Markets proved treacherous last week as stocks swung wildly to stop traders out in both directions. Monday’s low in the indexes held for now, but conditions remain unfavorable and for me it’s a high-cash environment until a clearer trend forms; I got a bit chopped up trying to force it last week.

It might take a few weeks or more to clear up because barely any stocks are setting up constructive patterns right now. The number of stock setups is often the best proxy for determining how healthy the market is, so the proliferation of choppy, loose, broken-down stocks tells me that we’re not ready to move much higher except to bounce from oversold conditions. No reason to rush back in.

Tonight we’ll cover updates on our energy stocks with crude futures tracking higher, a few bounce candidates if the market is up tomorrow, and some short plays to watch. Let’s get into it!

Index Update

The Nasdaq finished green in what was a choppy week. The daily range for the index over the week was 2%, which is extremely volatile, so it was easy to get stopped out if you were trading. There was no follow-through day on Friday as volume was lower than the day before. It’s still in no-mans land here - support and resistances marked on the chart.

The S&P-500 held it’s low from Monday but still closed below the 200-day moving average in white. Look for it to regain this average and continue higher or it may test the lows.

Portfolio Update

YTD Return: +4.26%

YTD S&P-500: -7.01%

7-Day Return: -2.00%

Recent Moves

• APA - Fell to breakeven stop for an average of 3.5% gain on the position

• DVN - Stopped out on Friday for a 3% loss

• COP - Bought breakout and stopped out for a 1% loss

My Positions

100% cash.

If I open any trades, I’ll do so with smaller position sizes (10% max) until the trades start to prove themselves.

Best Setups

Crude oil futures are up over 1% on Sunday night, so let’s cover a few oil stocks that are in position to breakout.

APA Corporation (APA) is a leader in oil & gas, and although it fell to my breakeven stops Friday on my remaining position, I’d reconsider on a break above $34.50 on heavy volume with stops $1.50 lower.

Devon Energy (DVN) is another leader in oil & gas that I stopped out on last week. I’d reconsider it if it can break through this descending trendline on the hourly chart at $52 on high volume.

Pioneer Natural Resources (PXD) is displaying signs of institutional support as it bounced hard on its return to the previous breakout area. I’d look to buy it on a break above $218 with stops at $210.

Now let’s move on to other stocks setting up.

British American Tobacco (BTI) is a slow mover, and not one I would normally buy, but it rose 15% in less than 2 weeks and is now forming a nice bull flag. It has printed 3 inside-days in a row which is a rare occurrence and a sign that selling is drying up. The buy point is break above the high of the first inside day at $43.35 on heavy volume with stops $1 lower.

Affirm (AFRM) looks good for a short-term bounce if the market continues to bounce. I’d buy it on a break above $60 for a move up to $70ish. Volume has to be heavy. I’d place initial stops at $59 and move them quickly up to even if the trade started working. I wouldn’t want to hold a large position in this overnight so I’d take a quick profit on half.

Short Opportunities to Watch

Here are a few short plays to keep an eye on. The market is still a bit oversold so a few more days moving up would be best before opening new shorts.

Arista Networks (ANET) is printing a bear-flag just above a big gap to fill down to $103. The sell-short point is a break below $116 on volume with buy stops $2.50 higher.

Riot Blockchain (RIOT) is also forming a bear flag pattern as investors may be starting to realize that Bitcoin mining is a race to zero, and the pressure on BTC price doesn’t help. I’d sell this one short on a move below $13 with stops $0.35 higher, but only if BTC is falling too.

PayPal (PYPL) fell over 15% from my previous short-sell point and may be ready for more downside. I’d sell-short a move below $158, though a few more days to build out the bear flag would be best.

That’s all for tonight! If you liked this column or have any feedback about the content, hit me up on Twitter with the link below or respond to this email.

See you back here on Wednesday night for an update on our stocks.

Cheers,

Danny Deals