Monthly Archives: September 2017

Amazon Has the Most Terrifying Chart on the Planet

From a technical perspective, there isn’t a whole lot more that could be going wrong on the Amazon (AMZN) weekly chart.

A cluster of bearish indications in time and price have weighed on the stock the last several months. Key support in the $950 area is breaking down at this point in the Monday session. That could trigger an intermediate-term move that could take the stock down 20% from its July high.

Let’s catalog the technical damage and look for potential areas of support on the downside. These areas are used to help set stop-loss levels, for those who are currently long Amazon, and find low-risk entry points, for those who are looking for buying opportunities.

Amazon had been trading in a rising triangle pattern for the last two years and last week a bearish engulfing candle formed that broke the triangle uptrend line on a closing basis for the first time. An interior uptrend line drawn off the 2017 lows was broken last month. This high is also the center candle of a three-period eveningstar bearish reversal pattern. The high wick “doji” candle center of the eveningstar is also the “head” of a head-and-shoulders bearish reversal formation.

A large eveningstar or a head-and-shoulders formation often signal the end of a rally phase. When they merge as a complex hybrid, their importance is multiplied. Amazon has been charting a series of 45-week cycle high inflection points, with the last coming at the July high. Since it began trading in the rising triangle pattern in 2016, these cycle inflection points have marked short-term tops.

A major complex bearish hybrid reversal pattern forming at a cycle inflection point and a combination of breakdowns that trigger off multiple support lines, is likely to have some momentum behind it. If the $950 level does give way on a closing basis, the first downside target is the $850 level. This would be a 38% Fibonacci retracement of the 2016 and 2017 range, a retest of the previous October high level, and the price target objective of the head and shoulders formation. It would also constitute a 20% drop for Amazon shares from their July high, which is the technical definition of a bear market. Below the $850 level are the remaining Fibonacci retracements and finally the 2016 low.

Amazon is a powerful player unencumbered by normal fundamental metrics, but it looks like the technical indications have caught up with the stock price.

Apple Chart – Levels of Technical Support Following the iPhone-8 Selloff

Apple AAPL shares are down about 4% since the September 12 launch of the new iPhone-8. The technical case for a pullback following the announcement was outlined here earlier last month. A key zone of support was broken at the open today which could be a catalyst that accelerates the downside momentum. Let’s take a look at future levels of support on the weekly and daily time frames.

At this point in the last session of the week, the long term uptrend line on the weekly chart has been broken. A close in the lower range of this candle would form a particularly ominous looking long solid dark candle. It would suggest that Apple is not done going lower and the momentum and money flow indicators are in agreement. The relative strength index and the TRIX indicator, which is a triple exponentially smoothed moving average designed to filter out insignificant price movement, had been in bearish divergence to the stock price prior to the announcement and have continued to track lower. Overall volume has picked up and money flow continues to deteriorate. This reflects a shift in investor sentiment and possible institutional distribution.

The levels of support outlined on this chart are the intersection of the 40 week moving average and the horizontal support line in the $142 area. Below this is the 38% Fibonacci retracement level of the 2016 low and this year’s high, and after that is the reinforced $126 level which is the 50% retracement level and marks the 2015 high. A move to the 50% retracement level would be just over a 20% decline and put the stock in an official bear market.

Today, Apple shares gapped below a key zone of support in the $155 to $152 area. The breakdown from the rising triangle pattern earlier this month, along with today’s subsequent failure of the $152 level has set into motion what is beginning to look like a waterfall decline. If the recent negative price momentum picks up the stock could quickly test the key $142 level that is also highlighted on the weekly chart.

These levels are all potential inflection points which, if they were to fail could send the stock lower, but could just as easily be a platform for a substantial bounce. The point of highlighting them is to help traders with a position to define stop loss levels and for those looking for potential entry points, either to the long or short side.

How to trade the coming rally in the US Dollar

There are many fundamental factors that govern the value of the U.S. dollar. It is a complex matrix of competing forces, but the way those dynamics transcribe to the price charts is fairly simple to understand. The dollar has been moving lower and now it looks like a transition in the direction of the trend may be underway. A look at the charts on multiple time frames outlines the way to trade the greenback.

