Tesla (TSLA) shares took a tumble today after a strong day on Wednesday. This is not what I expected when I outlined my technical take on Tesla, which was featured on the “Off the Charts” segment of Mad Money. It should be noted that Jim Cramer had an opposing viewpoint on Tesla.
Technical analysts scan charts and recognize patterns in the price action. Some patterns have the propensity to repeat, because of the underlying dynamic of the fear and greed impulses of market participants.
When analysts present there ideas about the technical condition of a stock, what they are saying is: there is a similarity of price action that, in the past, has resulted in this future reaction. Nothing more.
Obviously, neither fundamental or technical analysts are perfect. But, their value does not rest with one great call or one bad call. It rests in the quality the reader associates with their analysis over a period of time.
I write this not in defense of my position on Tesla, in fact the support lines of the large horizontal channel have yet to be tested, but for other technical analysts. Those who work hard at trying to pull some order out of the disorder that is the stock market, and have those who follow them benefit.
Watch the $250 level on the Tesla chart. If the court case does not go well for Elon and he has to step down, it could be broken, and my bullish thesis on the stock voided. If he remains, there could be a bounce. But that is not a technical opinion.
Once again, we were pleased to be invited to contribute to the “Off the Charts” segment of Mad Money on Tuesday night. Jim Cramer and his “Mad Money” team do an excellent job of presenting the charts and our interpretation of the price action.
Thanks to Jim and his staff.
Here is our take on Tesla using multiple time frame analysis.
How Tesla’s stock could be set to rebound: Cramer from CNBC.
Lately, Twitter (TWTR) seems to have fallen off the trader radar screens. There has just been less chatter about the stock on Twitter (irony not lost) or in the financial media. No doubt due to the fact the price action in the stock has been muted.
This year Twitter has moved in about a $4.00 trading range. Bollinger bandwidth which can be used as a measure of volatility, has contracted to the level seen just before the start of the 2017 rally. Periods of very low volatility are often followed by periods of high volatility.
The weekly Twitter chart shows the compressed price action over the last nine months. It has been contained to roughly within the Fibonacci retracements levels of its 2017 low and 2018 high.
The 68% retracement level provided support last year and the 38% retracement level, around $34, is acting as resistance. Volume reflects the disinterest of traders but Chaikin money flow is in positive territory, and above its 21 period signal average.
On the daily time frame, we see Twitter shares closing on Tuesday above the 200 day moving average, and the downtrend line drawn off the December 2018 and February 2019 highs. The relative strength index is tracking higher and well above its centerline, and Chaikin money flow is in positive territory. These readings suggest improving price momentum and buying interest.
Continued positive price action will get get the attention of traders. If the March trend continues, a test of the $37 gap bottom would be the first upside target. Vacuums offer no resistance or support once they are entered, and the intermediate term objective would be to fill the gap.
Facebook (FB) shares closed today above the 50% Fibonacci retracement level of the 2018 high and low range. That is a significant technical level but the price action was equally as important.
The stock opened near its low of the day and closed near the high of the day – also the high for the year. Volume was above the 50 day moving average of volume and the Chaikin money flow reading is well into positive territory.
The Facebook chart includes two technical momentum indicators. Moving average convergence/divergence is making a bullish crossover above its center line. The stochastic oscillator has made a bullish crossover and has tracked back above its center line. These readings reflect improving positive price momentum.
A golden crossover is underway with the rising 50 day moving average about to move above the declining 200 day average.
Currently, there is little in the way of overhead resistance for Facebook shares. In fact, the large overhead gap has created a technical vacuum. The charts abhor a vacuum and normally price does everything it can to fill gaps. This is notwithstanding the fact, that the $160 level which has been supplying Facebook shares support for the last two months, is also the upper end of a smaller gap.
The continuous contract Light Crude Oil (WTIC) weekly chart has reached an inflection point in price. The intermediate term direction of the energy sector could be determined by the way it reacts at this critical juncture.
Crude oil arrived here by price action that, in retrospect, created a series of well-defined technical patterns. Beginning in 2015 and continuing through 2016, a large inverse head and shoulders pattern formed on the chart.
A false breakout from the head and shoulders pattern in early 2017 resulted in a retest of the pattern’s right shoulder support level. This support held and the price of crude oil reversed direction and started heading higher. Over the next year it rallied up to the $75 area, which was the original measured move price target of the head and shoulder pattern. The retest of right shoulder support also created a data point that defined an uptrend line originating at the 2016 low.
