On August 23rd, I highlighted the eveningstar formation on the General Electric (GE) daily chart. Since then, the stock price has broken a two year uptrend line, but has been holding right around the confluence of its 50 and 200 day moving averages. The relative strength index, MacD, and Chaikin money flow are sitting on their centerlines. A series of small range spinning tops and one large dark candle formed over the last week, and they are not encouraging candles.
It looks like GE is preparing to breakdown and a retest of the August lows could follow, but as I noted in the previous post, it is strongly correlated to the S&P 500, and continued strength in the index would have a positive effect on the stock.
That being said, General Electric at or near its current level is a good risk/reward short candidate, with a nearby buy-to-cover stop above the eveningstar pattern.
A large ascending triangle has been forming on the weekly chart of Netflix (NFLX) for most of the year. The trend is obviously higher, but the MacD is in bearish divergence to price and volume is dropping off. The pattern has the potential for a large move. Let it play out either to the upside or downside, and look for an increase in volume for confirmation.
Those Fibonacci retracement levels on the charts of the major Europe iShares that I highlighted a few days ago continue to provide resistance, which could be an issue for European stocks and ultimately our market going forward.
The trajectory of these funds began to flatten in June and a month later they broke trend line support and their 50 day moving averages, and began a sharp decline into August. The S&P 500 index lagged by a month but followed a similar path flattening out in July and at the end of the month breaking trend line support and its 50 day average. The bounce off the August lows was well coordinated, but while the S&P index has made new highs, the Europe funds have only retraced half or less of their former highs.
It is hard to imagine that our market can continue on its current track, without a technical recovery in European stocks.
Here are two stocks in the fertilizer space that are testing important technical levels and have good price momentum and positive money flow.
The daily chart of Mosaic (MOS) shows the stock pressing a zone in the $48.00 to $48.25 area after holding above the confluence of its 50 and 200 day moving averages. A close in upper candle range above this level would be a good long entry point with an initial percentage stop under the averages.
Shares of Agrium (AGU) have been trading within the parameters of the Bollinger bands measured off their 2013 high and low. The weekly price momentum and money flow indicators are following in the direction of the daily indicators which are all solidly positive. A close in upper candle range on this timeframe is a long entry point wit a position size that allows for a stop under the 40 week (200 day) moving average.
Shares of Goldman Sachs (GS) broke above their July highs earlier this week and are retesting that level in today’s session. A small hammer candle is forming on the daily chart at the former-resistance-turned-support level. If this level is maintained it could initiate the start of another advance in the swing step price movement of the last three months. Continued strength in the financials would be a reinforcing factor for the broader market.
This is a weekly chart of the US Dollar Index ($USD) and while the most recent candle is not completely matured, note how the Fibonacci retraement levels drawn off the 2010 high and the 2011 low have helped define areas of support and resistance.
A gravestone doji star has a narrow opening and closing price near the low of its overall range. This forms a large upper wick that suggests intraday buying pressure was met with greater selling pressure. The candle often occurs near tops in price. The daily charts of the S&P 500 index and the major Europe iShare ETF’s all formed gravestone doji or gravestone-like stars in yesterday’s session. This is not unusual, similar stars have formed in the past which did not signal a turn in price, but these particular stars on the Europe fund charts have appeared at key Fibonacci retracement levels of the June highs and August lows. Any individual candle or candle formation signal requires confirmation, and these dojis may have little or no significance over time, but their formation at these levels does require attention.
Here are three stocks I’m watching, that have been consolidating in triangle patterns and have positive price momentum indications and improving money flow.
Envision Healthcare Holdings (EVHC) has been making higher lows for the last two months, but has been unable to break above the $36.50 level. The relative strength index and MacD are tracking above their centerlines, and Chaikin money flow reflects accumulation. A squeeze condition is in place, as defined by the Bollinger bands, a measure of deviation around a moving average, moving inside the Keltner channels, a measure of deviation around average true range.
Shares of Morgan Stanley (MS) broke above larger triangle resistance and made a new high for the year. The MacD has made a bullish crossover and Chaikin money flow is above its 21 period average, which I use as a signal line. The relative strength indicator and the money flow index, a volume-weighted relative strength measure, are nearing overbought conditions. The stock offers a good risk/reward long entry point at its current level, but the oscillators hint that it might, also, want to retest the upper end of the triangle.
TD Ameritrade Holding (AMTD) has been advancing above the support of its 200 day moving average, and below resistance in the $32.70 area. This stock broke above triangle resistance this week, and remains a good/risk reward long at its current level. To maintain its momentum, however, volume and positive money flow will need to improve.
Last week here and on RealMoneyPro.com, I highlighted a Bloomberg article quoting noted market technician Tom DeMark’s bearish call on the China stock market. He expected the move lower to begin over the next several days and this has not been the case. In fact, the index is making new monthly highs, potentially the start of a second leg of the rally that took out multi-year triangle resistance.
In the RealMoneyPro article I suggested that a Baidu (BIDU) short was a way to play a potential turn in the China market. That trade was triggered on Friday by a break below small triangle resistance. A reader commented “I might be right about the China market, but the Baltic Dry Index was on fire the past month. That’s got to be all China.”
I didn’t make the China call, just reported it and outlined a potential trade around it, but the reader’s comment about the Baltic Index was dead on. The index has spiked up this month, along with a two week pop in spot copper prices, and both are normally considered second derivative plays on China. I believe there is a correlation between these moves and the strength in the China index, but a bit of caution is required.
The assumed close correlation between the Baltic Dry Index and the Shanghai Index is not apparent on the correlation coefficient indicator. Movement above the centerline reflects close correlation and below the centerline reflects degrees of negative correlation, and there have been periods of both relationships. A correlation is a good context for a trade but it is probably best to trade each individual chart.
General Electric (GE) has been strongly correlated to the S&P 500 index as it has moved above a two year uptrend line that tracked along with its 200 day moving average. In July, it broke that trend line and the 200 day average, but formed a large hammer reversal candle later in the month, and this week recaptured its former support.
Unfortunately, the price action this week formed a three day eveningstar reversal pattern. It consists of a large white candle that reflects optimism, a small opening and closing range doji candle, in this case a gravestone doji, which reflects indecision, and finally, a large dark candle, suggesting pessimism. It is a transitional formation, more reliable after prolonged advances or at key areas of support.
Like any candle formation the eveningstar will require confirmation, which will come in the form of another breakdown, and would be a negative sign for the stock and potentially the broader market.