The Canadian Technician

Blackberry (BBRY) Struggles With The Bears Grip

It is the season for the bears to be out roaming looking for blackberries in Canada. 

The corporate Blackberry (BBRY) seems to struggle with the grip the bears have too. This double digit area on the chart below is a big problem for BBRY as the $11 level has been significant resistance over the last year.  There are numerous events on the chart that make it interesting here.

Continue reading "Blackberry (BBRY) Struggles With The Bears Grip" »

The Big Picture On Apple

I worked through an Apple Chart this morning to find some points to look for strength and support. I did a small video to walk you through my review of the chart.

The link is below.


Here is a link to the video.

Good trading,

Greg Schnell, CMT

A Double Take On A Double Double

Tim Hortons (THI, THI.TO) needs no introduction to the Canadian market. The little donut chain that could continues to sell double doubles.

Tim Horton's confirmed it was being acquired by Burger King (BKW) this week. Obviously, it must of been discussed in a Canadian Tim Horton's location as the management used the Drive-Thru to blow past resistance. Could it be BKW management was waiting in the drive thru lane for two weeks like the rest of the population? The THI stock started the move August 6th!

Some investors obviously think burgers and donuts are a great combination. Burger King (BKW) is also higher on the news. Interesting that it didn't start moving until Monday August 25. There was a brief surge on one particular day, but it closed back down in the previous trading range. 

Apparently the media assembled were able to put the words "Tax Inversion" into the deal. That sent the investor community sky high!

With Tim's stock up 50% on the news as the transaction value puts a roughly $90 value to each share, there is lots to chew on. Does this mean Timbits will be available in China?

What does it say when the donuts and burger stocks in this deal are higher and the organic grocers like Whole Foods Market (WFM) have been going the other way?

Is all I know is the 200,000 new soccer, hockey and lacrosse players in Canada are all wearing Timbits shirts. The parents are either huddled in a rink or at a soccer pitch with their double double watching the timbits play. How the Burger King crown works into the picture is a marketer's job, but apparently investors think this merger is the new whopper. Does that mean we'll have 45 minute drive through line ups at Burger King now?

Good trading,

Greg Schnell, CMT





The Ice Bucket Challenge And Your Stock Portfolio

One of the best marketing campaigns in years has sprung from the ALS organization. We have all heard about the Ice Bucket Challenge. In July 2014 it was not a search term. By August 25, 2014 it seems the world knows about it. For seasoned through new investors, the chart from Google Trends is an excellent medium to help investors understand stock prices as well. While this looks pretty statistical, I will be brief on it.  We can see the three trends in the bottom left. Ice and bucket were the most common search terms, whereas ALS had 1/10th the searches. The bottom right makes the story a little different, but the ALS is roughly a third of the searches for Ice Bucket Challenge. This is very powerful information. Obviously the number of people aware of the actual condition has gone up dramatically, but the majority of the searches were on the ice bucket challenge. Not so much on the facts, but on the hype. The same may be true of owning stocks. Lots of people may own them, but may not understand the underlying reasons. If we were investing in ALS as a stock...would you be adding to positions this morning? The graph below suggests the rest of the world is just becoming conscious about ALS and the Ice Bucket Challenge. If you had to guess at when the trend would be over, when would you sell? 


Look at the rollout over a few days in the US. You can see the dates below each chart. The phrase started to show up on Google Trends on August 9, 2014. After noticing how bright each state gets ( meaning more activity), look what happened Saturday and Sunday.




Nothing happened Saturday or Sunday. The interest that came, went quickly. We can see that the glow has already faded. The great news is ALS received a huge sum of money to continue research. What does this have to do with our portfolio?  Well, lets graph the interest level over one month.


When you looked at the density of interest plots, did it feel like the interest peaked on August 19th? Could we have known when Nike had Tiger Woods and Rory McIlroy together on Jimmy Fallon on that day (August 19th) that the event would mark the top?

 I would like to use this metaphor to demonstrate the life of a stock. Understanding the length of the trend you are in is very important. The hardest part is capturing the majority of the trend and not holding on too long. Trying to figure out the top of the trend in the hardest part. Selling big winners is never easy. Selling big losers is never easy. What can we do to help in our decision process?

