Take a look at the Hershey Foods (HSY) daily chart.
The stock has been under pressure since the end of 2017, trending lower beneath a declining 50 day moving average. But over the last few weeks it has been attempting to build a base, just above the $89 level and below the $93 level.
In Tuesday’s session it closed above its 50 day average and the $93 resistance level. It also closed near the high of the day. These are early signs that Hershey shares are attempting stabilize and reverse the process of lower highs and lower lows.
The daily MacD is overlaid on a weekly histogram of the oscillator. In this way it gives us an idea of both short and intermediate term momentum. It’s made a crossover on both time frames.
In addition, the Chaikin money flow indicator has crossed into positive territory. While overall volume is still light the money flow reading suggests that there is some buying interest in Hershey shares at their current price.
Confirmation of a true trend reversal requires follow-through price action, some testing of resistance-turned-support, and ultimately for the 50 day average to start tracking higher.
Since early April this year there has been a very interesting divergence between Berkshire Hathaway (BRK/B) shares and the S&P 500 index.
Shares of McDonalds (MCD) have labored to retrace the February drop in the stock price. In the four month process that followed they formed several consolidation patterns, depending how you draw the lines.
The first looked like an inverse head and shoulders formation, and then a complex right shoulder developed. After that, a small descending triangle pattern formed that also became the handle of a very large cup and handle pattern.
In any case, resistance seemed situated primarily in the $167 area. That level was broken decisively last week and it appeared McDonalds was on its way to making new highs. What has happened, however, is that a bearish reversal pattern has appeared on the chart and the stock price has retreated back below resistance.
The “eveningstar” pattern is a three-day bearish reversal pattern.
From Investopedia: An evening star is a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
The eveningstar represents a transition from bullishness-to- bearishness.
The stochastic oscillator is making a negative crossover in an oversold zone, and the Chaikin money flow reading suggests the stock is not under accumulation.
McDonalds shares look vulnerable unless they can quickly recover and begin basing above the $167 level.
FedEx (FDX) shares have been testing resistance in the $257 area for the last four months. In May they began making a series of higher lows, in preparation for another run at this level.
At this early point in the Thursday session, the stock has broken and is trading above the $257 level. A close here would suggest that an intermediate term basing process is over and FedEx is ready to resume its 2017 uptrend.
The daily moving average convergence/divergence oscillator on the chart is overlaid with a weekly histogram of the oscillator, and is tracking higher on both time frames. This reflects bullish short term momentum and trend direction.
Overall volume has been declining and will have to improve to support a confirmation of the breakout move. But Chaikin money flow moved into positive territory and is above its signal average, an early indication of buying interest.
If FedEx were to return to trend the wide base it has established suggests a large move, one that would take the stock price to new highs.
Here are several stocks on my watch list today:
The Health Care Select Sector SPDR Fund (XLV) has been trading in a horizontal channel for the last two months. Resistance is situated in the $84 area and the February low around $79.50 has supplied well-tested support.
The channel pattern price projection is measured by taking the height of the channel and adding it to the channel top. It targets to the $88.50 area.
Home Depot (HD) shares have broken above the rim line of a four month cup and handle pattern.
The relative strength index is above its center line and 21 period average, and the accumulation distribution line is tracking higher and above its signal average.
Memory chip manufacturer Smart Global Holdings (SGH) is breaking out of a cup and handle pattern on its daily chart.
The Nasdaq Composite is an index of over 3,300 common equities listed on the Nasdaq stock exchange. It is up 10% since its April low this year. An impressive two month gain.
The index is a market-value-weighted index. That means its components are weighted according to the total market value of their outstanding shares. Currently, the FANG stocks account for about 38% of the NASDAQ Composite weighting. By comparison the FANG stocks account for 12% of the also market-cap weighted S&P 500 Index. The S&P index is up 6% since April this year and the price-weighted Dow Jones Industrial Average is only up 4% in that time.
This mean that Facebook(FB), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOGL) together have a powerful influence on the movement of the NASDAQ index. When they outperform the NASDAQ generally outperforms.
But the reverse correlation is also true and if the FANG stocks are sold off the NASDAQ Composite, which is leading the S&P 500 and the DJIA indices, will take a hit. And if the leading index fades it could weigh on the other major indices.
This progression as outlined, suggests the course of four stocks has an inordinate influence the entire broader market.
Doctor Copper finished a strong 2017 with a sharp rally into year end.
Since then, however, it has lost its upward momentum and made a series of lower highs on the chart. The price action this year looks like a symmetrical triangle or wedge. These are consolidation patterns which after completion often lead to a resumption of the trend.
This may be the case with copper but one cautionary indication is the 50 day moving average crossing below the 200 day average in early May. This is called a “death cross” and is considered to be an intermediate to long-term bearish indication.
Of course, a death cross is not a sure thing. A confirmed triangle breakout or breakdown will likely determine the future direction of price, but in either case the move could be volatile.
Note the compression of the Bollinger bands. The reading on the Bollinger bandwidth indicator is the lowest or the tightest it has been since October 2016. It was followed by the 50 day moving average crossing above the 200 day average. This “gold cross” marked the start of the copper rally.
It is unclear at this point in time, which direction the triangle break will take. When that decision is made, however, the preliminary price compression on the chart suggests subsequent move will be highly volatile.
Bitcoin is nearing an intersection of key resistance. The integrity of this level could determine the intermediate term direction of the cryptocurrency.
The trend for the last month has been lower. A steady series of lower highs and lower lows can be seen on the daily chart. They have delineated a well-defined downtrend line that was tested and held in mid-May. The downtrend line which is situated in the 7600 area was retested again in Friday’s session.
This downtrend line is being currently reinforced by an intersecting horizontal line of resistance. On the 30 minute timeframe, the horizontal resistance line can be seen as the neckline of an inverse head and shoulders pattern.
An inverse head and shoulders pattern is a basing pattern that normally precedes bullish reversals in price. The left shoulder low formed on May 24th, the head on May29th, and the right shoulder has been under construction for the last several days.
The inverse H&S pattern formation has an upside price objective measured by taking the height of the pattern and adding it to the neckline. This targets the 8151 area.
It is not much in the way of a measured move but it is the penetration of this key intersection of resistance that is technically significant.
Of course, the basing could continue below the neckline and extend past this intersection in time and price. A sustained breakout above this key level of resistance, however, would suggest a positive shift in the intermediate term trend.