Monthly Archives: October 2017

Buying Opportunities in Software: Cramer’s ‘Off the Charts’

More room to run for software stocks like Adobe from CNBC.

(This synopsis of the Mad Money segment was written by Tom Bemis and first published on

Software companies are performing very well this earnings season, but just because there have been some big moves doesn’t mean you’ve lost your chance, Jim Cramer told his Mad Money viewers Tuesday in the show’s “Off the Charts” segment.

Cramer spoke with Bob Lang, founder of and a contributor to’s Trifecta Stocks Newsletter.

They started by looking at Autodesk (ADSK), the computer-aided design software maker. Autodesk’s move to the cloud and the fact they are selling their software as a service, rather than as a licensing business, has paid off well recently. The stock broke out last Friday on high volume, and Lang says it’s his favorite name in the software group these days. Shares are being helped by strong institutional buying.

The Chaikin Money Flow Oscillator, which measures the level of buying and selling pressure in a stock, shows strong money flow into the stock. Lang thinks that Autodesk could easily head from $124, where it is right now, up to $140 in the near future.

Adobe (ADBE) , a digital media and marketing kingpin, took off a couple of weeks ago after its latest earnings report. For Adobe, the Chaikin Money Flow oscillator has gotten very high, very fast, a sign of healthy demand from institutional buyers. The Moving Average Convergence Divergence line, a momentum indicator that helps technicians spot changes in a stock’s trajectory, recently made a bullish crossover — a strong buy signal. Lang thinks Adobe could be headed from its current $176 level to the high $180s.

Two less well-known names are riding the cloud software theme.

Ansys (ANSS) sold off in the middle of September, but has rebounded on heavy volume. The stock is up more than 10% since the MACD indicator signaled a buy about four weeks ago. Lang expects the stock to pull back to a floor of support at $132, but says that would be a good price to buy in.

Parametric Technology (PTC) broke higher last week on strong financial results. Lang notes the stock has seen good follow-through since. The MACD indicator flashed a strong buy signal last week, and the Chaikin Money Flow oscillator is strongly positive. Lang believes this $66 stock will go to $80 or more in the not-too-distant future, and suggests buying into any pullback.

Look at Qualcomm’s Drop as a Opportunity

Qualcomm (QCOM) shares were up more than 60% in 2016, rising in a steady series of higher highs and higher lows. But in January 2017, Apple (AAP) filed a 1 billion dollar law suit against the chip maker. Following that announcement, shares gapped down hard, dropping back to the 62% retracement level of the 2016 rally range.

A series of legal punch and counter-punch lawsuits between the two companies began, including accusations of Qualcomm overcharging for licensing and royalty fees and the allegation that Apple is deliberately slowing down chip speeds in its devices. This battle has played out on the QCOM chart within the confines of the 2016 Fibonacci retracement levels. The weekly chart illustrates the drama.

Qualcomm’s initial drop found support at the 62% retracement level, and the bounce that followed met resistance at the 38% level, which is also the bottom end of the January gap. Tests and retests of those levels have continued. This week the stock price is back below the 50% retracement level on new reports Thursday that Apple may stop using Qualcomm chips in its iPhone next year. This would be a body blow to Qualcomm but don’t count out the chip maker just yet.

The daily chart shows the stock down 7.5% after gapping lower on today’s news. It has re-entered the zone of support at the 62% retracement area seen on the weekly chart. In the past, retests of this support have been followed by renewed buying interest as evidenced by the money flow readings at the bottom of the chart.

At some point in the future, Qualcomm shares are either going to break out of the channel they have been trading in or breakdown from the channel. Thursday’s price action may be a sign of an impending breakdown, but it is impossible to say with certainty. Traders can only look for previous patterns to repeat and get an edge by finding good risk/reward entry points. The $50 area is a good risk/reward level to enter a long position in Qualcomm. Downside is limited to a percentage move just below the $49 level, but upside projects back to the $57 channel top.

Day of the Doji: Alphabet, Microsoft, and Wal-Mart

Most traders are familiar with candlestick charting and particularly the commonly found “doji” candle. The classic doji is characterized by a narrow opening and closing range or real body, which is situated in the center of a wide overall range.

