Trend Check with Tushar Chande

Berkshire Hathaway (BRK.B) Attractive to Long-term Investors

Berkshire Hathaway, buffeted by tax plan headlines, has pulled back into support, and offers a potential entry point for long-term investors. The market itself has seen selling in the short-term time frame. However, intermediate-term and long-term trends are still bullish, as they have been all year.

 

Chart 1: Berkshire Hathaway (BRK.B) retests its prior breakout at 182, with support starting at 177.  The solid black line is the 130-day simple moving average. (A live version of the chart is here.)


 

 

BRK.B and its 26-week SMA

Since 2014, the 26-week simple moving average (SMA) has acted as rough support and resistance for BRK.B stock (see Chart 2).  Starting from the left of the chart, I have marked support at the 26-seem SMA with green circles.  During 2015-16, when trading below this average, the average acted as resistance, shown with red ellipses.  As BRK.B rallied above the 26-week SMA after the market bottom in February, 2016, it has consistently found support in the general vicinity of the 26-week SMA.  In Chart 1, I have converted the 26-week SMA Into the 130-day SMA, for quick reference.  BRK.B had to overcome resistance at 178 in March, had to base for five months before breaking above 172.  Clearly, the market is reluctant to bid up BRK.B aggressively at this point as the tax code gets some work done. Now there should be solid support from 172 through 178, around the 130-day or 26-week SMA.
 

 

Chart 2: The 26-week SMA has acted as support and resistance for Berkshire Hathaway stock. (A live version of the chart is here.)

 

The Broader Market sees Selling in the Short-Term

The selling visible in the short-term time frame at the end of October (see Chart 1 of that post) in the Russell 2000 and NYSE universes has now spread to the other major indexes (see chart 3) driven largely by tax legislation headlines.  However, the trends are still bullish at the key intermediate-term and long-term time frames (See Chart 4).

 

Chart 3: Selling which started last month at the right hand side (NYSE, Russell 2000) as spread to the other indexes, largely driven by tax legislation headlines.  Observe how except the QQQ, the short-term trends are flat or down.

 

Chart 4: The intermediate-term and long-term trends (bottom two rows) are firmly up across the board despite selling over the short-term time frame that started in October. The time frame doubles at each step from to to bottom, and market breadth increases from left to right, from 30 to over 2000 stocks. (Details of the trend-following models are here.)

 

Looking Ahead

As I have said for some time, the market is vulnerable to head-line risk, as we have seen recently from the coverage of tax legislation.  The short-term volatility was best expressed by the price action in HYG (see chart 5).  Unfortunately, there is much on the agenda in Washington before year-end, and further head-line risk awaits. However, the intermediate-term to long-term trend is still up, and that is what investors should keep in mind.

 

Chart 5: The high-yield bond ETF fell sharply into support at 86 (from the 200-day SMA and August lows) and rose once tax legislation advanced in the lower chamber.  There is more head-line risk through year-end.

I hope you find the trend check summary useful, to smooth out the riotous headlines.  I hope you will sign up for my blog updated using the very fast link below.

 

 

 

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