Until recently, four leading stocks in the Dow Jones Index (NYSEARCA:DIA) were trending stably, comfortably higher and higher.
All that changed with the recent pullback and “Flash-Crash” style open this morning.
Let’s take a look at these charts and identify possible opportunities on the bounce-back.
We’ll start with Disney (DIS):
First, be sure to read my prior update: “A Dynamic Drop for Strong Trender Disney DIS.”
Of the four strong trending stocks mentioned here, Disney (DIS) broke down ahead of the others, but the decline was still dramatic.
Share prices tumbled from above $120.00 per share to the current cluster support zone into $90.00.
That’s where buyers found opportunity and boosted the stock higher off this level this morning.
Shares now trade into the underside of $100.00 per share – a simple reference price.
Like a rubber band stretched much too far, stock prices can instantly snap-back with more financial pain than many traders can imagine.
Still, the pivot for Disney shares after the collapse is again the $100.00 per share gap and price level.
Home Depot (HD):
We recently congratulated Home Depot (HD) shares on a breakout and gap to all-time highs above $122.50.
That praise was short-lived as price tumbled two days down to the $115.00 level before collapsing in a “Flash Crash” event on Monday’s open.
Price crashed through to $92.50 per share before instantly regaining the $110.00 level which is just above the rising 200 day SMA.
Our critical bull/bear support pivot – and thus potential buy zone – for Home Depot shares is the $110.00 per share shelf.
Shares are likely to continue to tumble if under $110.00 or else rally higher to regain the losses if buyers can push price – and extend a short-squeeze – above $115.00 per share.
Similarly, Nike (NKE) shares have consistently remained at the top of our “strong stocks getting stronger” scans.
However, negative divergences and distribution volume – along with reversal candle patterns into $118 – preceded the initial sell-swing to the rising 50 day EMA ($111) and the “dead cat bounce” back to $116 ahead of Friday’s collapse and Monday’s “Flash Crash.”
Like Home Depot (HD), share prices collapsed but recovered and rallied up away from the rising 200 day SMA which is just above the $100 per share simple confluence (reference).
Just as aggressively as sellers, buyers thrust price higher up away from $100.00 per share.
Note the bullish potential pathway higher toward $111.00 again.
Finally, United Health Group (UNH):
Somewhat similar to Home Depot (HD), UNH crept higher, pushed to new highs above $126.00, then collapsed down toward the range support low near $118.00 per share.
Today’s “Flash Crash” collapsed the price (at least momentarily) to $96.00 per share ahead of an instant recovery back above the rising 200 day SMA.
Our pivot reference points are $112.00 (price and 200 day SMA overlap) and the $118.00 prior rectangle support level.
These four stocks clearly caution us against complacency – there’s no place for complacency in the stock market.
We do expect “strong stocks to continue to get stronger,” but we also know that price can surprise us at any moment with volatile and violent moves like these.
These stocks were broken but they’re being rebuilt by buyers.
Focus on the key reference levels, the ongoing higher timeframe trends, and the behavior of price this week.