Monthly Archives: April 2017

Planet Fitness Showing Some Muscle and Breaking Out on Strong Volume

Planet Fitness PLNT, the discount gym operator, announced earlier this month that they had surpassed the 10 million member mark, and had plans to open 200 new locations this year. The immediate reaction of the stock price was to move lower but shortly after that it found a floor in the $18.25 area, has since begun to react positively to the news. In Wednesday’s session it broke through important resistance on strong volume, and with a 31% short interest in stock further upside could initiate a covering rally.

The daily chart shows the stock reaching all-time highs in November 2016 and then pulling back later that year, before making a second run at new highs early this year. That attempt failed and support in the $20.75 area was broken and the stock continued lower before finding support at the 38% Fibonacci retracement level of the 2016 and 2017 range. It was able to bounce off that second level of support and took out the previous downtrend line. In trading on Wednesday the stock was up 3.5% on strong volume, breaking above the 50% retracement level of the October 2016 and March 2017 range.
The stochastic oscillator had been moving in bullish divergence to the stock price and has now crossed above its center line reflecting the recent positive price momentum, and the vortex indicator, which is designed to identify early shifts in trend, is in the process of making a bullish green-over-ride crossover. On the money flows side, the successful test of the April low came on heavy volume, and Wednesday’s breakout saw similar volume, both days exceeding the 50 day moving average volume. Chaikin money flow has moved up sharply and is well into positive territory, suggesting the stock was being accumulated into its recent reversal.
PLNT is a buy at its current level using an initial stop under the $19.00 level.

(This article was published on this morning.)

The Market Wasn’t In Bearish Transition

It did look like the market was in bearish transition, but like I said in the linked article, “Watch for a breakdown from these daily support levels as confirmation of the reversal action on the weekly chart.” Confirmation is crucial in technical trading. The Dow Jones Industrial Average was testing the support line of a horizontal channel consolidation and the S&P 500, the NASDAQ Composite, and the Russell 2000 Small-Cap Index we’ll all making lower highs above static support. Those support levels were under pressure and all indications pointed to a break down, but confirmation was crucial.

As it turned out, support held and the indices bounced hard, taking out their overhead resistance levels. The Russell 2000 was up nearly 5% since it bounced off support and the other indices have either made or are near new all-time highs. It is difficult to say whether this is the start of a second phase of the rally that began in November 2016 or if this unusual movement will just as suddenly fade, and a different pattern of consolidation will begin.

One curious pattern evident on the intraday charts is the way the indices have gapped higher at the open the last two days, and then traded sideways for the rest of the session. Is this evidence of the over influence of the overnight futures, or the strength in the European markets, or of algorithmic trading? That is unknown and unimportant to a technical trader — what the charts are saying is most important, and right now that message is unclear. New support and resistance levels and/or trend lines will have to emerge before the recent volatile price action can be put in context.

Is It Time to Short Disney? Charting the Speculative Trade


Shares of Disney (DIS) are reverting to their old ways by underperforming the Dow Jones Industrial Average in Monday’s session and also forming a bearish engulfing candle. The stock has outperformed the average by 3.8% year to date, but over the last year, it has underperformed by 3.5%, and while all the broader market averages were up more than 1% on Monday, it was down 0.65% on the day. Relative underperformance within the context of a sharp market rally and the formation of the engulfing candle is a very bearish combination, and strongly suggests the stock is headed lower.

The daily chart shows the positive progression of higher highs and higher lows over the last six months, but then a decline in the angle of the trajectory over the last two months along with additional technical signs of trend weakness.
The dotted trend line that supported price from December through February is a linear regression line, which is the best-fit straight line of the 20-day average of the stock’s slope; in March, price began moving below that trend indicator.
Last month the accumulation/distribution line crossed below its signal average and Chaikin money flow moved down and into negative territory. These are signs of waning price and positive money flow momentum. The reading on the Bollinger bandwidth indicator reflects tight price range compression, a condition usually resolved by a volatile move, so a shift in the primary trend could be swift and sharp.
Disney is a good risk/reward short sale at its current price using an initial stop placed over the engulfing candle high. It is important to remember that all short positions are inherently speculative and require a disciplined trading plan.

(This article appeared on this morning.)

The Market is in Bearish Transition

There has been a transition underway in the market over the last month, evident on multiple timeframes on the charts of the major market indices. One last level of technical support remains before the breakdown is confirmed and market heads lower. The weekly chart supplies context for the potential move and the daily charts provide the trigger.

