Monthly Archives: October 2017

Amazon Chart Shows a Major Top Could Be Forming

Amazon (AMZN) has been unable to hold above $1,000 for any extended period of time and rhis inability to capture this important psychological level is weighing on the stock price.

It is currently trading about where it was this time last May and in a channel pattern, delineated by resistance at $1,000 and support in the $940 area. This week’s failure to hold above $1,000 is likely to send the stock price back down to its lower channel range.

This pullback would also set-up a test of the neckline of a large head-and-shoulders pattern on the chart. The integrity of this neckline support level could determine the future long-term direction of the stock price.

The daily chart shows a dark high-wick candle forming in Wednesday’s session with the close back below the upper channel resistance level. This particular type of candle is considered a bearish reversal candle with the inference being that another attempt at a breakout has failed and the stock is headed back down to the lower end of the channel.

The stochastic oscillator made a bearish crossover and is moving lower and out of an oversold condition, which suggests some downside price momentum. The Chandre Trend Meter uses several moving averages on six different time frames to give a numerical value to the strength of the trend. It is moving down from its uptrend zone into its center or weak downtrend area, reflecting an early shift in trend direction. Chaikin money flow has been oscillating around its center line and flat 21-period signal average. Negative money flow should increase as the stock moves down to retest channel support.

The price action in Amazon over the last six months has formed a head-and-shoulders pattern on the chart. The June highs are the left shoulder, and the July high is the head, while the recent channel formation is a complex right shoulder. The intersection of channel support and the 200-day moving average in the $940 area is the pattern neckline.

Indications are the stock is headed down to retest the neckline where, if the pattern repeats previous retests, it should bounce. But a confirmed break below this important head and shoulders neckline support level would signal a major top was in place and a negative shift in the long-term trend has begun.

Allergan Shares Are Ready for a 30% Bounce

Allergan (AGN) shares have pulled back to a key level of technical support on their weekly chart. This same support level was successfully tested in October last year and was followed by a 30% bounce in the stock price. The indications on the chart suggest that another significant bounce is likely, one that could help to establish a base and reverse Allergan’s long-term downtrend.

The stock rallied more than 1,400% from its 2009 low to its 2015 high. Over the last two years, however, it has made a series of deep lower-lows followed by sharp reversal higher-highs. In October last year, shares returned to test the 50% retracement level of their previous rally range. This $180 level held and over the next several months the stock moved back up to the $250 area.

The 38% retracement level of the rally range acted as a new higher level of support until last week when it was broken. The break has quickly taken the stock price back down toward the $180 area. This is where the technical indicators suggest the stock would be expected to bounce.

There are several technical similarities to the previous October test. The stochastic oscillator is in an oversold condition and in prior instances when it is either overbought or oversold, it does not stay overextended for long periods. On balance, volume made a higher high last October and it has continued to track higher. The price action over the last two months caused moving average convergence/divergence to make a bearish crossover, but it has been making a long-term series of higher lows, in bullish divergence to the stock price.

The downside momentum in the stock could see it initially over-shoot and take it through the $180 level, but after a period of consolidation in this area, traders should be alert to bullish reversal candles or formations and be prepared for a volatile bounce.

General Motors Upside Momentum is Stalling Out

Shares of General Motors (GM) went hyperbolic in September gaining 25% in just six weeks. Over the intermediate term that trend should remain in place, but over the short term the stock could be preparing for a pullback.

An eveningstar pattern has formed on the daily chart. This is a three-period bearish reversal candle pattern consisting of a large white or up-day candle, followed by a narrow opening and closing range “doji” candle, and completed by a large dark or down-day candle. It represents a shift in trader sentiment from bullishness-to-bearishness.

The stock is overbought as the RSI indicates and that coupled with the eveningstar pattern suggests a pullback may be required to digest the recent gains. Chaikin money flow, however, reflects buying interest and the reading suggests that any pullback will be limited, as traders who missed the September rally look to enter the trade at a lower price.

