This week’s choices cover a wide range, from energy to financials, to tech. There is something for everyone.

Road Runner: I recommended Netflix (NFLX) in my first appearance on the Stock Exchange. In late March of this year, it had come off of recent highs and reached the bottom of its 6-month channel. I happily held the position as it appreciated through this spring, selling at some point in late May. Now, I think a re-entry may be appropriate. Let’s review the chart:

The collapse of this stock, beginning in June, took it from the very top of its channel to the very bottom. We’re below the 50-day moving average, but not yet close to the 200-day moving average. Further significant declines are unlikely, and there is significant upside.

J: It is always interesting to revisit a trade we have held before. This stock has also attracted attention from one of our trading experts, Adam H. Grimes?

RR: And does he see what I do?

J: Almost. He notes the decline and potential rebound. He is not quite ready to pull the trigger.

RR: If he had spent some time being chased by that crazy coyote, he would move faster! Beep, beep.

Holmes: Range Resources (RRC) declined after a small rally last week. This is typical of stocks providing a good entry opportunity.

The stock showed some life after a patchy decline since mid-April. At its current price of $23.18, it is well below both the 50-day and 200-day averages. I am looking for a rebound to these points. With a PE of 18.6 the stock is also attractive on the fundamentals.

J: It looks like a consistent downtrend, along with the rest of the energy group. The price of oil looks stuck under $47 per barrel.

H: I am not trading oil. Whatever is happening in that market, this stock is showing attractive relative strength.

J: Have you been following the OPEC news?

H: You know well that I do not read news — just charts.

Felix: Micron Technology (MU) is my pick for the week. It’s a good bit sexier than my usual selections, but I have a good reason for it! Look at the chart:

Growth over the past year has been significant, and most importantly, it has been steady. Outside of a jump in mid-May, we’re seeing steady rises in stock price – reflected by the modest curves on the moving averages. I like that the stock has tumbled a bit this month. I’ll gladly take that as a buying opportunity.

J: This morning the pundit-in-chief opined that many people, focused on the stock symbol, thought it was some type of animal rights stock.

F: Who cares? It does not matter. Traders do not care what the company does. We succeed by identifying and exploiting the flow of trades. That is what I have done. What is this company anyway?

J: A chip stock.

F: So! It is in the food group!

J: Not that kind of chip; a semiconductor chip.

F: You should be more precise in your language.

J: Do you have updated ratings?

F: Of course. My fans have made some new requests. My assistant is supposed to respond to all of them.

J: Your assistant? I didn’t see any new additions to the payroll.

F: Oops. Here they are.

Athena: Discover Financial Services (DFS) is an interesting pick after a possible new uptrend. DFS saw a high upward run in the last two months of 2016 trading into 70’s from about 57.50 in early November. The stock had a fall into the higher 60’s territory in January this year. The past prices illustrate the market view of potential value. The recent basing signals a possible bottom.

J: Nice to see you back on the job! You understand that part of your vacation was unpaid.

A: Unlike human traders, I do not force it when nothing is there. That shows up in my long-term results.

J: I really do understand that, and I hope your vacation was refreshing. Turning to DFS, haven’t we discussed this stock before?

A: Not from me, but perhaps one of the others…

Holmes: Yes, I bought the dip in late April.

J: How did that work out?

H: Not well, as you certainly know. Please keep in mind: My batting average is above .500 and the winning trade size is much greater than the losers. My trading discipline helps me to avoid big losses. Small losses are just part of the game.

J: Thanks for explaining. You have indeed done well on limiting losses.

Oscar: I do not have a new sector this week.

J: That is a disappointment. Everyone is talking about a possible change in market leadership. The story is that all of the gains come from a few stocks. Why don’t you own those?

O: That general impression is completely wrong. Lawrence Hamtil looks at market leadership over the years. Most people would be surprised.

J: A very interesting article. How did you happen to see it?

O: Someone took my sports section.

J: An honest answer. Did you analyze the sectors requested by your fans?

O: Yes. This week’s list includes everything that has been requested.

J: An astute reader asks about TLT and TBT. You list both in the sell range. Since these are inverse holdings, how can both be a sell?

O: The rankings in the sell range do not imply a recommendation to “short” the group. They simply have very low ratings when other choices are much stronger. I would sell either one for a better opportunity.

J: Thanks for clarifying. You are basically saying that bonds are not a good choice – either long or short.

O: Exactly.

Conclusion

Psychology is a part of trading. Technical analysis, as Dr. Brett explains, is a way of reading the psychology of the market.

This week, a member of our analytical team was having trouble finding the Road Runner trading channel. He opined that the model seemed to be wrong. This is the human psychology question in a different guise. Our answer is very clear.
The model is not wrong! You are. It is based upon thousands of objective cases. If it does not look persuasive to you, grasshopper, you need to change your perspective.