Major averages had an outside reversal day, falling on higher volume that was above average on the NASDAQ Composite, though the Dow Industrials bucked the trend to finish higher. The NASDAQ Composite, NASDAQ-100, and S&P 500 finished roughly mid-bar after bouncing off of their 20-demas, but showed negative outside reversals to the downside after starting to the upside yesterday at the opening bell. Also, many leading stocks mimicked the action of the indexes and posted ugly reversals and outside reversals to the downside off their intraday highs yesterday on heavy selling volume. This looks bearish on its face.
The question is whether such market action will lead to further and more significant downside. So far, markets have corrected just a scant few percent in 2017, an unprecedented occurrence. With QE remaining at all-time highs and Trump's economically favorable tax policies waiting in the wings, markets are so far unable to stage any sort of meaningful correction. Nevertheless, as yesterday's action showed once again, leading stocks will get hit hard on days when the major indices sell off. One can then watch for possible undercut & rally (U&R) action to reenter a position that was sold. We saw some names on the Focus List undercut prior lows in their patterns and rally on an intraday basis, but it is unclear whether these will work as the market sell-off looks to be continuing this morning. Examples of Focus List stocks that undercut prior lows and rallied yesterday:
LITE undercut both prior price action as well as its 50-day moving average. When it regained both, it could have been rebought.
APPN undercut its prior low of 19.51 and its 20-day moving average of 19.74 to close at 19.77.
YEXT undercut its prior low of 12.88 to finish at 13.11.
YNDX undercut its prior low of 30.66 to finish at 30.73.
NTNX undercut its prior low of 21.62 to finish at 21.81.
All five would be buyable IF they can hold above the prior lows that were undercut yesterday, using that same prior low as a very tight selling guide. With the futures down this morning, it is clear that yesterday's selling is carrying into this morning's open. For this reason, taking positions on the basis of U&R set-ups absolutely requires using a very tight stop at the prior undercut low to minimize risk in the event the selling begins to accelerate and near-term support in these stocks begins to fail.
Market Lab Report - Premarket Pulse 7/28/17
| Published: | 28 Jul 2017 09:15 ET |
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