More bullish confirmation from cyclical sectors.

In this post, I’ll focus on setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trades.

While this week’s main economic event is yet to be seen with Friday’s March payrolls report, other signs of strong economic data is leading to big moves in key markets. A report from ADP showed that private sector payrolls increased by 184,000 in March, which was better than expected and the most since July. That comes on the heels of data showing growth in both the manufacturing and services sector of the economy. The Manufacturing and Services ISM for March were both reported above 50, indicating growth in both segments of the economy. For the Manufacturing ISM, it’s the first time in 16 months that activity was in expansion territory (chart below).

While positive data is leading to a rise in interest rates and calling into question the timing of rate cuts by the Federal Reserve, it’s also igniting various commodities. Following gold’s breakout to new highs, the SLV exchange-traded fund tracking silver prices is breaking above resistance at the $24 level that you can see in the weekly chart below. The range break of the RSI in the bottom panel and MACD turning higher from the zero line suggests there’s more momentum in store.

I wrote about the bullish case for commodities in this week’s Market Mosaic, and the recent rally in things like gold, silver, oil, and copper could be in the early stages depending on one important chart. And that’s with the U.S. Dollar Index. Most commodities are priced in dollars, so a weakening dollar increases the purchasing power of foreign buyers and is typically bullish for commodity prices. That’s why I’m paying close attention to the Dollar Index chart below, which is potentially setting up a head and shoulders continuation pattern. The dollar rallied back to a resistance level from February and is now turning back lower. A move back toward the 100 support level would be bullish for commodities, with a breakdown through that level having significant implications.

If commodity-related producers start breaking out, that type of sector rotation can lead to further improvement in market breadth. Expanding participation in the upside is key to sustaining the rally, with breadth improving significantly on the rally that started in October. Commodity stocks are also cyclical, making them sensitive to the economic outlook. A rally from sound basing patterns would be another positive sign for the economy and earnings picture. For this week, I’m removing NXT and PATH from the watchlist as recent price weakness invalidates their chart setups. That also means there’s new additions to the list this week.

Keep reading below for all the updates…

INSW

After breaking out over the $49 resistance level, the stock is consolidating gains and trading sideways since January. That’s creating a “base on a base” pattern with new resistance around the $55 level.

TRMD

Broke out over a prior resistance level at $32 and now back testing that level as support. Relative strength (RS) line near the high while the MACD is turning up from zero. Watching for a move over $37.

NET

Making a series of higher lows since last May as part of an overall bottoming base. Price recently filling a big gap from February, and holding that support level while the MACD resets at the zero line. Looking for a move over $105 followed by $110.

HUBS

Prior watchlist name making a new basing pattern. Creating a “base on base” after moving over the $595 level. MACD resetting at zero while the RS line holds near the high. Watching for a breakout over $650.

DUOL

Recently testing the prior highs around $245. Would like to seeing more basing action following the February gap higher along with an improvement in the RS line. Watching for a breakout over $245.

CUBI

Consolidating the gains after hitting $60 in late December. Would prefer to see the RS line take out the December peak on any breakout attempt. A move over $60 could target the prior high from the start of 2022.

STNE

Starting to emerge from a bottoming base going back two years. Took out resistance at $15 and now consolidating the gains. Trading sideways since late December, with a new resistance level near $19. Want to see support at $16 hold in the pattern.

BX

Since peaking back in 2021, the chart has the appearance of a large saucer-type pattern. Price recently nearing the prior high at $140 and now pulling back. That’s resetting the MACD while price holds support at $115. Watching for a move to new highs over $140.

None this week!

• I trade chart breakouts based on the daily chart for long positions. And for price triggers on long setups, I tend to wait until the last half hour of trading to add a position. I find that emotional money trades the open, and smart money trades the close. If it looks like a stock is breaking out, I don’t want a “head fake” in the morning followed by a pullback later in the day.
• I also use the RS line as a breakout filter. I find this improves the quality of the price signal and helps prevent false breakouts. So if price is moving out of a chart pattern, I want to see the RS line (the green line in the bottom panel of my charts) at new 52-week highs. Conversely, I prefer an RS line making new 52-week lows for short setups.
• Also for long positions, I use the 21-day exponential moving average (EMA) as a stop. If in the last half hour of trading it looks like a position will close under the 21-day EMA, I’m usually selling whether it’s to take a loss or book a profit.
• For short (or put) positions, I trade off a four-hour chart instead of a daily. Why? There’s a saying that stocks go up on an escalator and down on an elevator. Once a profitable trade starts to become oversold on the four-hour MACD, I start to take gains. Nothing like a short-covering rally to see your gains evaporate quickly, so I’m more proactive taking profits on short positions. I also use a 21-period EMA on the four-hour chart as a stop. If there is a close above the 21-period EMA, I tend to cover my short.

For updated charts, market analysis, and other trade ideas, you can visit me here: www.mosaicassetco.com

Disclaimer: these are not recommendations and just my thoughts and opinions…do your own due diligence! I may hold a position in the securities mentioned in this post.