Author Archives: Rob Moreno

Weekly Doji Candles Form On The Index Charts

Doji candles formed on the weekly charts of the major market averages last week.

A doji candle has a very narrow opening and closing range, often with a a high wick or long lower shadow. They are often seen at market tops but can reflect uncertainty and as such can be continuation candles.

Now take a look at the ten minute chart. There seems to have been a concerted effort to support the SPDR S&P 500 ETF (SPY) late in the day last Thursday and Friday.

If the market had faded into the close of last week a doji would not have formed on the weekly chart. More likely, the opening and closing range would have been situated in the lower end of the candle’s range with a high upper wick. This is called a shooting star candle and has more bearish reversal implications than the doji.

The markets have bounced sharply off their December lows and a pause would be in order, but no individual candle or clearly defined pattern is a guarantee of future market direction. Monitor follow-through price action next week and remember, at this point in price, a limited pullback or period of consolidation would be healthy for the market.

Snap, Earnings, and Pop!

Snap (SNAP), the nine billion dollar emoji application company, reported in-line earnings after the bell on Tuesday and shares soared over 21% in after-hours trading.

February has been a great month for Snap since the it became a publicly traded company two Februarys ago. Shares soared about 60% in the IPO week of trading in February 2017, and they jumped over 50% in the first two weeks of trading in February 2018.

In what what turned out to be a platform for this month’s earnings pop, Snap shares began forming a rudimentary base in October last year. The technical indicators on the weekly timeframe began moving higher two months later.

On the daily timeframe the basing process resembles a saucer or rounded bottom. Initially, resistance was situated at $6.50, but that level was broken at the end of last week. The next level of resistance was positioned at $7.50, but it will be left in the dust when the stock opens this morning.

The opening gap higher should take shares to around $8.50, but any near term follow through will meet resistance at the intersection of the horizontal trendline located at $9.50 and the 200 day moving average.

It is easy to dismiss Snap’s nearly 21% earnings pop as a market over-reaction. But the technicals have been improving as the base was forming and recent volume levels have spiked. Aggressive short sellers should be cautious.

McDonalds – Potential Double Top On The Chart

Over the last 52 weeks McDonalds (MCD) shares outperformed the S&P 500 index by about 8%, but year-to-date they have underperformed by that same percentage. The stock is not participating in the current broader market rally and a double top may have formed on the daily chart.

McDonalds high in November touched the $190 level but then the stock price quickly reversed direction, dropping $20 to the December low. Shares began to rally at this point along with the broader market, but about two weeks ago after returning to the $190 level, a large bearish engulfing candle formed. That signaled another top and and the stock price began to fade.

This reversal was presaged by the bearish divergence in the moving average convergence/divergence oscillator (MacD) which made a lower low as the stock was returning to the $190 level.

Since the engulfing candle formed and the stock price started to reverse to the downside, two high wick shooting star candles and a several red or dark body candles have formed on the daily chart. High wick candles after strong upside moves are a warning sign, as is a bearish large body candle.

McDonalds shares are back below their 50 day moving average and Chaikin money flow has moved into negative territory. All this as the broader market continues to rally.

Further downside that takes out last week’s $176 low, would likely be the catalyst for another test of the December low and the 200 day moving average.

Apple Shares Are Approaching Resistance In Fibonacci Time And Price

In 2017 and through the first half of 2018, Apple (AAPL) shares found support and resistance in areas that, after the October 2018 high was established, turned out to be future Fibonacci retracement levels. These levels on the weekly chart are measured off the 2016 low and the 2018 high range.

In the months that have followed the October top in the stock price, those levels have continued to act as temporary support and resistance.

After making its December 2018 low, Apple’s stock price found support at the 62% retracement level of the range, and then began consolidating below the 50% retracement level.

Last week’s earnings pop took shares up and through $159 and the 50% retracement level. Further gains this week have the stock approaching the 38% retracement at the $176 level. This is where it would be expected to find some resistance, for two reasons.

First, the $176 level did act as multiple month resistance in early 2018. Additionally, $176 is now established as a Fibonacci retracement level, and should temporarily impede upside progress, as the 50% level did earlier this year.

A second but related technical negative are the red vertical lines on the chart. These are Fibonacci time zone lines, measured at Fibonacci time intervals starting at the 2016 low. In the recent past when one of these time cycles was reached it signaled a temporary top in the share price.

Apple is now at an intersection in Fibonacci time and price which should limit upside over the short term or initiate a small pullback.

Microsoft – The Charts On Multiple Timeframes Before Earnings

Microsoft (MSFT) reports after the cloe on Wednesday. The stock is down over 2% in afternoon trading on Tuesday and has dropped below its rising 200 day moving average. But over the last year, the Microsoft has been a strong outperformer relative to the Technology Select Sector SPDR Fund (XLK).

Let’s look at the daily chart of Microsoft. Shares were not immune to the October to December decline in the broader market. They dropped about 18% in that time but did bounce sharply off their Decmeber low. The bounce briefly returned the stock price to the 62% Fibonacci retracement level. A pullback this week took the low today back down to the 38% retracement level.

That 38% retrcemen level is supplying some support but price action so far this week, just ahead of earnings, has been bearish. The relative strength index has moved below its center line and, while Chaikin money flow is still in positive territory, it has dropped over the last several sessions. Volume is weak and has not supported the bounce off the December low.

