Tuesday, March 18, 2014

Market Surges Leading Stocks Lead Volume Mixed

The market surged over one percent for a second straight day on not so bad news out of Russia. Two hours before the open, Vladimir Putin expressed that Russia is not looking to split up Ukraine. Futures markets surged and rallied higher for the remainder of the day, closing near the highs. Volume was slightly higher, but at its lowest levels since the beginning of the year. Throwing further suspicion on the two day rally attempt ahead of the Fed announcement tomorrow at 2 PM.

Leading growth stocks finally led. Unfortunately volume was mixed and few stocks managed to follow through to new highs or break out of new bases. The few that did, were stocks already on the move and extended from proper buy points. Under Armor (UA) followed through on yesterday's move on an announcement of a two for one stock split, Horizon Pharma (HZNP) bounced off the ten day moving average, but is well extended from a low risk entry point, and Chicago Bridge and Iron (CBI) either broke out from a pullback to the twenty day moving average or a cup with high handle base.

Short ideas continued squeezing into moving averages in below average volume, potentially setting up additional entry points if the market rolls over again. The squeeze was not unexpected, especially after a strong follow through to the downside the previous week.

A two day rally, early in the week, in anemic volume, historically tends to be a bull trap. It is not unusual for rallies to start on low volume, but they tend to be accompanied by at least a few new strong breakouts. Just in case, traders should tighten profit protection stops and stop losses on new short positions and review the leading stocks analysis and short ideas lists for new entries.


Resmed (RMD) has been forming a head and shoulder pattern since the middle of 2013. Recently, the stock has spent the previous few weeks trading below the fifty day moving average and has tested it three time on below average volume. A breakdown below the recent trend line, could send the stock to its next support level below $40.

Oceaneering International (OII) broke down from a head and shoulder pattern at the beginning of the year on heavy, above average volume. The stock has spent the past seven weeks digesting the breakdown and testing the fifty day moving average. The first test stalled on heavy volume and the current test has been in lower volume. A breakdown below the recent trend line could see the stock test below $60.

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