Bullish signs that the average stock can catch the S&P 500.

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

Nvidia’s (NVDA) 174% surge this year has landed the stock a $3.3 trillion valuation, pushing the company past Microsoft (MSFT) to become the world’s most valuable listed stock in the U.S. That’s helping prop up the market-cap weighted S&P 500 Index, which is still marching to new high ground with 31 record closing highs in 2024.

But the equal weight version of the S&P 500 still hasn’t it made it past March’s high water mark. The chart of the RSP exchange-traded fund (ETF) below shows the equal weight version of the S&P 500, with each stock accounting for the same impact on the ETF’s movement. While RSP is lagging the cap-weighted S&P, it’s setting up a bullish triangle consolidation pattern shown with the dashed trendlines. In this type of pattern, price typically resolves in the direction preceding the pattern which is higher in this case. The MACD is resetting above the zero line while the RSI in the bottom panel is making a bullish divergence relative to the late May pullback.

At the same time, signs are emerging that the average stock could be nearing a turning point. Short-term breadth is getting oversold with the percent of stocks trading above their 20-day moving average (MA) recently hitting 26%. That’s the second lowest level this year, while the MACD applied to the indicator is reaching oversold extremes. The McClellan Oscillator is also making higher lows over the last couple months. This metric looks at advancing versus declining issues on the NYSE over a trailing period. I’m overlaying the Dow Jones Industrial Average in the chart below to show the oscillator relative to a measure of the average stock.

As you can see with the second set of green circles, the McClellan Oscillator is making a series of higher lows since April. That’s similar to the higher lows made into last October that marked a big bull run in the average stock. But this time, those divergences are not happening against the backdrop of lower lows in the major indexes like the Dow. That would be the ideal scenario like back in October, but the recent higher lows in the oscillator are worth monitoring.

Recent weak breadth is ultimately a condition and not a signal, while the signal comes from price action. Despite the S&P 500 marching to new high ground, price action among watchlist stocks remains mostly inside basing structures. That makes sense given the price action in RSP mentioned above, but many setups are creating favorable breakout patterns as well. For this week, I’m removing ARM from the watchlist as the stock holds above resistance to complete its chart pattern. I have a new addition and several updates to stocks on watch this week.

Keep reading below for all the updates…

Long Trade Setups

CIFR

Trying to emerge from a bottoming pattern, and trading in a consolidation pattern since last July. Making higher lows since January while recently testing resistance again around the $5.30 level. Would like to see one more small pullback that resets the MACD before trying to breakout over $5.30.

PLTR

Trading in a new basing pattern since February following a big gap higher. Recently turning up toward resistance around the $25 level. Would like to now see the MACD reset at zero on a small pullback in price. Watching for a move over $25.

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 to reset the MACD at zero. Watching for a move over $160 with confirmation by the relative strength (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.

RDDT

After going public back in March, price is basing near the post-IPO highs while the MACD is making the “hook” pattern that I’ve described in recent videos. Now watching for a new high over $70 with the RS line at a new high.

IBIT

Adding a spot Bitcoin ETF to the watchlist to track the consolidation in Bitcoin. For IBIT, recently seeing one more pullback off the $41 resistance level that is resetting the MACD at the zero line. Watching for a move over $41.

COIN

If Bitcoin starts moving, then I’m watching COIN’s pullback since late March. Watching for price to return to resistance around $275 then want to see another small pullback that resets the MACD at zero. A move over $275 could target 2021’s high near $350.

NU

An IPO from 2021 that’s testing the post-IPO high. Basing since late March with resistance at $12.50. Recently making a smaller retracement in the pattern while the RS line holds near the high. Watching for a move over $12.50.

TRMD

Broke out over a prior resistance level at $32 and now back testing that level as support. Trying to move above the next resistance level near $38, but the MACD is resetting 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.