Let me make my view clear. I really want to do this to distinguish my style from others that may be found both on this site as well as others around the web. I am still trading as though the market is going to continue to go up. However, I am not as bullish as I was this time last week. In fact, I am more neutral right now. I don’t know if reading other blogs or whatever is starting to get to me, but until the market CLOSES below the current resistance level I am staying neutral to bullish on the market. Breaking resistance on the close indicates a change in direction in the market. As all three major indices show right now, the markets are sitting on resistance. Here is a 2 year daily chart of the S&P. I went through and cleaned up a lot of my resistance lines to make it more clear. We had a longer term head-and-shoulders pattern form with the left shoulder in late June/July of 2007, the head in October/November of 2007, and the right shoulder in December of 2007. The neckline, depending on how you draw it, could have been either around 1430 or 1405. For the sake of this argument we will use the 1430 line. Since the level was support during the head-and-shoulders formation, it also acts as major resistance. The current up trend has hit this resistance level, and has since settled down current support at 1390. Until the markets close below this support level, I am not changing my view on the market. However, I have tightened up all of my stops, and closed out of a couple of my winners yesterday. If this level breaks there is some minor support at 1360, and some stronger support at 1320. If current support breaks, I would expect a test of the 1320 lines, and will adjust my trades accordingly.

I still like the stocks I brought up yesterday. I also did a search looking for stocks that have pulled back and may be ready to bounce. I came up with 19 stocks from this search. Here they are: TSN, SWIR, XRTX, CLI, WSO, ALE, ACS, OTTR, CRR, CIEN, PAG, NHP, NPO, STLD, APD, SPSS, HME, DFS, SLGN. Some are better charts than the others, but it is for you to decide which you like and which you don’t. But here is one of my favorites. ALE had a really nice move from $35 in mid march up to $43 in early May. It has since pulled back to support around $40.50 and had a nice move up yesterday on good volume (sorry, I didn’t check news to see what may have caused it). I am looking to get into it cheap early on today because I expect it to continue its move. The next levels of resistance are $43, then $44.50, then $46.

While I haven’t run a similar search for bearish stocks making this pattern, one bearish stock from my watch list is XNPT. This stock has been in a down trend ever since drop earlier this year. It consolidated sideways for a while, and then finally continued its downward move earlier this month. The chart pattern kind of reminds me of an inverted cup and handle, but just kind of. There is strong support at $37.50, but if it breaks this there is a very good chance it may go as low as $30 before finding another strong support area.

Happy Trading

-Dylan