Monthly Archives: March 2018

Starbucks – The High Wick Candle Cluster On The Chart Is A Warning Sign

Shares of Starbucks (SBUX) have moved sharply higher off their February lows and managed to close a large downside gap. The gap was formed by a drop in the stock price in January, after the company reported disappointing same store sales.

Price action over the last week formed a series of high wick candles. High wick or upper shadow candles are a condition of shooting star or some doji candles, and these candles are often bearish reversal warning signs.

They are formed after upside action in a stock is rejected and it closes lower, leaving the high upper wick. A cluster forms when there is a grouping of these candles. The number of candles in the group reflects multiple rejections and is that more bearish.

Bearish reversal candles often form after price has attained a particular technical level, like filling a gap or returning to a previous support-turned-resistance level. The suggestion is that the stock has completed the job it set out to do and now it is time for a pause or a pullback.

The recent high wick/low close price action is not yet reflected in the direction of the moving average convergence/divergence oscillator, but Chaikin money flow has moved into negative territory.

It would be guesswork to try and determine the degree of a potential pullback, but there are nearby levels of support at $58.60 and $58.00. The worst case scenario, however, would be a return to the uptrend line drawn off the 2016, 2017, and 2018 lows, currently in the $54 area.

This support line and the downtrend resistance line drawn off the 2017 and 2018 highs, define a large multi-year symmetrical triangle that has been forming on this chart.

Intel Shares Are Rolling Over – A Pullback Could Be Deep

The Intel (INTC) chart looks like it is rolling over.

A high wick shooting star candle formed last Tuesday which was followed on Thursday by a large bearish dark candle. The stochastic oscillator has made a bearish crossover and has moved below its overbought border, and the accumulation/distribution line is pointed lower.

Intel has been making a series of higher highs for the last four months. That is a good thing but the previous three highs have all been followed by lows that retest the $42 level. That is not a good thing. The pattern looks like some kind of modified megaphone top.

The depth of the pullbacks that have followed the highs has been widening. If there were to be another similar pullback from Intel’s current level it would constitute a 16% decline from where the stock closed last Friday. The $42 level is the upper end of a gap that formed in late October last year. Gaps have magnetic properties.

From time to time, I want to include in these postings, some explanation about the technical indicators I use. Specifically, how they are constructed and what they are telling us. Too often, I see people using charts that contain indicators that use basically the same information to support their technical view on the direction of a stock. This is called multicollinearity or using redundant data as confirmation. It is not confirmation at all and needs to be avoided.

The stochastic oscillator is telling us the position of the price of a stock relative to its overall range over a certain period. The default period is 14 days. I’ve highlighted a 14 day period on the chart in late January and noted the mid-range with a dashed line. If you compare the price of Intel to the reading on the stochastic oscillator, you can see the relationship very clearly.

So, the stochastics oscillator is rolling over or headed from a position near its recent high range to a lower position in that range.

The on balance volume indicator had been moving higher, but the accumulation/distribution line has been flat to, more recently, lower. They both measure the direction in the flow of money, either to the buy or sell side, but the difference in the readings is again, how they are constructed.

The on balance volume indicator simply takes a cumulative running total of volume, and adds the current days volume to it, if the stock closed up that day, or subtracts it from the running total, if the stock closed down that day.

Accumulation/distribution is a little more sophisticated. It measures an up volume day by where the stock price closed relative to its overall range. In other words, if the stock closed in the upper half of its overall range it calculates that as buying volume, and if it closed in its lower range that is considered to be selling pressure.

On balance volume and accumulation/distribution generally trend in the same direction, but divergences between the two can signal a change in the trend.

The price action and the technical indicators, as I interrupt them are suggesting that Intel is due for a pullback. The depth of the potential retracement is unclear but it has the potential to be considerable.

Long holders of Intel should be cautious and tighten stop loss levels.

The Index Charts Are Looking Fragile

The broader market indices finished the week looking weak.

The bounce off the February low has been impressive, but it’s been a process and part of that process requires pullbacks. Next week we could see some retracement which could either be healthy for the market, or could take the indices down through some important levels of support.

Let’s start with a look at the weekly charts.

There is a bearish flag-like pattern on the S&P 500 chart. This week, after touching the flag resistance line in the 2800 area, a dark cloud cover candle formed over the previous week’s candle. The implication of this dark cloud candle is that next week the index could begin moving back down, towards another test of the rising support line of the flag, in the 2700 area.

The pattern on the DJIA chart is similar to the one on the S&P chart. Flag support on the Dow chart is closer on a percentage basis than flag support on the S&P chart. If retests of these flag support levels were to happen, the industrial index would probably test first. How well it handled such a test would be a major influence on the S&P index.

Despite some recent weakness in the notable FANG names, last week the NASDAQ Composite Index managed to make a new all-time high. It started this week by opening above the previous week’s high, but closing below it, and below the previous January high. If there is further deterioration in the FANG names the Composite will break its steep short-term trend line.

