ChartWatchers Newsletter Blog Archives

September 2017

Rising Energy Prices Help Boost August CPI, British Pound Surges to Yearly High

ENERGY ETF REACHES FIVE-MONTH HIGH ... It was reported Thursday that the headline CPI for August rose 0.4% from the previous month, which was its biggest monthly gain since January. That boosted its year-over-year comparison to 1.9%, which is just shy of the Fed's target of 2% inflation. The biggest reason for that jump was a 2.8% monthly gain in the price of gasoline. The core CPI figure (excluding food and energy) rose 0.2% during August, which was its biggest monthly gain since February (for a year-over-year gain of 1.7%). Rising housing costs were the biggest reason for that gain. Futures markets raised expectations for a Fed rate hike in December from 30% to just over 50%. That also boosted bond yields here and elsewhere (more on that shortly). As you know, low inflation has been viewed as the main factor holding the Fed back from another rate hike this year. Which is why yesterday's strong report is encouraging to those looking for higher rates. And that brings me back to one of my favorite themes regarding inflation and the Fed. I find it ironic that energy prices are the main force driving the CPI higher, while the Fed continues to exclude energy from its inflation readings. Hurricane Harvey probably had more to do with the higher August CPI than anything the Fed has done. Chart 1 shows the Power Shares Energy Fund (DBE) climbing to the highest level in five months. [The DBE includes crude oil, gasoline, heating oil, and natural gas]. It has climbed above a falling resistance line extending back to January, and its 200-day moving average. Weather is playing a role in its recent advance. But the chart argues for higher energy prices. That's helping boost energy shares. And may argue for higher inflation readings. A falling dollar is also helping. So is this week's sharp jump in the British Pound.

BRITISH POUND SURGES TO YEARLY HIGH ... Inflation in the UK has jumped to 2.9%. The Bank of England left UK rates unchanged on Thursday, but voted in favor of tighter monetary policy in the near future (which suggests a rate hike this year). That gave a big boost to the British Pound. Chart 2 shows sterling surging nearly 3% this week to the highest level in a year. Sterling has gained 10% against the dollar this year (versus a 13% gain for the euro). The pound is the third biggest foreign currency in the Dollar Index basket with a weight of 12% (behind the euro and the yen). It's rise this week is keeping downward pressure on the dollar which is supportive to commodity prices. The pound is also being supported by higher UK bond yields.

Finding Stocks Poised To Begin A Pre-Earnings Run Higher

If only it was that easy, right?  The problem many times is that a company that reports great results one quarter fails to do so the next.  But my strategy is to find companies that not only reported great results in the prior quarter, but also showed major accumulation at the time, and just after, that earnings report was released.  Analyzing the volume is critical during this step.  I look for well above average volume for a period of a few days or more as the stock rises after its earnings-related gap higher.  Over the next few to several weeks, these companies pull back on lighter volume and prepare for the next earnings run.  That's where planning and doing your homework become so important.  Here are a few trading candidates that fit the bill and could be primed for a big pre-earnings run higher:

Continue reading "Finding Stocks Poised To Begin A Pre-Earnings Run Higher" »

Car Manufacturers Rev Up

In the wake of the devastation of Hurricane Harvey and Hurricane Irma, a lot of cars were flooded. When scrolling through the auto charts, a few were breaking some trend lines this week.

GM is pushing to new highs since basing for 4 years between $23 and $36.

Continue reading "Car Manufacturers Rev Up" »

What Does a Trend Line Really Tell Us?

We all know what a trend line is, but does a trend line actually dictate the trend? In other words, does a trend line break actually signal a trend reversal? Or, is a trend line break telling us something else? We cannot use a tool unless we fully understand it and this article will shed some light on the humble trend line. At the very least, I hope to stimulate the analysis process by challenging you to think hard about an indicator and its message. 

Continue reading "What Does a Trend Line Really Tell Us?" »

Who Do You Trust More? Active Money Managers or Individual Investors?

This week sentiment was mixed. Typically we see the American Association of Individual Investors (AAII) and National Association of Active Investment Managers (NAAIM) exposure index give the same message. However when I pulled up the charts to present during the sentiment segment of MarketWatchers LIVE, I saw the dissonance. 

Continue reading "Who Do You Trust More? Active Money Managers or Individual Investors?" »

A Picture tells a Thousand Words

One of the benefits of technical analysis is being able to look at a chart to help determine if a stock is a viable trading candidate. In other words, what does a technician see in a chart that would lead to the conclusion that a specific stock is or isn't a high reward to risk trading candidate?  I have found chart reading to be particularly useful after a company reports quarterly earnings and have developed some specific signs/indicators I look for to help me determine if a stock is worth pursuing for a trade.

First, does the stock rise or fall once earnings are released? This is the first clue in determining if the market is excited or disappointed in the results

Next, what kind of volume accompanies the initial reaction? Heavy volume - let's say at least two times the average daily trading volume in a stock - can show that there's either a lot of interest in accumulating the stock or a strong desire to get rid of the stock.  

Next, once the initial reaction subsides, how does the stock behave over the next few weeks? Quite often a stock will gap up or down, depending on the initial reaction, and then can either continue its move higher or lower or can consolidate for a period of time as traders continue to assess where the stock might be headed. It's particularly helpful to watch volume trends which can be quite useful in determining where a stock might be headed in the future.

As an example, take a look at the chart below on Michael Kors Holdings (KORS) a company that reported its earnings in early August and beat expectations.

