Market Remains Resilient: Setups for the Week of May 31st

As always, there are two ways to view the market: through the eyes of the bulls or the perspective of the bears.

The bulls say the recent pullback in the SPX is nothing more than a healthy consolidation, a mere rest before the next leg higher. The 200-day moving average is still sloping decidedly higher, which is the trademark of a bull run. The market continues to make higher highs and higher lows, and the gap fill from April 20th's gap up appears to be the most recent higher low. The bulls conclude their argument by stating that the bears have been unable to follow through on any correction since last summer, as every pullback below the 50-day moving average has been short-lived.

The bears listen to the bulls' case, anxious to jump in and put the arrogant bulls in their place. The bears begin by mentioning that the SPX has seen six distribution days since May 3rd, defined by sell-offs greater than .2% in volume higher than the previous day's. This clearly indicates institutional selling, and without the support of the big mutual funds and hedge funds, the market has little chance of working higher. The SPX is in a clear pattern of lower highs and lower lows since May began, and the most recent low-volume rally got rejected precisely at the downtrend line. Finally, the 20-day moving average is now curling downward, indicating that short-term momentum has slipped from the clutches of the bulls and now rests with the bears.

Regardless of whose argument is more convincing, it's always a good idea to keep a good list of setups available in case the most recent bounce turns into the beginning of a true rally:

ST continues to make higher lows and it coils up beneath the pivotal 36 level. The 50-day moving average is providing support, and it looks like the buyers are going to push this one to new all-time highs.

GRA is trading in a tight consolidation, and actually broke above previous resistance of 45.70 on Friday. The stock closed at the high of the day, and I'd look for volume to come in to confirm the recent breakout.

HLF gapped up on May 3rd and hasn't looked back, weathering the broad market correction without giving up much of its gains. The stock made new highs on Friday, but volume was very light and it backed off by the end of the day. I'd look for a small pullback, and then another attempt at breaking 54.75 on volume.

VMW has formed a cup-and-handle pattern, with the buy point above the high in the handle, which was 99.19. The pullback between late April and mid-May strengthened the pattern by shaking out uncommitted holders, and a break to new highs would affirm that buyers are clearly in control.

FOSL has acted well after its high-volume gap up on May 10th. The stock has consolidated its gains nicely, with a lack of any big selling bars and the 20-day moving average acting as support. Volume spiked on Thursday as FOSL jumped three points, and a move above 107.54 would get me long the name.

DTG is another stock that gapped up and has held its gains. Volume has been noticeably light in the consolidation, and a break above 83.30 should lead to a second impulse higher.

UNP has found support at previous resistance of 99, and the stock is building a base-on-base pattern between 99 and 104.40. Any pullback to around 100 should make for a good entry, especially with the 50-day moving average right at that area. Conversely, UNP could be bought above 104.40 if it breaks out of its current consolidation.

FCFS broke above a descending trendline on Friday on relatively good volume. The next barrier sits at 40.13, and the stock's recent action makes it seem like that level will get taken out shortly.

ZOLL is making higher lows as it builds energy for another push to all-time highs. I'd look to buy on a break above 60.64, with a stop below 57.

KCI is forming a nice box between 57 and 60. Sellers are nowhere to be found, as the stock hasn't seen any meaningful distribution. I'd look to buy the stock above 60 with a stop below the low of the consolidation.

CHRW continues to consolidate near its highs, basing between 78.70 and 81. A break above the recent highs would propel the stock to new all-time highs and should produce solid gains.

DISH technically broke out on Friday, but volume was severely lacking. Maybe a final pullback and then a high-volume breakout could get the stock going.