Trend Check with Tushar Chande

Find the Gap: What Are Jumbo Gaps? Can You Profit From Jumbo Gaps?

Are jumbo gaps an oxymoron like "jumbo shrimp"?  I found some similarity between shrimp sizes and normalized up-side gaps (see Chart 1).   Do such jumbo gaps offer trading opportunities? I tried to quantify just that, and here is what I found. By the way, just as the number of shrimp per pound drops rapidly once the size goes above "Jumbo", similarly the frequency of occurrence of upside gaps (normalized by the 10-day average true range) drops rapidly past some critical "Jumbo" size.  I decided to focus my exploration on such jumbo gaps.

 

Figure 1: The visual is to remind me I am looking for a jumbo shrimp in a gap: a large gap in an otherwise ordinary string of stock prices.

 

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Back to Basics: Changing Your CandleGlance ChartStyle

A user asked me how I added the Chande Trend Meter to my CandleGlance view configuration.  So this blog post goes back to basics and shows step-by-step how easy it is to change the default Candle Glance configuration in StockCharts.  It will make you appreciate how simple yet powerful StockCharts is.

 

First, set up a chart with the indicators of your choice displayed as you wish to see them.  For example, I set up a chart for Apple with the 25-period Aroon indicator in the top window, and the Chande Trend Meter in the bottom panel (see Chart 1).  Naturally, you can add any other indicators to your panels as you wish by selecting them from the different drop-down lists.

Chart 1: Set up a default configuration as you wish to use in your CandleGlance view. (See live chart here.)

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A Deep Dive Into the Industrials Sector

The Industrials Sector via the Industrials Select Sector SPDRs XLI ETF has risen to the top of my Chande Trend Meter rankings, as the mighty Technology Sector (XLK) consolidates.  I will take a deeper look at the the constituents of the XLI and identify some of the strongest stocks in this sector, which accounts for some 10.4% of the S&P 500 index. I will also examine the performance of ETFs focused on industrial sector stocks. Tom Bowley also wrote briefly about Industrials sector's strength earlier this week.

Chart 1: The Industrials sector has charged to the top of my key sector and index rankings using the Chande Trend Meter.  

 

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Three Trending Stocks in Dow 30: MMM, JNJ, TRV

As the dust settles from the sell-off in mega cap technology (AAPL, MSFT) and food stocks (KO, MCD), I explore three strongly trending stocks  in the Dow 30, and examine the Dow 30 internal technical condition.  At the moment, the three best trending stocks are 3M, Johnson and Johnson and Travelers.  The consolidation in the Dow which began in March has left technical weakness below the surface that must be repaired, or the index will turn lower again (see Chart 1). Despite this weakness, the breakout in the Dow 30 is holding well (see Chart 2).Chart 1: The proportion of stocks in the Dow 30 trending lower on an intermediate-term basis has increased steadily (during the consolidation since March, see chart below) and the risk of a cross-over is increasing. If and when the red-line crosses above the blue line, as it did last fall just before the election, we can conclude that the summer slow-down has arrived. The model uses a 20-day simple moving average and half-standard deviation wide, 100-day Bollinger bands to indicate the trend (see details here).

 

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Face-boom! Techs Wreck, but Fins Win; Growth Trips as Value Rips (Sectors Rotate on a Dime)

Facebook stock suffered an explosive decompression Friday, along with other mega cap tech stocks. But Financials stocks had a winning day as techs wrecked. Despite these gyrations, market internals improved due to new highs in the broader indexes such as Russell 2000 and NYSE Composite.  Here is how the market rotation looked like over the past week (see Chart 1): Energy, Financials, Dollar and Building Materials were stronger; Bonds, Utilities, Consumer Discretionary, Technology and the QQQ were all weaker.

Chart 1: I plotted the change in Chande Trend Meter values for key indexes and sectors since the end of May.  The sectors that gained strength (higher CTM) are on the left, the the ones that were weaker are on the right.  The sector/market rotation is clearly visible.

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Overseas (not US) Infrastructure Stocks Are Trending Higher

The buzz word for the week is "Infrastructure", which promises big spending on improving America's commonly used "public goods" such as roads, bridges, airports, schools, utilities and so on.  You would expect infrastructure stocks to be booming. You would be correct, but not in the obvious way: the real action in infrastructure stocks is overseas.  I look at the relatively few ETFs focusing on infrastructure stocks.

 

Chart 1: The iShares Global Infrastructure ETF (IGF) has rallied since the US election, even though about 65% of its assets are in non-US stocks.

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The Omega Factor: Trend Analysis of 17 Leon Cooperman Stock Picks

Leon Cooperman runs Omega Advisors, a top-flight hedge fund.  He is often in the media, discussing his recent picks, and he was on CNBC recently highlighting a group of 19 picks. Even though we clearly do not know why he fully favors these stocks, it is fun to look at them via conventional technical analysis to get some insight into his thinking.  Hedge funds in general are trying to develop an information edge, and buying at key turning points. Hence, we can also get some hints about his expectations about the future.  A comprehensive list of his current holdings can be found here.

 

Ranking by SCTR

I had the SC scan engine calculate both SCTR and the CTM on the Cooperman picks.  In Chart 1, you can see them ranked by SCTR. You can see right away that the range of SCTR values goes from about 87 to 1, and CTM from about 90 to 10. This means that his selections have a momentum-strategy (high SCTR or CTM) and a counter-trend strategy (low SCTR or CTM).

 

Chart 1: Cooperman picks ranked by momentum (SCTR or CTM). Note the wide range of SCTR and CTM values in the portfolio.

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May 2017 Review: New Highs, New Sighs

The market made new highs this month, with utilities, technology and consumer staples being the three top sectors. Traditionally, utilities and consumer staples are considered risk-off sectors, and technology is thought of as risk-on sector.  The broad market, at the Russell 1000 universe, now has a downward tilt to its multi-period breadth. Thus, we have a mixed message from the market this month.  The S&P 500 hourly chart tells the story well.  The market drifted to new highs in a cup-with-handle formation.  Then we had a sharp break, suggesting the handle was broken.  However, the handle was quickly glued-back it seems as the market rallied off trend-line support into new highs. Finally, the market backed off a bit, in a potential re-test of the breakout point. If nothing else, the market defined support and resistance clearly this month.

 

Chart 1: The SPX hourly chart illustrates the market's action in May very well.  The sudden break mid-month found support at the uptrend line and led to a rapid reversal to new highs.

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Back to Basics: Why do RSI divergences occur?

I have an original, autographed copy of "New Concepts in Technical Trading System" by J. Welles Wilder, Jr.  The original signature is dated July 8, 1985, and made out to Stanley Kroll, who in turn gifted me his copy. I quite enjoy looking through the path-breaking book, as untold thousands have used the RSI and its other indicators over time. The original hand-written spreadsheets are just priceless.  Today I will try to explore why divergences occur between the RSI and underlying prices.

 

Chart 1: A pair of true originals, J Welles Wilder, Jr and commodities trader Stanley Kroll were good friends.  Stanley gave me his copy of the book, and I love this connection to one of the most popular set of technical indicators on the planet.

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Can't Keep a Good Market Down

The rapid rebound from the sell-off last week was impressive.  On the other hand, utilities made new highs and high-yield bonds resumed their rally.  The internals of the Russell 1000 index are pointing to weakness, even as trend-following models remain mostly bullish.  I look at some of the mixed signals from this sideways market.

Chart 1: The breakout in utilities has pushed XLU to the top of the trend strength rankings.

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