May 20 Breakdown Trend Day Trading Update

May 20, 2014: 12:46 PM CST

Wow – with the market reversing down against resistance (creating a Trend Day by mid-day), let’s take a quick moment to see what’s happened, what levels are important, and which stocks are trend day candidates.

The S&P 500 stalled into the 1,886 level which was yesterday’s ceiling/resistance high.  The lengthy negative momentum and TICK/Internal Divergence undercut the rally and suggested caution.

A breakdown under the moving averages and rising lower trendline from May 19th suggested a strong bearish bias today.  We’re simply seeing the market sell-off down from resistance toward lower logical targets such as 1,870 and 1,865.

Despite the selling pressure, Sector Breadth is mixed and surprisingly not all bearish:

The three pockets of strength (if you can call it that) on today’s Trend Day lower are Materials, Energy, and our defensive friend Utilities.

It’s completely logical to see strength in Utilities on a sell-day (they act similar to Treasuries with higher yield than other stocks) but we’re also seeing Materials outperform all other sectors along with Energy.

Nevertheless, if you’re looking for short-sale candidates, seek the weakest stocks in the weakest performing sectors and today that’s Industrials.

We look to the downside for potential trend day continuity with the following selected stock candidates:

Urban Outfitters (URBN), L Brands Inc (LB), Caterpillar Inc (CAT), and Target Corp (TGT).

Bold, aggressive ‘trend fighting/fading’ traders may look to the following relative strength leaders today:

Home Depot (HD), Hershey’s (HSY), Newfield Exploration (NFX), and our good friend Netflix (NFLX).

Take a moment to see the bigger structure of Netflix (NFLX) from the update I presented yesterday entitled “Breakout and Target Planning for Netflix NFLX.”

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Corey Rosenbloom, CMT
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