Let's look at a few stock charts.

Sony (SNE) had a small portable music player called a walkman. It would play cassettes and cd's while you jogged. They also had a TV division that was a huge game changer. It wiped out RCA, Zenith and a host of other brands. When did Sony (SNE) peak?

For great investors, it was the stock of your dreams. It was up 1000's of % if you bought on the IPO. Buying it any time between 1983 and 1998 was an outstanding bet on the future of Sony. But you could also have owned it so long, that you ended up with  a double after passing on the opportunity to sell at 1000's of % gain. This is the Ice Bucket part of the challenge. When to leave the party?

We can now look at LULU, DELL, BBRY, JCP, F, GE as great stocks that had best before dates expire. Some of those are rebounding, some may never. But holding a stock long after it expired is like an Ice Bucket Shower. You know it is not going to feel good, but you participate.

For current investors, it will be the momentum stocks like AAPL, COST, the long run WMT, AMZN, SBUX. When will they top? Are they anywhere near their final top? 

We never know in advance if this will be the final top. MSFT made a new high this month, for the first time since 1999. I would prefer not to wait 15 years to get back to where I was. Talk about an endless loop!

Let's choose some indicators. The indicators I have chosen could be one of many. Pick a group you like. As Martin Pring likes to say, "the weight of the evidence." Some collection of indicators that makes us start, add, hold, reduce or eliminate our position.  I have chosen 4 indicators. SPURS, SCTR, 40 WMA, PPO. Once a stock is in a negative cycle, owning it can be an ice bucket shower for your portfolio. If we can be more disciplined with our monitoring, we can prevent large losses. Let's use a simple +/- scale. For each indicator,  +1,0, -1. 

Big Picture Relative Strength (SPURS): Improving, flat or declining? +1.0,-1.

SCTR ranking, Above 75, +1, Above 50 = 0, Below 50 = -1.

40 WMA (green line) = Price is above and 40 WMA is sloping up = +1, Price is below an up sloping = 0. Price is below a flat or down sloping  40 WMA = -1.

PPO, Well above Zero based on history = +1,  below signal line but above well above zero = 0. Rolling over just above or at zero, =-1. Below zero = -1.

PPO Bonus : Last PPO peak or current PPO line is higher than the previous peak, add another +1, If line is currently below zero, subtract another 1.

Let's look at AAPL again. Here is the AAPL chart. 


Big Picture Relative Strength: Improving, flat or declining? +1.0,-1.

SCTR ranking, Above 75, +1, Above 50 = 0, Below 50 = -1.

40 WMA = Price is above and 40 WMA is sloping up = +1, Price is below an up sloping = 0. Price is below a flat or down sloping  40 WMA = -1.

PPO, Well above Zero based on history = +1,  below signal line but above well above zero = 0. Above zero, above signal line, but barely. = 0. Rolling over just above or at zero, =-1. Below zero = -1.

PPO Bonus : Last PPO peak or current PPO line is higher than the previous peak, add another +1, If PPO has a lower peak or is below zero pointing down, subtract another 1.

AAPL = Quick math = +1, +1, +1, +1. PPO bonus points +1 = 5.


Let's look at Starbucks. 

Here is the scale again. 

Big Picture Relative Strength: Improving, flat or declining? +1.0,-1.

SCTR ranking, Above 75, +1, Above 50 = 0, Below 50 = -1.

40 WMA = Price is above and 40 WMA is sloping up = +1, Price is below an up sloping = 0. Price is below a flat or down sloping  40 WMA = -1.

PPO, well above zero based on history = +1,  below signal line but above well above zero = 0. Above zero, above signal line, but barely. = 0. Rolling over and crossed below signal line just above or at zero, =-1.

PPO Bonus : Last PPO peak or current PPO line is higher than the previous peak, add another +1, If PPO has a lower peak or is below zero pointing down, subtract another 1.


Analyzing Starbucks:

Relative strength trend line broken Jan 1, 2014 = -1.

