All eyes on inflation reports.

In this post, I’ll focus on setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trades.

Stock Market Update

The Federal Reserve’s two mandates are under the spotlight as investors speculate about the timing of the first fed funds rate cut. The first mandate of maximum employment is showing recent signs of weakness following a batch of labor market reports. Initial jobless claims for unemployment benefits are rising steadily since the start of the year and are near the highest level since last summer. At the same time, the unemployment rate rose unexpectedly to 4.1% according to the June payrolls report. That’s the highest level in the unemployment rate since October 2021. In comments to Congress this week, even Fed Chair Jerome Powell commented that the labor market “has cooled really significantly”.

Now the attention turns to the Fed’s other mandate with price stability, which means a low rate of inflation. Both the Consumer and Producer Price Index for the month of June will be released this week. Greater focus will be placed on the Consumer Price Index (CPI), which is expected to have increased 3.1% compared to a year ago. That’s a slight deceleration from May’s 3.3% pace. The core CPI that excludes food and energy prices is expected to be unchanged from May’s level at 3.4%. While that’s still above the Fed’s 2% inflation target, the level of fed funds (red line) is the highest above core CPI (blue line) in 17 years as you can see below.

While anticipation builds over the updated inflation figures and implications for monetary policy, it’s worth noting that the S&P 500’s recent march to new highs is tracking historical seasonality. As I shared in my last chart report, July has seen the S&P 500 move higher on average over the past 20 years. With the ongoing rally, there is still concern around the narrow breadth environment with relatively few stocks driving the gains as I shared in this week’s video update. But the good news so far is that new 52-week lows across stock exchanges are not seeing meaningful expansion. The chart below takes new 52-week lows back to 2021 to show how new lows were expanding at the end of that year even as the S&P 500 was moving to new high ground.

While the breadth backdrop remains challenging, it presents an opportunity to highlight why I analyze relative strength in my chart setups. The green line next to the bottom panel in my charts below looks at relative price strength of a given stock compared to the S&P 500. If that line is moving higher, that means the stock shown is outperforming the S&P. By targeting stocks that are seeing new highs in their relative strength (RS) line, I can focus on stocks experiencing strong relative price momentum. For this week, I’m removing META, RDDT, PLTR and NU from the watch list as each stock is breaking out to complete its chart pattern. That clears the way for several new additions.

Keep reading below for all the updates…

Long Trade Setups

ELF

Pulled back after hitting the $220 level back in March. Price recently testing that level again and making a smaller pullback. That’s resetting the MACD at the zero line while the RS line remains near the high. Watching for a move over $220.

APPF

Big gap higher over $200 back in January then came close to back testing that level as support in April. Since then, making a series of higher lows while creating a resistance level just under $260. Would like to see the MACD reset at zero before trying to move over $260.

DDOG

A recent rally brought price back to around the $135 resistance level that goes back to February. MACD is extended to the upside and needs to reset. Watching for a small pullback to reset the MACD which sets up a breakout over $135.

MNDY

Took out resistance around the $235 level in May then pulled back. Not the tightest base considering the price action going back to March, but the right side of the base is forming better as the MACD resets. Watching for a move over $245.

CIFR

Trying to emerge from a bottoming base, and trading in a consolidation pattern since last July. Making higher lows since January while recently testing resistance again around the $5.30 level. Seeing one more small pullback that’s resetting the MACD. Watching for a breakout over $5.30.

PDD

Trading in a consolidation pattern going back to December and recently working up the right side of the base. That move left the MACD extended, with price recently pulling back. Need to see the MACD move back above zero, then a move over $160 with confirmation by the RS line.

SKWD

An IPO from last year that’s creating a resistance level around $38 to monitor. The MACD is making a series of higher lows since February, but a recent attempt at a breakout failed. Want to see pattern support at $33.50 hold, and still watching for a close over $38.

COIN

Keeping COIN on the watchlist for now. Still watching for price to return to resistance around $275 then want to see another small pullback that resets the MACD above the zero line. A move over $275 could target 2021’s high near $350.

TRMD

Broke out over a prior resistance level at $32 and back tested that level as support. Trying to move above the next resistance level near $38, but would like to see one more smaller pullback before trying to break out.

Rules of the Game

• I trade chart breakouts based on the daily chart for long positions. And for price triggers on long setups, I tend to wait until the last half hour of trading to add a position. I find that emotional money trades the open, and smart money trades the close. If it looks like a stock is breaking out, I don’t want a “head fake” in the morning followed by a pullback later in the day.
• I also use the RS line as a breakout filter. I find this improves the quality of the price signal and helps prevent false breakouts. So if price is moving out of a chart pattern, I want to see the RS line (the green line in the bottom panel of my charts) at new 52-week highs. Conversely, I prefer an RS line making new 52-week lows for short setups.
• Also for long positions, I use the 21-day exponential moving average (EMA) as a stop. If in the last half hour of trading it looks like a position will close under the 21-day EMA, I’m usually selling whether it’s to take a loss or book a profit.
• For short (or put) positions, I trade off a four-hour chart instead of a daily. Why? There’s a saying that stocks go up on an escalator and down on an elevator. Once a profitable trade starts to become oversold on the four-hour MACD, I start to take gains. Nothing like a short-covering rally to see your gains evaporate quickly, so I’m more proactive taking profits on short positions. I also use a 21-period EMA on the four-hour chart as a stop. If there is a close above the 21-period EMA, I tend to cover my short.

For updated charts, market analysis, and other trade ideas, you can visit me here: www.mosaicassetco.com

Disclaimer: these are not recommendations and just my thoughts and opinions…do your own due diligence! I may hold a position in the securities mentioned in this post.