There are other variations of the doji candle like the “gravestone” which has its real body located at the bottom of the overall range and has a long upper shadow or wick. The real body of the “butterfly” doji is positioned at the top of the overall range with a long lower shadow or tail. In any case, the doji candle reflects indecision about the future direction of a stock, and suggests that an existing trend may be nearing a turning point.

In Friday’s strong session there were a surprising number of doji candles that appeared on a wide range of stock charts. Here are three of the more notable one.

Alphabet (GOOGL) shares gapped up over 4% on the open, taking out long-term channel resistance. It was up another 3% at its high of the day, but closed back down near its opening price forming a high-wick doji candle.

Volume spiked and the volume bar indicated that volume was to the buy-side. The accumulation/distribution line, however, measures buying or selling pressure differently and it indicated that the initial buying was overcome by selling pressure.

These conflicting money flow readings only add to the inherent indecisiveness of the doji candle. Follow-through confirmation is required before calling an end to the intermediate term trend.

Shares of Microsoft (MSFT) gapped 7% higher at the open on Friday. They continued higher intraday but pulled back to close below their opening price, forming a gravestone-like doji candle.

The same money flow conflict we saw on the Alphabet chart is in place on this chart, and the stochastic oscillator indicates the stock has been overbought for about a month.

One additional problem with the Alphabet and the Microsoft charts are the large gaps that preceded the doji candles. Traders know the expression “gaps need to be filled,” and when they are followed by potential reversal candles, they are often filled quickly.

Two consecutive doji stars formed on the Walmart (WMT) chart at the end of last week. Multiple dojis have formed on this chart in the past but last week’s stars are being followed, at this point in today’s session, by a large dark down-day candle. This would be follow-through price action, which all individual candles and candle formations require before their particular signals can be considered confirmed.

There was little volume one way or the other associated with recent price action, and the stock looks like it is reversing, possibly headed back down to close the October gap.

CVS Deal to Buy Aetna a Technical Fail

CVS Health (CVS) reportedly made a $66 billion offer to buy Aetna Inc. (AET) in what would be a record deal in the healthcare industry. The integration of the healthcare benefits company with the healthcare services provider creates a number of efficiencies, not the least of which is the ability to leverage for better drug pricing. But what should be a healthy fundamental synergy is not being reflected in the sick technical picture on the CVS chart.

While Aetna shares jumped on rumors of the deal, shares of CVS dropped, breaking an important long-term support level. The weekly chart of CVS shows where it might be headed over the intermediate term.

A large triangle pattern formed in 2015 and 2016 above horizontal support in the $87 area. That support level ultimately failed and the stock price dropped sharply, before finding secondary support in the $71 area. At that point, it began to trade in a sideways channel pattern. Last week the channel support line failed and CVS made its lowest close since 2014.

The relative strength index has moved back below its 21-period average and is under its center line. Moving average convergence/divergence was unable to recapture its center line and now has made a bearish crossover. These readings, while becoming more bullish as this year’s channel consolidation developed, quickly turned down after the most recent retest of channel support, reflecting a rapid shift in momentum.

The money flow indicators were less positive during the formation of channel pattern. Chaikin money flow spent most of that time in negative territory, and the accumulation/distribution line has been tracking lower and below its declining signal average over the last several months.

It seems the positive fundamental synergies of the potential purchase of Aetna are not evidenced on the CVS price chart. The technical inference is that shares are headed lower. The channel pattern downside objective is measured in the same way as the earlier triangle pattern, by taking the height of the pattern and subtracting it from the broken support level. In this case it targets the $58 area.

3 Stocks To Buy If You Think The U.S. Dollar Is Going Higher

(This article appeared on on Thursday.)

The decline in the U.S. dollar this year is likely over, which would benefit stocks that do most of their business in this country. An inverse head-and-shoulders pattern has formed on the weekly chart of the U.S. dollar index below resistance in the 94 area. This pattern is often seen at important lows in a stock or an index.

The July low formed the left shoulder, and the September low formed the head, while the October low formed the right shoulder of the pattern. A move above horizontal neckline resistance confirms the breakout and should act as a platform to launch a reversal rally. If this turns out to be the case, then companies that do most of their business in the US are in the best position to profit from the bounce in the buck.

