ChartWatchers Newsletter

The Monthly Close For October Couldn't Have Been Closer To A Sell Signal

While the technicians usually write about the short tem, I want to zoom out a little and use a monthly chart of the New York Composite ($NYA). For those who follow my webinars, we are following the charts very closely as the market conditions are frail in my opinion. We could rally from here, but the long term charts continue to disappoint in my work. This New York Composite chart ($NYA) shows the close Friday, November 4th, 2016.

While the October 31st close did not close below the 10-month Moving average or give a MACD sell signal, it only took a pullback of one more day (November 1) to generate a sell signal on both the MACD and the 10 month moving average. That is a fine detail on a monthly chart. These can be seen looking at the Zoombox on the far right. By the Friday close shown below, the picture was getting a little more difficult. Martin Pring's Monthly KST is below zero as well. 

Continue reading "The Monthly Close For October Couldn't Have Been Closer To A Sell Signal" »

Examining Market Response to Earnings Reports

When the market is under fire like it has been for the past few weeks it becomes harder to trade successfully. This is particularly true if your focus is on the long side.

One way we've tried to combat a difficult trading environment at EarningsBeats is to focus specifically on those companies that beat earnings expectations with the theory being they will hold up the best, no matter market conditions. But that strategy can prove to be tricky when the market moves into a "shoot first and ask questions later" mode.

As an example, we issued a long alert on ETFC on October 24 after it posted strong earnings. It had gapped up on strong earnings and looked like a good reward to risk trading candidate on a pullback. But right out of the chute the stock continued to move lower, resulting in a failed trade.

It turns out that the most recent leg down in the market started on October 24, the same day of the ETFC alert. In fact, the NASDAQ was down 8 straight days in a row. So the timing of the alert was unfortunate; the strength of ETFC's earnings was not enough to avoid getting sucked down with the rest of the NASDAQ.

This doesn't mean there aren't stocks that hold up better than other ones when the market is unraveling. Traders DO have a tendency to flock to those stocks with strong fundamentals and strong charts when things are rocky. So it makes sense that your odds of experiencing a successful trade increase if the market cooperates as well

I will be conducting a webinar on Thursday, November 10 at 4:30 pm eastern where I will be showing examples of stocks that reported strong earnings and how they performed during the recent pullback. This will include some that held up well and some that fell apart. Then we'll have a discussion to see if there were tell tale signs that might have predicted which ones were more likely to succeed, or fail. If you want to join me for this FREE webinar just click here.

At your service,

John Hopkins

Stock Bounce Fades as Yields and the Dollar Keep Climbing

A morning bounce in stocks faded by the end of the day. Chart 1 shows the S&P 500 ending the day at its low. That keeps stocks in a short-term downside correction and well below a falling 50-day average (blue arrow). It also leaves open the possibility that the September low could still be retested. Rising bond yields continue to weigh on stocks. Chart 2 shows the 10-Year Treasury Yield ending the week on a strong note after bouncing off its 200-day moving average. That pushed bond prices lower again. The jump in yields pushed utilities lower while supporting financials. Rising Treasury yields continue to push the dollar higher. Chart 3 shows the U.S. Dollar Index (UUP) ending the week at a seven-month closing high. That's also weighing on large cap stocks.

Broad Market is Seriously Mixed, but Breakouts are Holding

The broader market is incredibly mixed over the last three months. Even though performance divergences reflect a divided market, the major index ETFs are holding above their June highs and I view this as a correction within an uptrend. The PerfChart below shows eight major index ETFs with four up and four down. The Russell 2000 iShares, Nasdaq 100 ETF, Nasdaq 100 EW ETF and Russell MicroCap iShares are up, while the S&P 500 SPDR, Dow Diamonds, S&P SmallCap iShares and S&P MidCap SPDR are down. Basically, small-caps and techs are strong, while large-caps and mid-caps are weak. 

Continue reading "Broad Market is Seriously Mixed, but Breakouts are Holding" »

Bonds Are Breaking Meaningful Trend Lines

The 30-Year Bond ($USB) broke down through a long term uptrend this month but the bigger picture shows something else. There is still a major uptrend channel. However, we appear to be on a big countertrend move starting now. Interestingly, four other countertrend moves went all the way to the other side of the channel. Also of note is the PPO. It shows a rollover from the current high level so this move is just getting started.