The weekly chart of the U.S. Dollar Index puts the analysis in context and shows a potential reversal pattern forming. The dollar broke off a long-term consolidation channel in late 2016, but it proved to be a false breakout and this year it has retreated back through the consolidation range to the $91 area. This downside move constitutes a 38% retracement of the 2011 low and this year’s high range. Now a key candle reversal pattern is forming at this potential support level.

The “morningstar” is a three-period bullish reversal pattern consisting of a large dark candle, followed by a narrow opening and closing range “doji” candle, and completed by a large white candle. It suggests a transition in investor sentiment from bearishness-to-bullishness. A strong close this week would form the final candle in this process and could potentially reverse the trajectory of the trend. The trade, however, is triggered by the action on the daily chart.

The PowerShares DB U.S. Dollar Index Bullish Fund (UUP) is being used to illustrate the action on the daily chart. For the last seven months, it has been trading in a declining channel below its declining 50-day moving average. This month it looks like it is attempting to form a very small inverse head-and-shoulders pattern or similar rounded bottom base.

The momentum indicators suggest an internal shift in direction is underway. Moving average convergence/divergence has been moving in bullish divergence to price, and the stochastic oscillator is tracking higher and is above its center line. Chaikin money flow is in positive territory and the accumulation/distribution line has crossed above its signal average for the first time in a long time. These are signs of renewed buying interest in the dollar.

The basing on the UUP is taking place below the $24 level and that is the initial trigger point to watch. Two consecutive upper candle closes above $24 would be the first in a tiered entry into what should be a long-term trade. A confirmed break above the 50-day moving average and the declining channel downtrend line would be a second entry point. The thesis of the trade is that a major shift in the long-term direction of the U.S. dollar is underway and it should offer opportunities to add to a long position as it develops. That, of course, will take time and traders and investors should be patient and let the charts be their guide.

(published today on

ADP Shares Subdued After Bill Ackman Interview — but That Will Change

Bill Ackman: ADP has started to see real competition from CNBC.

In an interview on CNBC this afternoon, activist investor Bill Ackman restated his argument that payroll software company Automatic Data Processing (ADP – Get Report) is losing market share to its competitors.

On Aug. 4, it was announced in the media that his Pershing Square Capital Management firm had taken an 8% stake in ADP, and on Aug. 17, Ackman presented a 165 page report to investors laying out a case for Pershing Square to pick up three seats on ADP’s board. The stock price responded with volatile moves to these previous Ackman announcements, and a check of the daily chart shows how it is reacting after Wednesday’s interview.

ADP shares spiked more than 13% on July 27 when it was rumored that Pershing had acquired a significant stake in it. Two days after, a shooting star candle high formed marking what appeared to be a blow off top. The stock price declined into the Aug. 4 official announcement and then after the August 17 presentation it dropped sharply back down to the $104 level where all the volatility first began.

Price action Wednesday after the CNBC interview with Ackman has been subdued and the stock is down 0.49% from Tuesday’s close.

A rudimentary inverse head-and-shoulders pattern with a declining neckline has formed on the chart. As the recent volatility has moderated, the relative strength index has begun moving sideways above its center line and the trajectory of the moving average convergence/divergence oscillator, which had made a bullish crossover shortly after the head of the pattern formed, has flattened out.

This month overall volume has dropped significantly and the Ckaikin money flow reading has been lower to slightly neutral. Technical indicators are generally too slow to respond to rumors or flash announcements and often are of little help when volatility is contracting and price action is confined to a narrow range. Then pure price action around well-defined levels of support and resistance is what signals the trade.

The intermediate-term direction of ADP will be determined by either a breakout above the neckline of the inverse head-and-shoulders pattern currently positioned in the $108 area, or a breakdown below the $104 support red zone delineated by the intersecting trend lines. Volatility should return under either scenario.

Lee Cooperman’s opinion of Ackman’s position in ADP:

Leon Cooperman: I find Bill Ackman’s behavior ‘foolish’ and ‘irresponsible’ from CNBC.