The price momnetum and money flow readings on the Microsoft weekly chart are also bearish. But the potential for an eveningstar pattern to form on this timeframe is particullary negative.

The evenigstar formation is a three-day bearish reversl pattern often seen at market tops. It consists of a large up-day day candle, followed by a narrow opening and closing range “doji” candle, and completed by a large down-day candle. We are currently seeing a large down-day candle on the chart, but it is only Tuesday and there are three more days left in the week for the candle to mature.

It is a pretty safe bet that a negative earnings report on Wednesday, will help form a dark candle on the weekly chart. The completed eveningstar pattern would then suggest that a retest of the long tern uptrend line, currently situated just below the $100 level, is a strong possibility. As we know, round numbers like the $100 level can act as support or resistance, for no particular reason other than a pschyological one.

If the report is positive Microsoft still has a lot of work to do to get back to its old highs, on the other hand, a break below the $100 to $98 zone of support suggests a quick test of the December low or worse.

Will The VXX “Death Expiry” Cause A Volatility Crash?

The Barclays iPath S&P 500 VIX ST Futures ETN (VXX) was launched in 2009. It was designed to be used as a way to hedge positions against the kind of volatility experienced over the previous year. It was always best suited, however, for traders who wanted to profit from short term volatile moves.

In 2009 it was unclear how successful the VXX would be so it was only given a ten year life expectancy. You see, while it trades like an ETF, the VXX is structured like a debt instrument with a maturity date. That maturity date is January 30, 2019.

The VXX turned out to be a very popular trading vehicle with strong daily volume and large market capitalization. Barclays did prepare an indentical instrument in 2018, the iPath Series B S&P 500 VIX Short Term Futures ETN (VXXB), to take over for the VXX when it epired. It has been gaining in popularity but its daily volume and net assets are well below those of the VXX. The VXXB has a 30 year expiration date.

So what happens when the VXX goes away in a few days? Barclays will have to pay out cash to the remaining holders of the VXX. This is what could casuse the volatility crash. Ideally, traders will simply liquidate positions in the VXX and simultaneously initate new positions in the VXXB. This could cause the VXXB to see a jump.

At this point in time, the VXX is trading 17 million shares and net assets are 880 million. The VXXB is trading 11 million shares and its net assets are 220 million. The transition from the VXX over to the VXXB is not happening in any big way, with only days left before the expiration.

I am not an expert in options or the structure of complex ETF’s like the VXX and the VXXB, but it seems like this event could have an impact on the funds involved and broader volatlity space. It doesn’t seem to be getting a lot of attention in the financial press or the Twittersphere, so any additional information, comments or corrections by readers would be appreciated.

In any case, watching the VXXB carefully over the next several days should give us some sense of how this plays out.

Picture: Cointelegraph – youtube.

Roku – A Bullish Inverse Head And Shoulders Pattern Forms On The Chart – It Suggests A Potentially Powerful Upside Move

Roku (ROKU), the streaming TV services company, saw its share price drop 65% from its October high last year to its December low. But it looks like the stock has formed a base and could be ready to reverse trend.

Shares of Roku consolidated in a small horizontal channel last November and again in January this year. These channels formed the left and right shoulders of an inverse head and shoulders pattern on the daily chart. The head is the December 2018 low and neckline resistance is located in the $45 area. The flat 200 day moving average is currently situated just above the neckline.

A breakout above this resistance zone projects a measured upside move, calculated by taking the height of the inverse H&S pattern and adding it to the neckline. It projects a $65 upside price target.

Both the relative strength index and moving average convergence/divergence (MacD) are tracking higher and have crossed above their center lines. This is a reflection of positive price momentum and trend direction.

Chaikin money flow entered positive territory as the right shoulder of the pattern was forming last month. This suggests a shift in investor sentiment and new buying interest.

Roku shares still have a lot of work to do before the trend is officially reversed. First they need to recapture the neckline/200 day moving average resistance zone. Then it may be necessary to retest or build another base above that resistance-turned-support area, where the recent upside gains can be absorbed. This re-basing would act as a platform from which to power further gains.

If Roku cando the work and reverse trend, there is the potential for strong upside price action over the intermediate term.

The Bottom Could Be In For NVIDIA – $200 Is The Potential Upside Target

NVIDIA (NVDA) shares have been trading sidewys for the last two months, and that’s a good thing. The stock was able to put a halt to the brutal >50% decline off its October high.

Since mid-November it has been vascillating around the 50% retracement level of its histroric range. This week it has held that level and moved above its 50 day moving average. Thursday’s close near the high of the session was also a new high for the month and, of course, the year.

The relative strength index is tracking higher and has moved above its center line, a reflection of the positive price momentum. Chaikin money flow entered into positive territory two weeks ago, suggesting buying interest.

NVIDIA still has a lot of work to do to return to its former bullish trajectory on the chart. But it looks like it may crossed a major reistance level at $150 and now successfully retested it. If it can manage to extend the recent upside move and eventually break through the $170 level, the stock would enter into the unfilled November downside gap zone. The gap is a resistance vacuum and the stock price would be expected to move up quickly to the $200 level.