It's messy out there. Let's face it. Just when we got a huge reversal yesterday after a big morning drop, China throws a big old wrench in the system. How far, if at all, will it spread is anyone's guess. My concern is the market is only half open over there, and things are still getting whacked. What will the reaction be on the halted stocks once they reopen? Will enough liquidity be freed in other names? I simply do not know.
Dan Rosenblum (@sharkbiotech) had a similar thought last night, when the tweets were flying hot and heavy. No Chinese name has made the Bull Chart of the Day recently, but several have popped up in the Bear Chart of the Day in the past few months. I only wish I had exposure to them right now. I don't. The easy thing would be to go with another Chinese name right now, but instead I am going to go with a European name in UBS (UBS).
UBS hasn't been a weak stock. In fact, this price action of lower left to upper right is just what bulls want to see. Unfortunately, we've now stalled in the upper right, after two months of consolidation. Rather than price breaking higher, we've taken a bit of a dip.
Some might like the hammer pattern from yesterday, but we are still below support and on increasing volume as well. The longer-term moving average convergence divergence (MACD) seems to indicate the trend has lost all momentum and threatens to go bearish very soon.
At best, it indicates "hold your long exposure, but hedge it." At worst, some good size downside is coming. The two areas for downside look to be $20.29 and $19.72, which would be the 38.2% and 50% retracements off the recent bull market move.
That's not terrible in terms of a drop in price, but one to be aware of here. If I were short, then $22.20 is my stop point. That's the only price currently where I might look to long exposure.
Lastly, I would note the Bollinger Bands had been pinching, but now look to be opening up, with price moving lower. This could propel the breakout lower in a quicker fashion.
Longer term looks worse here. After the big move higher, the weekly chart was also consolidating, but the first week in July has brought a total loss in price support.
On the plus side, most indicators are still in bullish territory, but they are all falling. Anything under $20.25 seems to have only moderate trading and, therefore, moderate support.
The eight-week simple moving average has been key here. The stock has been a long hold above it, but now we're blowing it for the first time in six months. There's no need to step up and be a hero here, or try to bottom pick UBS.
A close back over the eight-week simple moving average would negate bearish setups on both the daily and weekly chart. That should be the focus here. Until then, step aside or hedge exposure.