SPDR S&P 500 ETF – Often Overlooked Momentum and Volatility Indicators Are Sending a SPY Signal

The broad market indices continue to make new highs taking the track of the SPDR S&P 500 ETF (SPY) from the lower left of the chart to the upper right. There is currently no strong technical evidence which suggests a dramatic shift in that trend, but there are two less popular indicators that suggest an imminent short-term reversion to the 50 day mean.

The Coppock Curve is a momentum indicator that is normally used to measure trend on a weekly or monthly time frame. It incorporates two periods of the Rate-of-Change oscillator and a smoothing average to identify buying and potential selling opportunities. On this version of the indicator an additional 5 period average has been overlaid to act as a short term signal line. In this way the indicator can be interpreted like the MacD oscillator using signal line crossovers.

Small and very short-term pullbacks to the 50 day moving average have followed previous bearish crossovers, but these reversions to the mean did not breach the long term uptrend that has defines the year-to-date rally. At the present time, it appears that the Coppock Curve indicator is in the process of making another bearish crossover, and there is a volatility measure that supports this possibility.

The Average True Range indicator is a measure of volatility that incorporates the average range of a stock and is designed to account for price gaps. Normally, a strong move in a stock is accompanied by a higher ATR and a less enthusiastic move by a lower range. The recent slope of the ATR reflects the range contraction over the 14 day look-back period of the indicator. It is back at a level that preceded the previous small pullbacks in the SPY and which were coincident with the Coppock Curve crossovers.

A reversion back to or below the 50 day average this time would be a small percentage move but larger than previous pullbacks, and as the uptrend matures the likelihood of a break below the long-term uptrend line increases. The trend is your friend but keep a close eye on future reversions.

Northrop Grumman Shares are Higher – But Be Defensive

The news this weekend that Northrop Grumman (NOC) had completed a deal to purchase Orbital ATK (OA) for $7.5 billion comes on the heels of the announcement two weeks ago that United Technologies (UTX) was purchasing Rockwell Collins (COL) for $23 billion plus debt.

Consolidation in the defense and aerospace industry is expected to continue as companies position themselves to meet changing defense needs and counter new and expanding global threats. At this point in Monday’s session, Northrop Grumman shares are retesting the August resistance level of a small channel consolidation. Two consecutive closes above this level would signal the resumption of the rally in the stock that began at the beginning of the year.

Northrop Grumman stock price appreciated by more than 20% this year, before they began trading in a horizontal channel this month. During this consolidation period, the technical indications began to weaken and a breakdown looked like a good possibility. Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and had been tracking well on both time frames. These readings suggest a loss of underlying short-term positive price momentum and trend direction. Chaikin money flow moved below its 21-period signal average last month and below its center line this month, reflecting distribution in the stock.

Shares of United Technologies fell after the company announced plans to acquire Rockwell Collins, which is typical inverse stock price action between acquiring and acquired company. But Northrop Grumman shares are up today in unison with Orbital shares.

NOC is currently testing channel resistance in the $273 area after testing channel support briefly at the open Monday. The technical conditions leading up to today’s wide range correlated price action make a knee-jerk NOC buy-trade imprudent. The stock will require two consecutive upper candle closes above $273 channel resistance before it can confirm a channel breakout and resumption of its uptrend.

Oracle Stock Could Could hit some downside air pockets

Oracle (ORCL) reported earnings before the market open Friday and while the numbers for the quarter were strong, the company said it expected the acceleration in revenue to slow in the second fiscal quarter.

Founder Larry Ellison’s remark during the call that, “There’s no one left to buy,” may have further suppressed growth expectations. Cloud revenue was up but it only accounts for 16% of Oracles top line. Shares are down nearly 6% in early trading Friday morning, and it’s time to look for downside support levels on the chart.

Investors should be aware of these support levels because they mark the borders of former upside gaps. These gaps become support vacuums on the way back down, often acting like “air pockets” that cause the stock price to drop suddenly and sharply.

(article posted Friday morning on — chart updated at close.)

The stock rallied nearly 40% this year, but not in a steady rise above a well-defined trendline. Rather was saw fits-and-starts of gap breakouts, followed by unstable periods of consolidation. Last week, Oracle broke above the most recent level of consolidation resistance but did not gap higher. In Thursday’s session, a small doji, or narrow opening and closing range candle formed on strong volume, which can be interpreted as representing a lack of trader conviction.

