As we finish the tumultuous month of March, bulls are doing their best to put a pretty bow on a poorly wrapped month. We're on rally day six with only one pause off the nasty March low. Bulls are now feeling better thanks to a combination of stimulus packages, plus the arrival of the end of the month and quarter, and some fear of missing out as memories of "V" recoveries are still sit fresh in everyone's mind.
Sure, the daily picture looks better, but the weekly one is mired with some conflicting signals. For instance, check out the weekly chart on Intel.
The V bounce is easy to see. The weekly chart provides a much more pronounced V than what you'll find on most daily charts. On the bullish side, we have bullish crossovers in the Full Stochastic indicator as well as the StochRSI, but on the bearish side we see the 10-week simple moving average (SMA) falling below the 21-week SMA. Additionally, the last time we saw the StochRSI cross bullishly, the stock required an additional six weeks before it headed higher. It actually dipped 10% first before moving higher again.
Worse yet, look at Lululemon Athletica (LULU) . We have the bullish Full Stochastics crossover, the bearish SMA crossover, and no direction from the StochRSI. Add this into an extended V bounce hitting resistance and you're left with a terrible risk versus reward on both the long and the short side.
These are two very different companies in two very different sectors, yet they have very similar technical pictures. Unfortunately, this isn't two isolated cases. We can find dozens upon dozens of charts from across almost every industry and every market cap that have the exact same setup.
So, here are my seven takeaways heading into the second quarter:
- We still are not in a stock picker's market.
- The risk vs. reward is a coin toss, so waiting for a few days isn't the worst thing one could do. I'm in cash at the moment for that reason.
- If you are already heavy long or short, now would be a time to plan hedges or actions if the market turns against you (a reversal lower for bulls, a breakout higher for bears).
- Expect volatility to continue, but with some ranges now in play on the weekly charts, anticipate it to decline. More subdued from an extreme reading may not be comforting to some.
- Position yourself, so you can sleep at night.
- Intraday swings continue to offer fantastic scalping opportunities, if you have the time to be in front of your screen for several hours consecutively
- Create a basket of Covid-19-favored stocks and watch the action. They may provide a tip on the next downturn. Some symbols to consider: Teladoc Health (TDOC) , Slack Technologies (WORK) , Zoom Video (ZM) , Citrix Systems (CTXS) , Kroger (KR) , Walmart (WMT) , Target (TGT) , Campbell Soup (CPB) , General Mills (GIS) , B&G Foods (BGS) , Chewy Inc. (CHWY) , RingCentral (RNG) , Procter & Gamble (PG) , and Walgreens Boots Alliance (WBA) . These are outside of pharma and biotech names.
Remember, it's only Tuesday in case it feels like a Friday ... in June.