It was an undecided week on equities, while gold saw a bounce and Treasuries may have finally broken out. It was interesting not to see equities break down or pull back a bit more in these conditions. It certainly feels like a brave new world out there at times.
If bears can't take advantage of this potential reversal setup early this week, bulls should have no problem running equities to new highs. I'm particularly interested in oil this week, so expect some coverage there after we see a few days of trading.
It feels like we are all about potential this week and Zoetis (ZTS) looks like a setup with exactly that. We'll start with the daily, but I'll spoil the surprise noting the weekly chart is what piques my interest. After a drop to start May, we've watched as ZTS has climbed back up this trading channel filling its gap and then some. Any thoughts of a bear flag here are pushed aside by the size of this climb. Also, the stock has recovered both its 8- and 21-day simple moving averages. There is a bullish cross setup in the MACD here along with a recent bullish cross in the StochRSI.
This has occurred twice in 2016 with similar initial results, but very different end results. Both previous times we saw the stock pop a quick 5%, but the difference was follow-through. One fizzled, while the other saw another 15% push. Which will we get here? I tend to side with the pop. We need to keep an eye on the $49-$50 ceiling. Once through, there is no further resistance on the stock and I would target a push to $56.
The price target becomes clear via the weekly chart. The large bullish inverse head-and-shoulders pattern is obvious. The neckline here isn't pristine, but contrary to what charting books want you to believe, very few patterns are actually perfect. More times than not, we are operating off a best-fit model. The drawn neckline has come into play several times, so it is valid here in my view. If I had any concerns here it would be in the dip we're seeing in the Full Stochastics indicator. The black line is flattening, so I definitely want to see that reverse course and turn higher again.
Beyond that I only see green flags and a consolidating volume pattern. Should we see a close under the 13-week SMA, or $46, I would abandon the bullish stance and look for a re-test of the low $40s. Until we see that, the bulls are in control and have a fantastic setup to grab 15-16% over the next 6-9 months.
