Monthly Archives: March 2019

Update: The S&P 500 Index Breaks Above Weekly Chart Resistance

The modest gain in yesterday’s S&P 500 Index was notable. The index closed above the weekly and daily resistance area on our chart at 2832.94, for the first time since October 2018.

RightView Trading’s take on the broader market was featured on the February 5th “Off the Charts” segment of Mad Money. At that time we expected the S&P to rally 3.5% to retest the weekly resistance zone. It did that and now has closed above it.

We further speculated that if the technical indicators remained positive the index could rise another 4%, to test its historic October 2018 highs.

On the daily S&P chart, the relative strength index is still tracking higher and above its 21 period moving average, reflecting continued upside momentum. Chaikin money flow has come off since the “Off the Charts” segment but remains in positive territory. The Chaikin money flow oscillator, which we have been utilizing more often, is ascending and is back in its upper zone.

There is, of course, the well-known attractive element of new highs – the magnetic affect they have on stock prices. It seems to pull them to new heights based on the shear willpower of trader sentiment.

As stated back in February, our technical take is that the S&P 500 is headed back to its old highs. We think the market in general has positive momentum and is in good technical condition. But here’s the disclaimer; we live in interesting times and it is impossible to factor in the multitude of potential exogenous events on our plate. That is why it is crucial to be aware of support on multiple timeframes and have disciplined stop loss levels.

Hopefully, we’ll update this post when the S&P 500 hits 2940.

Canopy Growth – Chart Suggests 40% Upside

Canopy Growth (CGC) shares shot up over 80% last August. The volatility continued over the next several months, forming a series of high wick candles. These candles reflected the stock’s inability to hold new highs. Ultimately it relented and shares pulled back below their 40 week moving average, to where the rally began.

A similar pattern of sharp upside followed by consolidation has formed on the Canopy chart, again, but this time without the high wick consolidation phase. The rally and the current consolidation look like a bullish flag pattern.

Canopy’s flag formation is still maturing but its potential upside is enormous. The target price objective is measured by taking the height of the flagpole, or the January rally range, and adding it to the top of the flag. It projects a $20 upside move to the $70 level which is 40% above its current level.

It is an ambitious projection but with this highly volatile stock anything is possible.

Let’s take a look at the Canopy daily chart.

On this chart the flag (or pennant) portion of the pattern looks like a rising symmetrical triangle. As the stock price has migrated towards the apex, the relative strength index and Chaikin money flow have settled near their center lines. The 50 day moving average has made a “gold” cross above the 200 day average.

Price, as always, is the determining technical factor. A move above the $49 level is a bullish breakout, and it could initiate the sharp move higher in the stock price. If the stock broke below the $42 level it would represent another failure similar to the one last year, and it would imply another downdraft in Canopy’s share price.

Bearish Reversal Pattern On The eBay Chart

Shares of eBay are up 35% from their December low. They have recovered about 50% of their sharp decline in 2018. But over the last several weeks a bearish reversal pattern has formed on the weekly chart.

It suggests an intermediate term top is in place.

The eveningstar is a three-period bearish reversal pattern. It consists of a large up-day candle, followed by a doji-like candle, and completed by a large down-day candle. It is a visual representation of a shift in trader sentiment from bullishness to bearishness.

There is also, an open gap between $32 and $31 that occurred in January this year. If eBay shares continue to slip lower the magnetic properties of the January gap will increase, potentially drawing the stock price in to fill the void.

A fairly reliable reversal pattern that forms after a strong run and at a potential level of Fibonacci resistance is one that demands particular attention.

What’s Up with Gold?

The SPDR Gold Shares ETF has had a propensity to trade in large triangle patterns on a long term timeframe. Since, early 2014 the fund has been rising in a complex triangle pattern. That is, one smaller triangle that formed in 2017 to 2018 situated within a larger multi-year triangle that began in 2014.

This year the GLD is testing a key intersection of both of those triangle patterns. The resistance line of the larger triangle going back to 2014 is meeting up with the support line of the smaller 2017/2018 triangle, at its apex. This junction at about $127, along with the 2018 highs at $130 has created a zone of resistance.

This zone will be difficult to break through but if it is penetrated, it would signal the end of a long term bottoming process for the precious metal. There is an old technical expression that goes something like, “The longer the base, the higher the space.” It suggests that a long period of basing is followed by a long period of rising prices. My response is, “One step at a time and keep your stops tight.”

Let’s take a look a closer look at the weekly chart.

Consolidation in the last half of 2018 formed a cup and handle pattern. We highlighted the formation early this year and its projected upside target price. That pattern objective was reached last month and the GLD pressed on up to briefly test the $127 level. But by the end of February it had dropped back down to the 38% retracement level of the 2018 low and its recently made high.

At the time were bullish on gold and expected that after reaching the cup and handle pattern target price, the GLD would continue on and break above long term resistance. That was pure speculation and in hindsight it seems more logical that, after achieving its target objective a pullback was in order.

Last week the Gold Shares touched the 38% retracement l level of the 2018 low and last month’s high range. On Friday they gapped higher on the open and closed near their high. The end result was a strong looking white candle on the weekly chart.

At this point, it looks like the $117 to $121 area is wide ranging support and the $127 to $130 level is wide ranging resistance. The series of higher lows and the positive Chaikin money flow reading suggest resistance will be tested again.

As we said at the beginning of the year if the Gold Shares ETF does break out it could move significantly higher, but that breakout would not be promulgated by just from a change in the technical condition of the ETF, “It would probably be derived from some deeper undercurrent in the broader market. Not sure what that undercurrent would be but the implication is that it might not be a good thing.”