I often talk about trading perspective and context. It is important to look at the larger message of the indices and individual charts on multiple timeframes, but there is another kind of context.
I took some time off this week to spend with family at the Delaware shore. There was soccer instead of CNBC, hot dogs and hamburgers replaced my usual diet of charts and indicators, and I was focused on my grandchildren at the beach instead of a computer screen.
Whether you’re trading well or in a slump, regular periods away from trading are important to staying fresh and for putting it all in perspective.
For now it’s back to work, and while the broader market indices finished about where they opened the week, there is still a lot to review. Coming up this weekend will be a look at some monthly charts and how they played out into the end of the quarter, some actionable trades we mentioned here on the site and on the June 19th webinar hosted by Bob Lang of Explosiveoptions.net.
Lots to do and lots to remember.
Several of the Europe iShares ETF’s have pulled back to, or under important support levels.
It’s hard to look at the weekly chart of Microsoft (MSFT) and say there’s no validity to trendlines.
I’ll be taking some time off this week, so posts will be a little less frequent than usual. Stay tuned, however, the regular run of market overviews on multiple timeframes, and actionable trading setups, will return next week.
Today, we’re seeing the S&P 500 on the weekly chart test the upper end of its rising channel, and the NASDAQ Composite testing its March high on the daily chart.
A reader requested I take a look at the chart of Molycorp (MCP) and it isn’t pretty. There is a 38% short interest in shares of the stock, and some substantial fundamental reasons for that, and the collapse in price since its 2011 high.
The weekly chart clearly illustrates the carnage.
On the daily chart the last month of price action shows horizontal consolidation between $2.50 and $3.00, during which time the RSI moved above its centerline, the MacD made a bullish crossover, and money flow turned slightly positive.
Would a close above the $3.00 level initiate some short covering? Possibly. Is taking a long position in MCP highly speculative? Absolutely.
Shares of Amazon (AMZN) are trading within the borders of a short term uptrend line and a intermediate term downtrend line. The price momentum indicators had been trending higher, but now they’re turning over, and money flow while still positive, is crossing below its 21 day moving average. Ultimately, the integrity of the trend lines will determine the future direction of the stock.
The chart of Facebook (FB) needs little explanation, as the stock is testing the top end of a channel defined by the April/May highs. The 50 day moving average and the long time uptrend line drawn off the lows since August 2013 are nearby, but a close below the channel top will take me out of my long position.
An extremely large engulfing candle formed on the daily chart of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) that encompasses this entire month’s trading range. In addition, it closed below its 50 day moving average and on very strong volume. A successful breakdown from the horizontal channel projects down to the 109.50 area.
Eighty eight percent of stocks in the S&P 500 index are above their 50 day moving average, a level that many consider an overbought condition that should precede a pullback. This, however, is not usually the case, but by incorporating the relative strength index (RSI) in the analysis, the likelihood of determining a pullback increases.
Specifically, when more than 85% of the stocks in the index are above their 50 day moving average and the RSI is above its 70 level, over the charted look-back period, there have been six out of eight instances where the market has seen pullbacks of differing magnitudes.
While the RSI is currently at 69.59, this is a weekly chart and the true value will not be determined until the Friday close. Keep a close eye on these two metrics and I’ll check back in on this chart over the weekend.
I’ve been writing regularly about the movement of Google (GOOGL) shares within the parameters of its 2014 high/low range. On Monday the stock formed a large dark candle but held above its 50 day moving average and the 62% retracement level, it held those levels again on Tuesday but formed a small hammer or doji-like candle, and today it formed a large white candle. This transition from negative-to neutral-to positive is called a morningstar pattern and is considered a bullish reversal at important levels of support.