The semiconductor sector as represented by the VanEck Vectors Semiconductor Index ETF (SMH) is breaking out of a large symmetrical triangle formation, but there are several technical indications that suggest caution.
First, breakouts that occur near the apex of a triangle or wedge usually do not have the momentum or sustainability of breakouts that occur before the pattern is 75% complete. In the case of the SMH the break is occurring much closer to the projected apex of the triangle.
A second warning sign is the distinct lack of overall volume. Volume is what powers and sustains a breakout move and the volume levels on the chart, at this point in time, are weak and well below the 50 day moving average of volume.
Finally, money flow as a percent of overall volume does not reflect any improving buying interest. These technical volume and money flow levels could change but they will need to do so quickly and improve significantly to energize the move.
A very preliminary assessment of the SMH chart as it is currently configured suggests that this breakout is likely to fail, or at best require retesting and improvement in volume and money flow.
Facebook (FB) shares made a series of higher lows in May and June above horizontal resistance in the $155 area, forming a triangle pattern on the daily chart. In July, they broke above triangle resistance and rallied up to the $175 level. This month the stock has been consolidating by making a series of lower highs above horizontal support forming a second triangle pattern.
This smaller fractal-like triangle is a mirror image of the larger triangle, and its downside price target projects back to the $155 resistance level of the first triangle.
In Friday’s session, Facebook closed near its low and just above the current triangle support line. A break below this level projects a downside price target measured by taking the height of the triangle and subtracting it from the support level. It would take the stock back through the rising 50 day moving average and return it to the resistance area of the first triangle.
Moving average convergence/divergence is tracking lower and Chaikin money flow is in negative territory, reflecting the fragile technical condition of the stock. Facebook looks like it is headed for a breakdown.
(This article appeared today on RealMoneyPro.com)
American Express (AXP) has been trading in a regular pattern of 39-day cycle inflection points which have been followed by 7% moves in the stock price. This month’s high marked another cycle point and the stock has pulled back to support at its 50-day moving average.
If the cycle pattern repeats in time and price, AXP is headed back down to the $81 area. Cycle patterns eventually phase out, but if the 50-day moving average is breached, this one deserves traders’ attention.
The daily chart shows the stock trading in a wide horizontal channel in the first half of this year, and then breaking above the resistance line in June. The channel price objective is measured by taking the height of the pattern and adding it to the breakout point. In this case, it projected up to the $87 area, and that objective was achieved this month. But it was not only an objective in price but it was also an objective in time.
The stock has been moving in a 39-week cycle that has marked the channel tops and breakout. This August high not only met the pattern price objective, but it did it at another cycle inflection point.
Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator, and is tracking lower on both time frames. This represents the decline in positive price momentum and in short-term trend direction. The accumulation/distribution line crossed below its 21-period signal average this month and Chaikin money flow moved into negative territory. These money flow readings suggest selling into this most recent move higher.
The price action last week reflects this transition in investor confidence. Three rising white candles were immediately followed by a large dark candle and then two more down days. The stock price has managed to hold above a short-term uptrend line, which is intersecting with its 50-day moving average, but hasn’t been able to bounce off this support.
The technical signs point lower for AXP shares and a close below the 50-day average is a speculative short entry point, using a tight trailing buy-to-cover stop. An initial price target for the trade is the former channel top in the $81 area.
(This article also appeared on TheStreet.com)
IBM ( IBM) shares are attempting to move above a key zone of technical resistance that could become a solid base of support for a recovery and potential rally. The stock is down more than 20% year to date and has recently moved below the 50% retracement level of its 2016 low and 2017 high, to retest its October low. These two important technical levels delineate the zone, and Thursday morning’s follow-through to Wednesday’s positive price action has taken the stock back into this key area.
The goal, of course, is to break on through to the other side, above the $145 level, which would also penetrate the downtrend line that has marked this year’s decline. Taking out these two clearly defined technical levels could be the catalyst that sparks some renewed buying interest and the potential rally in the stock.
The daily chart shows this year’s steady decline punctuated by downside gaps, and this week’s attempt to penetrate the borders of the zone at $142.50 and $144.75. Chaikin money flow has moved back above its 21-period average and is attempting to enter positive territory, reflecting some buying interest at recent levels. The stochastic oscillator took a sharp jump higher this week and has moved above its centerline in response to the increasing positive price momentum.
Big Blue still has to penetrate and base above the $145 level before it would show any evidence of a shift in trend direction, but if it does, value investors may feel more comfortable about re-entering this blue-chip technology giant with an 11 multiple, and traders might see a momentum opportunity.
