Things started bad yesterday, and got progressively worse. Rattled by the wrong comments from Fed Chairman Jerome Powell against a backdrop of more political disruption, the S&P 500 ended Tuesday’s action down 1.56%.
Levi Strauss (NYSE:LEVI) was the most noteworthy laggard, losing more than 4% of its value during the session, and then giving up another 2% in after-hours action following another quarter’s worth of slowing sales growth. Biopharma name Nektar Therapeutics (NASDAQ:NKTR) suffered a much bigger loss, however, falling more than 13% after a huge downgrade from Goldman Sachs. Goldman is concerned the company will struggle to rebuild trust with investors after a drug-development disaster.
Tops among the few winners was China’s beleaguered electric carmaker Nio (NYSE:NIO). The stock popped more than 10% when the company suggested third quarter deliveries were coming in stronger than previously expected.
Eli Lilly (LLY)
In early July, Eli Lilly shares were putting pressure on a key support line right around $106. The floor ended up holding, prompting a recovery effort. LLY shares are right back in the same trouble they were in then. One more misstep could push Eli Lilly shares over the edge of the cliff. And, the bears have already proven they’re drawing lines in the sand.
Click to EnlargeThe $106 level plotted in red on both stock charts was not only the key floor since July, the weekly chart makes clear it was also a floor for most of the second half of last year.
- Note than both recovery efforts since July were stopped cold at the 200-day moving average line, plotted in white on both stock charts. Those peaks are highlighted in blue.
- Should the support around $106 fail to hold up, the next most likely landing spot of the 61.8% Fibonacci retracement level around $95.60. In that vein, notice the slight head-and-shoulders feel to the action since September of last year.
Hartford Financial Services Group (HIG)
The last time we took a close look at Hartford Financial Services Group back on April 5th, it was already in a strong uptrend. The 50-day moving average line had just crossed above the 200-day line, underscoring the bullish undertow that developed out of the December lull. That clue ran its course; HIG stock rallied from $50 then to $61 late last month.
With the weight of the gains bearing down for a little too long, the effort finally snapped last week. With one floor now gone and another being tested, Hartford shares are one bad day away from even more serious trouble.
Click to EnlargeThe breakdown was dual in nature, with the purple 50-day moving average and the rising support line the prodded HIG shares higher since February both imploding with last week’s selloff.
- Zooming out to the weekly chart puts it all in perspective. The advance was steady, but slowing the whole time. We now have a bearish MACD cross, and the Chaikin line is just days away from falling below zero. Notice the heavy volume behind Tuesday’s sizeable selloff.
- The last line in the sand, so to speak, is the 100-day moving average line plotted in gray on both stock charts.
General Mills (GIS)
Finally, much like Hartford Financial, General Mills has logged a pretty impressive gain this year. But, also like HIG shares, GIS stock has also been slowing down the whole time. So far it hasn’t been a problem. But, it could become one soon. One more small selloff and a critical technical floor could be broken, opening the door to a profit-taking driven rout.
Click to EnlargeThe last bastion of hope for a renewed rally is the support line that connects all the major slows since February. It’s plotted in light blue on both stock charts.
- Although the floor remains intact for the time being, the weekly chart makes clear the rally’s been running out of steam for a while. We saw a MACD crossunder take shape in early August.
- Also on the weekly chart it’s clear a technical ceiling has gelled. Plotted as a yellow dashed line connection the higher highs last year and again this year, it could come back into play again regardless of what happens next.
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.