There are a number of interesting technical signals on the weekly and daily Berkshire Hathaway (BRK/B) charts. The strong run in the stock over the last three years is evident on the weekly chart but this week it is trading below its 50 day moving average, as the MacD is making a bearish crossover, the RSI has crossed out of an overbought condition, and the Money Flow Index, a volume-weighted relative strength measure has moved under its centerline. These indications reflect a coordinated decline in intermediate term price and money flow momentum.
On the daily chart an apparent topping process is playing out within the confines of a complex two month triangle pattern. The MacD, RSI and MFI are all tracking below their centerlines on this timeframe, and the 20 day moving average has crossed below the 50 day average. Pattern support, also the December low, has been tested over the previous two days and is being retested in today’s session. A pattern breakdown projects a target price that reverts to the 200 day moving average.
I suggested last week that the integrity of the parameters of the descending triangle pattern on the weekly Amazon (AMZN) chart could potentially trigger a $100.00 move in the stock.
The stock has broken through triangle resistance today, but confirmation requires a close above that level.
There is a small bullish MacD divergence on the daily Energy Select Sector SPDR (XLE) chart and with what looks like a higher hammer low in today’s session, hints at a potential a triple bottom scenario. Way early to get too optimistic on the sector that would require trade back above the 50 day moving average.
Microsoft (MSFT) shares are down over 10% after reporting earnings, trading below their 200 day moving average for the first time since March 2013, and approaching last year’s August and October lows. I’m not sure about the long term outlook for the company, but I will be looking for a reversal candle or pattern at or near the support line and a tradable short-term reversion back towards the average.
The bad news is the DJIA has been making lower highs since December; the good news is the 17300 area is holding and looking like triple bottom support. A strong move above the downtrend line and follow-through action that makes a higher high is required for the average to breakout of the triangle pattern and correct.
Amazon (AMZN) shares have been making lower highs above a horizontal support line since the beginning of the year, forming a large triangle pattern. The support line is the 50% retracement level of the 2012 low and the 2014 high and it was successfully tested again this week. A nearly 7.5% bounce took the stock price back up to the 38% retracement, and a small zone of resistance marked by the 50 and 200 day moving averages. The intermediate term direction of the stock could be determined by the integrity of the triangle support and resistance lines, but, regardless of the direction of the break, the triangle pattern projects a potential $100 target move.
The rally on Thursday was sparked by the news from the European Central Bank and created a strong white candle on the S&P 500 daily chart. The flame began to flicker in the latter half of the Friday session and the close near the low of the day formed a bearish dark cloud cover-like candle. Of even more concern, however, was the action on the major European iShares ETF charts. The Friday fade on those charts formed high wick candles that represent rejection, and often mark a temporary top or the start of a topping process. This group of ETF’s have been making a series of lower highs and lower lows, so if they are making another top, will they make another lower low and what will be the extant of this potential drag on the broader US market?
Apple (AAPL) is retesting the intersection of the downtrend line it has been trading under since early December, and its 50 day moving average. A close above this level reinforces the triple-like bottom on the daily chart.
The iShares Emerging Markets (EEM) fund has been attempting to base for the last two months, making a higher low under a static resistance level and forming a cup and handle pattern on the daily chart. Today it broke above the intersection of rim line resistance, the 50 day moving average, and a downtrend line drawn off the previous September and November highs. The Relative Strength Index and MacD have crossed above their centerlines, and Chaikin Money Flow is reflecting minor accumulation. The price action is framing out a good risk/reward trade at its current level.
The short and intermediate term direction of the market may be signaled by areas of support and resistance on these two charts. Movement on the daily chart of the Russell 2000 Index over the past several days has been erratic, with a big down day followed by a strong up day, and then yesterday’s mid-session reversal. This volatility, however, has been confined to a range bordered by the 50 day moving average and the 200 day average. A break above 50 day resistance or below 200 day support could be an indication of the short term direction of the broader market.
The weekly chart of the S&P 500 shows the index trending higher in an ascending channel for the last two years. It is currently testing the lower end of the channel and a break below this support could signal a change in the intermediate term direction of the index. A reversal candle at this level or a pattern reversal like the morningstar formation last October would suggest a continuation of the stair-step advance within the channel.