(This article was also published on TheStreet.com)
Tesla (TSLA) shares were up more than 100% the first half of 2017, but since then have been consolidating in a symmetrical triangle; they are currently nearing the apex of the pattern. A breakout or a breakdown seems imminent and the pattern price projection suggests that, whatever direction the stock takes, the subsequent move will be a large one.
The daily chart outlines the technical levels that will help you get on the right side of the trade.
The sharp decline off the June high took the stock back through its rising 50 day moving average before finding support at the 38% Fibonacci retracement level of the previous rally range. It and began making a series of higher lows and higher highs which delineated the triangle pattern. Tesla shares are up a percent at this point in Wednesday’s session, and retesting the center line of the triangle and the 50 day moving average. The relative strength index has been documenting the improving price momentum since the July low, and also making a series of higher lows and higher highs, reflecting the return of the positive price momentum.
Overall volume this month has been well below the 50-day moving average of volume, at several points sometimes as much as 50% below the average. This is to be expected during periods of consolidation and, in this case, it probably prevented the move lower off the August high from gaining momentum and breaking support. Now a simple three-day bearish-to-bullish transition pattern has developed on the chart, which suggests that support will hold. First, a dark hammer candle formed on the uptrend line on Monday, followed by Tuesday’s small doji candle, and then, at this point in Wednesday’s session, a large up candle. It suggests a successful retest of rising support and a move back up to the triangle top.
At this point, it is impossible to say with certainty which way the stock will break, but the technical bias is to the upside, and the price target measure by taking the height of the triangle and adding it to the breakout point, projects a move into the $450 area. Of course, if the stock reverses and breaks through support the decline would be equally as deep.
Rightviewtrading was featured on Jim Cramer’s Mad Money “Off the Charts” segment tonight. Jim and his staff do a great job scripting and presenting the material, and we appreciate being asked to participate.
Here is a link to a synopsis of the analysis done by Tom Bemis of TheStreet.com.
It was a strong day for the averages and a notable transition in sentiment over the last four sessions. The charts show Thursday’s large down candles which were followed by two small doji candles, and then today’s large up candles. They look like modified morningstar formations, which are bullish reversal patterns, that have formed at several levels of moving average support.
But there are still important areas of resistance to overcome and substantial percentage moves to be made, before the these indices return to trend and the process of making higher highs and higher lows. Today was a good day but only one day. It will take several sessions of follow-through price action to turn the momentum indicators back up, and it will require continued positive money flow.
Volume levels today in the SPY, QQQ’s, DIA, and IWM were below their 50 day moving averages of volume. Unusual for such a strong day. That will have to improve to support a sustained reversal.
Associated Press August 22, 2017
SAN FRANCISCO (AP) Salesforce.com Inc. (CRM) on Tuesday reported fiscal second-quarter profit of $17.7 million.
On a per-share basis, the San Francisco-based company said it had profit of 2 cents. Earnings, adjusted for one-time gains and costs, came to 33 cents per share.
The results surpassed Wall Street expectations. The average estimate of 18 analysts surveyed by Zacks Investment Research was for earnings of 31 cents per share.
The customer-management software developer posted revenue of $2.56 billion in the period, which also topped Street forecasts. Thirteen analysts surveyed by Zacks expected $2.52 billion.
For the current quarter ending in November, Salesforce.com expects its per-share earnings to range from 36 cents to 37 cents.
The company said it expects revenue in the range of $2.64 billion to $2.65 billion for the fiscal third quarter. Analysts surveyed by Zacks had expected revenue of $2.61 billion.
Salesforce.com expects full-year earnings in the range of $1.29 to $1.31 per share, with revenue ranging from $10.35 billion to $10.4 billion.
Salesforce.com shares have risen 36 percent since the beginning of the year, while the Standard & Poor’s 500 index has risen 9.5 percent. In the final minutes of trading on Tuesday, shares hit $92.95, an increase of 20 percent in the last 12 months.
This story was generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on CRM at https://www.zacks.com/ap/CRM
Intel (INTC) shares continued lower on a strong up day in the broader market. The stock has pierced below both its 200 day and 50 day moving averages, but is approaching support in the $34.50 area. If it fails, the next level of support is in the $33 area at the 2017 and 2016 lows.
Chaikin money flow is moving below its centerline reflecting increasing selling pressure, and the relative strength index is tracking lower and below its centerline.
The price action in Intel today is in sharp contrast to the broader semiconductor space.
The VanEck Vectors Semiconductor ETF (SMH) is up today and holding above the uptrend line of a rising wedge formation and its 50 day moving average. A breakout from this pattern projects significantly higher prices.