Author Archives: Rob Moreno

Tuesday Could Turn Out To Be An Important Day For the Market

In Monday’s session the Dow Jones Industrial Average, the S&P 500 Index, the NASDAQ Composite Index, and the Russell 2000 Index each tested a two month uptrend line on their daily charts. Despite strong selling pressure in the morning, they fought back to close above their respective trend lines and form hammer candles. The formation of a hammer candle after a successful retest of support is considered very bullish.

There are lots of reasons to remain bullish. On Monday the Russell made a new all-time and the other indices are not far behind, but there are those who are skeptical of the rally. They cite weak volume and the fact that indices like the NASDAQ Composite are weighted in such a way that a few stocks have a disproportionate influence on their movement.

Overnight futures trading currently suggest that the indices will be under more pressure again tomorrow morning. If they are able to repeat Monday’s performance and fight off this second downside wave, it would be upside follow-up and further confirmation of the intermediate term trend. If not and the uptrend lines are broken, it would signal a potential shift in the intermediate term.

Tuesday may be turn out to be a very important trading session.

Why I Shorted Apple At Friday’s Close

Apple (AAPL) is the largest holding in the Technology Select Sector SPDR ETF (XLK) and for the last two years the stock has consistently outperformed the fund as a whole.

This year Apple is under-performing it, not by much, but more recently it has lost its leadership role as a XLK component. Make no mistake, it is a great stock and is up 33% over the last year and 12% year-to-date.

But other major holdings of the fund like Miccrosoft (MSFT), Intel (INTC), Cisco (CSCO), and Visa (V) have been the dominant members of the technology fund this year.

What does this change suggest for Apple going into the second half of the year? We are not sure. But this lagging dynamic is the backdrop for a speculative short trade.

Apple shares gapped lower in late April, going on to make a bottom at the end of the month. Then in early May they gapped higher, and the two gaps created an island reversal bottom. At this point they began a sharp two week rally. That burst of energy was followed by a period of horizontal consolidation in the final two weeks of May.

Channel resistance was broken in the first week of June, but that momentum quickly faded. On Friday shares closed back below the $190 channel resistance-turned-support line. The relative strength indicator has dropped below its 21 period average and is close to breaking its center line. A reflection of the loss of positive momentum. Volume spiked higher and the accumulation/distribution line suggests that the stock was under selling pressure.

So to sum up:

1. Apple shares have been under performing their technology peers.
2. The technical indicators reflect a loss in upside momentum and positive money flow.
3. The stock recently made a failed breakout.
4. The failed support level now becomes resistance and a nearby level to calculate a close percentage stop loss.
5. The horizontal channel bottom at $190 is the first level of potential downside, below after this there is little in the way of additional support until the 200 day moving average and the early May gap in the $168 area.

A stock like Apple can turn on a dime and quickly embarrass any analysis, fundamental or technical. But the trade is clearly defined and a has a solid risk/reward ratio. The only other requirement is the understanding that it is a short term speculative counter-trend trade, and requires disciplined money management.

Bearish Candles On The Stock Index Charts Bear Watching

It seemed like a fairly neutral statement by the Fed this afternoon, accompanied by the expected 0.25% rate hike. The major market averages had remained stable immediately following the Fed statement but then sold off into the close.

The Dow was down today -119.53, the S&P 500 off by -11.22, and the NASDAQ Composite settled -8.09 lower. Not big moves but since the daily average true ranges of these indexes has been shrinking, bearish engulfing candles formed on the Dow and S&P 500 index charts. A shooting-star like candle formed on the NASDAQ chart, a candle with high upper shadow or wick and a close near the low of the day.

That is the takeaway from today’s action, the indices closed very near their lows of the session. The first time this has happened this month.

Granted a bearish engulfing or high wick candle reflects just one day’s worth of price action. It’s based on a small amount of data but this rally is based on a small amount of stock data. The NASDAQ for example, is heavily weighted to a small number of stocks in the technology space.

Apple Inc 11.868
Amazon.com Inc 10.003
Microsoft Corp 9.489
Facebook Inc 5.607
Alphabet Inc 4.849
Alphabet Inc 4.169

— Total: 45.7%

Just five stocks account for over 45% of the weighting in the Nasdaq Composite. It’s all good when they are being bought but when that reverses, it will take down the rest of the components in the index.