Like all candle patterns, the eveningstar requires follow-through confirmation.

If IBM Drops and Holds This Key Level, It’s Bound to Recover

Wall Street is expecting a 22nd consecutive quarter of declining revenue from IBM (IBM), when the company reports its third-quarter earnings results after the close Tuesday. Disappointing first- and second-quarter reports this year were followed by downside gaps in the stock price, but this time may be different.

The stock has moved back above several key technical levels of resistance, which should now supply support. If those levels can withstand another poor earnings report and prevent any further decline in the stock price, it would be a sign that IBM is on the road to recovery.

Despite the long string of revenue misses, IBM rallied over 60% off its February 2016 low to its February 2017 high. That trend reversed when the stock price slipped back below the rising 50-day moving average and accelerated with the April downside earnings gap. A rising channel pattern began to form ahead of the July report, but after it was released, the stock price gapped lower again.

A new rising channel formed ahead of Tuesday’s report and there are some slight positive technical differences. Recent price action has taken the stock back above the 50% retracement level of the February 2016 to February 2017 rally. It has also broken through the downtrend line of the decline this year that followed the rally, and moved back above its 50-day moving average.

Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and has moved above its center line on both time frames. This reflects positive short-term price momentum and trend direction. Chaikin money flow had been positive for the last month but dipped into negative territory last week. The direction of money flow will have to improve to support the continuation of the short-term trend.

The key level for IBM shares going forward is the intersection of the 50-day moving average and the 50% retracement level, in the $144 area. Even if Tuesday’s earnings report is another disappointment, if this level is able to hold and money flow improve, it would suggest an important low has been made and Big Blue may be on the road to recovery.

PVH Could Be Headed for a Breakdown

PVH (PVH) shares have rallied over 40% this year, tracking above a rising 50-day moving average to their September high. That positive momentum has moderated over the last month and the trajectory of the stock price has flattened. Currently, the 50-day moving average and trendline support in the $123.50 area are being tested, and the technical indications are pointing to a breakdown.

The daily chart shows the steady rise in the stock price going into the September high and then the sideways price movement over the last month. During this time, the relative strength index has being moving lower and is below its center line, reflecting the recent loss of positive momentum.

Daily moving-average convergence/divergence is overlaid on a weekly histogram of the oscillator and is crossing below its center line on both timeframes. This is an indication of a loss of positive short-term momentum and trend direction.

The two indications that suggest the move lower could be volatile are the Bollinger bandwidth indicator and the graph of the percent difference between the 50-day and 200-day moving averages. The diversion between the two key technical averages is wide; in fact, it is the widest it has been since 2013. This implies a reversion of the 50-day average back toward the 200-day average, which would mean the stock price would have to move considerably lower.

The Bollinger bandwidth reading is extremely low, reflecting the recent lack of volatility. Periods of low volatility like this are often followed by periods of high volatility and, if that is the case, a breakdown from current levels could not only be deep but also could be fast.

Small Cap Stocks Head for a Breakdown That Could End the Broad Market Rally

The Russell 2000 Small Cap Index is up over the last 52 weeks, but it has lagged the broader market indices, under-performing the Nasdaq Composite by 50% in that time. This disconnect could be about to accelerate as the iShares Russell 2000 ETF (IWM) chart illustrates, and the danger is this continuing small-cap deterioration will start to drag on the broader market.

The IWM spent most of this year making a series of higher highs after bouncing off horizontal support in the $133 area. While the price movement is contained in defined trend lines, it has become more volatile as it has developed and could be interpreted as a broadening top pattern. The premise of the pattern is that the smart money is exiting as the first new highs are made and the later volatility is the result of participation by the general public. This is a dangerous time because when the institutional distribution is over, there will be no more buyers, and the cycle will collapse.