The weekly chart of the Dow Jones Industrial Average shows the index moving higher in 2016 in three distinct phases: the first, a rally off the double bottom low and then a test of 40 week moving average; the second phase, a higher high and a retest of the average; and third, the sharp increase in trajectory starting at the end of October that has taken it to the all-time 2017 high. Four weeks ago the uptrend line that delineated the final phase was broken, and over the last three weeks an eveningstar pattern has formed on the chart. The eveningstar pattern is a 3-period bearish reversal pattern consisting of a large white candle, followed by a narrow opening and closing range “doji” candle, and completed by a large dark candle. It represents a transition in trader sentiment from bullishness, to a neutral stance, to bearishness, and often forms at important tops. The relative strength index and moving average convergence/divergence indicator reflect the recent loss in momentum, but more important is the slowdown, again very recent, in positive money flow. Accumulation/distribution is still tracking above its 21 period average, but the Chaikin Oscillator has crossed below its signal average. The oscillator is a momentum indicator designed to anticipate directional changes in the A/D line. Momentum and money flow readings, as well as recent movement in the index suggest traders may be losing confidence in the ability of the market to sustain this phase of the rally. Let’s take a look at the daily chart to see how this transition is playing out on that timeframe.

The daily chart includes the DJIA, along with the S&P 500 index, the NASDAQ Composite, and the Russell 2000 Small-Cap Index. It shows the long-term uptrend lines being broken and the indices making lower highs and penetrating their 50 day moving averages, then arriving at or near their March lows. This final level of support on the Russell 2000 has been time tested and looks solid, but the equivalent levels on the other index charts look less substantial. Watch for a breakdown from these daily support levels as confirmation of the reversal action on the weekly chart.

(This article was published on this morning.)

The Charts Suggest — Apple Is Headed Lower

The broader market is experiencing a minor pullback this month, but this “minor” pullback has taken the indices and many of the most actively traded stocks back down to key support levels. This is the case with the Dow Jones Industrial Average, and additionally, a major technical reversal pattern has formed on its weekly chart, identical to one that has formed on the Apple (AAPL) chart. The implication is that even the mighty Apple may be ready to fall or, minus the embellished characterization, at least pull back.

The eveningstar bearish reversal pattern that formed on the Dow and Apple weekly charts is a 3-period pattern consisting of a large white candle, followed by a narrow opening and closing range “doji” candle, and completed by a large dark candle. It represents a transition in trader sentiment from bullishness, to a neutral stance, to bearishness, and often forms at important tops. This pattern or a similar representation has appeared on a number of popular stocks, as well as major index charts.

On the Apple daily chart, the stock price can be seen moving higher since the beginning of March, in bearish divergence to the relative strength indicator and the moving average convergence/divergence oscillator. Positive Chaikin money flow has dropped off dramatically in the last week and entered negative territory for the first time since the start of the November 2016 rally. These readings represent a coordination of bearish momentum and money flow indications. The stock price has moved above its 200-day moving average by the highest percentage difference since its 2015 high, and due for some measure of regression.
Apple shares returned to retest their two month uptrend line and enclosed on the low of the Friday session. Penetration of this trend line suggests the stock is headed lower, and the move may have the potential to close the February higher.

(This article was published on this morning.)

When Facebook Pulls Back, How Low Can it Go?

Facebook FB shares broke out of a triangle consolidation in January and rallied higher, posting a 24% gain in the first quarter of this year. Momentum has been fading over the last month of trading, however, and an uptrend line that has defined most of the rally was broken in Tuesday’s session. The stock looks like it is preparing to pull back and if that is the case, the question is how far?

The green box on the daily chart highlights the last 20 trading days and the rising dotted trend line inside the box is a 20-period regression line. A regression line is the best-fit straight line of closing price over the period, and in this case the stock price is below the line. The slope indicator just above the price chart illustrates the rise-over-run of the 20-period linear regression, that is the movement over time around the regression line, and it has been in bearish divergence to price. The decline in momentum is being confirmed by the break below the center line on the stochastic oscillator, and the negative divergence on the daily moving average convergence/divergence indicator. On the money flow side, the Chaikin money flow indicator has been moving lower and is preparing to enter negative territory, and the 21-period moving average of the indicator is crossing below the 50 day moving average. The graphic at the bottom of the chart shows the percent difference between the 50-moving average relative to the 200-day moving average, a 10% upside divergence between the two averages, the highest it’s been since the October 2016 decline. Price momentum is fading, positive money flow is declining, and there is a major moving average diversion in place, the combination is a prescription for a pullback.

While these indications may seem insignificant for a stock that is in such a strong primary uptrend, with only the previous 2016 high level and very little other in the way of notable areas of chart support, a pullback could quickly accelerate. A move down to the area of the 2016 high and the 38% retracement level would constitute a 7% decline, with the next level of support the 50% retracement level and a 10% decline. A full reversion to the long-term uptrend line drawn off the lows of the rally that began in 2013 would constitute approximately a 15% decline, similar in magnitude to the October and November 2016 drop in the price of the stock.

(This article was published on this morning.)

Gold Preparing for a 10% Gain–How to Trade the Gold ETF

(this article was first published on on April 10th.)

Gold has rallied this year back up to the intersection of a key technical level and its 200-day moving average, and in the process, formed a bullish cup-and-handle pattern on its chart. If pattern resistance is broken, the upside target price projection takes it back to the 2016 highs in the 1375 area, a 10% gain in the price of the commodity from its current level.

