New Pending Setups | CRM, MCHI

Mid-week update: We provide two additional Pending Setups that we screened as having divergences this week.

As a side note, we wanted to address comments on stop losses already being hit. The stop losses placed on our charts are only suggested for setups once they become active. An Active Setup starts once a Pending Setup becomes triggered. We show a stop loss in a Pending Setup to provide guidance about where a stop loss could potentially be applicable once (and if) the setup becomes active. That can help traders already visualize the potential risk-reward before the setup turns active.

This means that if a stop loss level is hit and the setup is still pending, the trade isn’t necessarily disqualified from remaining a Pending Setup. It would only be taken off as a Pending Setup if the divergence is no longer valid. For a bearish divergence for example, if price hit a stop loss that is at a YTD high level, and the RSI also gained enough momentum to hit a new high instead of a lower high, this setup would then be disqualified as pending.

Equities

Short: Salesforce Inc. (CRM)

-Bearish momentum divergence with price making a higher high last week and RSI making a higher low compared to end of May levels.

-A break of the primary upwards trendline from December of last year, which also coincides closely with the 50-DMA, would provide a sell signal and activate a short trade on a close below it.

-Targets 1 and 2 align with key horizontal resistance while target 3 trades closely to the 200-DMA and the unfilled gap area from March.

-CRM has been in a bullish phase for much of 2023, until the recent consolidation around the $206 area from May to July led to a sharp move to a new YTD high. A break of this primary uptrend would be a decisive transition from its bullish structure however.

-The stop loss is placed slightly above the YTD highs, allowing for a retest before closing the position.

Equity ETFs

Long: iShares MSCI China ETF (MCHI)

-Price made a lower low in early July and RSI higher low compared to end of June levels, prompting a bullish divergence.

-A break of the downwards trendline starting in January would activate a buy signal. The trendline also aligns with converging 200 and 100-DMAs, which could make for a bullish structure should price rise back above those levels.

-Divergence is short in duration at just two weeks old, consistent with tighter targets. Targets 1 and 2 align with key horizontal resistance levels and are higher probability targets.

-Target 3 fills the unfilled gap at the 2023 high, but would need to see a more sustained reversal higher in prices in order for it to be hit.

-Macro Catalyst: China’s recent growth numbers were lackluster with 2Q GDP sharply below consensus. This could prompt more decisive stimulus efforts from the government and catalyze a rally in local equities in coming weeks/months.