What stands out here? First, we can see a very positive initial reaction to the KORS earnings report. Next, just look at that powerful volume on the positive response. Next we can see a clear period of consolidation once the initial euphoria had settled down. Finally we can see a resumption of the move higher on the stock as traders got re-excited.

I cannot overemphasize the importance of volume, and in this case, extreme interest in owning the stock. It would have been just as helpful to see what the volume was like if the stock had fallen sharply.

There's also another lesson here. I have found when there is an extremely positive market response to an earnings report, like in the case of KORS, it makes no sense to chase a gap higher; it's quite often a losing proposition. Instead, let the initial reaction run its course, wait for a pullback to a key technical or price support level, then make your move.

I've decided to conduct a webinar this upcoming Monday, September 18, at 4:30 PM eastern, where I will be examining market reaction to a number of companies that recently reported earnings. This will include identifying some solid reward to risk trading candidates. If you would like to join me for this highly educational FREE webinar just click here.

A picture does tell a thousand words. That applies to technical analysis as well. If you know what indicators are most important to traders you can learn to spot them on charts and use that to your advantage.

At your service,

John Hopkins

Are Australian Stocks Flat or Trending Higher? - Weak USD Boosts Australian ETF

The Australia All Ords Index ($AORD) is trading well below its April-May highs and stuck in a long and tight consolidation. In contrast, the Australian iShares (EWA) hit a 52-week high in late July and remains close to this high. Which one are we to believe? Are Australian stocks lagging like $AORD or leading like EWA? Let's investigate. 

Continue reading "Are Australian Stocks Flat or Trending Higher? - Weak USD Boosts Australian ETF" »

All Bond Categories Are Underperforming Gold In 2017

During the week, I wrote about gold (and gold miners) achieving upside breakouts and outperforming stocks for the first time since 2011. Gold, however, is also doing better than bonds for the first time in six years. Not just some bond categories, but all of them. The chart below plots five bond ETFs relative to the price of gold (flat black line) since the start of the year. And all five categories are underperforming the metal. They include long and intermediate term Treasury bonds, investment grade and high yield corporate bonds, and Treasury inflation protected securities (TIPS). And the size of their relative weakness is signifcant in some cases. TIPS, for example, are down more than -13% relative to gold. The 7-10 Year Treasury Bond iShares (IEF) have lost more than -11% versus the metal. Investment grade and high yield bonds are lagging behind by -10%. The strongest bond category for the year, which is the 20+Year Treasury Bond iShares (TLT), is down more than -7% against gold. A weak dollar during 2017, low interest rates, and recent flights to safe havens have benefited both bonds and gold. But investors appear to be favoring gold assets over the safety of bonds.

Trade Strength; Here Are The Best Industry Groups In The Aggressive Sectors

One of my trading strategies is to trade the best stocks in the best industries at the best price.  Sounds easy enough, right?  But what does this mean exactly?  Well, first I take a top down approach and review every industry group within each aggressive sector - technology, industrials, financials and consumer discretionary.  Below are my favorites in each of these sectors and why.

Continue reading "Trade Strength; Here Are The Best Industry Groups In The Aggressive Sectors" »

Don't Fall Asleep, Energy Is Waking Up

I get it. Energy has been the worst sector for the last 8 months. Everything is ugly. So is there absolutely no hope? There are some wonderful clues on the charts that this might start to heat up. Not just on Hurricane Harvey, but the charts were starting to get interesting in July. Now on September 1, they are very interesting!

Natural Gas ($NATGAS) looks really good here to me.

Continue reading "Don't Fall Asleep, Energy Is Waking Up" »

Bearish Sentiment Suggests Market Will Move Higher

As I prepared for the MarketWatchers LIVE segment on sentiment today, I was surprised to see investors and money managers are getting very bearish. Put/Call ratios show a bearish bias as well. It is important to remember that sentiment is a "contrarian" indicator. It works a bit like the VIX which more of you may be familiar with. When the VIX begins showing climactically higher readings, that is bullish; while climactically lower readings are bearish. 

Continue reading "Bearish Sentiment Suggests Market Will Move Higher" »

Patience, Patience, Patience

Q2 earnings season has come and gone and traders liked what they heard and saw. This is the primary reason the market has come to life, in spite of some things going on out there that might normally spook the market.

For those of you out there who don't know what we do at EarningsBeats it's actually a simple - but powerful - concept. We scan for companies that beat earnings expectations, have strong looking charts and present high reward to risk trading opportunities. I wanted to point this out because an important part of the equation is to exercise patience after a strong earnings report and response, taking advantage of subsequent pullbacks to key technical or price support levels.

For example, look at the chart below on SGMS, a stock that beat earnings expectations, gapped up on strong volume and then pulled back perfectly to a key level of support.

You can see the skyrocket move the stock made over a two day period that resulted in more than a 45% move higher. Yet if you had chased the gap higher you would have been buying in right at the top, and who likes to buy at the top? Instead, this is a case where patience can be rewarded. And this is why we waited to alert our members with an initial entry price of $34.90 on August 10 with a second entry on a pullback to $34 (which did happen) with a stop loss of any close below the 20 day moving average (it held) and a price target of $38.90. In other words, a very high reward to risk potential made possible by exercising patience.

The stocks that we scan for - those that beat earnings expectations and have strong charts - end up in our "Candidate Tracker." If you would like to see a sample just click here.

Finding suitable trading candidates can be very tricky. But if you do your homework you can zero in on those stocks that beat earnings expectations and get a positive market response. These are the types of stocks traders gravitate to and if you can exercise patience as part of the process it has the potential of being very rewarding.

At your service,

John Hopkins

« August 2017 October 2017 »