Traders were willing to buoy the market up to April’s record highs on Thursday of last week, but no more. The S&P 500 lost 0.13% of its value on Friday, leaving most market participants wondering if the surprisingly bullish June to date is nothing more than a mirage.
Altria Group (NYSE:MO) was arguably the biggest drag, off 4.5% on doubts that its much-lauded Juul e-cigarette brand would be able to secure the needed approval of the Food and Drug Administration when those products have to get the regulatory agency’s green lights. Pot stock Canopy Growth (NYSE:CGC) was the bigger disappointment though. It fell more than 8% after investors had a chance to parse the details of Thursday afternoon’s quarterly earnings report. Sales of recreational marijuana fell, sequentially, when they’re supposed to continue rising on the wake of recent legalization in Canada.
Overstock (NASDAQ:OSTK) did more than its part to keep the market in the black, gaining 15% in response to reports that a couple of potential buyers were mulling the purchase of its e-commerce arm, which is being shed so the company can focus on cryptocurrency.
It just wasn’t enough.
In late April it was noted that AbbVie was being squeezed into the tip of a converging wedge pattern, formed by a horizontal support line that had been holding up since October, and a falling resistance line that extended back to last May’s high. Although the odds favored a bullish outcome despite the trajectory, it was clear that anything could happen. Waiting on one side or the other to flinch was the key.
We’re still waiting. Although ABBV shares slipped below that key floor a couple of times in the meantime, the floor mostly remains intact. Some new falling resistance lines have since come into play, though the old one marked with a dashed blue line remains part of the equation. Either way, we’re getting closer to a decision, if only because there’s not much room left to meander between support and resistance.
- The floor, of course, is still the support area right around $77, marked in yellow on both stock charts, though you could make the case that a slightly declining one has since materialized. It’s plotted in red.
- It became noteworthy again on Friday just because of the amount of bullish volume that materialized.
- While the bulls may be pushing again, it’s clear they’re struggling just to break above the gray 100-day moving average line that has quelled a couple of rally efforts since early April.
Back in March we looked at Medtronic as it was toying with the idea of a major break above a resistance line around $94, plotted in blue on the daily chart. That didn’t happen … at least not right away. As it turns out, MDT would have to peel back one more time and then try again. This month’s effort did the job.
The speed and distance of that move, however, has also spurred concerns that this usually volatile name is already due for some profit-taking again. When one takes a step back and looks at the longer-term view, however, it’s clear there’s room for a bit more upside until the upper boundary of a major trading range is encountered again.
- The upper part of the weekly chart’s bullish trading range is right around $110, but rising.
- On that same weekly chart we see a relatively new bullish MACD crossover in conjunction with a push up and off the lower edge of the long-term trading channel, suggesting this effort’s got some “oomph.”
- In the meantime, last week’s high of right around $100, marked with a yellow line, shouldn’t be taken lightly. That’s more or less where Medtronic shares peaked a couple of times in the last part of last year.
Finally, with nothing more than a quick glance at the Paychex chart, it appears the stock is still in an uptrend, though a slowing one. And, perhaps that benign outcome is what lies ahead. Only time will tell.
But, given the sheer scope of the rally since late last year, the slowdown is concerning simply because it may point to an outright reversal into a downtrend. The pump for such a pullback is certainly primed. The good news is, we know exactly where the make-or-break lines are, and what they are.
- It hasn’t come into play yet, but at the current rate of things, it will soon. That is, the purple 50-day moving average line at $84.98 may or may not keep PAYX propped up on its next, impending test as support.
- Zooming out to the weekly chart we can see just how unusual the past six months have been. Paychex should have rolled over in March somewhere around $79, at the upper boundary of an established trading range.
- We have not yet seen a bearish MACD crossunder in the weekly timeframe, but we’re getting closer. That will likely coincide with a break below the 50-day average line.
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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