It was another day of tug-of-war between the bulls and the bears, and this time the bears won the match. The S&P 500 fell 0.26% on Thursday, leaving behind the third straight day of lower highs. The real test is coming up, but it’s not quite here yet.
HP (NYSE:HPQ) did most of the damage, losing nearly 17% of its value after falling short of last quarter’s revenue estimate. Box (NYSE:BOX) technically lost more ground though, falling 18.7% in response to Q1 revenue guidance that fell well short of estimates. Traders were tacitly expecting guidance in excess of analysts’ consensus estimates.
Horizon Pharma (NASDAQ:HZNP) did what it could, jumping nearly 33% after releasing some encouraging efficacy data for its thyroid eye disease drug teprotumumab. There just weren’t enough bigger names making similar moves.
Eli Lilly (LLY)
At first glance, Eli Lilly looks like it’s a rocket, up 20% just since late November, adding another 0.5% to the score on Thursday.
There’s a massive number of red flags now waving after yesterday’s action, however, that suggest the end of the red-hot runup looms, if it’s not here already. We still need to see that first decided dip to say a pullback is in motion, but once it starts, there’s little that will be able to stop it.
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• The past two months have essentially been the exact opposite of a capitulation. This meltup has become self-sustaining, but the volume peak seen for the past couple of days says the last of the buyers have been flushed out.
• The shape of yesterday’s bar is also a concern. The open at the low and the close well off the high suggests some traders are already beginning to scale out.
• Panning out to the weekly chart of LLY puts things in perspective. Shares never really unwound from the overbought condition they were on as of the third quarter of last year, and have only exacerbated that risk.
There’s no single “smoking gun” that says Centene shares are in undeniable trouble. Rather, it’s a preponderance of evidence that collectively says CNC is likely to see more downside in the foreseeable future before recovering.
Perhaps worse, there’s a lot of downside to give up after heroic (and uninterrupted) gains made in 2017 and 2018.
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• The shape of the chart itself is the first big clue. After making a triple-top around $74, plotted with a yellow dashed line on both stock charts, we’ve since made a lower low and lower high.
• The stock’s best shot at a recovery was just squandered. That’s the recent simultaneous test of the gray 100-day and white 200-day moving average lines. A few bumps into them ultimately sent shares back to lower lows.
• Confirming that the weakness has turned into a full-blow trend is the fact that the purple 50-day moving average line as well as the 100-day average have both now broken below the 200-day line.
LKQ Corporation (LKQ)
The 1.6% gain LKQ Corporation logged yesterday is certainly impressive, though hardly earth-shattering. It’s not the advance that’s so noteworthy though. It’s the circumstances in which it took shape. The bears made a respectable attempt to up-end the budding rally, but the bulls pushed back even harder when push came to shove.
With the loud and clear message sent, the march forward should be much easier from here.
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• Thursday was an “outside day,” where the day’s open and close completely engulfs the previous day’s low-to-high range and is pointed in the opposite direction. This sudden change of heart speaks volumes about the swing in the market’s sentiment.
• Thursday’s low was also in the ideal spot. All it took was a brush of the purple 50-day moving average line to prompt all the would-be buyers waiting on the sidelines into the stock.
• Zooming out to the weekly chart of LKQ tells us just how much more upside remains to reclaim. We’ve only just popped out of the oversold condition.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
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