July has continued a healthy recovering from the June lows for many stocks. However, some stocks have remained stuck in stock market purgatory. Today’s chart review shows two examples of this dichotomy. The extra bonus is that the stock in recovery mode, Caterpillar (CAT), has apparently topped while the stock stuck in purgatory, LDK Solar (LDK), is finally showing signs of bottoming.
CAT reported earnings the morning of July 22. The market clearly did not like the results: the stock dropped as much as 7% before buyers finally stepped in to defend the 50-day moving average (DMA) line of support. The most important feature of this sell-off is that the dreaded “abandoned baby top” held firm and has now been confirmed as a “lasting” top.
CAT’s abandoned baby top in early July was not alone. The S&P 500 printed one (with SPY), and I pointed it out as a topping pattern at the time. I suspect that CAT’s failure at this resistance is at least a faint signal suggesting a similar fate awaits the S&P 500. We will see soon.
On the other end of the scale is LDK. Most solar stocks are down for the year, and LDK is right in the middle of the pack of losers with a year-to-date loss of 28%. Fortunately, it seems the stock has finally stabilized with a 2-month consolidation pattern. Sellers were not able to break the stock during two July downdrafts. Buying interest showed up in volume on Friday with a nice 10% gain. If LDK can fill the gap created by May’s disappointing earnings results, the stock should quickly recover most of its losses from May.
*All charts created using TeleChart
Be careful out there!
Full disclosure: long LDK, short CAT, long SSO puts