The market may have logged a partial intraday rebound on Friday, but even so, five consecutive days of losses took a toll. The stage is set for at least a modest pushback this week, though there’s little guarantee it will turn back into a prolonged rally.
Square (NYSE:SQ) played a big role in shaving 0.73% off of the S&P 500’s value, falling more than 14% after posting its Q2 numbers. Although it topped estimates, investors are doubting its growth prospects without food delivery service Caviar being part of the mix. Caviar is being acquired by DoorDash.
Fluor (NYSE:FLR) booked a bigger loss though, with its 26% tumble — the biggest one-day loss ever — dragging it to 15-year lows after it reported a surprise loss for the second quarter. Working to keep the market propped up, unsuccessfully, was Newell (NASDAQ:NWL). Shares of the storage container and home goods name jumped more than 14% after reporting an earnings beat that wasn’t tainted by the revenue shortfall. The improved outlook helped.
As for names that may be worth a closer, trade-minded look though, the stocks charts of Westrock (NYSE:WRK), Arconic (NYSE:ARNC) and International Business Machines (NYSE:IBM) are at the top of a fairly short list.
International Business Machines (IBM)
It’s not necessarily an omen of doom for International Business Machines. In fact, we’re seeing some clear bullish clues on the daily chart for ol’ Big Blue. But, this past week’s chart action suggests IBM has been shaken out of its uptrend seen since early June, and is now going to pivot into at least a small pullback.
Even better, the potential landing points for any pullback are not only clear, they’re relatively close.
Click to EnlargeThe red flag is the shape of Thursday’s and Friday’s bar. In both cases, IBM shares gave up the bulk of their intraday gains. It has more to do with the market than the company, but shares were uniquely vulnerable all the same.
- Backing out to a view of the weekly timeframe reveals at least part of the reason how this weakness materialized so easily. A ceiling extending back to the early 2017 peak got in the way.
- Even so, all the key moving average lines are now sloped upward, saying the bigger trend is bullish no matter what.
- The most plausible downside targets are the convergence of the 50-day and 100-day moving average lines near $140, and then the white 200-day moving average line just below $133.
It’s difficult to fully appreciate it on the daily chart, but on the weekly chart of Westrock it’s relatively clear that this stock is working hard to shake off the funk it was in during all of 2018 and the first half of 2019. Since the late-May low, WRK has finally started to log higher lows and higher highs. It’s not quite a new uptrend yet.
But, that’s on the verge of changing. We’re now seeing some things we’ve not seen in months, and we’re closer to a technical breakout out than we’ve been in months. Just a little more forward progress could push Westrock past the pivotal tipping point.
Click to EnlargeThat tipping point first and foremost is the 200-day moving average line, plotted in white on both stock charts. There’s also straight-line resistance plotted in blue on both stock charts.
- It’s encouraging that since April we’ve seen more bullish volume than bearish volume. The daily chart’s accumulation-distribution line is now sloped upward, and the weekly chart’s Chaikin line is as well.
- Perhaps just as important is that the 100-day moving average line, plotted in gray on both stock charts, is no longer offering resistance but the purple 50-day line is finally acting as support.
Finally, the intuitive reaction to the sizeable setback Arconic shares suffered on Friday is to ignore it. It was a knee-jerk reaction to the company’s earnings report, and most of the loss was recuperated in after-hours trading anyway.
After-hours trading can be an aberration though, and a careful look at the days leading up to Friday’s announcement makes clear that ARNC stock was already in a downtrend. The news could have easily revealed what traders were truly thinking. It absolutely yanked Arconic below a couple of critical support levels.
Click to EnlargeOne of those floors is the 50-day moving average, plotted in purple on the daily chart. More than that though, Friday’s loss pulled Arconic stock under the floor that had guided it higher since January.
- Underscoring the likelihood that the weakness is just the extension of existing selling is the way bearish volume has been rising since the beginning of last week.
- The weekly chart points out that ARNC was already ripe for a pullback. For the first time in years, the RSI indicator was able to reach into overbought territory in July.
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.