It could have been worse, though it certainly could have been better as well. More than anything though, Monday’s action wasn’t as good as it needed to be. While the Nasdaq ended the day with a gain, it still closed below its 200-day moving average line. The S&P 500, meanwhile, took another loss to also close a little farther below its 200-day average.
Advanced Micro Devices (NASDAQ:AMD) was a big part of the reason the Nasdaq Composite was able to log a respectable gain yesterday. AMD shares ended the day up to the tune of 5.8% as investors once again changed their mind about Friday’s major drubbing. At the other end of the spectrum, Bank of America (NYSE:BAC) was dead weight on the S&P 500, losing 3.3%, and rekindling a major downtrend that carried the stock to new multimonth lows.
Neither are particularly compelling trading prospects for Tuesday, as each is being kicked around by too much emotion and not enough rational thinking. Rather, it’s stock charts of Western Union (NYSE:WU), Praxair (NYSE:PX) and Activision Blizzard (NASDAQ:ATVI) that offer the most potential to anyone looking for some action. Here’s the deal.
Western Union (WU)
Western Union might ring a bell. It was one of the stock charts put under the microscope back on Oct. 8, after it broke under a major support level and hinted at a sizable move lower.
That did end up happening. The floor at $18.30 snapped, allowing WU shares to edge a little lower. They’ve since tried to rebound, but an all-too-familiar moving average line has stepped in as a ceiling and renewed the downtrend. That renewal may be more damning than the initial breakdown.
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• The moving average line in question is the 20-day moving average line, plotted in blue. Western Union shares failed to move back above that line last week.
• Just as telling is the volume behind the rebound effort and the subsequent pullback. The buying volume was fading on the way up last week, but has started to grow on the way down since Thursday.
• The weekly chart makes clear that there’s no prior low that’s likely to serve as a floor again until we get back to the 2016 low around $16.
Most of the time, a news-based move from a stock doesn’t mean much, as there may be no follow-through; news is priced-in immediately.
In the case of Praxair, however, Monday’s volatile move may have triggered the beginning of a breakout that’s been brewing for a while now. With the nod of approval to go ahead and merge with Linde, the bulls lined up in a big way for the second time in three days, possibly setting in motion a chain reaction of bullishness.
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• PX isn’t over the most meaningful ceiling around $167.81 yet, but it’s within striking distance after a year’s worth of buildup.
• Zooming out to the weekly chart of Praxair, we can see this move may have been inevitable anyway. A rising support line that extends all the way back to early 2017 was about to intercept the horizontal resistance, leaving shares nowhere else to go.
• The volume surge from Monday is the clincher. There were a lot of people waiting in the wings for this deal to go through. Although odds are good we could see a bit of a bearish pushback, the buyers have tipped their hand.
Activision Blizzard (ATVI)
Last but not least, Activision Blizzard has been on the trading radar for a while, with the most recent look from Oct. 1 expressing concern that a pullback was in the cards after the upper edge of a well-established trading range was about to be met.
That concern was merited. ATVI rolled over shortly thereafter, sliding all the way back to the lower end of the range. In fact, Activision Blizzard shares technically moved under that floor on Monday, leaving traders on both sides of the table with a tough decision to make.
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• It’s more evident on the daily chart than it is on the weekly chart, but on both stock charts of Activision Blizzard we can see the established support line that’s tagged the major lows for the past several months didn’t stop the selling this time around.
• While technical floors have to be respected, traders also have to respect the premise of a pattern as much as they have to respect clear lines in the sand. ATVI may be due for a bounce anyway, just because it’s so oversold.
• If for some reason the bulls can’t get some traction here, there’s a lot of ground to give up now that Activision Blizzard shares are decidedly below their white 200-day moving average line.
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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