Continue reading "Bonds Are Breaking Meaningful Trend Lines" »

Holding Stocks into Earnings can be Costly

We're now in the thick of Q3 earnings season when thousands of companies will report their numbers over the next several weeks. Earning season kicked off when Alcoa reported its numbers early last week and served as the poster child of why it's a crap shoot at best to hold a stock into its earnings reports.

You can see in the chart below that AA reported its numbers before the market opened on October 11 and you can also see that the stock got crushed, losing almost 17% over the next few trading days.

Interestingly, AA had climbed nicely off of its recent bottom on September 20 and looked poised to go higher But traders were disappointed in their numbers with the stock pulling back to levels not seen since mid May.

Not every stock that reports earnings gets slammed like Alcoa did. Plenty of stocks move higher after they report results. But the problem is there's simply no way of knowing how the market will respond to an earnings report, and therein lies the problem; it's just not worth the risk.

At EarningsBeats we scour the market for companies that beat earnings expectations and have solid charts. And instead of participating in a trade into an earnings reports we watch to see the market reaction once the numbers are released and how the stock performs in the following days. Then once the dust settles a stock might become a high reward to risk trading candidate and end up on our "Candidate Tracker." This in turn allows our members to decide if they wish to take on a position. If you would like to see a sample of our Candidate Tracker just click here.

Earnings season can be an exciting time for traders. It's the time of year when companies get to show their financial strengths and weaknesses. It's also a time to be careful to not put your precious capital at unnecessary risk.

At your service,

John Hopkins

Transports Are on the Verge of Bullish Breakout -- Rails Have Already Turned Up

Once again, transportation stocks appear to be on the verge of a bullish breakout. Chart 1 shows Transportation Average iShares (IYT) on the verge of breaking through their April/September highs. Their relative strength ratio (top of chart) also appears to have bottomed. I recently showed buying in airlines and air freight. Rails, however, have been the strongest part of the transportation group and are leading it higher today. As I showed yesterday, transports are now outperforming utilities which is a positive sign. A transportation breakout would be another good sign for the market and the economy.

Chart 2 shows the Dow Jones US Railroad Index ($DJUSRR) rising above its October peak to establish a new uptrend. It's relative strength (solid) line is rising as well. Its 50-day average cleared its 200-day in May. One of the premises of Dow Theory is that transportation stocks should rise with the industrials. Industrials make the goods while transports (like rails) move them to market. The economy (and the market) are stronger when both are moving up together. The rails have already turned up. The entire transportation group is on the verge of doing the same. Chart 3 shows Union Pacific (UNP) also in an uptrend. CSX (not shown) looks the same. Norfolk Southern (NSC) isn't far behind.

Tis the Season - Earnings Season

The third quarter has come to an end. It ended on a high note with the S&P gaining 3.3% from the June 30 close to Friday's close. Interestingly, the S&P got to 2168 two weeks into the third quarter which is exactly where it ended on Friday. In other words, if you had gone into a long slumber on July 14 and woke up on September 30, you wouldn't have missed a thing.

Of course there's no telling how the market will perform between now and the end of October when a good portion of earnings will be reported. But in looking back over the past five years, from September 30 to October 31, here's the results:

2011 - +3.6%
2012 - (-1.9%)
2013 - +4.4%
2014 - +2.3%
2015 - +8.2%
2016 - ???

You can see above that four of the past five years have produced positive results between September 30 and October 31. In fact, last year saw a substantial increase of over 8%.

Even though the S&P has been stuck near the same level for the past 2.5 months it still remains within easy striking range of its all time high. And the NASDAQ has shown particular resiliency as it remains above all key technical levels. This might indicate that traders feel earnings could be solid for the quarter.  
The "official" start of earnings season will be October 10 when Alcoa reports its numbers after the bell. Then for the following three to four weeks thousands of companies will report their numbers. We'll be keeping track of those companies that beat earnings and have solid charts so we can provide them to our members as potential high reward to risk trades. If you would like to see a sample of our exclusive "Candidate Tracker" just click here.

At your service,

John Hopkins