Do You Think Interest Rates Are Heading Higher?

Last week I wrote an article for Barchart.com about a possible short-term support zone.  However, now there is another interesting trade set-up developing.  There is a heavy resistance zone between 161’14 and 163’02.  I will be looking to short inside this zone with the potential downside targets being the recent low at 158’22 and the top of my potential support zone at 157’08.  This resistance zone has a good amount of supporting factors, which are:

  1. Change of polarity (old support becomes new resistance)
  2. 200 DMA
  3. Monthly R1 pivot point
  4. 34 EMA wave
  5. 100 DMA
  6. 6 Fib symmetrical retracements
  7. Resistance cluster of Fib extensions (60m)

This entire zone is potential resistance, but I will be focusing closely on the 161’20-162’17 zone.  This area has the greatest concentration of supporting factors.  The pattern fails above 164’10.  You could look to short the 30-year bond futures (ZB) or make some bearish option plays in TLT for a more cost-effective trade.  Either way, make sure you limit your risk and look to scale out at the downside targets I mentioned.

ETF Watch List

Here’s a list of the 27 ETF’s I follow on a weekly basis. The ETF is listed at the top in bold followed below by the top 15 weighted holdings in each one. If green, then it’s bullish. This means the 8 EMA, 13 EMA, 21 EMA, and 34 EMA are positively stacked (i.e. 8 over 13 over 21 over 34). If red, then it’s bearish. This means the 8 EMA, 13 EMA, 21 EMA, and 34 EMA are negatively stacked (i.e. 8 under 13 under 21 under 34). If it’s yellow, then it’s neutral. The EMAs are not stacked either positively or negatively. Finally, the ones that are it italics are trading inside the 34 EMA wave. If you are a long only trader, then it’s best to look for pullback buys when green (look for ones in italics). Avoid the neutral and bearish stocks. If you are a two way trader, then you can also look for pullback sells when red (look for ones in italics). The trend is you friend!

This upcoming week’s observations are listed below (weekly change in brackets):

  • 1 ETF is bullish [-2], 6 are bearish [+4], and 20 are neutral [-2]
  • The most bullish sectors are XOP (16), XLE (7), XRT (7)
  • The most bearish sectors are XLU (12), XLI (10), XLB (8)
  • The market has moved more bearish this week with green stocks on this list dropping from 16.67% to 11.57%; red stocks from 18.52% to 21.76%
  • Weekly observation: the top 15 weighted stocks in XOP are green (bullish); this sector is on fire!
  • Weekly Question: Is it time to finally move to selling pullbacks in weak stocks?

ETF Watch List

Here’s a list of the 27 ETF’s I follow on a weekly basis. The ETF is listed at the top in bold followed below by the top 15 weighted holdings in each one. If green, then it’s bullish. This means the 8 EMA, 13 EMA, 21 EMA, and 34 EMA are positively stacked (i.e. 8 over 13 over 21 over 34). If red, then it’s bearish. This means the 8 EMA, 13 EMA, 21 EMA, and 34 EMA are negatively stacked (i.e. 8 under 13 under 21 under 34). If it’s yellow, then it’s neutral. The EMAs are not stacked either positively or negatively. Finally, the ones that are it italics are trading inside the 34 EMA wave. If you are a long only trader, then it’s best to look for pullback buys when green (look for ones in italics). Avoid the neutral and bearish stocks. If you are a two way trader, then you can also look for pullback sells when red (look for ones in italics). The trend is you friend!

This upcoming week’s observations are listed below (weekly change in brackets):

  • 3 ETF’s are bullish [-1], 2 are bearish [0], and 22 are neutral [+1]
  • The most bullish sectors are CLOU (11), XOP (7), SMH (7)
  • The most bearish sectors are XLI (10), XLB (9)
  • The market has moved even more towards neutral this week with green stocks on this list dropping from 30.32% to 16.67%; yellow stocks from 54.86% to 64.81%
  • Will markets go back towards the bullish side or slide further towards the bearish side?

Square (SQ) to New Highs?

SQUARE (SQ) has skyrocketed over 500% since it’s March 2020 low.  To quote the Motley Fool, this fintech company “is disrupting the financial system with its end-to-end software suite for merchants, and its Cash App mobile wallet for consumers. In recent years, the company has benefited as online shopping and digital payments have become more popular, but Square still has plenty of room for growth.”  I agree.  Today I’m going to give my upside forecast in SQUARE (SQ).  This analysis will be based on the following assumptions:

  1. Prices must rally above 289.23 BEFORE falling below 237.91; otherwise, this analysis will need to be updated.
  2. If prices rally above 289.23 and moves back below 237.91, then this analysis will need to be updated.
  3. If prices rally above 289.23, then this analysis becomes completely void with a move back below 191.36. This is the line in the sand for this upside forecast.

