Johnson and Johnson’s (JNJ) Chairman and CEO Alex Gorsky said Monday on CNBC’s “Squawk Box” that human testing of its experimental vaccine for the coronavirus will begin by September. If the vaccine is effective the company said it could be available for emergency use in early 2021. That seems a long way off but it is much faster than the five to seven years it normally takes to develop, test, and produce a vaccine. In the interview Gorsky also said that the vaccine would be produced on a “not for profit” basis.
Johnson and Johnson shares jumped 8% to $133 on the news on Monday, finishing the session just below a two month downtrend line and its 200 day moving average. They opened on Tuesday at $135 but have pulled back at this early point in the session.
The daily chart illustrates the locations of support and resistance. It also shows the Relative Strength Index attempting to cross above its center line and Chaikin Money Flow situated in positive territory. If shares of J&J do see a meaningful pullback then the $127.50 area looks like potential support. The bottom line is that the downtrend line and the 200 day moving average are currently resistance. A close above this area could signal another phase to the upside move that began last week.
This is a link to a CNBC article on the interview and here is the video:
The S&P 500 Index bounced up 20% from its Monday low to its Thursday closing high. It seemed primed for the bounce and in Tuesday’s article where we pointed out a bullish morningstar reversal pattern. But we also mentioned that a V-shaped recovery was not what many technicians wanted to see. Volatility is extreme and a volatile rebound is not likely to be sustainable over the intermediate term. What would be optimal is for base building that would act like a platform for an extended stair-step advance. Measured moves of higher highs and higher lows over time give investors confidence that the move is sustainable. We may be in the early stages of building a base but unfortunately it requires a pullback.
The bounce in the S&P has taken the index up to the 38% Fibonacci retracement level of its February/March range. This level is intersecting with a downtrend line. It seems like a logical resistance level and a point for a pause in the rally. What we want to see now is some sideways action. This lateral movement could retest the lower level but should not make a new low. In a perfect technical world an extended W-pattern would form inside this week’s high/low range. This is just one possibility, of course, and there are numerous ways bases are made. Simple steady action over time instills confidence and confidence in the stability of the market produces higher prices.
It should be noted that this week’s upside action has turned the technical indicators up and out of their negative zones. Alternatively, the 50 day moving average is preparing to cross under the 200 day moving average, the classic “death cross.” The problem is that both the technical indicators and the moving averages are lagging indicators. Market or price action is the primary thing to watch.
The market needs a foundation to build on and construct a new all time high.
There was a powerful wave of buying that swept through the market on Tuesday. The major market indices were up over 10% in the session, closing on their highs. It was a relief to investors after a month of what seemed like indefatigable selling. In addition to the the positive price and money flow momentum on Tuesday there was another positive development on the charts. A three day morningstar candle pattern formed signaling a possible reversal in the down trend.
The daily charts of the major market indices illustrate their over 30% declines over the last several weeks. Highlighted in the green boxes are the three-day bullish reversal morningstar formations. The pattern consists of a large down-day candle, followed by a narrow opening and closing range “doji” candle, and completed by a large up-day candle. It represents a transition in investor sentiment, from bearishness to bullishness, and is considered by many technicians to be a reliable pattern. Here is a more in depth look at the morningstar formation from Investopedia.
The morningstar pattern like all technical chart patterns is created by the tension between buyers and sellers. It would normally reflect selling exhaustion and a sharp pivot to buying interest, often followed by a V-like reversal. But it is not likely that selling of the magnitude and velocity of the last four weeks would end so dramatically. More likely is that the low range would be drawn out over an extended period of base building. In fact, many market participants would probably prefer a more stable reversal bottom. Also, notice the price action in the indices back in the last two days of February and the first day of March. Rudimentary morningstar patterns formed on the Dow and the NASDAQ charts. This reinforces the need for confirmation when trading any technical pattern.
The bottom line is that the markets are under tremendous stress. Time will be required to properly repair the damage. The best medicine then is a slow but steady recovery reflected in a stair-step pattern of higher highs and higher lows. Hopefully, this morningstar pattern reflects a low on which we can build a solid foundation.
Jim Cramer featured the technical work of RightView Trading on the “Off The Charts” segment of Mad Money exactly one month ago. Here is a recap of the piece from a follow-up article on TheStreet.com that day.
