It’s anything but the ideal bullish thrust, as we’ve now seen two consecutive bullish gaps left behind … gaps the bears may try to fill in with a pullback. Nevertheless, yesterday’s 1.3% advance has prodded the S&P 500 index above some major technical resistance.
Nvidia (NASDAQ:NVDA) set the pace, and then some, rallying more than 6% as investors increasingly begin to believe it’s been undervalued for months. It’s also seen as one of the main beneficiaries of a productive end to the tariff war, which could come as early as next month.
Lululemon Athletica (NASDAQ:LULU) wasn’t far behind Nvidia, up more than 4% during yesterday’s regular session and then gaining another 3% on Thursday’s after-hours action following a strong quarterly report and equally strong guidance.
Neither of those names are great trading prospects as we move into the final trading day of the shortened trading week, however. Rather, take a look at stock charts of AT&T (NYSE:T), Church & Dwight (NYSE:CHD) and Starbucks (NASDAQ:SBUX). Notice all three face the same basic problem, and are unusually likely to dish out the same basic result.
One bad day doesn’t inherently mean a stock is in trouble. Neither does two bad days. But, two consecutive tumbles in a row on days the broader market made decided gains is cause for concern.
That’s exactly what Starbucks dished out on Wednesday and Thursday, hinting that its oversized runup since early this year may be close to winding down and even reversing. Underscoring the case for a profit-taking pullback is the fact that somehow SBUX managed to sidestep the plunge most other names suffered during the fourth quarter of last year.
Click to EnlargeWednesday’s stumble was mostly undone by the time the closing bell rang, largely thanks to a kiss of the purple 50-day moving average line as support.
- It’s evident on the daily chart, but it takes a bigger-picture look at the weekly chart to fully appreciate just how overbought SBUX stock is here (and has been for a while).
- It’s only evident on the weekly chart that, even though Starbucks shares technically remain in their uptrend, the volume behind the move is weak, and shrinking.
- The same weekly chart also illustrates where the most-plausible landing point is for any pullback. The floor that connects the key lows since mid-2018 is marked as a red dashed line, on both stock charts. It’s currently near $81.
There’s no denying AT&T shares have been on fire of late. In fact, their rebound effort appears to be accelerating, pushing T stock to a multi-month high yesterday.
Everything has a limit though, and while AT&T arguably sports some incredible momentum at this time, the stock is bumping back into a technical ceiling it may not even have meant to establish. How far back a drop might drag the stock is still in question, though its most plausible landing points have already become crystal clear.
Click to EnlargeNot unlike the most recent portion of the Starbucks advance, there’s a suspicious declination in the amount of buying volume prodding T stock upward since the mid-July surge.
- This week’s rally thus far is also testing the technical resistance that connects all the key highs seen since February.
- Although it’s most likely that any selloff would be stopped before it raced out of control, any and all of the key moving average lines have demonstrated support qualities in recent months. There’s also a floor that aligns all the major lows since February, plotted as a light blue line on both stock charts.
Church & Dwight (CHD)
Finally, like AT&T and Starbucks, Church & Dwight shares have been unusually strong performers this year. And at least like SBUX stock, CHD shares didn’t start out the year with the advantage of a huge pullback during the final quarter of last year. Thursday’s steep stumble may be a clue, though, that the rally effort is starting to crack.
Fans and owners will be quick to point out the selloff in CHD stock was spurred by an accusation from a known short-seller, Ben Axler, who implied the company has been using accounting gimmicks to artificially inflate its results. The cause may not be relevant though. Regardless of the reason, yesterday’s stumble may have kick-started a pullback that’s been ready to be unleashed for some time now.
Click to EnlargeThe last bastion of hope for a rebound is pushing up and off of the line that connects most of the key lows going back to June of last year. It’s marked as a yellow dashed line on both stock charts.
- It’s subtle, but take note of how the weekly chart’s RSI indicator failed to get back into overbought territory with last month’s gains. It’s a clue that moves to higher highs have less and less “umph,” signaling a slowing uptrend.
- There’s not much historical context for where any selloff might finally be halted. The most logical prospect is a 38.2% Fibonacci retracement of the gain since last year, at $66.40.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.