Headlines
- CrowdStrike Forms Bullish Cup-with-Handle
- Palo Alto Breaks to New Highs
- StandardAero Bounces off Bullish Setup Zone
- Veeva Pulls Back after Breakout Surge
- ITB and XHB Surge Off 200-day SMAs
- Home Depot Bounces off Prior Breakout
I will update the Market Regime page later today.
Previous Reports with Stock Trends, Setups and Breakouts
October 15th: [1]ADM COST TT EMR NTAP and IOT
October 8th [2]: AVGO, CRWD, WMT, AMGN, INCY, COR and CAH
October 1st [3]: COIN, MSFT, CSCO, AMD, HEI and ROK
September 24th: [4] ADSK, DGX, DRS, MELI, AEE, CNP, ETR and EVRG
September 10th: [5] COIN, DASH, GILD, HWM, KTOS, MKSI, PLTR and VEEV
Today’s report features five stock setups and two ETFs. Finding setups during earnings season is a challenge because I try to avoid stocks that are reporting within the next two weeks, and most stocks in the S&P 500 are reporting between now and month end. I am revisiting three prior setups because these stocks remain in leading uptrends and new patterns evolve as new bars are added. There are new setups in StandardAero and Home Depot. I am revisiting the housing ETFs ITB and XHB because they surged off their 200-day SMAs.
CrowdStrike Forms Bullish Cup-with-Handle
CrowdStrike (CRWD) is part of the Cybersecurity ETF (CIBR), which is in a strong uptrend with a new high in October. This stock was featured on August 29th [6] as it broke channel resistance and October 8th [2] as it formed a bullish pennant. Patterns evolve as new price action unfolds. With the pennant consolidation extending and the stock consolidating near the summer high, I am now drawing a cup-with-handle. This is a bullish continuation pattern that forms within an uptrend. CRWD is clearly in an uptrend with price above the rising 200-day SMA. The stock is also leading with the price-relative above its rising 200-day SMA (middle window). Cup-with-handle patterns are consolidations within the uptrend. A break above rim resistance at 520 would signal a continuation higher and open the door to a trend extension. A close below the 200-day SMA would warrant a re-evaluation.
Palo Alto Breaks to New Highs
The next chart shows Palo Alto Networks (PANW) breaking out to new highs in October and regaining its leadership role. PANW is also part of the Cybersecurity ETF. Note that I featured this stock on August 13th [7] with a possible inverse head-and-shoulders forming. This pattern was confirmed with the neckline breakout in early October. The breakout to new highs is clearly bullish and argues for further gains. Short-term, the stock formed a bull flag and broke out with a surge the last three days. A close below the 200-day SMA would warrant a re-evaluation.
Plan your Trade, Trade your Plan and Diversify
There are two ways to approach these short-term setups.
First, trade them as swing trades. A falling flag or wedge breakout is bullish and this signal remains valid until a break below the re-evaluation level, which is usually the low just before the breakout. For short-term trading, I usually set a profit target and close one third to one half of the position when this target is reached. A trailing stop is then placed to ensure that the entire trade does not result in a loss.
Second, use short-term setups to participate in the bigger uptrend. Bullish setups stem from short-term oversold conditions, falling wedges/flags or pullbacks. Instead of a re-evaluation level, the exit signal is based on a long-term trend change and a trend-following exit. Signals include a cross below the 200-day SMA, a major support break, a Chandelier Exit or a Keltner Channel break. This means the potential loss will be larger, but there is also a possibility to take part in an extended uptrend.
Thus, plan before making the trade, and then trade according to that plan. Also consider position sizing and diversification to spread the risk.
StandardAero Bounces off Bullish Setup Zone
StandardAero (SARO) provides engine-related products and services for fixed and rotary wing aircraft. It is part of the Aerospace & Defense ETF (ITA). The company’s IPO was in September 2024.
SARO surged 49% from April to June and then corrected to a Bullish Setup Zone in August. I view the 26 area as a bullish setup zone for three reasons. First, this correction retraced 50-61.8 percent of the prior advance with a falling channel, which is normal for a correction after a strong advance. Second, a falling channel defined this pullback, which is a corrective pattern. Third, SARO established support in the 26 area with at least three bounces from August to October (blue shading). Also notice that the stock established support around 26 in February-March. It broke down in early April, quickly recovered and broke out in late April. Returning to recent price action, I am impressed with the ability to hold support. Buying pressure increased last week as the stock broke above the September high. This breakout signals an end to the correction and a resumption of the April-June advance. I would re-evaluate on a close below 25.5 (blue line).
Veeva Pulls Back after Breakout Surge
Veeva (VEEV) provides software and services to the life sciences industry. It is part of the Fidelity Digital Health ETF (FDHT) and IBD Innovator Breakout ETF (BOUT).
I featured VEEV on September 10th [5] as it recovered from the late August dip with a gap-surge above 280. This looked like a bear trap. More importantly, the long-term trend was up, the price-relative was above its 200-day SMA and the stock was short-term oversold (%B<0). This was a pullback within a leading uptrend.
VEEV went on to break its summer highs and record new highs in October. This high reaffirms the long-term uptrend and upside leadership. Short-term, the stock fell back with a small wedge and I view this as a pullback after the September-October surge. A wedge breakout would reassert the short-term uptrend and argue for new highs. A close below the 200-day would warrant a re-evaluation.
ITB and XHB Surge Off 200-day SMAs
The Home Construction ETF (ITB) and Homebuilders ETF (XHB) surged off their 200-day SMAs with sharp advances the last six days. Note that I featured these two on October 7t [8]h, but the timing was wrong because they continued lower into mid October. The first chart shows ITB advancing some 35% from April to September and then falling back to the 100 area. This area marks a 61.8% retracement of the April-September advance and a return to the 200-day SMA. These two items make this a Bullish Setup Zone. Based on the strength of the move, I think this six day surge reversed the short-term downtrend. More importantly, it keeps the long-term uptrend alive because the 200-day SMA held. A close below 99 would negate this assessment. The middle window shows the price-relative turning up and challenging its 200-day SMA.
The next chart shows the Homebuilders ETF (XHB) with similar characteristics. XHB is slightly stronger than ITB because its price-relative already broke the 200-day SMA (middle window). A close below 103 would call for a re-evaluation.
Home Depot Bounces off Prior Breakout
The next chart shows Home Depot (HD) with a sharp pullback from mid September to early October. Despite the sharpness, this pullback hit a Bullish Setup Zone and price reversed with an upside breakout. Three items define the Bullish Setup Zone: broken resistance, the 200-day SMA and the 61.8% retracement. HD broke out with a big move in early August and returned to the breakout zone, which turns support. A tight falling channel defined the sharp pullback and the stock broke out with a strong move. A close below 375 would negate this setup. The middle window shows the price-relative (HD/RSP ratio) moving higher into September and then falling into October. I do not see relative strength right now. Watch for a break above the 200-day SMA to signal outperformance.
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At times, the author or affiliates may hold positions or interests in securities discussed. Any stocks or examples mentioned are not endorsements or suggestions to purchase. This material does not consider your individual financial goals or circumstances, and you should seek guidance from a qualified financial or investment adviser before making any trading or investment decisions.
Past performance does not guarantee future results.
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