The market didn’t start the new trading week on a particularly bullish foot. The S&P 500 logged a loss of 0.16% on Monday. But, that’s better than the 0.4% dip it was suffering at its lowest point in the day.
Pfizer (NYSE:PFE) was the problem child for the day, falling 3.8% after posting Q2 numbers that included lowered guidance. Not even announcing that it was selling its off-patent business to Mylan (NASDAQ:MYL) could inspire investors to look past the company’s revised outlook.
Mylan, meanwhile, rallied 12% on the news.
It was Beyond Meat (NASDAQ:BYND) that really set the wrong tone for the day though. Although it doesn’t have a big impact on the broad market’s net action, the high-profile name can send a message. Its 5.4% loss before the close followed by a near-13% tumble following its post-close earnings report dished out a major, unpleasant surprise. News of a secondary offering wasn’t well-received.
As for the top trading prospects headed into today’s session though, take a look at the stock charts of Hanesbrands (NYSE:HBI), Travelers Companies (NYSE:TRV) and Tapestry (NYSE:TPR). They’ve all got something brewing, which could be big.
Like almost all other stocks, Tapestry shares routed in the last quarter, breaking under a key support level in the process. Unlike most other stocks though, this year, TPR stock has continued to dwindle. Some investors are starting to give up.
That may prove to be a major mistake. Although it has still got some key technical ceiling to clear, it’s repeatedly testing those ceilings though, and this time, the most recent tests are occurring at the same time we’ve seen the first higher lows in months.
Click to EnlargeThe next milestone is the gray 100-day moving average line. Although not yet over it, Tapestry shares continue to move in the direction after failing to clear it a couple of times.
- The pivot point thus far appears to be the late-May low; since then, we’ve seen two higher lows associated with the more frequent tests of the 100-day average as resistance.
- Notice that the May low more or less coincides with the multi-year low made in late-2015. It may be a major psychologically important level, serving as the launching point for a rebound.
The bullish argument on Hanesbrands is solid enough. Underwear and socks are perpetually marketable, and the company is reliably profitable. It poses little risk to a portfolio.
Nevertheless, a long-standing downtrend has been well established, and investors have thus far been unwilling to shake HBI stock out of it. Rather, the last chance they had to in April, they chose not to. In the meantime, Hanesbrands stock has given traders another key bearish clue.
Click to EnlargeThat sell signal is the purple 50-day moving average line’s cross below the pivotal 200-day moving average line, plotted in white on both stock charts.
- Zooming out to the weekly chart makes clear how well defined the downtrend is. The falling resistance and support lines are nearly parallel, and have been a near-perfect bearish framework.
- Assuming nothing changes that will jolt HBI out of this channel, the stock could fall all the way back to $9 or lower before the sellers back off.
Travelers Companies (TRV)
Finally, Travelers Companies shares suffered a fairly good-sized setback in mid-July, unwinding part of the major rally that has been underway since the beginning of the year. Just as quickly as the pullback took shape, it appeared to start down the road to recovery.
As of yesterday’s action though, that rebound effort is in question. The budding downtrend is now even stronger than it was just a week ago. The backdrop says the sellers are already firmly in control.
Click to EnlargeMonday’s temporary move above the purple 50-day moving average line followed by a slide back under says the buyers were never ready to keep the advance going into the new trading week.
- Underscoring that possibility is the way bearish volume has been growing since the beginning of the month. Last week’s two ‘up’ days were on notably weak volume.
- Assuming the gray 100-day moving average line fails to hold up as support, the 200-day line, plotted in white, is the next best floor. It will find the Fibonacci retracement line at $138.21 by the time in can be tested.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.