The August low took the IWM back to its January level and the sharp rally that followed the successful retest of pattern support accounted for most of the year’s gains. That move returned the fund price back up to triangle resistance and last month a single-day surge in positive volume powered it through resistance. This month, however, the bullish momentum has faded and the IWM has been trading in a narrow sideways range. The individual candles that have formed in this consolidation range are of particular concern. A number of them have high wicks and small real bodies, a sign of uncertainty at new highs, and the technical indicators reflect this uncertainty.

The relative strength index has crossed below its 21-period average in its overbought zone and moving average convergence/divergence is making a bearish crossover. These readings represent a loss in short-term positive price and trend direction. While it is still well into positive territory, Chaikin money flow has dropped below its signal average, and overall volume has fallen off. These readings do not support a continuation of the uptrend.

The September breakout on the IWM chart and the weak price action that followed suggests the breakout was an exhaustion move and that the small-cap sector is headed lower. It could be a volatile downdraft as the weak hands that powered the move quickly abandon their positions. That would get the attention of the broader market and that is the danger.

If Honeywell Drops Even Lower, Here’s Where It Becomes a Great Buy

Investors are having trouble digesting the news that Honeywell (HON) is spinning off its transportation and home industries businesses to concentrate on its aerospace operations. The stock price has pulled back off its highs and looks like it is headed back down for a retest of its 200-day moving average. If that were to be the case, the pullback would allow time for the market to absorb recent company news and re-energize the long-term uptrend in the stock. It would also offer a good risk-reward long entry opportunity.

One of the fundamental issues that is translating into technical uncertainty may be that back in February 2016 when Honeywell proposed its failed takeover of United Technologies, the company said the purchase would create a “well-balanced portfolio” of aerospace, home and energy products. Now it seems to have abandoned any effort to diversify and instead will focus just on its aerospace sector.

Another potential issue could be that investor Daniel Loeb of Third Point, has been pressuring Honeywell to spin off its aerospace operations and focus on the remaining parts of its business. The announcement from the company Tuesday is the exact opposite of that proposal. The easiest and most profitable way to follow how all this fundamental information plays out may be to simply monitor the price action on the Honeywell daily chart.

The stock has been trading higher and above its rising 50-day moving average for the last five months. It broke out of a wedge-like formation shortly after the United Technologies and Rockwell announcement in early September, and has continued sharply higher. That upside momentum, however, is now fading. A large dark candle formed on Monday at new highs, and Tuesday’s news regarding the spin-off of divisions saw some intraday volatility; Honeywell’s stock price dropped sharply at first but then closed up near its high of the day. At this point in Wednesday’s session, it is trading lower and below a large upper candle wick. These three consecutive candles have bearish implications.

The stochastic oscillator is turning down and out of its overbought condition. This is a short-term negative momentum indication but should be measured against the strong reading on the Chandre Trend Meter. This indicator, which uses multiple moving averages on multiple time frames to assign a numerical value to trend strength, is reflecting the longer-term bullish uptrend.

Honeywell shares are pulling back off their recent highs and likely to retest the zone of support on the daily chart delineated by the long-term uptrend line, the 50-day moving average, and horizontal support supplied by the August high. If that turns out to be the case, it would be a good risk-reward buying opportunity with an initial stop just under the zone. The implication being that the long-term trend is intact and the stock is ultimately headed higher.

Cramer Goes ‘Off the Charts’ on Semiconductors

Cramer’s charts suggest these semiconductor stocks can still soar from CNBC.

With technology stocks on fire this year, Jim Cramer decided to go Off the Charts with Bob Lang to take a closer look at the semiconductor sector.
Lang is the founder of ExplosiveOptions.net and is a contributor to TheStreet.com’s Trifecta Stocks newsletter.

Lang noted that the the VanEck Vectors Semiconductor ETF (SMH) is up 1,200% since the 2009 lows, dwarfing the gains in the S&P 500 over the last 8 years. That suggests that there are more semiconductor companies besides NVDIA (NVDA) which are performing well.

Cramer and Lang started with a chart of Intel (INTC) , the old guard chipmaker. Shares of Intel shot higher a month ago, and the stock’s now at its highest levels since the dot-com collapse in 2000, according to Lang. The stock’s strength has brought much of the semiconductor index with it.