Going into Friday’s report, the relative strength index had returned to an overbought condition, and while the moving average convergence/divergence oscillator recently made a bullish crossover, it did not make a new high along with price. This is considered a bearish divergence and a technical warning sign.

The 50-day moving average is the first line of defense and if the stock can close in its upper range, it would form a hammer candle at this key level. This would be a first step in “hammering” out a bottom.

If the average is decisively broken and downside momentum accelerated, the $48 to $46 gap range comes into play. The problem with gaps is, they like to be filled and they are support vacuums. Once the stock price enters the gap, it can fall just as easily as it rose to form it. On the positive side, if the 50-day average does hold, there is Friday’s overhead downside gap to fill.

The bottom line is to mind the gaps.

Jack Ma Is Selling 9% of His Alibaba Shares — Should You?

Alibaba Holdings Group (BABA – Get Report) Founder and Executive Chairman Jack Ma is planning to sell 9% of his position in the company over the next 12 months, as reported in a U.S. Securities and Exchange Commission filing on Wednesday.

The performance of Alibaba this year has been nothing short of stunning. The stock is up 100% while Amazon is up a “mere” 32% year to date. By any number of technical indications Alibaba is clearly in an overbought condition, but it has been that way for a good percentage of this year’s rally. That is not a reason to sell the stock; neither is a sale by an insider, but it might be a reason to be cautious and monitor price action and technical levels for an exit strategy.

The daily chart shows the stock moving steadily higher in the first half of the year and then gapping up in June. At that point, brief rally periods were followed by periods of well-defined consolidation, which formed a rising triangle, a horizontal channel, and a wedge formation.

This week Alibaba broke out of its most recent consolidation and in Wednesday’s session it briefly made a new all-time high. It looks like a new rally phase may be underway, but let’s add some technical context to the pure price picture. A weekly histogram of the moving average convergence/divergence oscillator shows it declining over the last two months, in slight bearish divergence to the stock price.

Daily Chaikin money flow has also been making a series of lower highs beneath a declining 21-period signal average. These readings reflect an underlying weakness in price momentum and money flow direction. Let’s look at today’s price action.

At this point in Thursday’s session, the stock is pulling back off its highs and has formed a high wick or upper shadow candle. This doji-like or shooting star type of candle suggests an inability to hold its upper levels and is a signal a temporary high may be in place.

It is unlikely that one simple candle over one day’s price action could deter such a strong rally, but if this weakness continues into the close on Friday and the stock price drops back down below $175, it would form a high wick candle on the weekly chart. This would be the fourth consecutive high wick candle on this time frame and that “cluster” would be a serious concern for the sustainability of the rally.

(This article appeared on on Thursday.)

Citigroup Breaking Above channel Resistance – Are the Banks Back?

This big bank a must-buy as financials rally: Technician from CNBC.

The financials and particularly the money center banks have been an underperforming sector of the stock market this year. The technology space, the S&P 500 index, and the DJIA, as represented by the S&P Select SPDR ETF’s, have all bested the financials by a large margin.

But there is one relative performer in the money center banking group and it is Citigroup (C), which is up 18% year-to-date. The stock closed up in trading on Wednesday making a nearly nine year high, and now look ready to breakout of their recent consolidation phase.

The daily chart shows Citigroup trading in a large rising triangle pattern in the first half of the year, below horizontal resistance in the $62 area. It broke above that resistance in June and made a perfect measured move up to the $69.25 area, which became channel resistance, with the $66 area acting as pattern support. There was a sharp bounce off channel support this week and the strong Wednesday session finished right at channel resistance. A breakout looks imminent.

If Citigroup does break out, the channel pattern targets a price objective measured by taking the height of the channel and adding it to the breakout point. It projects up to the $73 area or about 6% upside.

The S&P Financial Select SPDR ETF (XLF) bounced off its 200 day moving average this week and on Wednesday closed right on its 50 day moving average, suggesting some positive price momentum. If it is anticipating a recovery in the sector, it looks like Citigroup is ahead of the curve and should continue to outperform it competitors.