The dust from last week’s, and Monday’s, meltdown is finally starting to settle, though that’s not necessarily a sign that a recovery is nigh. The S&P 500 was up on Wednesday, but the 0.08% gain was far from inspirational, and the index is still on the wrong side of most of its moving averages.
Roku (NASDAQ:ROKU) helped set the tone, gaining more than 2% during the session in front of its post-close earnings report, and then soaring more than 10% in after-hours action after it topped earnings expectations. Lyft (NASDAQ:LYFT) and rival Uber Technologies (NYSE:UBER) were up firmly as well, with the former gaining more than 5% after the market closed thanks to record-breaking revenue underscored by raised guidance.
There were just too many names like Bank of America (NYSE:BAC), though, holding the market back. BofA shares fell a couple of percentage points for no particular reason. Traders are simply concerned about the broad impact of a slowdown, and the rate-cut’s potential toll on bank earnings.
However, headed into Thursday’s action, it’s the stock charts of NRG Energy (NYSE:NRG), D. R. Horton (NYSE:DHI) and Cisco Systems (NASDAQ:CSCO) that deserve the closest looks. These are the names closest to critical tipping points, and could be trade-worthy.
Cisco Systems (CSCO)
Like most other stocks, and tech stocks in particular, Cisco Systems has been beaten up over the course of the past couple of weeks. Already vulnerable to profit-taking, it took little effort to pull the rug out from underneath it and drag CSCO stock under a couple of key moving average lines.
That selling came to a halt at a suspiciously encouraging level though. While it’s possible more breakdown could be ahead — and it would be devastating — the right backdrop could catapult this name higher again in a hurry.
- The floor in question is around $51.20, marked in red on both stock charts. That’s where shares bottomed in May, and where the white 200-day moving average line is now.
- Although support has taken shape, there’s still danger ahead. The bearish volume is swelling. That’s evident on the daily chart, though the weekly chart’s falling, sub-zero Chaikin line points to the same undertow.
- Should the floor around $51.20 break, the next most likely support area is just above $40, where Cisco made a couple of key lows last year.
D. R. Horton (DHI)
The residential construction market is seemingly on the ropes. Home-price appreciation is slowing, and purchases are trending lower. Starts and permits are waffling as well. It doesn’t feel like any homebuilding stocks should be doing well.
The fact that D. R. Horton is not only surviving but thriving in such an environment, however, speaks volumes about the fact that things may not be as they seem. In fact, an already bullish DHI stock just worked its way into an even more bullish situation.
Click to EnlargeThe 2018 pullback from D. R. Horton shares, stemming from slowdown worries, has clearly been reversed. In fact, the upside-down head and shoulders pattern suggests DHI just started another bullish leg.
- On the daily chart, shares have repeatedly found support at the gray 100-day and purple 50-day moving average lines. Most of those instances are highlighted.
- Although arguably overbought in the near-term, the volume surge behind the buying in recent days, against a bearish tide, confirms the break above the neckline comes packed with at least a healthy degree of interest.
NRG Energy (NRG)
In late June, NRG Energy was featured as a name with quite a bit of upside potential. It had just completed a three-bar pattern, indicating a transition from a net-bearish to a net-bullish condition, and there was a massive amount of ground to reclaim.
NRG stock even started to reclaim, but that effort petered out fairly early in July. It’s what has happened in the meantime — and yesterday in particular — that suggests NRG Energy shares are just one more rough day away from stalling their way into a nosedive.
Click to EnlargeThe shape of Wednesday’s bar is the red flag. It’s a tall bar that widely engulfs Tuesday’s action, and points it back into the wrong direction. The high-volume, intraday reversal is a hint of what traders think.
- Bolstering the bearish case is how well, and persistently, NRG stock found technical resistance at its purple 50-day moving average line during the latter half of July, and again on Wednesday.
- As the weekly chart shows, this is all just part of a breakdown of an uptrend that had been in place since early 2017. There’s not any real technical support again until the $30.30 area.
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.