Author Archives: Rob Moreno

Southwest Airlines Shares Pulling Back From Fibonacci Resistance

Southwest Airlines (LUV) is following the Fibonacci script. In September, it bounced off the intersection of the 50% retracement level of the November 2016 low and this year’s July high, and the 62% Fibonacci fan line of that rally range.

Fan lines are trend lines that extend from the trough low of the Fibonacci range through the different retracement levels. The stock continued its advance and now is intersecting with the Fibonacci fan line drawn from the start of the rally and through the 38% retracement level.

A pullback may be in order, and the 50% fan line currently in the $56 level is the first area of support.

Procter & Gamble Stock Chart Reveals a Dip Ahead of Tuesday’s Big Event

Scott Gamm of interviews Ron Orol from The Deal on the P&G proxy fight.

Procter & Gamble (PG) shareholders will vote tomorrow to decide the biggest proxy battle in history.

Nelson Peltz’s Trian Fund Management is fighting for a single seat on the P&G board and the company is fighting back. A combined 60 million is being spent to influence largely individual shareholders.

P&G is relying on its record over the last several years to sway voters. Shares are up 24% over the last two years, outperforming the Consumer Staples Select Sector SPDR Fund (XLP – Get Report) and the S&P 500 index in that time. It pulled back from its recent all-time highs and is attempting to hold above its 50-day moving average.

Let’s take a look at the P&G chart and see what the technical indicators are saying about the future direction of the stock price and potentially the outcome of the vote.

The stock broke out of a large triangle pattern in late July and continued higher. By September, it had completed the pattern price objective of the triangle, measured by taking its height and adding it to the triangle breakout level. After achieving this price objective, an eveningstar pattern formed on the chart. An eveningstar is a three-day bearish reversal pattern that consists of a strong up day, followed by a narrow opening and closing range “doji” candle, and completed by a large down day. It represents a transition in investor sentiment from bullishness to bearishness.

The stock price headed lower before finding support last month in the $90 area, the former February and March highs. It managed to bounce off this level and has returned to its rising 50-day moving average.

Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator, and is trending lower on both time frames. This represents a loss in positive price momentum and negative short-term trend direction. The relative strength indicator is tracking lower and is below its center line. Chaikin money flow has been headed lower since the formation of the eveningstar pattern and is now in negative territory. The technical indicators are more reflective of the September decline and have not fully factored in the October bounce, but the short-term trend is lower.

The vote Tuesday may be a fundamental catalyst that either takes the stock price back above $93.00 level, which would be bullish over the intermediate term, or sends it lower confirming the current technical indications, which would be bearish over the intermediate term.

Freeport-McMoRan Shares Diverting from Spot Copper Price

Spot copper prices spent the first six months of this year moving lower below a declining trend line. In June they broke above that resistance and rallied 21% to their early September high. The bullish trend quickly reversed direction and was followed by a pullback to the 38% Fibonacci retracement level of the rally range. After several weeks of consolidation around the 50 day moving average there was a jump in the spot price last week. But at the same time there was a bearish diversion on the Freeport-McMoRan (FCX) chart, and it may be suggesting that there is more consolidation ahead for Dr. Copper.

Last Thursday the spot copper price rallied but a large high wick shooting star candle formed on the Freeport chart. This shooting star candle represents a failure to hold a higher price level and a potential reversal in trader sentiment. On Friday the spot price was little changed but a large dark candle formed on the Freeport chart, confirmation of the previous bearish reversal candle. Freeport shares have been forming a head and shoulders pattern for the last two months, above neckline and 200 day moving average support in the $13.75 to $13.50 area. It looks like this support zone will be retested this week.

The four month rally in copper saw the spot price up over 27% from trough to peak and Freeport shares up over 40% in that time. September’s pullback was healthy but it might not have been enough of a retracement for the markets to absorb those gains and re-energize buying interest, as the recent bearish diversion between the stock price and the spot price suggests.

The stock of the copper miner should follow the spot price of the metal, but in this case, the FCX chart looks weaker than the copper chart looks strong.

Apple Chart Shows Labored Gains Since Steve Jobs’ Death

The legacy of Steve Jobs is much more than the catalog of Apple (AAPL) devices he helped design and market. It is the ecosystem he envisioned, one that has taken access and connectivity to a new level.

