Real Money Charts: IYR, ICE, MON, DD, CNI and JPM (April 2, 2008)
Here are the stocks that are covered in tomorrow’s RealMoney article: IYR, ICE, MON, DD, CNI and JPM.
Yesterday Jim commented on how the housing index was nearing a breakout. This chart of the IYR illustrates what he was seeing. Notice how last week’s low was right at the 50-day moving average. Prior to that low, the 50-day moving average had been trending lower, and had been marking the tops of rallies, not the bottoms of pullbacks. So this is a different dynamic. But a potential breakout does not equal a breakout. Wait for the trade — only if the IYR breaks to a new high for the year…and maintains that level…would I be interested in buying this.
ICE is close to breaking out of a tight range. But until we see a decisive move above $140, I’d still expect the stock to remain range bound. The lowest risk buy point is on a pullback to $120. That’s where buyers have typically soaked up all the supply, so you can buy quite close to that level where an adverse move will get you out of the stock with minimal loss. A higher risk buy point–particularly in this volatile market–is on a breakout. In that case, use a tight stop just below the 50-day moving average.
I’ve simplified the MON chart because it really doesn’t take much to show this potential reversal.
- Notice how the stock pulled sharply back from the uptrending resistance line, but still found support at the 50-day moving average.
- This lower high marked a dramatic decrease in upward momentum. Simply put, the bulls were either tired or uninterested.
- This marked a lower low — the first time this has occurred since the rally began.
- This is potentially a lower high — though the 50-day moving average is still propping up the stock.
Now, tops are usually a longer process than most traders realized, and what looks like a top can often be consolidation within a longer uptrend. Irrespective of the resolution of this trend change, the important thing is to use the preceding highs and lows as reference points for managing risk. For example, if you are long now and are not considering selling, you should expect the stock to pull clear back to test the level marked by #3 before learning whether the stock will indeed be mimicking the 50-day moving average, which is now heading lower. If you are not willing to hold the stock through that kind of pullback, then why not sell some now? Lighten the load. Then you’ll have cash on hand if the stock does come in further.
DD has been trading in a $7 range since November, so this chart looks really sloppy. But I’ve included a MACD indicator, which is a combination trend/momentum indicator. It’s above the midline, indicating an uptrend. But the indicator itself is in decline, indicating a loss of upside momentum. That’s interesting, but the most important indicator on the chart is the price action. I’d only buy on a breakout above $48.
CNI is bumping right up against the 50-day moving average. With that key moving average now heading higher, I’d look at any breakout as a very bullish sign. As such, why not wait for a move to around $51 before hopping on this railroad stock?
This simple line chart of JPM, along with the 50-day moving average, shows a stock that’s been taking traders on one wild ride after another. Notice how the declines are increasingly deep, while the rallies always top out at around $47 – $48. But the most recent pullback broke the established pattern of lower lows. Instead, the bulls stepped in right at the 50-day moving average. I’d use that level as my reference point for placing a protective stop. If the stock falls back below that level, I’d sell. Oh, and if it breaks to a new high, I’d probably buy.
Be careful out there.
Real Money