Monthly Archives: April 2018

Bearish “Gravestone” Candles On The S&P 500, DJIA, And NASDAQ Charts

This afternoon we tweeted out that: The bulls need to see strength into the close. Don’t want to finish the week with “gravestone” doji candles on the index charts.

The bulls were disappointed.

Gravestone dojis formed on the S&P 500 Index, NASDAQ Composite, and Dow Jones Industrial Average weekly charts.

A gravestone doji is a bearish reversal candle characterized by a very narrow opening and closing range situated near the bottom of its overall range. It has a long upper “wick” or shadow and little or no lower “tail” or shadow. The candle is commonly seen at the end of an uptrend, and it suggests that the bulls were in control early in the day (or in this case, the week), but the bears took control away by the end of the session.

Volume picked up today, which is another bad sign for the bull case. The S&P daily daily volume bar shows it reaching the 50 day moving average of volume for the first time since the beginning of the month. In addition, positive money flow, as represented on the accumulation/distribution graph, has been declining.

The index is retesting the 2660 level. This is the 38% Fibonacci retracement level of this year’s high/low range, and it has acted as both support and resistance in the past.

Unless this level holds next week, it looks like the S&P is headed back down to another retest of its 200 day moving average, or potentially a 5% decline from its current level, to the lows of the year.

Bitcoin Breakout? Let’s Go To The Video Tape

Bitcoin Video from CNBC”s Fast Money:

Bitcoin is flashing a rare buy signal, crypto hedge fund manager says:

Pantera Capital CEO says $6,500 is the bottom for bitcoin’s bear market, and he sees the cryptocurrency going to $20,000 by the end of the year.

Hedge fund CEO says bitcoin’s flashing a rare buy signal from CNBC.

Bitcoin testing a key technical level

Trader Brian Kelly discusses whether a bitcoin breakout is coming, and how to make money in bitcoin cash.

Bitcoin testing a key technical level from CNBC.

L3 Technologies Triangle Breakout Targets A 10% Move Higher

Shares of L3 Technologies (LLL) rallied over 65% from their February 2017 low to their February 2018 high.

After making the high this year, they immediately began consolidating in a series of lower highs and higher lows. This price action formed a large symmetrical triangle pattern.

L3 broke above triangle resistance this week and is currently testing its all-time high.

The relative strength index moved back above its center line and 21 period average in March, and has continued to track higher. Chaikin money flow entered positive territory as the price momentum was accelerating and is now well into positive territory and above its signal average.

A pattern price projection can be made by taking the base measurement of the triangle and adding it to a breakout level or subtracting it from the breakdown point.

This week’s breakout projects a price objective that targets to the $234 area or about a 10% move higher.

Jim Cramer Goes “Off The Charts” With Rightview Trading

Cramer’s charts show political worries can boost top defense stocks like Boeing from CNBC.

Here is a summary of Tuesday night’s “Off the Charts” segment of Mad Money with Jim Cramer published on TheStreet.com:

In a market fraught with increased volatility and puzzling responses to strong earnings reports, it’s becoming harder to know where to put money to work.

In his “Off the Charts” segment on Mad Money Tuesday night, Jim Cramer checked in with Bob Moreno, publisher of RightViewTrading.com and a contributor to Real Money, to get a better sense of one sector that is seeing growing support: Defense.

They started by looking at Boeing’s (BA) chart. The biggest name in aerospace holds a dominant place in the passenger plane market, but also has tremendous exposure to the defense market. Shares rocketed 130% from February of 2017 to the peak earlier this year. Since then, the stock gave up 15% before finding support at its 6-month uptrend line.

Moreno points out that Boeing ran into a ceiling of resistance at its 50-day moving average. More importantly, he thinks that the stock has now made a rounded bottom pattern, and according to Moreno this kind of pattern can help you predict where it might be headed. You take the height of the rounded bottom, add it to the ceiling of resistance at $340, and get a potential price target in the high $360s. On the other hand, if Boeing breaks down below its floor of support around $313, this same pattern means it could fall as low as $285, potentially turning the uptrend into a downtrend.

Moreno believes there’s good reason to be positive here, thanks to the Chaikin Money Flow oscillator, which measures the level of buying or selling pressure in a stock. This is in positive territory, and Boeing is only a few points away from breaking out to the upside. If the stock can rally another $5, Moreno thinks the next $25 could be smooth sailing.

Cramer and Moreno next looked at Northrop Grumman (NOC) . Shares have behaved better than Boeing amid concerns over a potential trade war with China. The stock sold off with everything else in February, but quickly bounced back to new highs. For the past couple of months, the stock has been trading sideways between $336 and $359. Now, Moreno’s methodology here is to look at the height of the channel, then use that to come up with a projection of where the stock might be headed. On a breakout to the upside, he could see Northrop Grumman going to $383, up $32 from where it’s now trading. On a breakdown, though, it could sink to $312.

In Northrop’s case, Moreno focuses on the Aroon Indicator, a tool that tracks new highs and lows over time to identify early trend changes. In late March, the Aroon indicator made a bullish crossover, where the green line goes above the red one, and that makes Moreno think that Northrop Grumman is poised to rally here.

Next Cramer and Moreno examined Lockheed Martin’s (LMT) daily chart. As with Boeing, Lockheed saw a big rally that peaked earlier this year. Shares sold off before forming another rounded bottom. Lockheed’s floor of support here is its 6-month uptrend line, while its ceiling of resistance is just above the 50-day moving average.

