Monthly Archives: September 2018

Six Trading Candidates – Based On Their Weekly Charts

Here are six stocks that are bullish trading candidates based on their weekly charts.

The charts reflect some prior basing action and have well-defined resistance lines. Price momentum is improving and money flow is generally positive.

Trading on the weekly time frame offers the benefit of deeper stops. This also allows more time for the trading thesis to play out. But because of the wider stop loss levels, they do require smaller position size which, of course, limits profit levels.

This is usually a good trade off.

So often traders are stopped out only to see their stock then suddenly reverse back in direction they had originally anticipated and then continue higher. The weekly time frame helps to avoid this all too common dynamic.

The Retail Sector Needs A Rest

There are technical indications on several retail sector stocks that suggest their strong run may be coming to an end.

Take a look at the daily Kohls (KSS) chart. In August the stock began tracking higher above a well-defined uptrend line. The trend line was tested last week and in Monday’s session it was broken. The stock price closed just below the June high.

Moving average convergence/divergence has been in bearish divergence to price since it made the June high. Chaikin money flow is still in positive territory but its upward trajectory has shifted this month, and it is well below its 21 period signal average.

There is similar looking price action on the weekly chart of Macys (M), except that its rally began at the end of 2017. The share price has more than doubled since then and the stock may be in the process of absorbing those gains.

Macys’ shares began moving sideways in May above horizontal support in the $35 area. They have been retesting that support for over a month. The stochastic oscillator has dropped sharply during this time, as well as overall volume, and Chaikin money flow is close to entering negative territory.

After a more than a one year rally, Polo Ralph Lauren (RL) shares are also testing an important trend line. Over the summer several high wick candles formed on the chart. These represent failed attempts to hold higher price levels. The stock is again retesting a rising support line, currently situated in the $130-$131 area.

Moving average convergence/divergence has made a bearish crossover, the stochastic oscillator is below its center line, and the accumulation/distribution line is under its 21 period signal average.

Retail may rebound off these support levels but a more healthy response might be for a pause and consolidation, even if that means a minor pullback, before a resumption of their uptrend.

The Gold Chart Is Starting To Look Good

The SPDR Gold Shares ETF (GLD) have been tracking steadily lower for the last six months. There have been attempts to stabilize along the way, but they all failed and the erosion in the precious metal continued. Over the last month, however, the ETF has stabilized and formed a pattern on the daily chart which suggests a preliminary step in an attempt at reversing trend may be underway.

A cup and handle pattern has formed on the daily chart under rim line resistance in the $115 area, which is currently intersecting with the declining 50 day moving average. Moving average convergence/divergence made a bullish crossover last month and has continued to track higher.

The real technical improvement is in money flow. Chaikin money flow has been moving higher for the last 30 days, starting from a very low level. This week it moved back into positive territory for the first time in several months. This suggests the GLD is no longer being sold and it is the first sign of buying interest.

A confirmed break above the cup and handle rim line projects a pattern measured move to the $119 area. This is only a 3.5% move but it changes the structure of the chart, and points the way ahead for the precious metal.

Red Hat – Breakout Has 10% Upside Potential

Red Hat (RHT) shares dropped sharply in June. They made a low in the $132.50 area later in the month and then began to oscillate around the rising 200 day moving average.

A triangle pattern developed below a static horizontal resistance line in the $150 area. In Wednesday’s session a small hammer candle penetrated triangle resistance.

Moving average convergence/divergence has been tracking higher along with price and is above its center line. The relative strength indicator is also above its center line, and 21 period signal average. These indications reflect improving positive price momentum.

Money flow has also been very positive this month. The Chaikin money flow indicator is well into its upper zone, suggesting strong buying interest in the stock.

It looks like Red Hat is in the early stages of an attempt to close the large downside gap. If it were to achieve that goal it would represent a 10% upside move.

Time To Give GoPro A Speculative Go?

If you’re looking for a speculative trade, it might be time to take a look at the GoPro (GPRO) weekly chart.

The decline in GoPro’s market capitalization and the near 90% collapse its the share price over the last four years is well known. There is no fundamental logic for taking a long position in the stock. There is, however, a technical rationale for a short-term speculative trade.