It was another in a series of “Off the Charts” analyses that we did on the long term direction of the broader market. In this episode we looked at the bearish divergence between the S&P 500 Index, which is heavily weighted with technology stocks, and the Equal-Weighted S&P 500 Index, which gives equal weighting to every stock in the index.
At the time, the S&P Index was breaking above the resistance line of a horizontal channel pattern, while the equal-weighted Index was not. We suggested this was a bearish divergence. That the two indices would have to realign at some point. The higher probability scenario was that the technology stocks were distorting the performance of the S&P 500 index. This would mean that the breakout on the S&P 500 chart was a false breakout and that it would have to revert back in the direction of the equal-weighted chart.
Since then the broad market as represented by any of the index charts has fallen dramatically on both the health issues and economic issues of the coronavirus. All our technical analysis did was point out the fragility of the S&P 500 Index relative to its equal-weighted counterpart at that time. Many other technicians had observed similar technical bearish indications. The fundamental event triggered the drop and has continued to power it lower.
So where is the market headed? As it turns out another chart that we highlighted on “Off The Charts” last year shows that we are at or near another inflection point. The S&P 500 logarithmic chart has returned to a long term rising support line on its monthly time frame. A log chart measures price movement as percentage moves. This support line has been in place for nearly a decade and has been successfully retested multiple times. It is an important level from a technical perspective.
The integrity of this support represents the future of the intermediate term to long term direction of the broader market. If it is broken to the downside a channel pattern price target in the 2038 area would intersect with the 50% Fibonacci retracement level of the 2009 low and the 2020 high. But the 38% retracement level in the 2362 area intersects with the 2018 low. If this level is first tested it should provide substantial support of its own.
The opposite scenario is that if channel support holds then the upper range of the channel would be the technical target. This would represent new highs for the markets. At this point in time that would require some very positive fundamental news. Let’s hope for the best.
This is a big picture long term analysis and should be used as context for shorter term analysis. Also, remember the predictive power of technical analysis comes under stress in volatile fundamentally driven markets.
After the close on Monday I wrote about the bearish technical divergences that were present on the chart. The prior week RightView Trading was featured on the “Off the Charts” on Mad Money with Jim Cramer. In the segment we pointed out the bearish divergence between the Cap-Weighted S&P 500 Index, with a heavy concentration of technology stocks, and the Equal-Weighted S&P 500 Index.
Since then the S&P 500 has collapsed about 12% and pierced through several key technical levels on the daily chart. The trigger of course was the increasingly bad news about the coronavirus. But it was the fragility of the market that contributed to the magnitude of the decline. Here’s a brief review.
The first key level to go was the January low. It was penetrated quickly on Monday after a gap lower and the index closed right on the November high. The Tuesday session was particularly brutal. What should have been fairly robust horizontal support at the July/September high and the December low was taken out. Ultimately the S&P paused and found support at the uptrend line drawn off the June/October lows. On Wednesday it looked like there would be an intraday reversal but it failed. The S&P headed back down again and closed on the uptrend line where it had found support on Tuesady. This was something faintly poitive. A support line held for two consecutive days. But, on Thursday the S&P gapped lower again and in a day that some market pundits were saying had some sense of panic, the index dropped sharply. It finished at the October 2018 low. This is also the 50% retracment level of the December 2018 low and the 2020 high.
So where do we see downside support for the S&P 500 index over the short term? First up is the August low at 25340 and then the June low, which is also the 62% Fibonacci retracement level of the 2018 low to 2020 high. situated in the 24844 area. Below this zone there is very little in the way of obvious technical support. That’s another 4% of downside and we will take another look at the charts when we get there. Which could be later in today’s session.
The man who coined the phrase “New Normal,” Allianz chief economic advisor Mohamed El-Erian, was on CNBC’s “Squawk Box” this morning. He repeated his warning made earlier this month about the economic impact of the coronavirus. His specific instruction today: “I would continue to resist, as hard as it is, to simply buy the dip.”
Monday’s market decline was brutal. The Dow Jones Industrial Average was down over 1,000 points. The S&P 500 Index opened below its 50 day moving average and below a long term uptrend line on the daily chart.
The S&P did attempt a bit of a recovery in the Monday session around 3:00 o’clock in the afternoon. It rallied back up 1.3% from its session low to its opening downside gap level. This formed a bullish hammer candle on the daily chart but it was temporary. The index could not hold the intraday advance and quickly faded back down to session lows in the remaining hour of trading.