SCTR below 50 = -1

40 WMA = +1

PPO = +0, 

PPO Bonus = -1 (lower peak)

SBUX = -2.

(If the PPO rolls below its signal line here, =-1).

 At -3 or -4  I would be cautious. If it gets to -5, I can move along to find a rising stock instead.

The point of this exercise is not to duplicate the scale. Your time horizons are individual.The indicators you like are individual. You may find other indicators, use monthly charts and 60% drawdowns are ok. You may be a day trader,  a swing trader or a long term investor. Day traders use tools to exit regularly. Whatever works. Some long term investors just ride. If you can pick your line in the sand for each indicator, you'll go a long way to better exits and entries.  Be aware how each indicator looks when the stock starts to break down.  When you get the Pring Thing - weight of the evidence - telling you that you are in a risky spot, you can make plans. COST recently turned up and measures positively. GE looks very borderline at this point. Will there be reversals the week after you sell? Technicians always suffer from whipsaws. 

I did my Ice Bucket Challenge two days after the market top. My neighbour did it three days after the market top.  It will probably look pretty silly if I do it in October. For technicians, timing your entries and exits is important. Don't pour cold water on your portfolio. Be very aware of how hard it is to recognize a market top in real time. These are very long term charts. The data on the far right is compressed and would be a lot easier to see on a shorter chart like 5 years. I challenge you to analyze your winners to make sure the comfort of former big gains does not obscure your vision. At least you won't be all wet!

Good trading,

Greg Schnell, CMT









Rona (RON.TO) Follows Home Depot and Lowes Higher

Rona (RON.TO) has been working to deal with the competitive power of Home Depot (HD) and Lowe's (LOW) as they have continued their push into the Canadian DIY and contractor markets. I am not quite a platinum member at all three stores, but when the staff call you by name, your not far away.

Recently, Rona went on a tear!


Something is a changin' in the stock! The surge looks parabolic, so I would have trouble adding it into my portfolio here, but a pullback might make a nice entry. The weekly says it might be about to pause as well.

Has Rona started something constructive? It would appear to have. The pessimist says its back to where it was 4 years ago. The optimist says it been making higher lows for years! You'll have to decide which camp you are in, but the SCTR suggests it is now a top quartile stock. That can't be bad, or we could say they are "Doing It Right".

Good trading,

Greg Schnell, CMT

SCTR Becomes Even More Powerful

The SCTR ranking system is by far my most powerful indicator. It got another boost this week and so did the Market Carpets. The SCTR got put on the Market Carpets as one of the drop downs.

So what does all that mean? First of all the market carpets are found here as demonstrated in Chart 1. On the home page, go to the golden line (my nickname for it because the links are so valuable!) and click on 'Market Carpets'.

Chart 1

Chart 1

That should bring up a magical look at the US Market  like Chart 2 which in this case means the S&P 500 ($SPX) with each box representing a stock. The size of each box represents its market capitalization (Total value of all shares added together), and the nine sectors have the various stocks placed within the sector frame. For today we'll focus on the sector that is top right. On the slider at the bottom, it is set to 2 days so we are looking for the change from day to day.

Continue reading "SCTR Becomes Even More Powerful " »

When Wood Rocks!

Looking at the Largest Percent gainers on the $TSX box on the home page, we see the lumber related stocks start to move constructively today on the housing starts report for July. 5 of the top 10 are lumber related.

4 of the 5 have moved up 10% or more in three days! Is this where we yell All A-Board?

Good trading,

Greg Schnell, CMT

Highly Correlated Markets Create An IntraDay Splash!

Back in March, all the high momentum stocks sold off meaningfully and there was a great debate about why on the financial media sites. Let's discuss why the momentum of these stocks becomes more important than the price/earnings at a given point in time.  You may recall the Biotechs going for a huge dive. Notice all of the other high momentum stocks had broken their trend lines in the weeks before. 

