Everbridge (EVBG) is a software company located outside Boston. It’s platform and software applications address critical event management and it serves enterprises and government agencies. Here’s a link to an interview with the commpany’s CEO and a description of their “Covid-19 Shield.”
The daily chart shows the stock price consolidating this month in a rising channel above a rising tend line that goes back to April.
In trading on Tuesday, Everbridge shares attempted to break through a zone of resistance located just below the $140 level. It closed near the high of the day suggesting at least another attempt to penetrate the resistance area. The relative strength index is crossing above its 21 day moving average and centerline. This reflects improving positive price momentum. Chaikin money flow is crossing into positive territory suggestive of improving money flow.
The technicals point to a stock that is poised to move higher and the 14% short interest could initiate some covering.
Back in February this year my technical take on the market was featured on an “Off the Charts” segment of Mad Money. I noted that there was an interesting bearish divergence going on between the S&P 500 Index and the S&P 500 Equal Weighted Index. The familiar S&P 500 Index is dominated by five major tech stocks which account for about 20% of its weighting. The S&P 500 Equal Weighted Index gives equal weighting to all of the stocks in the index. Consequently, a rally in tech stocks can distort the balance between these two indices even though they are both comprised of the same stocks.
At the time we noted: 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.
This week the S&P 500 Equal Weighted Index has dropped about 5% while the S&P 500 Index has only dropped about 1.5%. This is action reminiscent of the February bearish divergence. It suggests the S&P 500 Index will have to realign with the S&P 500 Equal Weighted Index. This does not necessarily suggest a pullback of the magnitude we saw in March but be alert. Preserving capital is the prime objective in trading.
A cup and handle base formed on the S&P 500 Index daily chart. Rim line resistance is situated in the 2660 area, which is also the 38% Fibonacci retracement level of this year’s range. The index closed right on the rim line on Monday and opened today about 3% higher.
The Relative Strength Index, a measure of price momentum, is tracking over its center line. Chaikin Money Flow is in positive territory reflecting buying interest. So, the technical indicators support this basing move off the March low.
The cup and handle pattern projects an upside price objective. This target price is calculated by taking the height of the pattern and adding it to the rim line. In this case, it suggests a return to the 3100 area, back above the 200 day moving average. It should be pointed out that two weeks ago the 50 day average crossed below the 200 day average, the well know “death cross.” It is considered a longer term bearish indication. In a volatile market this particular cross is a less reliable technical indication.
It is not likely the S&P will continue higher in a straight line towards its target price. The more likely scenario is that at some point soon the rim line will be retested and should act as support. This is probably the preferred outcome because it would further solidify the cup and handle pattern as representing a well constructed base. The strongest rallies are built on the strongest foundations.
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.”