The weekly chart is highlighted with a two year downtrend line and includes the 10 and 40 week moving averages. GoPro shares are currently above the 40 week average and retesting the trendline.

The relative strength index has been tracking higher ever since it moved out of its oversold zone earlier in the year. This reflects some level of positive momentum in the stock.

Chaikin money flow has also been steadily moving higher and is in positive territory. This suggests renewed buying interest and that shares are under accumulation.

There is a 22% short interest in the stock and the traders that have made money taking this position, may cover if the stock shows some sign of strength.

Similar technical dynamics were in place on the GoPro chart in June 2016 and they provided a profitable short term trading opportunity; they could again.

The edge in this case, is the nearby breakout level supplied by the downtrend line, and the close stop loss levels below the 10 or 40 week moving averages. These present a good risk/reward speculative short-term set-up, but remember — capital preservation is job one.

Live Nation Trade Could Be A “Blockbuster”

Live Nation Entertainment (LYV) promotes and operates live music events. If you take a look at the fundamentals of the company you might not be impressed. But from a short term technical perspective the chart is a potential “blockbuster.”

Price action in April formed a large island reversl, first gapping lower at the beginning of the month, and then gapping higher in early May. The stock continued higher, with the 50 and 200 day moving averages making a “gold cross” in June, and finally peaking in August.

Live Nation shares pulled back below the uptrend line and managed to oscillate around the 50 day average, preventing any further decline. What developed from this was an inverse head and shoulders continuation pattern, with neckline resistance in the $50.25 area.

The relative strength index has crossed above its 21 period signal average and its center line, and moving average convergence/divergence made a bullish crossover and is above its center line. These are indications of increasing positive momentum and short term trend direction.

Money flow is improving along with price momentum. Chaikin money flow has moved into positive territory suggesting new buying interest, and on balance volume is well above its 21 period signal average.

Live Nation was up 2.3% in Tuesday’s session, breaking through the inverse H&S neckline and closing near the high of the session. At this point it looks positioned to make a run at the July all-time high, and the pattern offers a good risk/reward trading set-up.

Market Index Charts Looking Shaky – Elon’s Not Worried

The S&P 500 traded back above its all-time high of 2872.87 on Wednesday and Thursday. The index finished out the week on Friday at 2871.68, back under the high by just under two points. Not a big deal.

There were, however, several important support levels on the major market index charts that were either broken or tested over the last five sessions. And it is safe to say that there was a generally uncomfortable feel to the trading action all week and particularly on Friday into the close.

Possible causes of that vexation was the continuation of the pullback in the technology sector, the news of the departure of another executive officer from Tesla, and the threat of further trade sanctions against China. All were a part of the backdrop of this week’s trading.

Take a look at the daily S&P 500 chart. We have been following its ascent within the borders of a rising channel pattern for some time. Last week it broke above channel resistance and its January high. The relative strength index entered an overbought condition but it looked like the red area delineated by the channel trend line and the previous high level would be solid support going forward. That was not to be the case.

The “solid” support area was penetrated just four trading days later. Instead of a bullish hammer candle forming at support like we saw at the recent August low, a bearish inverted hammer formed, which closed below the support area. A similar candle formed on the NASDAQ Composite daily chart on Friday, directly on its rising triangle support line.

These high wick doji-like candles reflect an inability to hold their upper range and a subsequent return to their lower starting points, at a critical technical juncture.

There was also a significant increase in volume this week and the Volatility Index (VIX) was up 15.7%.

Elon Musk apparently was not concerned about any of these technical issues and appeared quite mellow on an internet comedy podcast on Thursday evening. Shareholders were not amused and took Tesla shares lower.

Bottom line is this – any negative price action as a stock or index is attempting to recapture former all-time highs can look particularly ominous. It is not so much the price pattern or candle formation but a psychological transition in the point of view of traders. Sentiment goes from being confident about the continuation of the rally, to being skeptical that it can continue without a pullback, to finally deciding to take profits.

So, the thing to focus on is volume and money flow as a reflection on underlying trader sentiment. This week there was an increase in volume on the S&P 500 and NASDAQ Composite, and Russell 2000 charts. In all cases, it significantly exceeded their 50 day moving averages of volume.

This is something to watch if you are of the positive or skeptical mindset about the markets. If you are negative then further downside next week would be a good reason to take some profits.