Jim Cramer used the charts of technician Rob Moreno, publisher of RightViewTrading.com and Cramer’s colleague at RealMoney.com, to highlight some of the overlooked sectors’ top names on the “Off the Charts” segment of Mad Money.
International Business Machines (IBM) ended Tuesday at $151.11, down, $1.90 or 1.2%. And it could keep on falling.
The tech giant reported its 21st straight quarter of year-over-year revenue declines after the market closed, giving investors a case of the “Big Blues.” The company has been attempting to transition from its mainframe business model to other more competitive spaces, including cloud computing services, business analytics, and artificial intelligence applications.
It is a major shift away from its traditional enterprise business, and investors are getting impatient. It’s time for the new strategies to generate returns.
Shares rallied over 25% from their October 2016 low to their high in February of this year, briefly outperforming the Technology Select Sector SPDR ETF (XLK) in that time. A small triple-top formed in the $181 area, however, and the stock price began to retreat, first breaking through the trend line that delineated the October rally, and then breaking below a long-term trend line drawn off the February 2016 low.
Relative performance reversed sharply and the stock is currently lagging the broad technology sector by over 20%. The April gap lower in the stock price followed last quarter’s earnings disappointment and created a large vacuum between the $168 level and $161 level. There was a second down gap in May before the stock found a bottom and moved back up to close the smaller gap, and retest the downtrend line drawn off the February decline.
The narrow range price action over the past month has tightly compressed the Bollinger bands and periods of low volatility are often resolved by periods of high volatility. This means that another earnings disappointment or an earnings surprise could be followed by a volatile move in price.
The relative strength index has been oscillating around its center line, reflecting the lack of price momentum, and Chaikin money flow has also been unable to make a decision as to direction.
The trend has been lower for both the stock price and year-over-year revenue — the trend is your friend in this case. The declines could keep on coming.
The nearly-200% move in the metals and mining sector that began in early 2016, peaked in February of this year and has been followed by a period of consolidation. This constructive recovery process may be over and the sector may be preparing for the second rally phase.
The SPDR S&P Metals and Mining ETF (XME) highlights the pullback to the 61% Fibonacci retracement level of the September 2016 low and the high in February of this year, and the channel consolidation that followed above this level and below the 38% retracement level. Last week the fund broke above channel resistance at $30.75 and this level should now become a platform that supports a move higher.
There may be a better way to profit from a rally in the metals and mining space.
Freeport-McMoRan (FCX) has underperformed the XME by 12.5% over the last six months and it is currently breaking above channel resistance of its own. This could be the start of a catch-up move to the rest of sector.
The horizontal channel pattern on this chart is two-tiered — and today the stock is breaking out the lower portion, and retesting its flat 200-day moving average. Its daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and is crossed above its mid-line on both timeframes. This signals positive price momentum and short-term trend direction. Chaikin money flow has been sitting at its center-line, but is back above it and its 21-period signal average.
FCX is a buy its current level, using an initial percentage stock below the $12.50 level. A break from the lower portion of the channel projects a break above the upper portion of the channel, and that could take the stock back to highs of the year.
Get ready to tweet out how much you netted on this trade.
Twitter (TWTR) shares are ready to break out of a triangle pattern that has been forming on the daily chart for the past two months. The pattern targets a 30% price objective into the $25 area, which would take the stock back up to its 2016 highs. There are some hurdles that must be overcome first, but the technical indicators say the stock is ready to run and the move could be swift.
Traders need to be prepared for the rally.
The stock successfully retested long-term support in April and then rallied to the 50% Fibonacci retracement level of its 52-week range. The brief test of the retracement level was followed by a pullback to the 50-day moving average and then a series of lower highs and higher lows, which formed the triangle pattern.
Last month the 50-day moving average made a “golden” crossover above the 200-day moving average, and moving average convergence/divergence and the vortex indicator both made bullish crossovers. These indications suggest positive price momentum and an early shift in trend direction. Chaikin money flow has moved above its centerline and continues to track in positive territory, supporting the breakout thesis.
Twitter was up over 3% on Tuesday, closing near the high of the session and on the triangle downtrend line. A break above this pattern resistance targets a price objective measured by taking the height of the triangle and adding it to the breakout level. This projects through the remaining Fibonacci levels and into a vacuum of resistance that was created by the sharp gap lower in September last year.
Twitter is a buy after an upper candle close that takes out triangle resistance at the $18.75 level, using a tight trailing percentage stop. The trade is speculative, but the technical framework is in place and the risk/reward ratio is large.