Video and Report Headlines
- RSI for the S&P 500 SPDR Exceeds 75
- SPY and QQQ Surge on top of the Surge
- Trade Management Ideas
- DRIV Follows Through on Breakout
- Cisco Holds Breakout
- Tyler Technologies Forms Bull Flag
- Merck Bids to Reverse Downtrend
- Gilead Starts a New Uptrend
- Pfizer Hits Long-term Support Zone
The next Chart Trader will be posted on Tuesday morning, December 19th.
Why wait for RSI(14) to cross back below 75? Because RSI can become overbought and remain overbought. Note that RSI(14) held above 75 for 17 days in January 2018 as SPY moved into a melt up. RSI(14) also held above 75 for 13 days in February 2017. See the red shading on the chart below. RSI(14) also held above 75 for 8 days in October 2006.
SPY and QQQ Surge on top of the Surge
There is no change with the SPY chart. The ETF is going a bit parabolic after tacking on another 3.46% the last five days. A big gain after a low or on a consolidation breakout is promising. A big gain after an extended advance shows frothiness tha can lead to subpar performance in the coming weeks. SPY was up 10% in 27 days and then added another 3.46% the last five days.
The next chart shows QQQ with a 17% advance the last 32 days. The ETF was up some 12% from late October to early December and then tacked on another 4.85% the last five days. QQQ is both strong and frothy.
Chart Analysis, Setups and Trading Ideas
Trade Management
There are plenty of trades working now and it is time for trade management. This means considering an exit strategy. It is important to plan the trade ahead of time and trade according to that plan. We are all different so my trading plan may not jibe with yours. It is important that we develop our own plan and find one that suits our goals.
The setups here are largely for swing trading, which covers anything from a few days to several weeks. Traders need to consider their trading timeframe, whether they want to employ profit targets and how they want to handle losses (stop loss). I am a fan of taking partial profits after a decent gain. This means closing half of the position once a profit target is hit. I can then ride the rest with a trailing stop.
DRIV Follows Through on Breakout
The chart below shows the Autonomous EV ETF (DRIV), which was featured on Tuesday. It broke flag resistance on Monday and surged with the market on Wednesday. It is now time to consider an exit strategy. Long-term traders may wish to keep the stop at the flag low and re-evaluate on a weekly basis. Swing traders may want to consider a profit target and trailing stop. A flag flies at half mast and the flag breakout projects a move to the 25.5-26 area. The red line shows the Average True Range (ATR), which was set on Tuesday. DRIV extended its move and this stop rose accordingly. It is at 22.95 and a close below this level would warrant a re-evaluation.
Cisco Holds Breakout
The next chart shows Cisco (CSCO) with a gap and breakout. This stock was featured on last Tuesday, December 5th. CSCO broke out with a gap on Monday and held this breakout the last three days. Now is the time to consider profit targets and trailing stops. CSCO consolidated from mid September to mid November and this represents a resistance zone. The blue shading puts this zone at 53 and this would be the first profit target. The ATR Trailing Stop (22,2.5) moved higher with the stock on Wednesday and is now at 47.69.
Tyler Technologies Forms Bull Flag
Most of your setups will look the same when you have a consistent strategy. My general strategy for trading off the charts is to look for pullbacks within bigger uptrends. This is why most of my chart setups show retracements with falling channels, wedges and flags. I also considered pennant and triangle consolidations. The next chart shows TYL with a typical setup as the stock surged 17.5% and then corrected with a falling flag. This correction retraced 33 to 50 percent of the surge. The stock surged the last four days and is close to a breakout.
Merck Bids to Reverse Downtrend
Big pharma stocks are laggards here in 2023 with many showing losses year-to-date. Merck (MRK) is down 3.5% this year. The chart below shows weekly bars with a falling channel since May. This channel retraced 33-50 percent of the prior 41% advance. The stock did not make it to the support-reversal zone marked by broken resistance and the 67% retracement line (blue shading). Instead, MRK firmed above this zone the last two months and broke the upper line of the falling channel. This is the first step to ending the correction and signals a continuation of the prior advance.
Gilead Starts a New Uptrend
The next chart shows Gilead (GILD) with a nascent uptrend in the works. First, notice that GILD reversed at a support-reversal zone. The stock surged some 57% in the second half of 2022 and then corrected throughout 2023. A big falling channel formed as the stock retraced 50% of this advance. Broken resistance and the 50% retracement combined to mark a support-reversal zone in the 73-74 area (blue shading). GILD surged above 80 twice in the last two months and is breaking the upper line of the falling channel. I also see a nascent uptrend because the stock formed a higher high in early November and a higher low from October to November (green dashed line).
Pfizer Hits Long-term Support Zone
Pfizer (PFE) is one of the weakest stocks in the S&P 500 because it recorded a 52-week low this week. It is in a 12+ month downtrend and clearly lagging, which means it is not really my type of setup. However, the stock is at a long-term support-reversal zone and may be appealing for the long-term. The chart shows monthly bars extending back to 2004. PFE surged some 460% from the 2009 low to the 2021 high. Covid and the vaccine drove prices higher from March 2020 to December 2021. PFE has since fallen back to its covid lows for a complete round trip. The blue shading shows support from the lows extending back to 2014. This decline also retraced 2/3 of the prior advance. Together, we have a potential support-reversal zone. This may be one to watch in the coming weeks for signs of firmness and accumulation.
