Last week the SPDR S&P 500 (SPY) broke below the intermediate up trend line, with time confirmation present. The markets are at a crucial point and in order to maintain the opinion that the uptrend is over, the price of the SPY must not cross and confirm back above the trend line.
There are many names that have potential bearish patterns setting up but they do not look ready to trigger. A possible bearish scenario is for the SPY to consolidate over the next couple of days directly below the rising uptrend line that was recently broken and roll over mid to end of the week. On the other hand, if the strength from Friday continues and the SPY rallies, then the break of the trend line may prove to be insignificant.
Recently, I highlighted bearish patterns that triggered, in Con-Way, Inc. (CNW), State Street Corp. (STT), Freeport-McMoran Copper & Gold Inc. (FCX) and Southern Copper Corp. (SCCO) which may provide another short entry opportunity on this bounce against resistance. Given that we are waiting for further confirmation of the markets direction, below is a long idea in Hershey Co. (HSY) and a short opportunity in Triumph Group, Inc. (TGI), a thin issue.
Hershey Co. (HSY): has been consolidating in a sideways rectangle pattern since April 2010. The comparative relative strength (RS) of HSY versus SPY was in a downtrend for the majority of the rectangle pattern. Last week there was a breakout in RS above the down trend line. Two days later a price breakout above resistance occurred, with confirmation, signaling higher prices to come.
Chart 1: Displays the breakout of the downtrend in comparative relative strength of HSY versus SPY.
Chart 2: Illustrates the recent breakout of the sideways rectangle pattern and depicts the bullish volume characteristics attached to the price pattern. Target: minimum expected objective is $58, Protective Stops: aggressive: trigger on a confirmed move back below the upper horizontal resistance line, which is $51.75, conservative: hard stop at $49.45.
Triumph Group, Inc. (TGI): recently there was a break below a major rising trend line, which ended the primary uptrend. Adding to the significance of the break was a simultaneous break of a neckline from a head and shoulders topping pattern. After an initial sell-off, the price bounced and is currently approaching a cluster of resistance, which may present a low-risk/high-reward short opportunity.
Chart 3: Illustrates the simultaneous break of the head and shoulders pattern and the major uptrend line. Also outlined is the cluster of resistance, which is comprised of the neckline, major rising trend line and minor downtrend line. Target: $78, Protective Stops: close above $90.20
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