And the Chaikin Money Flow Oscillator, a measure of buying or selling pressure in a stock, turned from negative to positive three weeks ago and has surged since. That tells Lang that big institutional buyers are piling into the stock. Lang also notes that turnover has been strong, with shares up 20% since Intel’s last earnings report, a very large move for a company with a big market capitalization, such as Intel. The company reports next week, setting up the possibility for a decline given the big run shares have already seen. Cramer says if that happens, it should be treated as a buying opportunity.

Not all semiconductor stocks have been performing well. Qualcomm (QCOM) , which makes communication chips and the software used in a lot of cell phone technology, has repeatedly disappointed bulls this year. But that may be about to change.

Lang said Qualcomm’s chart shows it could be ready to move higher. It has made an inverse head and shoulders pattern, a reliably positive pattern. That could set it up for a quick trip to $56, according to Lang. The stock has already broken above a ceiling of resistance at $53, and the relative strength index has been rising. In addition the Moving Average Convergence Divergence indicator is bullish as well as the Chaikin Money Flow oscillator. Heavy option flow in the December 55 and 57.5 calls also indicates many buyers think Qualcomm will go to at least $60 by the end of the year. Qualcomm reports in three weeks.

Lastly, Cramer and Long looked at Broadcom (AVGO) , formerly known as Avago.

Broadcom has benefited from a series of acquisitions and the stock is now up 120% just since the beginning of 2016. Lang notes that Broadcom has made a series of higher highs and higher lows, with the stock’s 20-week moving average acting as a floor of support. In addition, Broadcom has made a bullish flag pattern here — where the stock trades sideways after a big rally in order to digest its gains. Typically, this kind of formation eventually leads to an upside breakout. According to Lang, if Broadcom can rally above $250, he expects the stock will start heading to $300 pretty quickly.

Starbucks Perkin’ Up – Poised For A Volatile Move Higher

Starbucks Corp. (SBUX) is a very profitable company with promising growth opportunities in China, and yet for the last two years the stock price has gone nowhere. In October 2015 it was trading around $56 and that’s where it is today. But the stock has been retesting long-term support and the technical indicators are suggesting that it could be preparing for a volatile move higher.

After making a new high in October 2015, Starbucks shares began making lower highs above what would become long-term support in the $52 to $53 area, and forming a declining triangle on the weekly chart. A break move above the triangle downtrend line earlier this year briefly made new highs, but then the move reversed direction and the stock price dropped back down to again retest the long term support zone. Since then, Starbucks shares have been consolidating in a small triangle below the $56 level, which is currently intersecting with the long-term triangle downtrend line. But now the daily technical indicators are suggesting that a breakout is coming and it could be volatile.

The daily chart shows the small triangle consolidation that has been underway for the last three months. Pattern resistance is defined by the 62% retracement level of the November 2016 low and this year’s high, and also the bottom end of the July gap lower. Those mutual levels of resistance are being tested in today’s session. Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator, and is tracking back above its center line on both time frames, which is a sign of positive price and short term trend direction.

The Bollinger bandwidth indicator is reflecting a high level of price range contraction, and periods of low volatility like this have, in the past, been followed by periods of high volatility. This was the case before the spike in the stock price in May and the drop in the stock price in July. The Chaikin money-flow reading is neutral and that will have to improve to support a rally going forward.

Southwest Airlines Shares Pulling Back From Fibonacci Resistance

Southwest Airlines (LUV) is following the Fibonacci script. In September, it bounced off the intersection of the 50% retracement level of the November 2016 low and this year’s July high, and the 62% Fibonacci fan line of that rally range.

Fan lines are trend lines that extend from the trough low of the Fibonacci range through the different retracement levels. The stock continued its advance and now is intersecting with the Fibonacci fan line drawn from the start of the rally and through the 38% retracement level.

A pullback may be in order, and the 50% fan line currently in the $56 level is the first area of support.