At the time, AAPL was still unloved until the April earnings breakout. Pandora was still trending higher. Now the two are opposite. Pandora looks unloved and AAPL is making new all time highs. I want to discuss market correlation and what could be better than a 5 minute chart. Let's look at a slightly different group of stocks on an intraday basis from todays trading. They all are considered high interest, high momentum stocks currently. 

Now this is an intraday 5 minute chart, but looking at the chart patterns won't tell you which one is a huge biotech. There is also a media content stock, a broad line retailer, computer hardware, software and search.

What is more interesting, GOOGL and AAPL surged down, TSLA, BIIB and AMZN surged up? All in 5 minutes, GOOGL went down and up $7 in 5 minutes. The other stocks all made outsized moves in 5 minutes. What was more interesting, is every stock tested the intra day high and the intra day low to the left of the large trading candle on each chart, all in the same 5 minutes. This high correlation of stocks by computer trading models, actually helps us because it builds strong trends that we can use to help us. If you trade intraday, its a nightmare. That tells me that the cycles moving the stocks are closely correlated, repeatedly testing for strength. I don't have an answer for who is big enough to move Google $7 down and back in a few minutes, but it wasn't me! If you trade high momentum stocks, it is critical that you establish groups for your stocks that trade similarly. If they all start to break down, you'll be more aware. As an example HPQ is Apple's peer in hardware, but there is no spike in HPQ today.  Comparing Apple to HPQ would have little informational value.

Lets talk about methods to compare stocks to other stocks. This does not help minute by minute, but trends do show up over time.

By plotting the  S&P 500 ($SPX) relative strength, you can start to see divergences especially on high momentum stocks. Let me clarify what all this "Relative Strength' means. For each candle, the stock you are looking at will be compared to something, in this case compared to the S&P 500 on a percentage move. So if the S&P 500 is rising, is this stock -rising faster than- the S&P 500? This - rising faster than - phrase is where we use "Relative Strength". This tells us how it is performing 'relative' to something else. So the S&P 500 moves up 1% on a daily chart, does the stock move up 1.1% to 'outperform' the $SPX? We can do that on a 60 minute chart as well. Now we can compare any symbol against anything we want. We can compare against the industry group, we can compare against the sector the stock belongs to, or we can compare to the bond market as an example. I like to abbreviate the S&P 500 Relative Strength as SPURS, just so readers understand what I am comparing to and I usually plot it in purple. It sounds so technical, writing it out long  hand every time. Now lets plot that comparison behind the stock price moves. I have reduced the chart to 5 ticker symbols as a StockCharts Pro account can use 10 price components per chart and I need 5 for the relative strength application. So here are 5 stocks, with their SPURS on a 60 minute chart.

Chart 3.

 This is important to understand. You can not use the scale of Relative Strength and expect it to track the price of the stock. They are on different scales. Please don't look at the gap between the price of the stock and the SPURS shown in purple. If I change the start date of the chart, I change the width of the area between the two lines. You can look for directional divergences. NFLX and GOOGL had the SPURS break down before the stock topped. AMZN did too, but its hard to see. When you see a stock like GOOGL in the bottom plot under performing the index in general for the last month, the institutional investors that hold GOOGL stock will be under performing the $SPX so they are less likely to add to their positions if they expect to outperform the index. This is especially true in high momentum names where there are no earnings like AMZN and TSLA. You will notice that for the first two weeks of August, GOOGL is performing flat with the S&P 500. If you invested in the other stocks, the purple SPURS area is rising, so the stocks are 'outperforming' the index. For an institution trying to outperform the $SPX, they need to get more weight into their best performing stocks. When this group starts to under perform like they did in March, you notice most of them continued to under perform until May. The odds of an institution using a 60 minute chart is low. They are more likely to use a weekly chart. Relative strength can be done on all time intervals depending on your trading interval. So when you scan Chart 3 even though it is a 60 minute chart, which stock has under performed the rest of the stocks on this list over a 4 month period? AMZN looks average at best compared to the $SPX just by looking at the purple area.