Now on to the weekly chart.  After this stock bottomed out in March 2020, it saw a tremendous upwards rally that has since fizzled out into consolidation over the past 7 months.  During this sideways action, it formed a bullish ABCD pattern.  It is bullish because the retracement is less than 50%.  However, the skewing showed poor momentum with 2 bars down, 22 bars up.  I call this left-handed skewing.  In addition, before slightly breaking above the mid-February high, prices formed a double bottom pattern.  This too showed poor momentum with 5 bars down, 11 bars up.  It’s the poor momentum of these two patterns that’s causing this stock from moving higher.  But this stock is showing signs of life again since it’s mid-May low.  It’s attempting to form another bullish ABCD pattern.  We just need prices to break above 289.23 before moving back below 237.91.  If this happens, then this bullish ABCD pattern gets triggered.  Right now, the skewing is 6 bars down, 2 bars up.  If we can break above 289.23 in the next 2 weeks, then we would have positive momentum (right-handed skewing).  That could help fuel this stock to new highs.

Before moving on to the upside price forecasts, lets check some additional factors that could help or derail higher prices.

Positives:

  1. 7-month consolidation is forming a large volume profile ledge that could serve as support if it’s able to move to new highs.
  2. Prices have continued to find support inside the 34 EMA wave, doing so three times during this rally.
  3. Prices have continued to trade above the 50 WMA during this rally.

Obstacles:

  1. Divergence on RSI is a potential issue; shows weakening momentum.
  2. Non-rising OBV is another cause for concern; would like to see it break above previous highs.
  3. Broader market rally fizzles out.

Now it’s time for the forecast.  If the above conditions are met, then there’s two target areas I like for this stock.

Target Area 1: 334.93-375.02

This area contains the 100% Fib projection off the potential ABCD 3 pattern, the 261 Fib extension off the potential ABCD 3 pattern, the 461 Fib extension off an ABCD pattern formed between 2018 and 2020, and the projected height (85.79) of the consolidation pattern.  All form a nice target range that could serve as potential resistance.

Target Area 2: 417.15-442.22

This area contains the 261 Fib extension off ABCD 1, the 261 Fib extension off ABCD 2, the 361 Fib extension off the potential ABCD 3, and the 100% Fib projection off ABCD 1.  All form another nice target range that should serve as strong resistance.

Recommendation:

  1. Aggressive: attempt to front run a potential upside breakout and get long above the 267.17 high with stops below 237.91.
  2. Moderate: wait for the breakout to form and get long above the 289.23 high with stops below 237.91.
  3. Conservative: wait for the breakout to form and get long above the 289.23 high with stops below 191.36.

Follow me on twitter for further updates on this stock.

Chart_21-09-25_15-09-05

ETF Watch List

Here’s a list of the 27 ETF’s I follow on a weekly basis. The ETF is listed at the top in bold followed below by the top 15 weighted holdings in each one. If green, then it’s bullish. This means the 8 EMA, 13 EMA, 21 EMA, and 34 EMA are positively stacked (i.e. 8 over 13 over 21 over 34). If red, then it’s bearish. This means the 8 EMA, 13 EMA, 21 EMA, and 34 EMA are negatively stacked (i.e. 8 under 13 under 21 under 34). If it’s yellow, then it’s neutral. The EMAs are not stacked either positively or negatively. Finally, the ones that are it italics are trading inside the 34 EMA wave. If you are a long only trader, then it’s best to look for pullback buys when green (look for ones in italics). Avoid the neutral and bearish stocks. If you are a two way trader, then you can also look for pullback sells when red (look for ones in italics). The trend is you friend!

This upcoming week’s observations are listed below (weekly change in brackets):

  • 4 ETF’s are bullish [-5], 2 are bearish [-1], and 21 are neutral [+6]
  • The most bullish sectors are QQQ (12), XRT (10), CLOU (10), SPY (9), XHB (9)
  • The most bearish sectors are XLE (9), OIH (7), XLI (6)
  • The market has moved more towards neutral this week with upcoming FOMC meeting