Right View Trading Featured On Mad Money With Jim Cramer

Right View Trading was featured on Tuesday’s “Off the Charts” segment of Mad Money last night. The analysis featured four potential “breakout” stocks in four different sectors. Jim Cramer does a great job explaining the “pictographs” and we appreciate the opportunity to be featured on the show.

Take a look:

Cramer: Edwards Lifesciences’ stock chart just flashed a hugely bullish pattern from CNBC.

Here’s a link to a synopsis of the segment by Tom Bemis of TheStreet.com.

Three Weekly Triangle Breakout Stocks

Here are three stocks with triangle patterns on their weekly charts and each is currently testing pattern resistance.

A rising triangle pattern has formed on the Air Products and Chemicals (APD) weekly chart this year. Horizontal resistance is situated in the $172 area.

On the A.O. Smith Corporation (AOS) chart a declining triangle pattern has developed. In Tuesday’s session the current $65 level is being penetrated.

Finally, there is a symmetrical triangle formation on the Thermo Fisher Scientific (TMO) weekly chart. Resistance here is also being tested strongly.

These patterns represent consolidation of previous gains and now the potential breakouts suggest an imminent resumption of the primary trends.

Hershey Shares Starting To Look Sweet

Take a look at the Hershey Foods (HSY) daily chart.

The stock has been under pressure since the end of 2017, trending lower beneath a declining 50 day moving average. But over the last few weeks it has been attempting to build a base, just above the $89 level and below the $93 level.

In Tuesday’s session it closed above its 50 day average and the $93 resistance level. It also closed near the high of the day. These are early signs that Hershey shares are attempting stabilize and reverse the process of lower highs and lower lows.

The daily MacD is overlaid on a weekly histogram of the oscillator. In this way it gives us an idea of both short and intermediate term momentum. It’s made a crossover on both time frames.

In addition, the Chaikin money flow indicator has crossed into positive territory. While overall volume is still light the money flow reading suggests that there is some buying interest in Hershey shares at their current price.

Confirmation of a true trend reversal requires follow-through price action, some testing of resistance-turned-support, and ultimately for the 50 day average to start tracking higher.

McDonalds: A Bearish Reversal Pattern On The Daily Chart

Shares of McDonalds (MCD) have labored to retrace the February drop in the stock price. In the four month process that followed they formed several consolidation patterns, depending how you draw the lines.

The first looked like an inverse head and shoulders formation, and then a complex right shoulder developed. After that, a small descending triangle pattern formed that also became the handle of a very large cup and handle pattern.

In any case, resistance seemed situated primarily in the $167 area. That level was broken decisively last week and it appeared McDonalds was on its way to making new highs. What has happened, however, is that a bearish reversal pattern has appeared on the chart and the stock price has retreated back below resistance.

The “eveningstar” pattern is a three-day bearish reversal pattern.

From Investopedia: An evening star is a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.

The eveningstar represents a transition from bullishness-to- bearishness.

The stochastic oscillator is making a negative crossover in an oversold zone, and the Chaikin money flow reading suggests the stock is not under accumulation.

McDonalds shares look vulnerable unless they can quickly recover and begin basing above the $167 level.

FedEx Breaking Out Of A Four Month Consolidation Phase

FedEx (FDX) shares have been testing resistance in the $257 area for the last four months. In May they began making a series of higher lows, in preparation for another run at this level.

At this early point in the Thursday session, the stock has broken and is trading above the $257 level. A close here would suggest that an intermediate term basing process is over and FedEx is ready to resume its 2017 uptrend.

The daily moving average convergence/divergence oscillator on the chart is overlaid with a weekly histogram of the oscillator, and is tracking higher on both time frames. This reflects bullish short term momentum and trend direction.

Overall volume has been declining and will have to improve to support a confirmation of the breakout move. But Chaikin money flow moved into positive territory and is above its signal average, an early indication of buying interest.

If FedEx were to return to trend the wide base it has established suggests a large move, one that would take the stock price to new highs.