Watching 2 charts to confirm the bull is back.

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

A weaker than expected report on private sector hiring sets up a hotly anticipated jobs report this Friday. The latest data on private sector payrolls from ADP showed that 152,000 jobs were added in May. While that’s a solid figure all around, it was below last month’s level and missed expectations for 175,000. That figure arrived ahead of Friday’s jobs report for May, where economists estimate that the economy added 190,000 jobs overall with the unemployment rate holding steady at 3.9%.

Stocks jumped following ADP’s report, with the S&P 500 gaining 1.18% on the same day. The hope among investors is that weaker data will produce a dovish shift the outlook for monetary policy. But in order to confirm that investor risk appetite is back, I’m watching the action with two chart setups. The first is with Bitcoin, which completed one more pullback near resistance and held key moving averages. Price is turning back higher, where a move above the $74,000 level to new all time highs would be great confirmation of a risk-on trading environment.

The other chart setup reflects the performance of the average stock. Even as the S&P 500 is making a new all-time high following Wednesday’s price action, only 38% of stocks across the major exchanges are trading above their 20-day moving average (MA). As the number of stocks in short-term uptrends is lagging, the RSP equal weight S&P 500 exchange-traded fund (ETF) is failing to confirm new highs in the capitalization weighted index as well.

While those are useful measures for monitoring breadth, I’m closely following the action in the Russell 2000 Index of small-cap stocks for the other risk-on signal. The chart below shows the IWM ETF that tracks the Russell 2000. In mid-May, IWM tested resistance at the $210 level as the S&P made a new high, then pulled back to test the 50-day MA (black line) which I believe is more reflective of the average stock lately. Price is holding that support level while the MACD resets at zero and the RSI bounces around the 50 level. If price can turn higher and break above the $210 level, that’s a great sign the average stock is getting back on track.

While I’m looking at Bitcoin and small-caps for evidence that risk appetite is improving, I’m also watching stocks displaying relative strength over the past couple weeks to build out my watchlist. Stocks progressing through basing patterns while recently making a smaller pullback are great candidates for breakout setups if the average stock starts showing better performance. For this week, I’m removing SHAK from watch as price breaks below the chart pattern’s support level. I have one new addition this week, and updates to several charts.

Keep reading below for all the updates…

Long Trade Setups

ARM

Consolidating gains since February following a big jump on earnings. Resistance near the $150 level has held since then, with price turning higher toward that level again. Would like to see one more smaller pullback to reset the MACD at zero before attempting to breakout.

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, while price makes a smaller pullback since the start of May with a MACD reset at the zero line. Watching for a move over $38.

PINS

Price is recovering off a bottoming base, with a recent gap taking the stock over the $40 resistance level. Now want to see the stock keep trading sideways for a bit longer to reset the MACD at zero. Watching for a move over $43 next with confirmation by the relative strength (RS) line at a new 52-week high.

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 resets 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 extended and needs to reset before breaking 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.