A good size gap lower to start the day feels about right when I think about how we are going to end this week.
It makes a good chunk of us that much more ready for the three-day weekend. I'm looking for a few opportunities on the pullback here for strong setups on the daily side.
Two intriguing names here are Treehouse Foods (THS) and Chemical & Mining Co. of Chile (SQM). I'll admit that the second, being more of an emerging markets tie-in, does make me a bit nervous, but the setup is there. First though, let's look at Treehouse.
While Treehouse has the similar dip and recovery of the overall market, it is trading near four-month highs after a rough start to May.
Price exhibits the "V" pattern we've seen so many times over the past few years, and has cleared some short-term resistance, which was the gap from early May.
We have some positive factors here, with a bullish crossover in the moving average convergence divergence (MACD) and the 13-period Relative Strength Index (RSI) over 50.
In a stronger market, this might be enough for me, but I'm a bit more finicky now. I want to see a close over $82.25 along with the Chaikan Money Flow (CMF) in the green, or a price close over $83 if there is no CMF confirm.
The upside targets here are $87, then $91. A close under $80 would merit some concern, but really I would not want to stop out unless there were consecutive closes under $79 or a close under $78.
Chemical & Mining Co. of Chile is a more aggressive play here. This one looks to have made a double bottom at $13.
The bounce has been strong already, so indicators from price to trend to momentum are all a bit overheated here, as the stock moves higher in this channel.
I'd prefer to see the channel fail, ironically. I'd prefer to see the channel fail and the stock retrace to the $15 area, but NOT through. This would allow for the RSI, CMF and MACD to all cool down just a bit.
I wouldn't want to see the CMF go red, or the RSI below 50, but I do believe this one works its way to filling the gap over the next four-five months.
This $19 target would justify the risks of an emerging markets play on a $15 stock. Furthermore, a stop of $13 could be used, or even $14 on a closing basis.
Those looking for very short-term trades, think days at the maximum, then a channel trade is setup here buying SQM now and looking to sell at a loss on a close under $15.90 or at a gain at $17. Basically, just play the black channel lines.
It's the Friday before a three-day weekend. Volume is going to thin up, so remember to use limit orders, watch your size and don't force anything.
It appears like we'll have another week of good-sized volatility ahead of us when we return on Tuesday.