Shares of Disney (DIS) and Netflix (NFLX) have underperformed the S&P 500 by 5% and 13% respectively year-to-date. Now these usual outperformers have been consolidating in distinct technical patterns and could be preparing to make up ground on the broader market and resume their leadership roles.
The Disney chart shows the stock breaking below both its 50- and 200-day moving averages in December last year and then this year consolidating in an inverse head and shoulders formation with neckline resistance at the $97.50 level. This resistance is being reinforced by the downtrend line formed by the three-month decline. Moving average convergence/divergence made a bullish crossover as the left shoulder of the pattern was forming and has been tracking higher, and the relative strength index crossed above its 21-period average as the head was forming and has moved back up to its centerline. Chaikin money flow, a measure of the 20-day average of the accumulation/distribution line, is well above its centerline and reflecting institutional level buying interest. The head and shoulders pattern projects a price target that would take the stock back above its 200-day average to the $107.50 area.
Netflix also saw a decline off its December high and has spent most of this year consolidating in a cup and handle formation below $95 rim line resistance. The vortex indicator is designed to identify early shifts in price momentum using green and red line crossovers, and it is currently suggesting that a new uptrend is under way. Moving average convergence/divergence made a bullish crossover and is tracking higher. The accumulation/distribution line is above its signal average, and the money flow index, a volume-weighted momentum measure, has crossed above its centerline. Cup and handle resistance is intersecting with the downtrend line off the December high, and a breakout projects into the $110 area.
A close in upper candle range above pattern resistance on either chart is a good long entry point, using a trailing percentage stop.
There are a lot of things out there which could drag our markets lower even as the S&P 500 tests its important 1950 level. There is one negative that should be of particular interest and that is the relative performance of the Germany iShares ETF (EWG). It has underperformed the S&P index by 12% over the last 52 weeks, and year-to-date by 5.25%. Last week it failed to break above its high earlier this month and moved lower as our index closed higher.
The chart of Starbucks (SBUX) does not inspire confidence in the future direction of the stock price. It has been making a series of lower highs and lower lows under a declining 50 day moving average.
While the relative strength index on the daily chart is flat and the Chaikin money flow indicator is well into positive territory, the weekly chart tells a different story.
On this timeframe the RSI is tracking lower and taking out its centerline and Chaikin money flow is declining. These indicators incorporate more data then the daily indicators and the February bounce has less of an influence on their readings. From a trading perspective, Starbucks has to reestablish itself above $59.00 level and eventually break above the downtrend line for the chart to inspire more confidence.
The SPDR S&P Retail Index (XRT) has broken above its 50 day moving average and a seven month downtrend line. Daily moving average convergence/divergence, which is overlaid on a weekly histogram of the oscillator, is tracking higher and above its centerline on both timeframes, and Chaikin money flow is reflecting renewed buying interest.
It is not likely the ETF will continue to rally with the same momentum seen earlier this month and it could experience a pullback over the short term, but it does look like it has established support in the $41.00 to $42.00 area.
The Kinder Morgan (KMI) collapse saw the stock price crash over 70% in the last 52 weeks. It was a stunning decline and it has been a difficult period for shareholders. If there is any good news it is that KMI has been attempting to form an inverse head and shoulders reversal basing pattern for the last three months, and has retaken its 50 day moving average and the pattern neckline.
The daily MacD is overlaid on a weekly histogram of the oscillator and is trending above the centerline on both timeframes. Money flow turned positive earlier this month and it looks like investors are seeing value at current levels. The bad news is that in order for the stock to retrace its 70% loss it will have to make a 245% gain off its low.
The stock formed a bullish morningstar reversal pattern at the end of January, and has since been attempting to hold above the 50% retracement level of its 2013 low and its 2015 triple top.
In the flat period that followed the relative strength index, a measure of the ratio of the average gain and average loss over a 14 day look back period, has been in bullish divergence, and reflects an underlying improvement in price momentum. Volume has been declining this month, as would be expected during a period of consolidation, but the accumulation/distribution line is back above its 21 period signal average and a three month downtrend line. The bottom line is the stock has continued to hold support even after as Jim Cramer noted on Wednesday, having everything but the “kitchen sink” thrown at it, and the technical indicators suggest that at some point soon, it should begin to move higher.
A rally in Disney (DIS) shares would go a long way in confirming the recent broader market advance. The stock has been under pressure but consolidating in an inverse head and shoulders formation under $97.50 neckline resistance.
A break above that resistance which is intersecting with the downtrend line drawn off the November and December highs and the 50 day moving average, could power Disney back above its 200 day moving average. The stock is back in upper Bollinger band range for the first time since it made its November high, moving average convergence/divergence has made a bullish crossover, and the accumulation distribution line is well above its 21 period signal average.