It could have been worse. At one point on Thursday, the S&P 500 was down as much as 0.5% before rallying back to end the session up a quarter of a percent. Investors entertained doubts about the idea that the recent yield curve inversion has to lead to a recession.
Walmart (NYSE:WMT) gets the bulk of the credit for yesterday’s gain. Shares of the retailer jumped more than 60% after the company delivered second-quarter numbers that exceeded expectations. E-commerce revenue remains particularly impressive for the world’s biggest retailer.
Yet, though the broad market made gains, the number of advancers was only slightly higher than the number of decliners, and bearish volume was actually greater than buying volume.
Weighing stocks back more than any other name was General Electric (NYSE:GE), down more than 11% on accusations that it has been doctoring its accounting statements in a way that covers up a great number of liabilities that will cost the company billions. Cisco Systems (NASDAQ:CSCO) plunged nearly 9% after serving up lackluster guidance stemming from the tariff war underway with China.
Although most stocks bounced back from recent weakness on Thursday, it’s not surprising that Freeport-McMoRan didn’t. Shares have been trapped in a downtrend for years, and that selloff was renewed at the beginning of last year when a rising support line was snapped.
It’s possible, however, yesterday’s 4% tumble may have also served as a capitulation that ends up becoming the low point of the current bearish swing. That dip pulled the stock back to an established floor, forcing the bulls and the bears — if not both — to finally make a commitment.
Click to EnlargeAlthough you have to go back to 2017 to see the initial low that serves as the first node of a falling support line, plotted in blue on both stock charts, it’s clear that FCX has been getting pushed toward the tip of a converging wedge pattern.
- The weekly chart also indicates Freeport-McMoRan shares broke below what had been a technical floor at $9.50, marked in yellow on the weekly chart that also plots the rising support line, in red, that snapped in the middle of last year to let a new pullback take shape.
- Although technically weak and suffering from bearish momentum, Thursday’s kiss of the lower boundary of a descending wedge pattern opens the door to the possibility FCX could attempt to rebound from here. The upper boundary of the wedge, in white, remains intact though.
Giving credit where it’s due, Microsoft shares have impressively stood up to marketwide weakness that started to seriously undermine other stocks late last month. Since peaking in July, MSFT shares have only fallen less than 6%. The S&P 500 is also still decidedly below most of its key moving average lines, while Microsoft is still above its key lines, or only modestly below the ones it’s under.
Microsoft shares are slowly slipping into a funk, however, putting pressure on key support levels, and failing to find support at others. One, perhaps two, more bearish days could push MSFT over the proverbial cliff and pull the rug out from underneath this name that has rallied about as far as it can feasibly go for the time being.
Click to EnlargeThe key floor now under attack is the straight-line span connecting February’s, June’s and now this month’s low, plotted as a light blue line on the daily chart.
- Zooming out to the weekly chart of Microsoft it becomes clear that this year’s rally has pushed MSFT stock to the upper edge of a rising bullish channel, where it has started to fade. Notice the weekly chart’s MACD line is now below zero, after several weeks of lower lows.
- Assuming history will repeat itself, MSFT shares are now positioned to slide back to the lower edge of that range plotted with a yellow line on the weekly chart. It now stands at $111.70, but is rising quickly.
Finally, Coca-Cola shares have been on a rampage since March, rallying more than 20% for the five-month stretch. More than that though, the advance has pushed KO stock out of a long-term trading range and into uncharted waters. Although overbought, shares even confirmed the strength of this breakout thrust by pulling back, finding support at a key line in the sand and then bouncing back above a long-term technical ceiling.
While the momentum is undeniable, the scope of the rally thus far is unnerving. The risk of a wave of profit-taking is abnormally high. The good news is, the make-or-break line in the sand has already been identified and verified.
Click to EnlargeThe support level in question is the 50-day moving average line, plotted in purple on the daily chart. That line prompted the reversal that materialized two weeks ago, and is highlighted on the daily chart.
- Backing out to a weekly chart, the basis of the worry becomes clear. Just in the past few weeks, KO stock has broken above a technical ceiling that has kept shares in check since 2013. It’s plotted in white.
- Although there’s plenty of risk of a pullback that would bring Coca-Cola stock back to the trading range’s floor near $46, marked in yellow, there has been an impressive amount of buying volume persistently through this unparalleled advance.
At the time of this writing, James Brumley did not hold a position in any of the aforementioned securities. To learn more about James, visit his site at jamesbrumley.com, or follow him in twitter at @jbrumley.