Moreno sees some nice upside on a breakout, but meaningful downside if the stock pulls back to its floor of support and that floor fails. The Chaikin Money Flow is neutral. If it rallies another dollar that will be enough for the breakout Moreno’s looking for. If Lockheed can’t break out to the upside, though, he thinks it’s very likely it could keep trading sideways for a while longer.

Cramer and Moreno also looked at General Dynamics (GD) which peaked in early March, before starting a downtrend until Tuesday. Last week, General Dynamics fell to the lower end of its channel, but then it bounced right to the high end, and Wednesday it firmly broke out above the high end of this channel. The stochastic oscillator, which is a powerful momentum indicator is making a bullish crossover, and based on today’s move, Moreno thinks General Dynamics can return to its old highs at $230.

Finally, Cramer and Moreno looked at the daily chart of Raytheon (RTN) , which Moreno sees as the most bullish chart in the group.

The stock had a small period of consolidation in March, but in the past few days it has definitively broken through its ceiling of resistance. Moreno thinks Raytheon could have a lot more room to run because it just broke out of a rising triangle pattern. He could see it rallying to the $245 area, up $20 from current levels, before this move runs out of steam. The Chaikin Money Flow is also very strong, meaning big institutions are buying.

Cramer and the Action Alerts PLUS team say that the president’s moves on behalf of Boeing (BA) signal good times for defense names, including Raytheon (RTN).

Technical Signs Point To A Rebound In The US Dollar

The decline in the value of the US Dollar as represented by the PowerShares DB US Dollar Bullish Fund (UUP), has taken shares back down to the 62% Fibonacci retracement level of the 2014 low and the 2015 high range.

The fund has made three long wick candle lows just below this level and held support. But it has been unable to sustain a bounce back above resistance in the $23.65 area.

There are, however, several bullish technical indications on the weekly chart that suggest resistance will be broken, and shares of the UUP are headed higher.

The stochastic oscillator is tracking higher and moving above its center line. Moving average convergence/divergence has made a bullish crossover and a higher low in bullish divergence to the fund price.

There is also some renewed buying interest in the UUP, as reflected in the Chaikin money flow reading. It is in positive territory and at its highest level in over a year.

Underlying price momentum indications and recent buying interest is suggesting that the nearby overhead levels of resistance will be taken out. If this is the case and the move is sustained, it is the first step in reversing the long-term downtrend and a positive sign for the US dollar.

Home Depot Shares Nearing An Inflection Point

Home Depot (HD) shares pulled back sharply in the weeks following their January high. Then they began moving steadily lower in a declining channel-like pattern. Now they are approaching an inflection point that could be resolved by a volatile move.

They have returned to their 40 week (approximate 200 day) moving average and an 18 month uptrend support line on the weekly chart. Price momentum is obviously to the downside but money flow, as represented by the weekly Chaikin money flow reading, is still reflecting positive buying interest.

The drop in February was followed by a continued but more measured decline with the stock making a series of lower high and lower lows. The trajectory of the pattern has flattened out as the stock price has approached its 200 day moving average, and the $170 level looks to be supplying support.

Home Depot shares are being compressed within the the triangle downtrend line resistance and support in the $170 area. This level of price compression and low volatility is usually resolved by a high volatility move.

Unfortunately, even if the volatility scenario plays out, the direction the move will take is unclear.

The Broad Market Moving Averages Are Doing Their Jobs

Moving averages often supply technical support and resistance. They have been doing just that on the charts of the broader market moving averages.

The S&P 500 Index, the Dow Jones Industrial Average, and the NASDAQ Composite Index bounced off their lows this month, located at or just above their respective 200 day moving averages.

Now they have returned to their 50 day moving averages, and it would be expected that those levels will act as temporary resistance.

Recapturing the 50 day average is a first step in returning to the primary uptrend.

Follow-Up On Faltering McDonalds Shares

We noted the interesting price action on the McDonalds (MCD) chart in this earlier article.

An inverse head and shoulders pattern was forming and the stock was in the process of reversing a two month decline.

An inverse head and shoulders pattern is a bullish reversal pattern. It consists of a lower low followed by a higher low, and it reflects a transition in the direction of the stock price and defines a neckline or breakout level. It is often seen at important lows.

On the McDonalds daily chart the left shoulder of the pattern is delineated by the February low, the March low marks the head, and the higher low that followed defines the right shoulder.

(We also warned of a potential head and shoulders top in McDonalds shares back in January just before the stock price began a two month decline.)

The inverse head and shoulders pattern did form on the chart but the breakout that followed has faltered. Support at the 200 day moving average is holding but the structure of the candles positioned just above it is weak. There are a series of lower close higher wick candles which suggests a failure to hold higher prices.

The 50 day moving average has crossed below the 200 day moving average. This is the fabled moving average “death cross,” which often signals the end of an uptrend and the start of a downtrend.

There is another bearish technical indication on the McDonalds chart – the direction of money flow. The accumulation/distribution line is tracking lower and below its declining 21 period signal average, and Chaikin money flow is well into negative territory.

These indicators are measures of buying and selling pressure. It appears that despite the bullish implication of the inverse head and shoulders pattern and the break above the $162 neckline resistance level this month, buyers are not stepping up.

Longs should be cautious. Momentum is failing and money flow is not powering the breakout.