While we're still dangling around equity highs, the action has become quite choppy. All the air is out of U.S. Treasuries right now, which has worked out very well for my short call back on April 23 as the $122 target has been hit and $117 is on the radar. Given the choppiness of the market, though, some equity short names are still worth a look. These are still tougher to come by, but more names are starting to creep onto the screens.
Intuitive Surgical (ISRG) hits the bearish radar today simply on price pattern. Obviously, the best time to be on the short side of this was a few weeks ago in the $550 area, but hindsight is 20/20. Right now, we are seeing a head-and-shoulders pattern forming on the daily chart. It isn't perfect as the right shoulder is smaller than the left at the moment, which leads me to err on the side of caution and expect a little less downside. However, this is a very wide pattern in terms of downside measurement.
We are looking at the $440-$450 area on the downside should the $485-$495 area fail to hold. While $494 may be the neckline here, I do think the March low has to be a consideration. The slow stochastics are well into oversold territory, but the relative strength index (RSI) is not quite there yet. Furthermore, while the commodity channel index is nearly oversold, we aren't anywhere near an extreme negative sentiment on the indicator. These extremes of -200 or more have been a key reversal point. Unless we get a bounce over $500 and several closes over $510, there is no pressing reason to buy the short-term chart. If anything, I'm looking for a put spread trade on this one if support fails to hold over the next two weeks.
The head-and-shoulders pattern doesn't look menacing on the weekly chart, but we simply replace one bearish price pattern with another: a megaphone pattern. This is a price pattern with a series of higher highs and lower lows. Support for this pattern is $483, which lines up well with the daily support level and reinforces its importance. Again, the momentum and trend are waning. I am looking for a pick-up in volatility as well. ISRG doesn't tend to stay in a narrow bollinger band range for very long and it's been there for several months now except for the short-term spike in April.
The last thing I would note is the volume by price bars on the left side of the chart. There has been significantly more trading in the $488 to $505 price range than any other range. If ISRG bulls lose this support, the downside could be significant.
There's a lot working against ISRG bulls if the current support levels are breached. I would be very cautious if I held a long position and keep this one on the radar as a potential short play if support fails.