Monthly Archives: July 2018

Caution! – Bearish Patterns On The Major Market Index Charts

On Thursday it looked like a triple top had formed on the Russell 2000 chart. Three consecutive bearish engulfing candles formed at channel resistance and it appeared the consolidation pattern was going to resolve to the downside.

The analysis was posted here.

As it turned out the small-caps were hit hard on Friday and the index ended the week below the channel support line.

The tweet below was posted on Friday morning and suggested that traders use caution because the S&P 500 index had reached the top end of the rising channel. A pullback at that point in price seemed logical.

The S&P did pullback later in the session and a bearish eveningstar reversal pattern formed in the process. An eveningstar is a three-period pattern that consists of a large white candle, followed by a small doji, or opening and closing range candle, and completed by a large dark candle.

It is often seen at tops after an uptrend, and represents a transition in trader sentiment from bullishness to bearishness.

The NASDAQ Composite experienced wide range downside price action in Friday’s session. The large dark candle that formed was preceded by a small doji, or opening and closing range candle on Thursday, and a large white candle on Wednesday.

This combination of candles formed another bearish eveningstar pattern.

On the weekly Dow Jones Industrial Average chart, the index met resistance of its own in the 25,500 area. This as the 20 week moving average is crossing below the 40 week average for the first time since 2016.

Weekly moving average convergence/divergence (MacD) is making a bullish crossover and the Friday finish on the daily chart (not shown) formed a less bearish candle then those seen on the previous index charts.

But even with some opposition from the Dow, three of the four major market indices look poised for a potentially substantial pullback. If that proves to be the case, the industrial sector will ultimately succumb to the greater gravitational downside.

It is clearly a time for traders to be cautious.

Three Bearish Engulfing Candles On The Russell 2000 Chart Suggest A Possible Triple Top

A pattern of bearish engulfing candles has formed on the iShares Russell 2000 ETF (IWM) daily chart, which could be an indication that the small-cap sector has made a intermediate term top.

In June a bearish engulfing candle formed just below the $170 level. The pattern was repeated again in July and once more just last week.

A bearish engulfing candle is one with a real body or opening and closing range, that engulfs or contains the previous day’s candle range. It is a dark colored candle whose close is lower than its open. In the case of last week’s candle, it engulfs nearly all of the previous week’s range.

It is unusual to see three of these bearish two-day candle patterns form just below a common resistance level. One engulfing candle is considered a potentially bearish signal but three has the additional implication of a being a triple top.

Moving average convergence/divergence and the relative strength indicator have been in slight bearish divergence to the recent sideways price action of the IWM. This reflects a loss in positive price momentum. The Chaikin money flow indicates a decline in positive money flow.

A breakout above the $170 level, still a distinct possibility, negates the triple top thesis. A breakdown, however, below the rising 50 day moving average and horizontal support in the $166 area would imply an intermediate term top was in place.

Sick Of Being Stopped Out Of Trades – Try This

It is frustrating to be stopped out of a trade, only to see the stock quickly recover and then move exactly the way you had expected it to in the first place.

It is as if “they” knew where your stop was and deliberately went and got it

The thing is there are a lot of traders who are looking at the same charts as you, seeing the same patterns, and placing stops at identical levels. It is a big target for “stop hunters.”

There are different ways to avoid being a victim. One is to change your trading time frame. If you use daily charts then switch to a weekly time frame. Stop hunting is less common on the longer time frames.

When you trade using weekly charts it forces you to place wider stops, which keeps you in the trade longer. This extra time allows for your original trading thesis to play out.

But it also means that you will have to take a smaller position size to accommodate the wider stop loss level. The idea is that you will be compensated for your smaller position size, by remaining in trades longer and not being stopped out too early.

Trading weekly charts still requires a disciplined trading plan but it can ease the pressure associated with daily trading charts.

So, if you have been having trouble with market volatility or it just seems that your trading timing is off, try trading on the weekly time frame for a while.

Herbalife – Shares Poised For A Volatile Move

Herbalife Nutrition’s (HLF) stock price dropped sharply in late May after news that Carl Ichan had sold 10.5 million of his shares in the company. Since the announcement, the stock has traded back up before consolidating between contracting Bollinger bands.

This price compression has reached an extreme level, and a narrow horizontal channel has formed between the $55 level and the $53 level on the daily chart.

Periods of very low volatility like this one are often followed by a high volatility resolution. The “pressure” builds as the stock price is squeezed and then there is a “blow-off” break from the tight range. The move can be either up or down but it is usually a big one.

Herbalife’s former CEO Michael Johnson and current Executive Officer sold just under 850,000 shares of the stock on June 6, at $52.13 a share. The sale was valued at $44 million, well below the $552 million Ichan sale, but still significant.

