Shares of hotel company Marriott (MAR) - Get Report are currently exhibiting a bearish technical formation between $44 and $47. This has locked price behavior into a range to a point where the battle between the bulls and the bears appears to be a stalemate. There was one push by the bulls over $47 in late May, but distribution pressure quickly pushed the price right back to the $44-$47 range.
Marriott does not appear to have undergone any major changes of late in terms of its fundamentals. This makes the technical picture all the more interesting, given the battle just below the 200-period moving average.
The first bearish formation in the stock occurred in April, when a return to the January highs created a double top. While a double-top formation doesn't necessarily indicate a total price implosion, it does signal that there is less willingness to buy highs and upside momentum. In this scenario, bulls would rather buy weakness and create support, instead of taking the buy high/sell higher approach. This method usually helps with short exposure setups, because they are only willing to buy at key support levels or on weakness.
Should key support levels -- such as $44, in the case of Marriott -- fail, then support usually won't occur right away and offers short exposure a few days to a few weeks to try and reap profits.
Eventually, fundamentals overcome technicals again, and price finds strong support and reverses back to the former range. So it is this break below $44 that should help signal a move back to the $40-$42 range for shares of Marriott.
The ideal setup for this trade would be to see a close under $44. If this happens, look for a return to $44.50 for entry, with a stop at $47.25. This offers $2.75 in risk.
The profit target would be placed at $41.50. If price moves down to this level, support should come in again and push the price back to the $44 level. So taking profits near $41.50 will satisfy a 1-to-1 reward/risk ratio and allow the easier money to be made. I don't expect much more downside from there.
If Marriott's share price breaks $44 and moves below $43.50 without offering an entry first, this trade setup is no longer valid. Also, if the price moves above $47 without first offering the entry, this trade setup is no longer valid.
Shares closed at $44.69 Monday.
Marriott (MAR) -- Daily
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has not set up yet. The entry strategy for this trade would be to see a close under $24.75. Then let the price move back up to $24.75 and take entry there. The stop would be placed at $27.00, which would offer $2.25 in risk. The first target would be just under the first former support level at $22.50. Partial profits could be taken there. The final target would be placed at the second former support of $20 a share. Shares closed at $24.88 Monday.
At the time of publication, Schumacher had no positions in stocks mentioned, although holdings can change at any time.
Chris Schumacher is a financial trader, speaker, writer and co-author of
Techniques of Tape Reading
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