The following is just a small excerpt from my latest Weekly Strategy Session (please click on that hyperlink for details about trying it out). which I published for members and 12631 subscribers this past Sunday.
Labor Day occurs fairly early this year, on September 1st, a week from this Monday. As a result, we could easily see even lighter volume than we did this past week, which would be quite a feat given how thinly the indices have traded in August.
Against this backdrop, we may see a form of “holiday trading” this week, especially the closer we get to Friday and a three-day weekend into next week. Typically, a holiday week will see drifting action on the indices, with a bullish underlying bias as short-sellers back off even from unhealthy charts.
With this in mind, let us return to a thesis we looked at two weekends ago with National Bank of Greece. NBG had been badly beaten-dowin along with European equities in general. While the Greek country ETF, GREK, made fresh lows, we pointed out that NBG did not and was setting up perhaps for a snapback rally.
Since then, we can see that the National Bank of Greece did indeed rally back up to its 50-day moving average.
Although it may be a bit late to chase National Bank of Greece, a similar technical setup would be to play for a snapback rally in FEYE, a badly beaten-down and now despised growth tech stock.
On the daily chart for FireEye, note the potential lows off prior support. In addition, we have a bullish RSI divergence to price (top pane of chart).
For reference, the RSI is simply the “Relative Strength Index” used to identify changes in technical momentum. Above 50 is generally considered a bullish RSI, with above 70 viewed as overbought. Trending below 50 is considered a bearish RSI pattern, with below 30 considered oversold.
Here, the RSI is holding well above where it was in May, even as price is near those lows. This constitutes a bullish divergence and should be watched to see if price follows suit.
Just as with NBG, part of what makes this setup attractive, even though it is clearly a counter-trend trade in a damaged chart, is the ability to define downside risk. A stop-loss below $27, Friday’s lows, is suggested in order to mitigate downside risk.
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