The usual technical momentum and money flow indicators on the Herbalife chart are relatively neutral. But the graph at the bottom of the chart does suggest that this contraction phase may be resolved by a sharp downside move.

The graph shows the percent difference between the 50 day moving average and the 200 day moving average. The 50 day average has been somewhere between 15% to 20% above the 200 day average for the last month.

This is the largest diversion between the two averages since Herbalife has been trading, and everyone knows about reversion to the mean.

It’s all about timing. There is, very likely, a volatile move coming in the stock price and two of the major averages have diverted from each other by an historic margin. The technical inference is that Herbalife is headed lower and the move should be swift. Shares Breakout With Bitcoin

Bitcoin has broken out of an inverse head and shoulders base and is tracking higher. The move is similar to the bullish action that began at the end of April this year and continued into early May.

It looks like Bitcoin will make an attempt at breaking through the longer term downtrend line that the May high helped define. If it were to penetrate that barrier, it could spark a second phase of cryptocurrency mania.

One way to trade any renewed interest in things crypto and block-chain related is through a proxy play. (OSTK) is one of these proxy stocks and it is breaking out of a bullish basing pattern of its own. is an e-commerce company that is also developing cryptocurrency and blockchain projects. It’s stock price has been correlated with the movement in bitcoin shares.

Shares dropped sharply in the first quarter of this year. Then they began a four month period of consolidation under horizontal resistance in the $41 area. Overstock jumped over 10% in Tuesday’s session and penetrated the consolidation resistance line.

Bitcoin continued higher overnight and Overstock is trading modestly higher in pre-market trading.



Jim Cramer And Bob Lang Go “Off The Charts” And Look At Three Biotech Buys

Bob Lang, the founder of and part of’s Trifecta Stocks newsletter team gave his technical take on three stocks in the biotechnology sector, on the “Off the Charts” segment of Mad Money tonight.

Cramer’s charts suggest big-name biotech stocks Gilead and Celgene have more room to run from CNBC.

Gilead Sciences (GILD), Celegene (CELG), and Illumina (ILMN) have been laggards in the biotech space but Bob believes and Jim agrees, they are prepared to head higher.

Financial ETF At An Inflection Point On The Chart

The Financial Select Sector SPDR Fund (XLF) is nearing a technical inflection point on its daily chart.

This year the fund has been making a series of lower highs above horizontal support in the $26.50 area. This price action has formed a large triangle pattern on the daily chart. Earlier this month the support area was successfully retested and now the triangle resistance or downtrend line is being retested.

But this time the downtrend line is intersecting with the 50 day and the 200 day moving averages, adding additional levels of reinforced resistance.

The significance of a breakout is increased by this trifecta of resistance. The XLF and the financial space in general would be expected to rally big if it were broken. A measured upside move from the triangle pattern projects to new highs for the fund. A failure at this point and subsequent break below triangle support, however, implies a potential retracement back down to the XLF’s 2017 lows.

Eveningstar Patterns On Electronic Arts & Activision Charts Could Be Bad For NVIDIA

The price action in Electronic Arts (EA) is closely correlated to the price action in Activision Blizzard (ATVI), as would be expected with the two biggest names in the gaming industry.

In trading on Monday shares of both companies were down and this large dark down-day candle completed the formation of a eveningstar pattern on their daily charts. This bearish pattern, as many know, is a three day reversal formation that consists of a large up-day candle, followed by a narrow opening and closing range “dpji” candle, and completed by a large down-day candle. It represents a transition in investor sentiment from bullish to bearishness, and often marks the completion of an uptrend.

Activision and Electronic Arts both moved lower in early trading this morning but have since returned to roughly unchanged. The eveningstar pattern is invalidated after a close above the middle doji candle. There is no measured move downside price target associated with an eveningstar pattern. There are only conventional percentage retracement levels or areas of previous resistance-turned support.

NVIDIA (NVDA) the big name in gaming chips has been losing momentum after previously testing an upside trend line.

At the beginning of the month, shares bounced off the support line of a large rising triangle pattern as the stochastic oscillator moved out of an oversold condition. The stock has been unable to recapture its 50 day moving average and complete the second half of the return to triangle resistance. This is very similar to the price action after the April retest of the support line.

Price action in NVIDIA and Electronic Arts is closely correlated so if the bearish scenario of the eveningstar pattern plays out in the gaming stocks, it would imply weakness in NVIDIA. Likewise, if NVIDIA shares are able to recapture their 50 day moving average and continue higher, the gaming stocks would be expected to return to their primary uptrend.