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Tickers in this Article: DSW, SHFL, AGU, UTHR
The markets have experienced some pretty wild moves the past few days. We had a 1000 point swing in the Dow last Thursday for which there is still no clear reason. This threw many traders for a loop as the markets entered a 7% freefall in the span of a few minutes and then recouped most of those losses a few minutes later. The following day threatened a valid retest of the crash as the markets closed on a weak note. As if this wasn't enough for traders to ponder, the markets surprised everyone with a 4% gap higher on Monday. Each of these occurrences would be difficult to account for in isolation, but string them together in less than a week, and traders should understandably be confused with what to expect next. On the one hand, the markets are showing a clear vulnerability as traders rushed for the exits last week, but it is also showing an outstanding resolve by gapping higher and holding the gap for two days. IN PICTURES: 7 Tools Of The Trade

While traders may not be able to predict the next move, it is not too early to begin preparing for an eventual outcome. Traders should be very cautious about getting too involved with the indexes as they hover just about in the middle between a possible top and possible bottom off the crash reversal. Both levels will likely have strong emotions tied to them, so it's quite possible that the markets need to digest these moves for some time. This would lead to the indexes beginning to narrow in range as traders jockey for position. At some point, the markets will be ready to make their next move and the best traders will be prepared for a move in either direction. One way to be prepared is to start making a list of stocks for each scenario.

For instance, while many are expecting the markets to head lower, it wouldn't hurt to start building a list of stocks that have weathered the recent weakness. In looking at the chart for DSW Inc. Common Stock (NYSE:DSW), it might be difficult to even pin point a 1000 point crash in the Dow. DSW gapped above a base in May but failed to hold it as it returned back into the base a couple of weeks later. It appeared that DSW would crack, but it found support at its 50-day moving average and has been able to climb back above its breakout area. While buying in this area does not provide a great risk versus reward setup, DSW could offer an opportunity in the near future if it can consolidate above the $30 level constructively followed by a breakout attempt.



Shuffle Master, Inc. (NasdaqGS:SHFL) is another stock to watch for an upside breakout in case the markets follow the same pattern they have for the past year of shaking off weakness and continuing to surge higher. SHFL has been building a base for several months and despite the recent volatility, in the grand scheme of things it doesn't change the technical picture for the stock. SHFL remains in its base and has clear levels to watch in both directions. (For more, see Channeling: Charting A Path To Success.)



On the short side, United Therapeutics Corporation (NasdaqGS:UTHR) is a stock that recently fell out of a base it had been building for about five months. It broke down on high volume and is attempting to bounce off the 200-day moving average and climb back into the prior base. If UTHR fails to climb back into the base, it could lead to a full fledged breakdown and an eventual test of the $45 level.



Agrium Inc. Common Stock (NYSE: AGU) is another stock that could experience further downside and should be watched in case the markets do continue to head lower. AGU has been underperforming the markets for several weeks and is attempting to find support in a critical area near $57. A failure to hold near this area could lead to a double top forming and implying much lower prices.



Bottom Line
So should traders start loading up on short setups, or continue to buy weakness in favor of continued upside? Unfortunately, there is no clear-cut answer as the markets have thrown traders a curveball. There are certainly traders in both camps arguing their cases, but the simple truth is that no one knows the next direction, and short- to intermediate-term traders should continue to show patience and wait for the markets to reveal more clues. There should be a good trading opportunity in the near future and traders should be prepared regardless of the direction it takes. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Charts courtesy of stockcharts.com

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

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