Harley Davidson (HOG – Get Report) has been facing increasing pressure from competitors in Japan, and a stronger dollar would help its bottom line. The weekly chart of Harley Davidson looks very similar to the U.S. dollar chart, with the stock breaking down in unison with the dollar this year and then forming a base over the last several months. The horizontal HOG base includes a triple bottom formation and resistance situated in the $50 area. A break above this level, likely coordinated with a breakout in the dollar, would be a bullish sign for the stock and signal a long-term bottom.

Ross Stores (ROST – Get Report) does all its sales in the U.S. and is a retail chain that would benefit from a stronger dollar. The stock bounced off the $52 level in July, which was also important support in 2016. It has rallied back above its 40-week moving average and just below its all-time high made earlier this year. Weekly moving average convergence/divergence has made a bullish crossover and Chaikin money flow is in positive territory. The stock looks like it should continue higher on its own, but a breakout in the buck would be a powerful fundamental supplement to the technical picture.

A stronger dollar could benefit Wells Fargo (WFC – Get Report) , a bank that has a large U.S. mortgage business. The company’s stock price has been under pressure recently, but this month has managed to move above a downtrend line in place since the beginning of the year and its 40-week moving average. Money flow is improving along with the positive price momentum and the stock looks like it is ready to reverse this year’s pattern of lower highs and lower lows, and continue higher. Dollar strength would help Wells make new highs and help recover from its fall from grace this year.

Wait to Buy Time Warner at a Much Lower Price Than What AT&T Wants to Pay

(This article was originally published on on 10/24.)

Time Warner (TWX) reports earnings before the market opens Thursday morning. Currently the stock is trading at a discount to the $107.50 that AT&T (T) is paying in the proposed merger of the two companies expected later this year. So is it time to buy TWX?

The price action on the daily chart suggests there may be an even lower entry point for investors coming up in the near future.

Shares have advanced this year in a steady arc of higher lows and higher highs. The lows have defined a strong uptrend line and the highs have traced out a curve with a moderating trajectory. The stock price has once again moved back below its rising 50-day moving average and is retesting the uptrend line. The momentum indicators reflect the recent loss of positive momentum. Moving average convergence/divergence has made another bearish crossover and is moving below its center line, while the relative strength index has crossed below its 21-period average and is below its center line.

It’s the money-flow indicators, however, that are the most important data points. They suggest this latest test of long-term support is likely to fail and could take the stock price much lower. The accumulation/distribution line broke below its signal average in July and has continued to track lower, and Chaikin money flow has spent most of the last three months in negative territory. The selling has been going for several months but as the trend lines merge and the price range compresses, the current retest of the $100-area could be an inflection point for the stock.

Using the height of the channel pattern the stock has been trading in, and subtracting it from current support to identify a downside price objective, targets the $97 level. This would be a 50% retracement of the 2017 range and some stabilization and consolidation in this area would be a good point to enter a position in Time Warner shares.

Missed the Microsoft Rally? Here Comes Your Chance to Get In

Microsoft (MSFT) shares are up 30% year-to-date, moving from the lower left of the chart to the upper right in a steady pattern of higher highs and higher lows. It’s been a beautiful rally, if you’ve been on board, but if you missed an opportunity to participate, there may be another one coming up.

The daily chart shows Microsoft shares moving above their rising 50-day moving average and above an uptrend line that extends back to last year. In June, the trajectory of the advance started to steepen and the stock began trading in a well-defined rising triangle pattern. After the most recent successful retest of the 50-day moving average earlier this month, it accelerated higher and broke through triangle resistance. But by several technical standards, the stock has become overbought and is ready for a pullback.

The relative strength index reflects the current overbought condition but in the context of a rising weekly moving average convergence/divergence histogram. Also supporting the premise that any pullback will be short-lived and be met with additional buying interest, is the reading on the Chaikin money-flow indicator. It is well into positive territory and suggests institutional buying has been powering the rally.

The pullback premise is largely based on the graph at the bottom of the chart. It shows the percent difference between the closing price of the stock and its 50-day moving average. The stock is trading 5% above the 50-day moving average and each time this has happened this year, it has been followed by a reversion of some degree.

