It could have been worse. Down as much as 1.5% in the middle of the day, the S&P 500 fought back to only end yesterday’s action with a 0.78% loss. That may be just enough clean-up to start the next leg of the rally.
Caterpillar (NYSE:CAT) did more than its fair share of the damage, losing 9.1% on the heels of a disappointing quarterly report that pointed to more trouble in China. Tech titans Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) took on even more water though, falling 8% and 13.8%, respectively, after Nvidia issued a warning that the earnings report due in mid-February would be worse than expected. Once again, slack demand from China is the culprit.
Not every name lost ground on Monday though. Pot stocks were broadly up again, as their secular bull market carries on.
Monday’s stumble, in some regards, was exactly what the market needed in that it separated the winners from the losers and the excessively risky names. It will take some more time to see those divisions better defined, but the stock charts of Western Digital (NASDAQ:WDC), Micron Technology (NASDAQ:MU) and PayPal Holdings (NASDAQ:PYPL) look like they’ll come out on top as the dust continues to settle.
PayPal Holdings (PYPL)
The last time we looked at PayPal Holdings back on Jan. 10, it had broken out of a converging wedge pattern in a bullish direction. But, it wasn’t an ideal breakout in that the move had left behind some partial gaps.
The concern wasn’t unmerited. Although PYPL drifted higher the next few days, it drifted lower after that. The bears failed to capitalize on the opportunity, however, setting up the next stage of the breakout move. That move became even more compelling on Monday.
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• The key here is the shape of yesterday’s bar after Friday’s push above resistance around $93.30. The profit-takers peeled back a little from that brief brush with new 52-week highs, but the bears still aren’t choosing to take their shot.
• Broadly speaking, the rebound move that has taken shape since late December has seen more volume on bullish days than bearish days.
• Still, while the stage may be set, it’s the next move back above $93.30 that will clear all of the last hurdles and have a good shot at turning months’ worth of consolidation into a long-lived breakout.
Micron Technology (MU)
Our last look at Micron Technology was the same day we took our last look at PayPal Holdings … Jan. 10. And, in a very similar sense, the two are teasing would-be buyers with a breakout thrust. The situations and triggers, however, are notably different.
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• A little more than two weeks ago, MU was struggling to break above the purple 50-day moving average line. That finally happened on Thursday though, and on plenty of volume.
• Not surprisingly, however, the gray 100-day moving average stopped the rally effort on Friday, and remained a technical ceiling yesterday.
• Still, the stock’s trading above the falling resistance line that guided Micron shares lower for the better part of 2018. The momentum it needs is already in place, and it would be surprising if MU didn’t break above its 100-day moving average line.
Western Digital (WDC)
Finally, Western Digital — indirect and direct rival to Micron — is moving in a similar path as Micron shares are, and hold a similar opportunity for newcomers. In fact, Western Digital has many of the same make-or-break levels in front of it.
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• WDC cleared its purple 50-day moving average line at $41 on Friday, but perhaps with a little too much zeal. The strong open led to a close below the opening level, meaning Monday’s action got going on the wrong foot.
• Nevertheless, though, the bears were in charge early yesterday, Western Digital mustered a nice intraday turnaround to gain 2% yesterday … bullishness on a day when the over market ended in the red.
• The breakout trigger here again is the 100-day moving average line, plotted in gray, at $47.61. The buyers only had to touch it on Friday to start selling again, though the second (and even third) touch of a resistance line can yield a different outcome if the pacing is right.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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