Author Archives: Rob Moreno

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.”

An Optimistic Look At The Apple Chart

We saw some signs of life on the Apple (AAPL) chart yesterday. The stock price was only up fractionally, but the close was near the high of the day. This formed a strong looking bullish marubozu candle on the daily chart.

The marubozu candle is one with no or very little upper or lower shadow. It is a bullish sign if the open is at or near the low of the day, and the close is at or near the high of the day. A bearish marubozo is a candle with the open at or near the high of the day and the close at or near the low of the day.

After a nice bounce in January, Apple began moving sideways in a very narrow range. The $170 level has been support and the $175 level has been resistance. The $175 level is also the 38% Fibonacci retracement level of the October 2018 high and this year’s January low.

Notice the 21 period average of the relative strength index. It has been on a rounded bottom-like trajectory, basically in bullish divergence to price over the last month. This is a sign of improving price momentum. On balance volume has been rising this year and suggests buying interest. One negative is the lack of volume. That has got to improve if Apple shares are going continue to move higher.

Interestingly, the weekly chart shows that the 38% resistance level of the October 2018 high and this year’s January low, is also the 38% retracement level of the 2016 low to the 2018 high. The Fibonacci lines do seen to have had some influence as support and resistance on the way up and on the way down, in 2016 and 2018. The added dimension of shared Fibonacci levels would reinforce resistance in the $175 area going forward.

The action in Apple shares over the last month has been sedate. The market continues to struggle with exactly how to price its new hardware-turned-services profile. But a confirmed break above the $175 level might be a first sign that it is reaching some evaluation consensus, and a positive one at that.

Two Short Sale Candidates in the Weak Transport Sector

The Dow Jones Transportation Average has dropped back below its 200 day moving average and is testing an uptrend line that has been in place since the beginning of the year.

The 200 day average thwarted the transportation average’s advance several times at the end of last year, and one such test directly preceded the December drop.

Once again, the moving average is acting as resistance and the transportation average has pulled back and is retesting an uptrend line in place since the beginning of the year.

One of the worst performing stocks in the transportation sector is Schneider National (SNDR), a close second in under-performance was J.B. Transport Services (JBHT). Check out the interactive chart which includes C.H. Robinson Worldwide (CHRW), Landstar System (LSTR), and the Dow Jones Transportation Average. It compares relative performance in the group over the last year.

If the Dow Transports are rolling over it is likely that the worst performers will continue to lead their peers to the downside.

Both SNDR and JBHT are breaking below year-to-date uptrend lines on their daily charts. At this early stage in the potential decline they offer good risk/reward short-sale entry points.

Remember that shorting a stock is risky and if the trade does not include a close disciplined buy-to-cover stop, it can be very costly.

Watch The Small-Caps – An Eveningstar Pattern Is Signaling A Reversal

The small-cap stocks have historically led the broader markets. In the past, changes in the direction of the Russell 2000 Small-Cap Index have preceded changes in the direction of the market as a whole. Not always but it has often been the case. So, when a reliable reversal pattern forms on the Russell chart it deserves our attention.

The eveningstar pattern is a three-period bearish reversal formation that consists of a white up-day candle, followed by a doji candle, one with a narrow opening and closing range, and completed by a red down-day candle. It represents a transition in investor sentiment from bullishness, to indecision, to bearishness.

An eveningstar pattern has formed on the daily Russell chart. Similar patterns also formed in October last year and twice in November. They signaled tops. The current eveningstar includes a “gravestone” doji, which is a reversal candle on its own, with a narrow opening and closing range situated at the lower end of the overall range, and has a high wick.

When a bearish reversal signal forms after a period of strength or at a well-defined level of resistance, it takes on particular significance. The current eveningstar has formed at the 1600 level which has previously acted as resistance, and directly below the 200 day moving average. In addition, the relative strength index is in an overbought condition.

The Russell is not the only market index that has returned to an important area of resistance. In case you are not aware, the 2800 level on the S&P 500 index is, in fact, resistance. It has been widely reported on FinTwit and everywhere else. So, watch the Russell for a reversal because it is likely the rest of the market will quickly follow.

Market Revisits The November/December Highs: Supply And Demand Battle To Begin

The major market indices are back to where they were before the alarming December decline and the euphoric December rally.

It is important to understand what this means from a supply and demand perspective.

Those traders who held long positions through this four month roller coaster ride may be very happy to have recovered their losses. Many will be anxious to sell their long positions after now being made whole.

On the other hand, there are those that panicked and sold into the decline. These same traders likely missed the sharp bounce and have seen the market rally back up, past the levels where they sold on the way down. They want to make up those losses and don’t want to miss out on a potential second phase of the December rally. They are buyers into this test.

So as the give-and-take dynamic of the market takes place it is important to know the location of those key levels of support and resistance around which it will play out.

Here are several annotated weekly index charts:

Activision – Before Earnings -The Charts On Multiple Time Frames

Activision Blizzard (ATVI) shares have collapsed since the October 2018 high. They retraced more than half of their incredible rally off the 2015 low.

The weekly chart shows Activision’s heroic rise and its sudden reversal.

The company is reporting earnings after the close today and may announce plans to layoff workers because of slowing sales.

The good news is that the stock price has dropped to just above a wide zone of support situated between $39 and the $34.75 levels. The bad news is that even in the unlikely event that Activision rallies off the report, all the support levels broken on the way down become resistance on the way back up.

Any recovery process will likely be long and arduous.

The daily chart shows several of the initial upside resistance levels. One positive takeaway from this chart is the very wide open November 2018 downside gap. Gaps are eventually filled is the old technical adage. If there is some potentially good news out of the call today, shorts may begin to cover and that vacuum of price action between $62.50 and the $55 levels could be quickly filled. Quickly, in this case, being a relative term.

The bottom line is that no one knows how Activision will trade after their earnings report today. The charts are a guideline and show levels of previous conflict between buyers and sellers. Those levels usually remain relevant when retested.

Tesla – Technical Test Coming Up This Week

Here is a quote from a Zero Hedge article posted on Sunday morning citing a Reuters report of further job cuts at Tesla:

Following the latest round of job cuts that Tesla announced to start off 2019, the North America delivery division is seeing the most drastic impact. Reuters reports that the most recent jobs cuts reduced the company’s North American delivery division by more than half of its current staff, citing two workers who lost their jobs. 150 employees out of a delivery team of about 230 were let go from the company’s Las Vegas facility, according to the report. These employees were responsible for delivering Model 3s to eager US and Canadian buyers.

Link to the full article.

If true, it does not bode well for Tesla’s stock price this week. Let’s take a look at the daily Tesla chart and review where the important levels of support are located.

As most traders know Tesla shares have been trading in a wide horizontal channel pattern for nearly a year. More recently, they bounced off their January 24th low and traded higher. Last week shares turned back down and moved below the 50% Fibonacci retracement level of the channel range, and their 200 day moving average.

The zone of support delineated by Friday’s $298.50 low and the December lows at $294.75 would be the first support area to be tested if the stock decides to continue lower this week. Next is the $279.28 January low of several weeks ago.

It would be best for Tesla bulls if the initial support zone held. A failure in that area and the stock price would gain downside momentum as it headed back towards the January low. This $279.28 January level is not a well tested level of support. It is not likely to repel strong downside momentum. If it were to be taken out, the long term channel bottom would be next up and a defensive line in the sand. That’s about 18% lower from where Tesla closed on Friday.

Of course, if someone comes in next week and starts buying and can get the share price back above the 200 day moving average, and the 50% channel retracement level, it would be a very bullish development. That would have to be someone with a large amount of money and a strong personal interest in Tesla the company.