Apple is the gold standard, when it comes to branding, with a cult following of devotees. And that is
legacy that Steve Job’s leaves behind. Thursday was the six-year anniversary of his death and a good time to take a look at how Apple stock has performed since his passing and where it might be headed going into earnings next month.

Apple shares are up 223% since September 2011, in no small part due to the guidance of Tim Cook, whose job it was to run one of the largest market cap companies in the world and, at the same time, ensure the harmony of the ecosystem. The advance, however, did not come without meaningful pullbacks and the highs and lows in the stock have formed a long-term rising channel. The stock is currently retesting the upper channel border and there are some indications on this time frame that another pullback may be underway.

The TRIX is a triple-smoothed momentum indicator similar to the moving average convergence/divergence oscillator, and it is making a bearish crossover. Chaikin money flow has moved into negative territory, which supports the pullback thesis.

Apple shares reversed direction this month and started heading lower. They dipped down to $150 to fill an open gap, and then bounced back up to their previous May high in the $155 area. This level has been solid resistance for the last two weeks, despite a broadly positive market. Thursday the $155 level is being tested again and a close above or below it could determine the intermediate-term direction of the stock price.

The stochastic oscillator is moving higher and out of an oversold condition, suggesting a short-term bounce, but the Chandre Trend Meter, which assigns a numerical value to a trend using several different moving averages on six different time frames, suggests the trend is neutral to lower.

The bottom line is that for the last six years, Apple has been in a primary long-term channel uptrend, interrupted by several significant pullback periods. At present, shares are testing short-term resistance near the top end of the long-term channel. It is certainly possible that shares retest the channel top, but the inference drawn from the trend and money flow indicators is that any strength will be short lived and that Apple shares are preparing for another pullback phase, which could potentially take them back down to the $115 weekly channel support line.

Costco’s a Go Before Consumer Staples Bounce Again

he Consumer Staples Select Staples SPDR ETF (XLP) is bouncing off its 200-day moving average in an attempt to reverse the recent decline in the fund price. The main beneficiary of a reversal in the sector would be Costco (COST) , which has been an out performer in the consumer staples space.

Costco shares broke out of a horizontal channel pattern earlier in the month while the XLP, which had been trading in a similar price channel, failed in its attempt to break above its channel resistance level. Instead, the XLP pulled back to the pattern support line, while Costco headed higher.

If the XLP and the broader consumer staples sector are preparing for a bounce, it makes sense to jump on board Costco, and expect the stock to continue to outperform.

The daily chart shows both the XLP and Costco testing channel resistance earlier this month. Costco broke out and has continued higher while the XLP failed and has pulled back to the intersection of its channel support level and 200-day moving average.

The graph between the two price charts shows the out performance of Costco relative to the XLP over the last year. Moving average convergence/divergence reflects Costco’s positive price momentum. It has been tracking higher since July and this month moved above its center line.

Chaikin money flow has pulled back below its 21-period signal average but is still well into positive territory, suggesting continued buying interest.

Costco’s bullish channel breakout projects a price objective measured by taking the height of the channel and adding it to the breakout level. It targets the $172 area but there is a yawning downside gap that needs to be filled at $177.50. That second objective could be achieved with the help of a broader base recovery in the consumer staples space.

Warren Buffett’s Truck Stop Acquisition Is Only Half the Story

Warren Buffett announced Tuesday that Berkshire Hathaway (BRK/B) is taking a 38.6% stake in Pilot Travel Centers, which owns the Pilot Flying J chain. The chain is a truck-stop operator with 750 locations in 44 states. In 2023, Berkshire will acquire an additional 41.4% of Pilot’s outstanding shares and become the majority owner.

By then, roadways across the country will be filled with Tesla’s (TSLA) autonomous driving electric trucks, according to Elon Musk. The Tesla CEO has a habit of over-promising and Tesla has a habit of under-delivering. So, while I am looking forward to traveling across the country in a spaceship, Buffett’s more down-to-earth investing discipline has over delivered when it comes to long-term returns. And the weekly chart suggests that trend is right on track.