The weekly chart of the Gold Continuous Contract shows the rally in the first half of 2016 breaking above a trend line drawn off the declining 2014 and 2015 highs, and then making new multiyear highs, before reversing in the last half of the year and moving back down to retest the long-term downturn line. The bounce this year met resistance in the 1265 area and then pulled back off that level, before its current second attempt at a breakout. On this timeframe, the moving average convergence/divergence indicator has made a bullish crossover and is moving above its center line, and Chaikin money flow is attempting to enter positive territory. These are signs of intermediate term positive price and money flow momentum.

The daily chart of the popular SPDR Gold Shares ETF (GLD) highlights the cup-and-handle formation, with the long-term 2016 low marking the bottom of the cup proportion of the pattern, and the higher low last month the handle. Rim line resistance and the 200-day moving average are currently intersecting in the $120 area. The relative strength index moved above its center line and 21-period average, about the same time the vortex indicator, designed to identify early shifts in trend, made a bullish crossover. This month Chaikin money flow moved above its signal average and centerline, completing another coordinated movement of positive price momentum and money flow. The GLD is a long candidate after an upper candle close above the $120 level, using a trailing percentage stop, with the pattern price projection targeting the 2016 highs near the $132.00 level.

The Major Market Indices Continue to Weaken

The Dow Jones Industrial Average ($DJIA) and the S&P 500 Index ($SPX) are retesting their 50 day moving averages and nearing downside support levels, at this early point in the trading day. The Russell 2000 Small Cap Index ($RUT) has been trading below its average for the last week, but is well above horizontal support in the 1348 area.

These technical support levels have been in place for over a month and have been tested before, but as these indices with the NASDAQ Composite Index ($COMPQ)being the exception, continue to make lower highs, and the momentum and money flow indications continue to track lower, the likelihood of those support levels being breached increases.

Cisco Systems Chart Framing a Good Risk/Reward Short Trade

Shares of Cisco Systems (CSCO) have pulled back off their March highs and are retesting their rising 50 day moving average. This moving average support looks unlikely to hold and sets up further downside in stock.

The weekly chart shows the stock moving up nearly 60% from its 2016 low to the high this year. The first half of that move took it back up to the 2015 highs and projected the second half move up to the $34.00 level. It also took the relative strength index into an overbought condition, but the indicator is now moving down and out of that zone, and while Chaikin money flow is still well into positive territory, overall volume in March was consistently under the 50 day moving average of volume. Previous pullbacks have returned to the rising 40 week (200 day) moving average, and while there is no guarantee there will be a retracement of that magnitude, it is important to note.

On the daily chart, the $33.50 level can be seen as support in March with penetration of that level taking the stock price back down to the 50 day moving average at the upper end of the February rising gap. Daily moving average convergence/divergence, which is overlaid on a weekly histogram of the oscillator, is moving lower on both timeframes, and the vortex indicator, designed to identify early shifts in trend, has made a bearish crossover. The month of March also saw the accumulation/distribution line cross below its signal average and Chaikin money flow drop sharply, and enter negative territory. The money flow and momentum indications suggest further downside and there is little in the way of identifiable support levels below the gap low, until the 2016 highs in the $31.25 level, and intersecting with that level, the 200 day moving average. CSCO is a good risk reward speculative short trade at its current level using an initial percentage buy-to-cover stop above the $33.50 level.

Are Amazon Shares Topping Out — The Unthinkable Technical Take

An eveningstar reversal pattern has formed on the Amazon AMZN daily chart near the upper end of a rising wedge consolidation. This pattern, if confirmed by follow-through price action, could be a signal that a top of some duration has been made, and the stock is preparing for a pullback. It is well known that calling tops is a fool’s game and calling a top in Amazon may be the most foolish game of all, but that does not mean technical signals should be ignored, and this pattern is a fairly reliable one.

Let’s begin by taking a look of the weekly chart to put the daily price action in context. The stock began trading in the rising wedge pattern in early 2016 and since then it is up over 90%, and currently retesting the upper end of the pattern. This is a logical place to see a small retracement back to the rising support line, and the relative strength index by entering into an overbought condition, supports the possibility. The last time the indicator was at this level the stock was also testing the upper range of the wedge and subsequently a weekly eveningstar pattern formed, initiating a return to wedge support. This is the same pattern currently in place on the daily chart.

The eveningstar pattern is a reliable three-day reversal pattern that consists of a large white or bullish candle, followed by a narrow opening and closing range “doji” candle, and completed by a large dark or bearish candle. It reflects the transition in trader sentiment from bullishness, to a neutral stance, and finally to bearishness, and is often observed at important tops. Like all technical patterns it requires follow-through price confirmation, but if the stock price continues lower the next level of support is in the $860.00 area and after the weekly wedge support line. If wedge support were to be broken, and that is a 7% move lower and pure speculation at this point, it would constitute a break in the primary trend
This may be a shorting opportunity but that would be a highly speculative trade, it wouldn’t be foolhardy, however, if you are long Amazon to consider taking some profits.

(This article appeared on this morning.)