All that to say, these stocks are closely correlated in movements as the intraday 5 minute chart shows. When we expand that to 60 minute, daily and weekly, a trend change starts to emerge.  All of the  5 minute moves shown in Chart 2 would have tried to take out protective stops under the price for people going long or above for people short the market within the days trading range. Yes, every one of the moves at the same time was hunting for intraday stops. When these stocks all start to under perform the index, the price earnings story doesn't matter much. Down they go as a group. So, if you are invested in the greatest stock in the greatest sector (BIIB as an example), a clue to the potential demise in your profits might be found by monitoring the relative strength in your 'sister' stocks. The SPURS is one method, The Industry Relative Strength is another, the Sector Relative Strength  is another. 

 What IF there was an easy way to plot these in your default chart style?

Check out this chart below without scrolling down far enough to see the price. At the top in purple is my SPURS. Next is a 'sector' Relative Strength in red, which for Ford is XLY. The third plot shows Ford compared to the US Auto Industry ($DJUSAU). This blog is long, but lets quickly look at two powerful messages from these three area charts plotted behind the SCTR. Notice in January 2013, the first two area charts dropped but the third shows F performing the same as the rest of the autos. That means the auto group went lower than the $SPX and the XLY sector, but F performed the same as the industry. Notice how the SCTR started to weaken at the same time. Look what happened in March 2014. The down sloping trend on all three area graphs was broken. This was partially due to GM in the news. Ford started to outperform the $SPX, it outperformed the Consumer Cyclical Sector (XLY), and the Autos group. The price of the stock rose. We can see the SCTR line starting to rise as well. So this works pretty well to help see when stocks are gaining strength. How about breaking down? The SCTR and the Relative Strength charts all started to break down at the same time back in October 2013. Ford started to under perform compared to the $SPX - SPURS, but also under perform the sector (XLY) and was under performing the industry for a while. The SCTR was confirming the damage about to be done. Look how timely the signals are as a group are when you scroll down to price. You'll notice the RSI had no idea what was in store.

In this world of relative strength, being more aware of the stock relative to its peers can give some of the best signals. When you trade momentum stocks that get computer traded intra day and a $7 surge and reversal comes through in 5 minutes, stops are hit. The value of putting this all together into a chart or a group of charts can help you with timing your entries and exits. It can also help you with adding protection or using options to take advantage of trend changes. It won't help on 5 minutes surges though. Because the markets have more computer trading, it makes it more valuable to watch a wider array than your particular industry. You can click on any of the charts above to see the settings, but this is a snapshot of how I set it up.

The jungle of relative strength investing. Hopefully this clarified it all. If not, send me some notes on what is confusing about it. Thanks for reading. The volatility of these stocks are correlated right down to a 5 minute candle, but over time, some trends start to appear. Hopefully this article helps you understand the power of using relative strength and when relative strength starts to break down as a group. For an industry group or a group of momentum stocks that you might be invested in, these different RS indicators can help you.

If you liked this article, feel free to forward it to investing friends and family. If you didn't like the blog, please send me a note on what I could do better. The charts are printable and should also be clickable so that you can go look at the settings.

We try to keep our articles informative and entertaining. Make sure you check out the other blog writer articles in MailbagChartwatchersTraders JournalDecisonPointDon't Ignore This ChartChip AndersonScanning Technically, and The Canadian Technician. Subscribers have access to blog articles by Arthur Hill, John Murphy, Martin Pring as well as the DecisionPoint Tracker and DecisonPoint Reports. Most blogs have a subscribe option for email or RSS feed. If you are paying for market commentary elsewhere, make sure you are reading all the value add from some of the best technicians who write at StockCharts. On the Blogs tab, there is also a Top Advisors Corner on the right side panel. Some great technicians post samples of their work there. This is free for everyone. 

Good trading,

Greg Schnell, CMT

The Miners Canary Just Fell Over. ($SPTMN) What Now?

No wonder miners gave up on using candles for illumination and went to battery powered helmets. The Canadian Mining Index Chart ($SPTMN) is riddled with technicians signals for illumination based on candles and almost every typical bullish candle pattern has been snuffed out. Looks like a few technicians have been beaten on this chart. It loves to give bullish signals and fail. I recently thought the breakout in July was good to go. Wrong so far.

