Author Archives: Rob Moreno

We Have Arrived – Time For the Market to Retreat?

The S&P 500 index is back to its September 2018 high. It has managed to retrace all of that late year decline. This means that traders who held on and rode out the volatility of the last five months are back to even. The adroit traders who sold near the highs last year and were prescient enough to time the low and re-enter the market, those folks are sitting on a pile of profit. Ironically, both of these traders will look took book their positions at the current highs.

It is basic market dynamics. The harrowed holders are relieved to be back to even, and the agile traders are proud to take profits. Old highs which are potential resistance seems like a good level to close out positions.

Yes, there will be those who may have missed out by selling at the lows. Some of those folks will buy the new highs because of fear of missing any more, but that strategy, at this point in a market cycle, often fails.

Mentioned in the video pinned at the head of this page, we expect the market to pullback, possibly significantly, from its current level. As Jim Cramer explained when RightView Trading was featured, once again, on the “Off the Charts” segment of Mad Money, we also expected this run.

At the time, which was early February this year, most traders were fixated on the 2800 resistance level, but we thought it would be broken and the 2018 highs would be revisited.

But, we also stated at the time that after the return to the new highs there would be a pullback, a potentially deep one that could over time, revisit the December lows. Why? Because of past consolidation patterns after long term rallies.

The weekly logarithmic chart of the NASDAQ Composite shows 12 and 15 month consolidation periods in 2011 and 2015-16 respectively. Currently, the market may only be 9 months into a similar process. This leaves plenty of time for erosion. If new highs are not made, traders and investors will lose confidence. Market sentiment and momentum can shift suddenly.

Time will tell. As we noted on Off the Charts the lines of support and resistance on the S&P 500 index chart should remain valuable technical levels to monitor.

Financial Sector ETF Breakout Projects An 18% Rally

A nearly seven month inverse head and shoulders pattern has formed on the Financial Select Sector SPDR Fund (XLF) weekly chart. This bottoming process began in October last year and was completed by a neckline breakout this month.

The left shoulder formed after the XLF made a low in October in the $25 area, and the low that followed in December marked the head of the formation. A bounce in the beginning of 2019 took the XLF back above the $25 level, where it consolidated and formed the right shoulder.

The $27 neckline was broken earlier this month and the fund price has continued to track higher. This week it is attempting to move above a multiple year downtrend line delineated by the major 2018 highs.

The inverse head and shoulders pattern projects a measured move calculated by taking the height of the pattern and adding it to the breakout level. This projects a target price of $32 or an 18% increase in the fund price.

Square Shares Fade Even As The Broader Tech Space Rallies

Normally the price of Square (SQ) has been very positively correlated to the price action of the Technology Select Sector SPDR FUND (XLK).

But that relationship has broken down since early last month. Even as the broader technology sector has continued to rally, Square shares have been either flat or lower. This week was a good example of the disconnect, while the XLK was up only a modest 1%, Square was down 6%.

The daily Square chart is overlaid with the Technology SPDR chart. Simple trend lines show the inverse trajectories and the correlation coefficient graph in the lower panel shows the statistical difference.

Of note is today’s volume bar which moved over the 50 day moving average of volume for the first time since early last month. This is a 2.7% move lower and on relatively strong volume.

Chaikin money flow which represents accumulation and distribution has been in negative territory all month. The chart looks weak and the interpretation is that Square shares are headed lower.

Boeing – The Chart Defines The Trade

Since their sharp decline in March, shares of Boeing (BA) shares have been buffeted by fundamental wake turbulence.

But despite the continuing developments in the Boeing 737 Max investigation, the stock has been moving in well-defined ranges.

For example, the lower end of the unfilled March gap lower is acting as resistance. It is also, intersecting with the flattening 50 day moving average. While the lower end of the January gap higher is acting as support, and has been successfully retested several times. It is intersecting with the 200 day moving average.

Within this large channel is the April gap lower and its lower end in the $380 area is also acting as resistance. It is being tested in today’s session.

Workday – Laboring At Triangle Resistance

Workday (WDAY) rallied over 65% from its November 2018 lows to its March 2019 high. Since then it has been consolidating in a lateral triangle pattern.

Support is situated in a zone between $177 and $175, and resistance is being supplied by a downtrend line drawn off the 2018 highs.

Last week Workday shares tested the support zone and a large bullish hammer candle formed. This week shares have advanced past the rising 50 day moving average, and are currently retesting the upper end of the triangle.

However, despite today’s market strength Workday is having difficulty breaking through resistance. The stock will have to make a wider range upper candle close to confirm a true breakout.

The Oil Services Sector Is Ready To Rally

In January this year, the price of West Texas Intermediate Crude and the oil services sector stocks, as represented by the VanEck Vector Oil Services ETF (OIH), both jumped higher.

In February their upside trajectories flattened out. Then in March crude prices began to rise again but the services sector lagged behind. This month the OIH has continued to move sideways forming a horizontal channel pattern.

But that consolidation dynamic may be about to change, as the OIH looks poised to breakout of the channel pattern.

If the OIH does breakout and move higher it could attempt to close the price gap between it and crude oil. Normally, there is a strong correlation between the price of crude and the services space. But that relationship has faded this year, with the under performance of the services stocks. It may be time for them to catch-up and normalize the correlation.

The OIH daily chart highlights the three month horizontal channel consolidation. Within its $2.00 range is a one month uptrend line. It has been tracking above the interior uptrend line to its current test of channel resistance, in the $18 area.

A successful channel breakout projects an initial upside price target in the $20 area which, at that point in time, would likely intersect with the declining 200 day moving average.

Follow-Up On My Tesla Analysis

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.

That’s it.

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.

RightView Trading On Mad Money – Charting Tesla On Multiple Time Frames

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.

Links:
CNBC
TheStreet.com

Twitter Shares Are Starting To Heat Up

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 Has Negotiated A Key Technical

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.