But it does not necessarily follow that breaks in these weekly support lines will precipitate major moves lower, although the flag pattern’s measured moves do project to considerably lower levels. Secondary base lines could form and contained pullbacks could evolve into horizontal channel patterns. There are, of course, any number of less volatile outcomes.

The daily charts show the support areas more precisely.

Right now the S&P index is sitting on its 50 day moving average. The 2725 level looks like flag support. Break down confirmation would require two consecutive lower candles closes below this level.

NASDAQ support is situated between the 7440 and the 7460 levels. Its 50 day average is currently about 171 points lower and would be the next logical level of support, should the composite index breakdown.

Finally, the Dow has been trading in a symmetrical triangle or wedge pattern on its daily chart. Triangle support is in the 24,700 area. It is currently under pressure as the index nears the pattern apex.

What all this implies is that the indices look fatigued and in need of a recovery period. This could mean a period of lateral movement or a pullback. The risk of a pullback is that when certain technical or psychological levels are breached their failure could initiate further selling.

But what if the market is firmer next week and after several days of gains the flag resistance levels are taken out? That would quickly turn the conversation to talk of DOW 2900 and take the NASDAQ to new highs.

I think the bearish scenario is more likely not just because of the weak looking index charts, but because of the technical weakness in names like (CRM),Apple (AAPL), Alphabet (GOOGL), Intel (INTC), and Home Depot (HD).

I’m not suggesting shorting the market, rather to simply be aware of the fragility of some of the big names and the broader market in general.

CommVault Systems – Up 1.4% Forming Bullish Hammer Candle

Shares of CommVault Systems (CVLT) bucked the broader market weakness in Wednesday’s session. The enterprise data back-up and recovery services software company was up 1.4%, forming a strong bullish hammer candle on its daily chart.

But it was more than a one day event. The price momentum and money flow indicators have been sending bullish signals for some time.

Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and it has made bullish crossovers on both time frames. The aroon indicator and the vortex indicator are each used to identify shifts in trend direction. Aroon measures new highs relative to time and the vortex indicator measure new highs relative to price. Both indicators have made bullish crossovers.

Over the last month the money flow indicators have soared above their signal averages. This is a reflection of positive investor sentiment.

Tuesday’s hammer candle formed just below the 200 day moving average which has been acting as resistance for the last four months. This barrier has prevented the October 2017 gap from being filled.

CommVault’s strong performance against the back drop of a 248 point drop in the Dow, however, suggests that further resistance will be futile.

Silver: More Precious Than Gold Right Now

Tom McClellan, formulator of the McClellan Oscillaotr and McClellan Summation Index, and publisher of, posted this on Twitter today:

“Here is an extremely simple but useful indicator, which I featured last week in my Daily Edition. It says gold prices are making a meaningful bottom.”

The technical picture on the gold chart is improving and Tom’s indicator does suggest a potentially meaningful bottom, but it will need more time to mature. One particular silver chart, on the other hand, looks ready to breakout right now.

A double bottom has formed on the daily First Majestic Silver (AG) chart. The $6.00 level is acting as resistance and it provided support back in August last year. An upper candle close above this level would be bullish. The relative strength index is tracking higher and is above its center line; Chaikin money flow is doing the same.

Bob Lang’s FANG Call Was “Off the Charts”

Cramer’s charts show FANG stocks can stabilize amid market volatility from CNBC.

On the “Off the Charts” segment of Tuesday’s Mad Money show, Bob Lang of defended the Four Horsemen stocks that go by the FANG acronym he coined and Jim Cramer made famous.

Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOGL) were all hit hard last week, but Bob had the confidence of his convictions. On Wednesday morning it looked the group would see a little more downside, but as it turned out the FANG stocks led a late day turn around in the broader market. Netflix was lower but rallied about 2% off its session low.

Jim summarizes:

“For five years, Facebook, Amazon, Netflix and Alphabet survived everything that the bears had to throw at them, and each time they came out stronger than before,” Cramer said. “The charts, as interpreted by the incredible Bob Lang, suggest that this time may be no different. He does expect Alphabet to pull back some more before it can find its footing. But as for Facebook, Amazon and Netflix, he’s optimistic. Me? I remain a FANG stalwart.”

BlackBerry Chart – Classic Bullish Price Action

The daily chart of BlackBerry (BB) is a good example of positive technical price action. Shares are currently consolidating under resistance in the $12.60 area, which is being reinforced by the 50 day moving average. But all indications are the stock will break above this resistance and continue higher.

Let’s take a look at the chart.

BlackBerry shares began moving higher after breaking above a multi-year downtrend line in early 2017. They made a series of higher lows under resistance in the $11.70 area. This price action created a large rising triangle pattern on the chart.

At the beginning of this year, BlackBerry shares gapped above the triangle’s horizontal resistance level and rallied up to a $14.50 high.

A small two-day double top formed there and shares began pulling back. The January decline that followed took price back down to fill the previous upside gap, in the process retesting the triangle resistance-turned-support line.

The stock is now consolidating above the $11.70 triangle resistance level and below the $12.60 and the 50 day moving average.

