CHART Outlooks

With the indexes having broken and in a correction phase the best side to be on, for the next couple of weeks, is likely the short side of rallies. Purchasing strong stocks on dips can also work out but the stocks need to be carefully chosen and on strong rallies taking profit should be considered.

TRAD (Friday close 12.63)

TRAD was a mention I made last week and if followed you should have been able to purchase TRAD between 11.64-11.68 on Monday. TRAD is a brokerage firm that should do well in a volatile market as the increased trading and volatility that will be seen in the coming weeks and months should generate a higher earnings report next time around.

TRAD reached a major level of support at 11.40 on this last drop and not only held that support but was able to rally and close on Friday (weekly close) above the 12.43 level which was previously regarded as the breakdown point. The ability to rally above and close above 12.43, on a weekly closing basis, means the break has been negated and the downtrend stopped.

With that close on Friday it now seems probable that TRAD has gotten itself into a sideways trading range between 11.88 and 13.98.

Purchases in TRAD can be made on dips down to 11.88 with a stop loss at 11.57 which will offer a risk/reward ratio of approximately 6-1.

If TRAD is able to "rally first" above 13.00 it will be unlikely it will trade below 12.32 so dips down to 12.32 could be made, under that scenario, with a stop loss at 12.01.

On this past week's purchases between 11.64-11.68 the stop loss can now be raised to 11.57 thus bringing your risk down to only $10 per 100 shares plus commissions.

Minor resistance will be found at 12.68-12.73 and stronger resistance at 13.08-13.22 and major at 13.30-13.40. Above 13.30-13.40 you will find the 20-week MA around 13.75-13.80 and the 50-week MA right around 14.00.

It is likely that a $1 trading range between 12.32-13.30 will be in effect for the next few weeks. If TRAD is able to get above 13.00 on this move, trading that range will likely prove to be very successful.

My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).

RMBS (Friday Close at 20.30)

RMBS is a stock that has now given several sell signals as of late, prior to the break in the indexes. After the bullish earnings report RMBS went above a previous weekly high at 23.83 with a rally up to 23.95 but failed to confirm the breakout and began to trade down well before the break in the indexes. That failure, in and of itself, offered an objective of a re-test of the 18.87 50-week MA. On the way down, and due in part to the break in the indexes, RMBS gapped down last Tuesday from 21.01-20.85 and proceeded by Thursday to reach the 50-day MA at 18.87. It then rallied up the same day and also re-tested the gap area with an intra-day move up to 20.79.

That gap between 19.35-19.95 that was previously being considered as a "runaway gap" has now been closed and therefore the gap down at 17.14 is once again in risk of being closed as well.

The support in RMBS at 18.87 is tenuous (50 week MA) and if able to break below it will likely generate closure of the gap and re-test of support at 16.00-16.50

Due to the stock market rally this past week RMBS was able to rally up to 20.68 to, once again, test the gap area between 20.85-21.01. The gap area will act continue to act as resistance and unless the indexes are able to get above their resistances is likely to stop any further rallies. The 20-day MA that RMBS broke two weeks ago is now at 21.00 as well as a small previous low at 21.02.

A sale of RMBS at Friday's closing price of 20.30 can be made using a stop loss order at 21.08 and having an objective of a closure of the gap at 17.14 and a drop to support at 16.50 will offer a 7-1 risk/reward ratio.

This is a trade that is not only relying on the continued correction phase in the indexes but also on the failure to follow through on the breakout above 23.83 and the repercussions of a break of the 50-week MA. My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).

SVNT (Friday close 13.62)

SVNT is a stock that was in a major up-trend during the index rally as it moved up after breaking above its previous 4-year high at 6.74 all the way up to a recent high of 15.75 without any correction of consequence. After a few weeks of topping out action SVNT broke its support at 14.10-14.30 level and moved down to the 12.05 level before encountering any strong buying. Since that low was made last week SVNT has been able to rally back up near the 50-day MA it broke recently at 13.88.

Due to the strength that SVNT showed on Friday it is likely the 13.75-13.90 level will be seen on Monday or Tuesday. This will be considered a re-test of the both the 20 and 50-day MA (which are crossing this week) as well as an upside correction to the recent down move. SVNT still shows an open gap between 11.89-12.05 which is likely to be a magnet for the sellers, especially if the indexes continue their correction downward.

Sales of SVNT can be made between 13.75-13.90 with a stop loss order at 14.16 and having an objective of closure of the gap at 11.89 and a possible drop to support at 11.05-11.21. Risk/reward ratio on the trade is approximately 6-1.

Resistance in SVNT is between 13.88-14.10. There is no evident support until the recent low at 12.05 and then at 11.21-11.05.

My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10).

MMC (Friday close 29.05)

MMC is a high probability trade with relatively small profit potential. A break below 28.82 is likely to thrust the stock down into the mid 26's and therefore the risk/reward ratio is no more than 4-1 and in some cases even less. Nonetheless it is a high probability trade should the 28.82 level break.

For the last 2 years MMC has been in a well-defined, but not steep, down trend which started on Mar05 at 34.25. On the weekly charts, starting on that high, MMC has had a weekly drop to the 26.67 level, a rally back up to 33.42, a drop to 24.00, and a rally back up to 32.43. It now looks evident that MMC is once again going into a valley period and a break below 28.82 is likely to signal a move back down to at least the 26.67 level, if not lower.

This last Friday MMC tested the 50-day MA it broke two weeks ago and failed to get above. It then proceeded to have a reversal day and came within 6 ticks of having a classic reversal day with higher highs, lower lows and a close below the previous day's low. Nonetheless it was a negative day and there should be some follow through to the weak close on Monday. A break below 28.82 shows no visible support until 27.30-27.60 is reached. In addition, there is a gap area between 27.76 and 27.96 that will work as a magnet if the 28.82 level is broken.

In looking at the weekly charts a break of 28.82 will also break the 50 week MA and thrust the stock to the various weekly support levels (which are strong) down between 27.00-26.67. The fact remains that last August MMC broke down below those support level with a move down to 24.00 so it is possible that a break of this support level could take the stock lower than that 27.00- 26.67 support level.

A short position could be initiated on a drop below 28.82 (28.72 stop for example) looking for a move down to 27.00. A stop loss could be placed at 29.38 and therefore the risk/reward ratio would be 3-1 with a possibility of more.

This trade should only be instituted on a break of the 28.82 support.

My rating on the trade is an 8 (on a scale of 1-10 with the strongest probability rating being 10).