In October last year that uptrend line was retested and it failed the test. The price of crude continued to slide before finally holding at the $42 level. This level is also where it bounced in 2017 and is the head and shoulder’s right shoulder support level.
The bullish reversal off the $42 level has taken the price of crude oil back to the uptrend line which is now acting as resistance. At this point in time, trend line resistance is being reinforced by the intersecting 40 week (~200 day) moving average.
If the price of crude oil breaks through this multiple layer of resistance it is officially back on trend. The implication would be that it ultimately returns to the old highs. If, however, it fails to break through resistance and price fades back down, the result could be a return to right shoulder support in the $42 area.
Facebook (FB) shares dropped over 40% in the last half of 2018. They bounced back by about the same percentage so far this year. But as most traders know, it takes twice the return to make up for an initial loss.
So, the pop in Facebook’s stock price in 2019 only returned the stock to the 50% retracement level of the 2018 decline. And it’s traded under that level for the last two months.
Facebook shares continue to consolidate in a horizontal channel defined by the 38% and 50% Fibonacci levels of the 2018 decline. The 50 day moving average and t 200 day moving average are converging. The question is: What are the probable outcomes for Facebook going forward?
The two most probable are, of course, breakout or breakdown from the consolidation range. If Facebook was to make a confirmed move above the $170-$175 area, the inference would be that the stock will attempt to close the wide open gap between the $215 and $186 levels.
The two month sideways action would have been simply a pause in Facebook’s upside price action that began in January. That is, a normal period of absorption and refresh in a primary bullish trend.
If, on the other hand, the $160 support level gave way, the two month consolidation period might be interpreted as a head and shoulders top. That pattern’s target price projection easily takes the stock price back down to fill the lower gap. At that point, as when any time an initial price objective is reached, the chart would have to be reevaluated.
It is impossible to say with certainty what the future holds for Facebook but the integrity of the clearly defined levels of Fibonacci support and resistance, will be an early tell.
NVIDIA (NVDA) shares have finally broken above the $170 level. They had been trading just below their $170 to $160 range, and made multiple breakout attempts since November last year.
This resistance was created by the large gap lower in November, and it remains unfilled. But it looks like NVIDIA is attempting to close it by returning to the $195 level.
What happens then? The possibility of a pause or pullback is pretty good because the $195 target objective is also, the lower end of a resistance zone. This zone is defined by multiple levels of reinforced resistance.
Here’s the architecture of the resistance zone.
The $195 level closes the gap and often when gaps are filled a stock price will reverse direction. Then there is the $200 level, a large round number. It sounds ridiculous but there is psychological component to technical trading that says round numbers have a support or resistance quality.
Currently, the 200 day moving average is located at the $207 level which is also the 50% Fibonacci retracment level of the 2018 high and low range.
Lot’s of resistance for a potetially fatigued stock to penetrate.
If NVIDIA shares can return to the upper end of the resistance zone at $210, it would be a 65% move off its lows early this year. An incredible recovery in such a short time.
Again, as I said in the previous piece on Apple, investors who suffered through last year’s October to December decline, may be happy to have recovered half their losses. And traders who caught the bottom, may be happy to book those profits.
On February 28 we wrote an article entitled “An Optimistic Look At The Apple Chart.”
At the time Apple shares were moving sideways in a narrow range, just below the 38% Fibonacci retracement level of the 2018 high/low range. The piece suggested that the stock might be prepared to make a move higher.
Over the next several weeks Apple rallied about 12% to test the 62% Fibonacci level before pulling back slightly. Now Apple sits just above its flat 200 day moving average and in between the 62% and 50% retracement levels.
It could languish again as it had in February, moving sideways within the Fibonacci range, but we don’t think that will be the case.
Yesterday’s Apple event, which included the introduction of the Apple Card and additions to Apple TV, was met with a modest level of enthusiasm by the market.
This has got to be a disappointment to Apple bulls and with the stock price up over 20% this year, they may decide to cash out.
Bottom line is that we think the path of least resistance will be to the downside. But, that is a guess. Ultimately, the integrity of 62% Fibonacci resistance or 50% Fibonacci support will likely tell the tale for Apple shares over the intermediate term.
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 (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.