’s the line that tagged the key lows from late last year, plotted in blue on both stock charts.
- If neither potential support level holds up as a floor, there’s no “next best bet” nearby. The most plausible floor below $110 is below $90, where Eli Lilly bumped into resistance for the better part of 2017.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.