Hot Shots: “Hey MON! Bull Market!”
April 9, 2008
Some might say that it’s an interesting market these days. Truthfully, though, isn’t that always the case? As this might relate to the bulls versus the bears, we need only look at the charts to make that painfully obvious. The S&P 500 (SPY), for instance—the market’s broadest gauge—is sitting in classic position to give both directional camps plenty to contemplate.
For the bulls, a recently confirmed double bottom complete with extreme sentiment readings is now sporting a solid-looking “handlesque” consolidation and unwinding any potential excesses in a constructive manner. “MOOyah!” And for the gruff ol’ bears, one need only respect other schools of technical analysis and appreciate the SPY’s weekly series of lower highs and the index now testing prior supports, which should act as resistance. “BOOyah!”
So, which is it? Why it’s both of course and just one of many alternative truths which always permeate the market. Of course, this also means the capacity to trade actually exists. How boring would it actually be if everyone thought alike and the market was perfectly priced all the time? Actually, it would be futile. Personally, I appreciate George Soros’ observation of the financial markets being almost always imperfectly priced, as one of the consistent truths of the market.
On that note and in this imperfect market of ours, I’m willing to don the bullish headgear once more.
That might be the wrong observation of course. But, it is a calculated, albeit discretionary approach which appreciates a “Buy, Buy, Buy!” campaign when the number of bears are increasing and it seems everyone is intent on making those simple pullbacks, less so. That said, I’d like to highlight a couple of stocks which are setting up bullishly, that is if you’re willing to be optimistic about something other than the worst being over for the financials.
Figure 1: Tesoro (TSO) Monthly
“There’s always a bear market somewhere.” And it seems one exists in Tesoro (TSO). It’s also true that “I know nothing!” about the fundamentals of oil and gas refiners. Further, it’s also a fact that over the last couple of months (most recently 3/28) the Fast Money crowd has continued to pound the table for TSO to no avail. What’s also possibly relevant is that at some point, most bear markets eventually go on to being bull markets.
Given the current technical circumstances, I’m willing to do some fishing with an emphasis on the combined views of the daily and monthly. Shown above is the latter and larger perspective. At that level, bullish investor appreciation has long since passed after a higher-high pattern somewhat cruelly turned into six-straight months of profit-taking and other less seemly behavior. That said, the current monthly action is shaping up as a double bottom near the 62% retracement level.
The concern for any would-be bottom pickers is a bit of non-confirmation for a technical low via some secondary indicators. Highlighted above, we see that the lower Bollinger Band is still opening up slightly and hasn’t yet been hit. Combined with a low, but not extreme reading in the RSI 14, monitoring for a bullish reversal could be early and hence, the reasoning behind looking at the daily chart for support.
On the daily perspective (not shown), TSO is also setting up as a double bottom. However, unlike the monthly, we find the lower band has flattened and is being tested with Wednesday’s pattern performance. Similar to the monthly, the RSI 14 isn’t at extremes, but a case could be made for a bullish divergence to exist. Personally, I wouldn’t mind seeing an “undercut” of the March lows and then a daily candle confirmation for a pivot low. The interpretation is a bit more price pressure would likely produce a stronger platform for the monthly to reverse, without having to tag extremes with it’s own Bollinger and RSI, and in the process make the Fast Money appear a bit swifter.
Figure 2: Monsanto (MON) Weekly High Level Double Bottom
The “Aggies” do have a way of growing on bulls, well at least the one in this corner of the market. Back in late February, analysis in HOTSHOTs outlined a veritable harvest of profits for bears in describing a Gartley high in agriculture chemicals giant Monsanto (MON). A bit more than a month later and I’ll be darned if I’m not rooting for the other team, despite being raised a Texas Longhorn.
Nonetheless, the subsequent technical lows generated after the Gartley (wings 1 & 2), resulted in MON resetting its base count to one. That’s essentially a way for a growth stock to cleanse a trend that’s a bit long in the tooth. As important, shares of Monsanto have obliged by rallying nicely off the lows and putting in an undercut high-level double bottom. The most recent action puts MON well inside the right side of its base. In fact, the daily consolidation of three to four sessions has the earmarks of a handle lining up just above the mid pivot, all of which is annotated in the chart. And for growth stock traders in a healthy market climate, that can only mean one thing, “Hey MON! We have a solid-looking buy candidate!”
Chris Tyler
Staff Writer & Options Strategist
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
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