Starting at the top of the chart. The RSI is still below the 60. It recently gave a new high (bullish) at the end of June only to fail. This continues to cap the RSI in the 3.5 year bear trend it has been in. The green uptrend on the RSI is intact, but the pullbacks are getting closer together... The relative strength of the miners to the $TSX is stuck (shown in red area). While the $TSX moves higher, this has been moving higher too. However, to get money to rotate into the sector, it needs to outperform.

Onto the price chart....This is a technicians nightmare. The only thing that could be worse would be using fundamentals. This chart just keeps getting cheaper and in fundamental terms (better value) all the time. Notice the blue horizontal lines. Breakouts that failed. Notice the big bullish green candles, labelled in red ( I through VIII). Big bullish moves only to stall...ouch. Focussing on the July 2012 - December 2012 period now. The Red downtrend line gets broken to the upside, the horizontal blue line gets broken to the upside, multiple long green candles in the base, oops, it rolls over. Starting January 2013 it produces 2 green candles in the next 10! Moving into 2013, it makes a head/shoulders base with April, July and November. Breaks the downtrend line with a huge candle on the highest volume in almost a year, and rolls over. Then it takes 6 full months to break the neck line of the Head shoulders pattern. We push through with another bullish green candle in late June 2014, only to print a shooting star on the next candle. The two subsequent weeks have now confirmed the shooting star. On the 2014 year, there has been declining volume while the price rises. Looking far left, you can see going into the 2011 top we had rising volume. This uptrend is questionable. I have drawn a  dashed support line just below the neckline shown in solid blue. This is half way on the bullish breakout candle. This level must hold. I reproduced the same chart below here so iPad readers won't be flipping up and down so much. 

The MACD has limped higher. The two lines never get very far apart which means there is little very little acceleration in the trend. The slope of the MACD is getting shallower but it has not crossed below the signal line...yet. The Full sto's finally gave us a breakout signal in July. The Full sto's have already crossed below the signal line. Yecch!

I think stops need to be tight. This chart demonstrates the pitfalls of trying to be bullish in a primary bear trend on a 4 year chart. It might just be testing the conviction of the bulls on this breakout, but it has given the bears a lot more to be proud of than the bulls on every breakout attempt over the last 4 years. The low slope of the 2014 advance does not feel impulsive. The 2011 bear market rally (Moving up in a downtrend) has a very aggressive slope up, the 2012 is less aggressive, the 2013 move is short and failed to make a higher high and now we stare at the price action from November 2013 to the last candle. Each rally within the move is shorter and there is no real momentum building. Sometimes that is what makes a base work. Look at the $SPX from August 2011 to January 2012 as it rose out of the 2011 lows. A few failed breakouts but continued to make higher lows. When it finally got moving, the weekly candles were small and orderly. (this was also under Fed Stimulus so we (me) should be cautious on my comparison).

If this is a Wyckoff base, we should have a plummeting test of the 700-750 range to weed out the last of the weak hands before we mount our next major bull market. Conversely, if it rips lower and keeps going after taking out the 662 lows, we'll see some serious issues for the miners. Or the middle of the tall bullish candle holds and we start to walk higher and higher. This chart couldn't be at a more important inflection point than right here, right now. 

Good trading,

Greg Schnell, CMT


Lumber ($LUMBER) Builds A Base

Just when things look desolate for the lumber industry, $LUMBER turns higher. One of the critical points today, is that Lumber ($LUMBER) soars through the neckline of a base.

First of all the SPURS are breaking out in Purple at the top. This means the symbol is outperforming the $SPX.

$LUMBER snaps a neckline on the chart. Only three days ago, $LUMBER was making lower highs. Finding support above the 50 DMA, surging through the neckline and closing above the 200 DMA is very bullish. The basing pattern built by lumber looks to be intact with the MACD finding support at the zero line after surging above and the gently pulling back to retest it. 

The Rate of Change (ROC) indicators have turned bullish on all time cycles (44,22,11).

It looks good here. What a nice change.

Good trading,

Greg Schnell, CMT

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