NVIDIA (NVDA) shares having been tracking higher above a long term uptrend line going back to the end of last year. The uptrend line is being shadowed by the rising 200 day moving average, adding additional technical support.
In August, the stock broke above an interior resistance line situated at $260 on the daily chart. It went on to make another new high at $285.
Since making that high, however, it has faded back to the $260 former resistance-turned-support level, which is currently intersecting with the 50 day moving average.
A hammer candle formed after the retest on Monday followed by two days of weak but positive price action.
In order for NVIDIA shares to fully reverse their September fade, they have to break out of the declining channel they have been moving lower in. So, to do that positive price momentum has to pick up and money flow has to remain positive.
Ultimately, NVIDIA needs to close above the $270 level which is the current channel resistance level. The $260 area remains support for now.
We noted the bearish “eveningstar” reversal pattern on the Dow chart in a posting before the open yesterday. Here’s the link.
The industrials finished the Tuesday session lower.
But early in the Wednesday session, the technology sector looked like it was going to takeover the leadership role from the industrials, and keep the broader market momentum going. The big name tech names were off and running in morning trading but then came the Federal Reserve statement.
In the first minutes after the announcement the indices were up, then just as quickly they began to fade. In the last hour of Wednesday trading they dropped sharply, with the DJIA down triple digits, and the NASDAQ Composite Index forming a high wick candle on its daily chart.
The high wick or upper shadow candle is called a shooting star in candlestick charting parlance. It suggests that an index or security is unable to hold upper price levels and may be feeling some degree of exhaustion.
A large dark body candle formed on the the Russell 2000 Index daily chart, which penetrated below the 50 day moving average. The S&P 500 Index finished near its low of the session and back below its August high.
Wednesday’s candles are just one day of price action. While they finished at session lows and at interesting technical levels, they could just as easily bounce back tomorrow. The weekly close and the weekly candle are key to our analysis.
There is two more days of input needed before those candles mature.
An eveningstar pattern has formed on the Dow Jones Industrial (DJIA) Average daily chart. This three–day candle pattern is considered a bearish reversal formation and is often seen at important tops.
The eveneningstar consists 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 transition in investor sentiment from bullishness-to-bearishness.
The industrials have been a leader in the recent march to new highs. If they begin to lose momentum, which sector would be the next to take on the leadership role?
Technology has been fading, the bond proxy consumer staples are facing competition form the increase in interest rates, to which there has been little positive reaction from the financial stocks.
Don’t touch that dial.
Netflix (NFLX) shares have been consolidating under resistance at $380 for the last two months.
This resistance defines the neckline of an inverse head and shoulders pattern on the daily chart. An inverse head and shoulders is considered a fairly reliable continuation candle pattern. In this case, the left shoulder is defined by the July low, the head by the August low, and the right shoulder by this month’s low.
A break above $380 neckline resistance suggests an upside price target measured by taking the height of the pattern, and adding it to the neckline. In this case, it projects about 65 points higher to the $450 level, which would be a new all-time high for the stock.
Netflix consolidated in a similar way over the summer. That time it formed a cup and handle continuation pattern. The subsequent breakout met its projected measured move and took the stock price to its current all-time high.
The technical indications in place now suggest a successful breakout from the inverse head and shoulders pattern.
Moving average convergence/divergence made a bullish crossover and is tracking above its center line. The relative strength index is also trending above its rising 21 period average and is above its center line. These are signs of improving positive price momentum.
Chaikin money flow has been oscillating around its center line and the accumulation/distribution line is above its slightly uptrending 21 period average. Money flow is neutral to fairly positive.
Netflix shares formed a large white candle in Tuesday’s session and closed back above their 50 day moving average. In trading on Wednesday a hammer candle formed and it looks like the stock is poised for a run at neckline resistance.
An upper candle close above the $380 level confirms a pattern breakout which could initiate a run to new highs.
Here are six stocks that are bullish trading candidates based on their weekly charts.
The charts reflect some prior basing action and have well-defined resistance lines. Price momentum is improving and money flow is generally positive.
Trading on the weekly time frame offers the benefit of deeper stops. This also allows more time for the trading thesis to play out. But because of the wider stop loss levels, they do require smaller position size which, of course, limits profit levels.
This is usually a good trade off.
So often traders are stopped out only to see their stock then suddenly reverse back in direction they had originally anticipated and then continue higher. The weekly time frame helps to avoid this all too common dynamic.
There are technical indications on several retail sector stocks that suggest their strong run may be coming to an end.
Take a look at the daily Kohls (KSS) chart. In August the stock began tracking higher above a well-defined uptrend line. The trend line was tested last week and in Monday’s session it was broken. The stock price closed just below the June high.
Moving average convergence/divergence has been in bearish divergence to price since it made the June high. Chaikin money flow is still in positive territory but its upward trajectory has shifted this month, and it is well below its 21 period signal average.