Over the last 52 weeks, Berkshire has outperformed the S&P 500 index by 9.2% and the Nasdaq Composite by 4%. Shorter term, Berkshire shares have outperformed Tesla shares by 17.9% over the last three months. The weekly chart shows the steady series of higher highs and higher lows the stock has been making since breaking out of a triangle consolidation in early 2016.

The highs have been marked by eveningstar candle patterns. These are three period reversal candles consisting of a large white candle, followed by a narrow opening and closing range candle, and completed by a large dark candle. It represents a transition in investor sentiment from bullishness to bearishness. The pullback periods have been marked by regressions to the rising 40-week moving average.

Berkshire shares are in a new up-cycle and there are no indications that it is overbought, at this point in time, and money flow remains positive.

The new acquisition to the Berkshire Hathaway family is an endorsement by Buffett of the future of the U.S. economy, similar to his 2009 purchase of Burlington Northern, and its current transportation system. At some point in time, when we are travelling through Hyperloops, perhaps Musk will announce plans to buy Berkshire Hathaway.

Valeant Pharmaceuticals Positioned For A Base Breakout

Valeant Pharmaceuticals (VRX) shares are up today despite a Moody’s downgrade to a new tranche of secured notes and a negative rating outlook. Shares of the beleaguered company doubled in value from their depressed April level to the July high. A short-term double top formed at the high and the stock quickly retraced 50% of the previous move. An inverse head-and-shoulders pattern has formed, suggesting the decline is over and a bullish reversal may be under way.

The August low marks the left shoulder of the bullish reversal pattern, with the September low as the head, and the recent consolidation that has been going on above the 200-day moving average delineates the right shoulder. Neckline resistance is intersecting with the 50-day moving average in the $14.75 area. The relative strength index crossed above its 21-day moving average as the head of the pattern was forming, and moving average convergence/divergence made a bullish crossover. Both indicators are tracking higher and are above their center lines, reflecting improving price and short-term trend direction. Earlier this month, the Chaikin money flow indicator moved up from a very low reading into positive territory. It suggests the stock is seeing renewed buying interest.

Bollinger bandwidth is an indication of tight band compression, which is a reflection of low volatility. Previous similar periods of low volatility have been followed by periods of high volatility, and a break above neckline resistance could initiate another sharp move in the stock price.

PepsiCo Downgrade Could Take Down the Consumer Staples Sector

A PepsiCo (PEP) downgrade Monday may be the catalyst that officially marks the top in the stock and reverses the long-term uptrend in the consumer staples sector. Jefferies downgraded the beverage and snack food maker to hold from buy and slashed its target price from $133 a share to $108 a share.

The stock is currently down 1.4% in the session and has broken through a zone of support, delineated by its two 200-day moving average and the 38% retracement level of the December 2016 low and last month’s high.

PepsiCo shares have been moving sideways since June, in what first looked like a bullish head-and-shoulders continuation pattern, but which quickly flipped-over to a bearish head-and-shoulders topping pattern. The inverse head-and-shoulders pattern formed under a neckline in the $117 area, with the July low acting as the head.

The right shoulder of this pattern now looks like the left shoulder of the head-and-shoulders top that followed, with the August high as the head and the neckline at the $114 level. As these patterns develop, the moving average convergence/divergence indicator can be seen tracking lower in bearish divergence to the stock price. The $114 neckline was broken two weeks ago and the stock price quickly dropped to the red zone of support.

Following Monday’s downgrade, PepsiCo shares opened lower and broke below the zone of support and their 200-day moving average. The Consumer Staples Select Sector SPDR ETF (XLP – Get Report) chart shows what this breakdown could mean for the entire sector.

PepsiCo accounts for 5.2% of the holdings in the XLP and a shift in the direction of the stock will have a negative effect on the direction of the fund price. The XLP has been forming a topping pattern of its own for the last seven months and is retesting an intersection of support between its 40-week moving average and horizontal support at the $54 level.

Moving average convergence/divergence made a bearish crossover in June and Chaikin money flow moved into negative territory. The Bollinger bandwidth reading is at a level that reflects narrow compression in the band range and low volatility. Periods of low volatility are often followed by periods of high volatility, so if the PepsiCo downgrade is enough to pull the XLP below its support level, any subsequent move lower could be sudden and sharp.