The major market indices staged an impressive rally over the last two and a half weeks. Many individual names that were highlighted broke out with decent follow through last week, such as Sohu.com Inc. (SOHU), SM Energy Company (SM) and Citrix Systems Inc, (CTXS).
The Russell 2000 Index is relatively the strongest of the major indexes and displayed leadership last week when it broke out to new three and a half year highs. The other indexes are at, or close, to minor resistance and may need to digest the recent up move and pull back to test support.
Below is a chart of four major indexes illustrating short-term support and resistance levels, followed by a low risk trade opportunity in Under Armour, Inc. (UA).
Chart 1: Outlines short-term support and resistance levels for the major market indices.
UA is in a primary uptrend, that began March 2009, off all-time lows of $11.94. On Friday, it broke out of a rectangle (basing) pattern on the daily chart, with confirmation, recording new all-time highs of $74.12. A pull back close to the upper horizontal resistance line of the rectangle pattern (trigger) offers an excellent long entry opportunity with limited risk.
Chart 2: The comparative relative strength of UA versus the S&P 500 Index is also in a primary uptrend. On Friday, a simultaneous breakout occurred in UA and the comparative relative strength of UA versus the S&P 500 Index, adding significance to the breakout.
Chart 3: A rectangle pattern has developed in UA since mid-February. On Friday, a breakout with volume and percentage confirmation occurred. A throw back close to the trigger of $70.50, now support, offers a compelling reward/risk entry opportunity. Entry: buy a pull back close to the upper horizontal resistance line, Target: minimum expected price objective is $79, Protective Stop: confirmed move below $70.50.
1) McMoRan Exploration (MMR): Market Letter 3/28/11 – If one is still long, use $17.50 as the support level instead of $18. As mentioned previously, place more emphasis on volume and percentage confirmation then time, because time confirmation has not been a great source of confirmation in the current environment. It seems that many levels are not respected and broken for a couple of days, even though the level is still valid.
2) Fortune Brands Inc. (FO): Market Letter 2/22/11 – Close to triggering. The signal mentioned was a daily close above $63.50.
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Disclaimer: The information contained herein is not guaranteed. This is not a solicitation of any order to buy or sell. This material is based upon information that I consider to be reliable, but I do not guarantee its completeness or accuracy. Assumptions, opinions and recommendations contained herein are subject to change without notice, and I am not obligated to update the information contained herein. I have positions in SM, CTXS and MMR. I also intend on initiating positions in FO and UA. This communication, including any attachments, is for the exclusive use of the intended recipient(s) and/or the intended recipient’s designees. Any use, retention or dissemination by a person other than the intended recipient is strictly prohibited. If you are not the intended recipient or designee, please notify the sender immediately by return e-mail and delete/destroy all copies of this communication.