Moving average convergence/divergence reflects the recent upside momentum this month, and is attempting to cross above its center line. Chaikin money flow has turned positive but overall volume is still weak.

A successful retest of a former long-term resistance level, like the triangle trend line, is considered very bullish. An upper candle close above the $12.60 level would confirm the triangle breakout retest and re-establish BlackBerry’s longer term uptrend.

Possible Triple Bottom On The Caterpillar Chart

Just last week it looked like Caterpillar (CAT) had broken above the rim line of a bullish cup and handle pattern. The pattern projected an upside price objective that targeted a new all-time high.

It was a very strong looking chart and all the technical indicators were tracking higher.

The MacD momentum indicator had made a bullish crossover and the accumulation/distribution line was tracking higher and above its signal average. A double bottom was in place and the stock had moved over its 50 day moving average.

But it was a false breakout.

Instead of heading to new highs, Caterpillar shares quickly reversed direction and dropped back down to their double bottom low in the $145 area.

Early in Monday’s session, CAT first tested the double bottom low and then reversed direction with the broadly stronger market. Shares finished the day up 3.25%, closing near the highs, and forming a large bullish engulfing candle. Now there is a potential triple bottom on the chart.

It will take a few days to sort this volatile price action out. First the triple bottom will have to be confirmed, and ultimately, for Caterpillar to return to trend, that zone of resistance between the $164.50 and $160 levels will have to be taken out.

Caterpillar is currently up one percent in the pre-market at $152.75

Time To Buy Home Depot – There’s a Bullish Reversal Pattern On The Daily Chart

The decline in Home Depot (HD) shares this month has been dramatic, but the sell-off may have reached an inflection point. The $175 level has been tested three times this month, the last being the central candle in a morningstar bullish reversal pattern.

A morningstar pattern is a three-period formation that consists of a large up-day candle, followed by a narrow opening and closing range “doji” candle, and completed by a large down-day candle. It reflects a transition from bearishness to bullishness.

The $175 level is of particular technical importance because it is also the 50% retracement level of last year’s important July low and this year’s high. Monday’s close was also near the high of the session and just below the 38% retracement level.

Confirmation of the pattern requires an upper candle close above the upper $182.50 retracement level. Ultimately a move back above the 50 day moving average would confirm a return to the previous uptrend.

Bitcoin’s Base Breakout Projects A Price Target In The $16,000 Area.

Bitcoin has broken above the downtrend line drawn off the lower highs that followed last year’s $20,000 high. It is currently being skewered by the 38% Fibonacci retracement level of that memorable 2017 high and this year’s reaction low.

This is a big breakout from a technical perspective but there have bee a lot of lines drawn on this chart over the last several months, and a number of false breakouts from potential basing patterns. So the question is: is this the real thing or is it just fantasy.

There are an infinite number of outcomes over time, of course, but let’s consider the shorter term higher probability moves.

The optimal price action, in my opinion, would be for the current intermediate term trend to remain in place and for Bitcoin to continue to make higher highs and higher lows above an extension of the one month uptrend line. Repetitive and constructive price action that defines a well-tested tend line gives investors confidence and attracts new money.

Another possible scenario, is that the uptrend line is broken and fails. This would probably take the price of Bitcoin back down to the $9100 level. If this happens sooner than later, it would create a channel with the 38% retracement level acting as resistance and the 24% retracement level as support.

A third guess, is that Bitcoin moves above the 11,200 level but meets resistance at the 50% retracement level and tracks along horizontally between those two levels of support and resistance. Channel price action with intermittent false breaks along the way.

The final scenario, is that Bitcoin gains even more traction over the weekend. The move picks up steam and breaks through the 50% retacement level. This is not the optimal outcome from my perspective. It would encourage profit taking and accelerate volatility.

So these are four of the more highly probable outcomes in an infinite set of outcomes. Two are positive and two less constructive. Again, anything can happen, and my simple analysis gives a 50%/50% probablity that Bitcoin will move higher or lower. Not helpful. But from a subjective perspective the chart has taken on a more bullish tone to my eye.

This is what I’m seeing.

The price action this year has formed a rudimentary inverse head and shoulders base with neckline resistance at the 38% retracement level in the 11,221 area. Recent price action could also be seen as a cup and handle formation that shares its rim line resistance level with the cup and handle neckline. Now if you measure the depth of the cup and add that amount to the rim line, the pattern projects a potential target price in the $16,569 area or just below the 79% retracement level.

The stock market had a bad week but Bitcoin had a good week. I would have expected Bitcoin to drop as investors liquidated speculative positions in Bitcoin to cover margin calls in the stock market. That did not happen, in fact Bitcoin may have replaced gold as a safe haven play, because the SPDR Gold Shares ETF (GLD) was down 0.59% last week, while Bitcoin was up 15%.

Bitcoin is a speculative play and erratic price action can take trend lines and price patterns and turn them to rubble. But the obvious noted, the recent price action on the chart is constructive and encouraging. The next big milestone will be recapturing and holding the 50% retracment level in the $12,883 area.

That level of recovery will get the market’s attention.