The new trading week didn’t get started on a particularly impressive foot. Even with the intraday recovery effort, the S&P 500 still ended the day lower by 0.31%. Surging oil prices, thanks to an attack in the Middle East, sparked concern of a ripple effect.
Overstock.com (NASDAQ:OSTK) was the proverbial problem child, falling more than 20% to log a second day of losses following last week’s big runup. Ford (NYSE:F) fell a more nominal 1.6%, with investors digesting the response to a recent UAW threat to go on strike, in addition to news that the company is recalling more than 300,000 Explorers due to dangerous seat edges.
Headed into today’s trading action, it’s the stock charts of Southwest Airlines (NYSE:LUV), Visa (NYSE:V) and Coca-Cola (NYSE:KO) that have earned a closer inspection. Here’s why, and what to look for.
It has been one of the healthier trades this year, despite the drinking public’s growing aversion to sugary beverages. In fact, Coca-Cola shares have rallied an amazing 20% since March’s low, overcoming its February stumble with relative ease.
The sheer speed and span of the move in an environment that doesn’t favor most of the company’s fare, however, has left KO stock vulnerable to some profit-taking. One more technical misstep could push Coca-Cola shares over that edge.
Click to EnlargeThe “edge” in question is the straight-line support that connects the bulk of the lows seen since March’s pivot. It’s plotted as a dashed blue line on both stock charts.
- KO shares are no stranger to big swings. In fact, they make them on a rather reliable basis. All of the recent cases where the weekly chart’s RSI line entered overbought territory led to major setbacks.
- Although up for the past couple of months, take note of the fact that there’s been more bearish volume than bullish volume.
- The purple 50-day moving average line may also be a make-or-break support level at this time. It has been in the past.
Southwest Airlines (LUV)
Airline stocks are inherently erratic, impacted not just by the ebb and flow of demand for travel, but by the ebb and flow of oil prices. The two differing factors don’t always behave with respect to one another as one might expect. Southwest Airlines has been no exception to this norm.
There has been a method to the madness though. LUV stock has hammered out the formation of a familiar and telling shape. And, it has done so with a fairly predictable context that implies a breakout thrust could be brewing.
Click to EnlargeThe bigger-picture pattern is a converging wedge shape, marked in blue lines on both stock charts. The lower edge of the wedge patterns, as can only be seen on the weekly chart, extends all the way back to 2015.
- There’s also something important but easy to overlook in the moving average lines plotted on both stock charts. They’re all essentially converged now, setting the stage for a divergence from this point forward.
- Tilting the scales in a bullish direction is the high-volume gains that started to materialize last week, and the subsequent push above a not entirely perfect upper boundary of the wedge shape.
Finally, Visa has dished out some unexpectedly lengthy and sizable rallies since the beginning of 2017. In fact, the only real rough patch was the weakness most other stocks suffered in the final quarter of last year. And even then, V stock snapped back to an even stronger rally.
As could be expected though, the weight of that eight-month gain is starting to prove unbearable. Visa shares have been hit hard a couple of times since last month, and while the advance hasn’t been shattered yet, it’s nearing that point.
Click to EnlargeThe weekly chart puts things in perspective. Last week’s high had V shares more than 17% above the 200-day moving average line marked in white on both stock charts. That’s the biggest divergence in years.
- The line in the sand, so to speak, is the 100-day moving average line marked in gray.
- Possible landing points include the $156.70 area marked in yellow on the daily chart, where V shares found support a couple of times in May, and then the 38.2% Fibonacci retracement line at $162.16, marked on the weekly chart.
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.