It is impossible to say how deep or how sustained any pullback would be, but a return to within the borders of the rising triangle is very likely, and a retest of the 50-day moving average would be an optimal entry point for those looking to get on board the Microsoft rally train.

Allergan Shares Are Ready for a 30% Bounce

Allergan (AGN) shares have pulled back to a key level of technical support on their weekly chart. This same support level was successfully tested in October last year and was followed by a 30% bounce in the stock price. The indications on the chart suggest that another significant bounce is likely, one that could help to establish a base and reverse Allergan’s long-term downtrend.

The stock rallied more than 1,400% from its 2009 low to its 2015 high. Over the last two years, however, it has made a series of deep lower-lows followed by sharp reversal higher-highs. In October last year, shares returned to test the 50% retracement level of their previous rally range. This $180 level held and over the next several months the stock moved back up to the $250 area.

The 38% retracement level of the rally range acted as a new higher level of support until last week when it was broken. The break has quickly taken the stock price back down toward the $180 area. This is where the technical indicators suggest the stock would be expected to bounce.

There are several technical similarities to the previous October test. The stochastic oscillator is in an oversold condition and in prior instances when it is either overbought or oversold, it does not stay overextended for long periods. On balance, volume made a higher high last October and it has continued to track higher. The price action over the last two months caused moving average convergence/divergence to make a bearish crossover, but it has been making a long-term series of higher lows, in bullish divergence to the stock price.

The downside momentum in the stock could see it initially over-shoot and take it through the $180 level, but after a period of consolidation in this area, traders should be alert to bullish reversal candles or formations and be prepared for a volatile bounce.

General Motors Upside Momentum is Stalling Out

Shares of General Motors (GM) went hyperbolic in September gaining 25% in just six weeks. Over the intermediate term that trend should remain in place, but over the short term the stock could be preparing for a pullback.

An eveningstar pattern has formed on the daily chart. This is a three-period bearish reversal candle pattern consisting of a large white or up-day candle, followed by a narrow opening and closing range “doji” candle, and completed by a large dark or down-day candle. It represents a shift in trader sentiment from bullishness-to-bearishness.

The stock is overbought as the RSI indicates and that coupled with the eveningstar pattern suggests a pullback may be required to digest the recent gains. Chaikin money flow, however, reflects buying interest and the reading suggests that any pullback will be limited, as traders who missed the September rally look to enter the trade at a lower price.

Like all candle patterns, the eveningstar requires follow-through confirmation.

If IBM Drops and Holds This Key Level, It’s Bound to Recover

Wall Street is expecting a 22nd consecutive quarter of declining revenue from IBM (IBM), when the company reports its third-quarter earnings results after the close Tuesday. Disappointing first- and second-quarter reports this year were followed by downside gaps in the stock price, but this time may be different.

The stock has moved back above several key technical levels of resistance, which should now supply support. If those levels can withstand another poor earnings report and prevent any further decline in the stock price, it would be a sign that IBM is on the road to recovery.

Despite the long string of revenue misses, IBM rallied over 60% off its February 2016 low to its February 2017 high. That trend reversed when the stock price slipped back below the rising 50-day moving average and accelerated with the April downside earnings gap. A rising channel pattern began to form ahead of the July report, but after it was released, the stock price gapped lower again.

A new rising channel formed ahead of Tuesday’s report and there are some slight positive technical differences. Recent price action has taken the stock back above the 50% retracement level of the February 2016 to February 2017 rally. It has also broken through the downtrend line of the decline this year that followed the rally, and moved back above its 50-day moving average.

Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and has moved above its center line on both time frames. This reflects positive short-term price momentum and trend direction. Chaikin money flow had been positive for the last month but dipped into negative territory last week. The direction of money flow will have to improve to support the continuation of the short-term trend.

The key level for IBM shares going forward is the intersection of the 50-day moving average and the 50% retracement level, in the $144 area. Even if Tuesday’s earnings report is another disappointment, if this level is able to hold and money flow improve, it would suggest an important low has been made and Big Blue may be on the road to recovery.