There is similar looking price action on the weekly chart of Macys (M), except that its rally began at the end of 2017. The share price has more than doubled since then and the stock may be in the process of absorbing those gains.
Macys’ shares began moving sideways in May above horizontal support in the $35 area. They have been retesting that support for over a month. The stochastic oscillator has dropped sharply during this time, as well as overall volume, and Chaikin money flow is close to entering negative territory.
After a more than a one year rally, Polo Ralph Lauren (RL) shares are also testing an important trend line. Over the summer several high wick candles formed on the chart. These represent failed attempts to hold higher price levels. The stock is again retesting a rising support line, currently situated in the $130-$131 area.
Moving average convergence/divergence has made a bearish crossover, the stochastic oscillator is below its center line, and the accumulation/distribution line is under its 21 period signal average.
Retail may rebound off these support levels but a more healthy response might be for a pause and consolidation, even if that means a minor pullback, before a resumption of their uptrend.
The SPDR Gold Shares ETF (GLD) have been tracking steadily lower for the last six months. There have been attempts to stabilize along the way, but they all failed and the erosion in the precious metal continued. Over the last month, however, the ETF has stabilized and formed a pattern on the daily chart which suggests a preliminary step in an attempt at reversing trend may be underway.
A cup and handle pattern has formed on the daily chart under rim line resistance in the $115 area, which is currently intersecting with the declining 50 day moving average. Moving average convergence/divergence made a bullish crossover last month and has continued to track higher.
The real technical improvement is in money flow. Chaikin money flow has been moving higher for the last 30 days, starting from a very low level. This week it moved back into positive territory for the first time in several months. This suggests the GLD is no longer being sold and it is the first sign of buying interest.
A confirmed break above the cup and handle rim line projects a pattern measured move to the $119 area. This is only a 3.5% move but it changes the structure of the chart, and points the way ahead for the precious metal.
Red Hat (RHT) shares dropped sharply in June. They made a low in the $132.50 area later in the month and then began to oscillate around the rising 200 day moving average.
A triangle pattern developed below a static horizontal resistance line in the $150 area. In Wednesday’s session a small hammer candle penetrated triangle resistance.
Moving average convergence/divergence has been tracking higher along with price and is above its center line. The relative strength indicator is also above its center line, and 21 period signal average. These indications reflect improving positive price momentum.
Money flow has also been very positive this month. The Chaikin money flow indicator is well into its upper zone, suggesting strong buying interest in the stock.
It looks like Red Hat is in the early stages of an attempt to close the large downside gap. If it were to achieve that goal it would represent a 10% upside move.
If you’re looking for a speculative trade, it might be time to take a look at the GoPro (GPRO) weekly chart.
The decline in GoPro’s market capitalization and the near 90% collapse its the share price over the last four years is well known. There is no fundamental logic for taking a long position in the stock. There is, however, a technical rationale for a short-term speculative trade.
The weekly chart is highlighted with a two year downtrend line and includes the 10 and 40 week moving averages. GoPro shares are currently above the 40 week average and retesting the trendline.
The relative strength index has been tracking higher ever since it moved out of its oversold zone earlier in the year. This reflects some level of positive momentum in the stock.
Chaikin money flow has also been steadily moving higher and is in positive territory. This suggests renewed buying interest and that shares are under accumulation.
There is a 22% short interest in the stock and the traders that have made money taking this position, may cover if the stock shows some sign of strength.
Similar technical dynamics were in place on the GoPro chart in June 2016 and they provided a profitable short term trading opportunity; they could again.
The edge in this case, is the nearby breakout level supplied by the downtrend line, and the close stop loss levels below the 10 or 40 week moving averages. These present a good risk/reward speculative short-term set-up, but remember — capital preservation is job one.
Live Nation Entertainment (LYV) promotes and operates live music events. If you take a look at the fundamentals of the company you might not be impressed. But from a short term technical perspective the chart is a potential “blockbuster.”
Price action in April formed a large island reversl, first gapping lower at the beginning of the month, and then gapping higher in early May. The stock continued higher, with the 50 and 200 day moving averages making a “gold cross” in June, and finally peaking in August.
Live Nation shares pulled back below the uptrend line and managed to oscillate around the 50 day average, preventing any further decline. What developed from this was an inverse head and shoulders continuation pattern, with neckline resistance in the $50.25 area.
The relative strength index has crossed above its 21 period signal average and its center line, and moving average convergence/divergence made a bullish crossover and is above its center line. These are indications of increasing positive momentum and short term trend direction.
Money flow is improving along with price momentum. Chaikin money flow has moved into positive territory suggesting new buying interest, and on balance volume is well above its 21 period signal average.
Live Nation was up 2.3% in Tuesday’s session, breaking through the inverse H&S neckline and closing near the high of the session. At this point it looks positioned to make a run at the July all-time high, and the pattern offers a good risk/reward trading set-up.