Don't Ignore This Chart

Mind the Gap in AMAT

The long-term trend for Applied Materials (AMAT), a big semiconductor equipment manufacturer, is clearly up and the short-term trend could be turning up again with a gap three days ago. The chart below shows AMAT hitting a 52-week high in early June and then forming a large triangle. This is basically a large consolidation within an uptrend, which means it is a bullish continuation pattern. A move above 48 would break triangle resistance, but this level is still quite far away. 

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Time To Clean Out Your Portfolio?

The discussion about market tops seems to dominate most of the news. With the exception of severe market collapses, usually the market rotates through different sectors in the business cycle, even during down times. The market top in 2015 saw Clorox rise 30% in the next year while the index pulled back. Recently, my eye was drawn to Clorox (CLX), looking for a strong, defensive stock. If the growth areas of the market are on pause, we might see some transition into more defensive names. Clorox (CLX) owns a beautiful 5-year chart that looks like it is getting ready for its next breakout. After a 4-year rocket ride, the stock paused when the financials started to pick up the pace in 2016. Clorox is back near all time highs but more importantly, it looks like it want retest the recent false breakout. 

After the false breakout, the stock pulled back. It did not make a lower low and continues to press the upside. Tuesday's close was back above the 2016 high and $0.07 short of the highest close in March.  While the dividend isn't huge, it is hovering around 2.4%.

Good trading,
Greg Schnell, CMT, MFTA

 

A Big Dow Component is Turning Up Again

The Dow Industrials is in a clear uptrend with a fresh 52-week high just last week. Note that this senior Average is hitting these new highs without much help from its second largest component, Goldman Sachs. For reference, the Dow Diamonds (DIA) is up around 13% year-to-date and GS is down around 3.5%. The Dow is a price-weighted average and this means the stock with the highest price carries the most weight. Goldman Sachs has been the biggest component in the Dow most of the year, but Boeing recent overtook it with a big surge in late July. BA is currently around $236 and accounts for 7.36% of the Dow, GS is currently around $230 and accounts for around 7%. 

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Small Caps Break Down; Where's Support?

The Russell 2000 fell for the third consecutive week and its 2.70% loss last week fell below its rising 20 week EMA for only the second time in 2017.  It was a significant violation and now this index is staring at key price and moving average support in the 1340-1350 zone:

Note that the rising 50 week SMA is currently at 1349, providing further support in that 1340-1350 area.  If all that support fails, then the next price support level would be the June 2015 top just below 1300.

Happy trading!

Tom

Gold Miners Break A Down Trend

The Gold space is particularly interesting this week. It marks 1 year since gold miners GDX topped out in 2016. The GDX printed a high of $31.70 on August 12th, 2016. GLD was already making lower highs.

But the week brings a new chapter in GDX as well. The gold miners ETF (GDX) broke a significant downtrend with yesterdays close. There will be lots of eyes watching to see if it can hold the breakout into Friday's close for a weekly breakout.

While breaking a downtrend is not the same as breaking horizontal support and resistance, it is step 1 to changing the chart shape.

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NetEase.com Getting Crushed After Earnings; The Bad News? The Selling Isn't Over

After the bell on Wednesday, NetEase.com (NTES) was hammered as its Earnings Per Share (EPS) of $3.86 fell short of Wall Street consensus estimates of $4.07.  While that was bad enough from a fundamental perspective, the technical conditions had already begun to deteriorate in the form of a weekly negative divergence on its MACD.  That is a signal of slowing upside price momentum and that, coupled with the fundamental miss, has sent NTES shares reeling today as internet stocks ($DJUSNS) struggle.  Here's the long-term weekly chart on NTES:

In my Trading Places blog article from yesterday, "Brace Yourselves, The Summertime Doldrums Have Arrived", I delved into the internet stocks and pointed out three stocks in the group that were looking at technical troubles ahead and NTES was one of them.  They had no margin for error with their quarterly earnings release and that EPS miss triggered what will likely become a period of intense selling the next few weeks.  I see the 260-265 area being tested quickly and then we'll see if price support there holds.  If not?  Next stop would be 210-215.

Happy trading!

Tom

Gold and Bonds are Moving in Tandem

The Gold SPDR (GLD) and the 20+ YR T-Bond ETF (TLT) are both having good years with GLD up around 10% year-to-date and TLT up around 7%. As the chart below shows, these two are positively correlated over the past 12 months. The indicator window shows the 63-day Correlation Coefficient (TLT, GLD) in positive territory for the entire chart. 63 days is around three months or a quarter. Chartists looking for more sensitivity may try a 20-day Correlation Coefficient. This positive relationship is visible today with both up sharply in early trading. In addition to the greenback, chartists looking for clues on gold should also watch the bond market. 

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Thanks for tuning in and have a great day!
--Arthur Hill CMT

Plan your Trade and Trade your Plan
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Correlation between Stocks and Bonds Turns Positive

Stocks and bonds are both having a good year with the S&P 500 SPDR (SPY) up 11.91% year-to-date and the 20+ YR T-Bond ETF (TLT) rising 6.53% since January. The advance in SPY has been much steadier than the choppy advance in TLT, but both sport nice gains so far in 2017. This is a bit unusual because bonds are normally considered safe-havens that benefit in a risk-off environment. Stocks, in contrast, are risky assets that benefit in a risk-on environment. The indicator window shows the Correlation Coefficient (SPY,TLT) turning positive in June and staying positive most of the last two months. It is an unusual situation, but we should keep an open mind and stay bullish on the price charts until there is evidence of a trend change. SPY has key support in the 240-241 area and TLT has key support in the 122-123 area. 

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Thanks for tuning in and have a great day!
--Arthur Hill CMT

Plan your Trade and Trade your Plan
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Ferrari Flying But Does It Need A Pit Stop?

Fresh off yet another stellar quarterly earnings report, Ferrari's (RACE) stock price has hit the accelerator once again.  Its ascent truly has been remarkable as RACE has gone from 31 to 111 in 3.2 seconds.  Okay, the stock price hasn't really moved that fast, but sometimes it seems like it.  Instead, RACE has more than tripled in less than 18 months and that's impressive.  Let's take a look under the hood:

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Southern Co (SO) Looks Up

Southern Co (SO) is a utility company with a pretty intriguing chart this week. 

THe SCTR got very low and is starting to move above 30, which is one style of trade I like. The Relative strength is clearly out of favor, so that is a major drawback. The price action has oscillated above and below the $48.50 level for the last year and this week closed back above it. 

What I like most about the chartis the Full Stochastics on a weekly chart getting into oversold and now bouncing back up. Both other times on this chart, that was a fantastic buy signal. While the MACD has not crossed its signal line, the histogram improved quite a bit this week which suggests the trend might be changing.

After such a bullish run into other sectors of the market for so long, it might be time for these defensive sectors to play more of a roll. With a sparkling yield of 4.6 %, a little payback comes with the stock. 

Good trading and enjoy the weekend.
Greg Schnell, CMT, MFTA.