We’re only seven days into 2020, and the market is starting to stumble. It shouldn’t come as too much of a surprise to realistic investors, though.
Especially those of us waiting on a slight correction after stocks surged higher last Thursday. Of course, nobody expected a surprise attack on Iranian military leadership – something that may have only hastened the coming drop – but for the most part, even the staunchest bull was ready to “exhale.”
Since December 12th, equities went on an absolute tear, as evidenced by a near 3% gain in the S&P 500. The other indexes did well over that period, too; the Nasdaq Composite surged 3.68% as of yesterday’s close.
Now, however, investors are starting to eye their exit points. The threat of a U.S./Iran war – though unlikely – seems to be pushing gold prices even higher as a result.
In other words, the “uncertainty” indicators are flashing red.
So why isn’t the market selling-off in a big way?
Because in addition to a smaller-than-expected November U.S. trade deficit (according to a Census Bureau report released this morning), Wall Street continues to show signs of confidence in stocks.
More importantly, institutional investors don’t seem to believe that Iran is a real threat. Nor do they think Trump will be removed from office.
Yes, he’s been impeached. But pending an absolute bombshell reveal, House Democrats won’t have enough rope to hang “Teflon Don” in a Senate trial.
With or without the testimony of Trump’s former allies.
And so long as there are no legitimate threats to American prosperity, Wall Street will stand pat. That means retail investors will, too.
After all, you don’t want to be the one who misses out on the next rally, do you?
Thankfully, there are still a few stocks out there that are poised to move, regardless of what happens with the general market over the next week or two.
In the daily candlestick chart above, you can see that The Bank of New York Mellon Corporation (NYSE: BK) has had quite the run since November. Much like with the major indexes, BK hit a rough patch in early December before rocketing upwards. Now, after failing to break through resistance several times, BK is making another push.
With a bullish breakout and several higher lows in the rearview mirror, BK is likely to rise above its December high over the next few sessions. To avoid a “head-fake” breakout, we’re setting our trade trigger to go long at $52.00 – a little bit higher than normal. And usually, when I see a stock trading so close to a level of key resistance, I want a candlestick to close above resistance before going long.
But in BK’s case, we have hidden bullish divergence, which happens when a traded asset (BK) sets a higher low while an indicator (Stochastics) sets a lower low. Hidden bullish divergence is seen as an indicator of a trend continuation, meaning that the stock has stored up plenty of energy to make another “leap” forward. Right now, the stochastic indicator remains under 80, suggesting that the stock isn’t overbought yet.
So, if BK does move past resistance, odds are it will stay above it. And if it trades past “head-fake” territory, it could very well be worth a long position at $52.00 – an absolute steal for a stock that was worth almost $59.00 per share back in January 2018.