Interestingly, Monday’s low on the S&P 500 was exactly one tick above its January low. This 3214.64 support level will be the key technical level to focus on over the short term. It represents the support level of a horizontal trading channel we discussed in the “Off the Charts” segment of Mad Money with Jim Cramer earlier in the month. A bounce off this support level and a resumption of the primary uptrend is certainly a possibility (and the Tuesday futures are indicating some strength). But if the 3214 support level should fail, it would be a technically and psychologically destructive outcome. In the event of further downside we have highlighted several potential technical support levels on the daily chart.
On Monday the S&P 500 Index closed down about 5% off its recent all-time highs. If we measure Fibonacci retracements from the 2019 lows to the recent all time high the 38% retracement level is situated in the 3136 area. A test of that level would be a 7% decline off the highs. The 50% Fibonacci retracement level is in the 3058 area. It represents a nearly 10% retracement and textbook correction that would likely intersect with the 200 day moving average.
If primary channel support is broken these Fibonacci levels should supply secondary downside support. But in a volatile market like this current one confirmation of any technical level is key. Technical levels have to prove their worthiness and withstand retests. Under current market conditions it is a tall order.
Normally market movement is related to a combination of causal fundamentals followed by a reaction that is technically triggered. The 1000 point drop in the Dow on Monday was the reverse. The movement was related to a technically tentative market condition that was triggered by the fundamental concerns over the coronavirus.
The daily chart shows several clear bearish technical divergences. Chaikin Money Flow is a measure or buying and selling pressure. It has been moving lower even as the S&P 500 made a new high in January and then again this month. The same bearish technical divergence can be seen in the Relative Strength Index, a measure of price momentum, in relation to the rising index. There was further technical evidence.
Two weeks ago RightView Trading was once again featured on the “Off The Charts” segment of CNBC’s Mad Money with Jim Cramer. At the time the broad market continued to trend higher but the technology stocks were clear out-performers. We noted that the S&P 500 was a market capitalized index and was heavily weighted in the technology space. The implication was that it was distorting the action in the index.
We suggested that the Equal Weighted S&P Index ($SPXEW) might be a better way to gauge the technical condition of the broader market. This index, as the name implies, gives equal weighting to all the components of the S&P 500 Index.
It was pointed out in the “Off the Charts” segment that the S&P 500 Index and the Equal Weighted S&P Index had been moving in horizontal trading channels since the beginning of the year. The S&P had just broken above its channel resistance level but the Equal Weighted Index had not broken above its channel resistance level. This we thought might be an additional bearish divergence signal.
The S&P 500 Index continued to track higher over the next six trading days but the Equal Weighted Index continued to bump up against its channel resistance level. Our expectation was that the Equal Weighted S&P Index was more likely to move down to its channel support level than break above its channel resistance level. That is what happened but in full disclosure we did not expect it to take place in one day. As expected the S&P 500 has realigned itself with the Equal Weighted Index. Now the integrity of the channel support on both charts will likely determine the intermediate term direction of the broad market.
So there were technical signs for some time that a decline was imminent. It hit hard in Monday’s session but those channel support levels while looking shaky remain intact. That’s a positive but they have to hold, the intermediate term health of the market is dependent on it.
(This is a re-cap of the segment of the show that was published on TheStreet.com that night.)
In June last year, the SPDR Gold Shares ETF (GLD) broke above long term resistance situated in the $130 level. This level was also rim line resistance of a shorter term cup and handle pattern on the weekly chart.
The cup and handle pattern projected an upside target price measured by taking the depth of the cup portion of the pattern and adding it to the rim line. This calculation identified the $145 level as the price objective.
The GLD tested the $145 level in August and September last year. After failing to take out that level the ETF pulled back in a declining channel pattern. The combination of the upside price action in the last half of 2019 and the subsequent channel consolidation formed a bullish flag pattern.
The flag pattern also projects a pattern price objective. The process is to simply take the height of the flagpole and add it to the top of the flag. In this case, it targets the $170 area.
In December 2019 the GLD broke out of the flag consolidation channel. Price continued to move higher in the early weeks of this year then began consolidating again in the $147/$148 area. In today’s session the GLD is up over 2%, following up on its gain on Wednesday. It is well over the $147 now and may be on its way to fulfilling its $170 price objective.
Technical patterns don’t always play out as we all know, and by my anecdotal take is that projecting price objectives has even less success. But the purpose of both exercises is to provide context for a trade.
Again, self-explanatory and presented without commentary:
Be sure and check out earnings dates.