Another rough week for the market, though last week’s was the worst of the now-four-consecutive losses for stocks. The S&P 500 fell 1.32% on Friday, finally breaking below its crucial 200-day moving average line in the process to cap off a full-week loss of 2.6%.
Leading the charge were AT&T (NYSE:T) and Ford (NYSE:F) led the way lower, with the telecom giant sliding 4% lower while the carmaker was off 2.2%. AT&T stumbled on the heels of news that e-commerce outfit Amazon (NASDAQ:AMZN) was mulling an entry into the wireless race. Ford stumbled in response to worries about a new batch of import tariffs, this round aimed at Mexico.
Still, there was a handful of winners. Most noteworthy among them was the 25% advance Genocea Biosciences (NASDAQ:GNCA) made during the regular session, followed by another 6% worth of progress in after-hours trading. The biotech stock popped following an announcement that one of its in-development drugs would be featured in an important medical journal, which could shed some bullish light on the stock.
None of those names are the top trading prospects as the new week kicks off, however. The best bets are the stock charts of United Continental Holdings (NASDAQ:UAL), Ulta Beauty (NASDAQ:ULTA) and Netflix (NASDAQ:NFLX). Here’s why, and what needs to happen next.
Ulta Beauty (ULTA)
A gain from a stock on a day the broad market loses ground is impressive, but not necessarily a game-changer. When that gain takes shape from the kind of intraday action Ulta Beauty shares dished out on Friday, however, it means so much more. Although perhaps intimidating to step into given the slide since April’s high, the swing out of trouble and back into bullishness as last week came to a close may well have hit the reset button on a bigger-picture uptrend.
Note the height of Friday’s bar. The poor open and then drop to a much lower low was wiped away and turned into gain — complete with a higher high — by Friday’s close. Such sweeping changes indicate a major change of sentiment.
- Bolstering the bullish case is how once March’s gap was filled back in, the buyers easily pushed ULTA back for a big gain.
- Further underscoring the possibility that Friday was a major pivot was the volume surge behind it. Volume spikes often occur as the last of the sellers pour out and the first of the patient buyers plow into that selling.
- Backing out to the weekly chart we can see Ulta Beauty shares are being guided higher within the confines of rising support and resistance lines that have formed a diverging wedge pattern.
It’s not past the point of no return yet, but Netflix is inching closer to that point. Never really rallying with the rest of the market since its January surge and struggling with key moving average lines since May, the backdrop is decisively working against NFLX. Its next-to-last floor is under immediate attack, and the absolute-last technical floor is within easy reach.
There is one hint of hope buried in both stock charts, however.
- The line to watch is $342.20, plotted in yellow on both stocks charts. That’s where Netflix has found support several times since March, including on Friday.
- Although the support thus far remains intact, the blue 20-day moving average line and the purple 50-day moving average line have since turned into resistance levels.
- The ultimate bull/bear line here is the 200-day moving average line, plotted in white on both stock charts.
- While the sellers are doing the most damage, the volume behind the weakness thus far has been relatively light.
United Continental Holdings (UAL)
United Continental Holdings shares have been back and forth since September, but making no net progress. The end result is a rather well-established support line.
A closer look at the chart, however, reveals the scales may have already quietly tipped toward net-bearishness. There’s just one step that needs to be completed before the long-building pullback is able to take shape in earnest.
- The make-or-break line is right around $77.20, plotted in red on both stock charts. That’s where UAL has made major lows three times now, including on Friday.
- Zooming out to the week chart we can see United Continental shares have already fallen below a long-standing support line that prodded shares upward since 2016.
- It’s difficult to see, but all four key moving average lines are now sloped downward. That makes them even tougher to crawl back above, and points to bearish momentum in multiple timeframes.
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.