ChartWatchers Newsletter

Managing Risk - Identifying Strong Reward to Risk Trading Candidates

If you are looking for ways to manage risk in an increasingly volatile environment then you should start by searching for the "best of the best"; those companies that beat earnings expectations and have solid charts. This makes an awful lot of sense if you think about it; riding the coattails of those stocks that are both fundamentally and technically sound.

For example, take a look at the chart below on H&R Block. They recently reported earnings and the stock shot up over 10% after the numbers were released.

Look at that huge volume that came into the stock when traders learned of those strong earnings. In fact the same thing happened when HRB reported its earnings last quarter in early March. At the same time, unless you owned the stock into its earnings report, it doesn't make sense to chase it after that nice gap up. Instead, it requires lots of patience; let the stock work its way back to a key level of technical or price support after the euphoria wears off, and that's when you make your move.

For example, wouldn't it be worth considering taking a position in HRB if it pulled back to its 20 day moving average, currently at $27.12? It would still be technically sound, you could place a tight stop in case it continued moving lower, and your upside could potentially be a revisit of the high near $30. THAT would be a solid reward to risk play.

In order to take advantage of price appreciation that goes along with solid earnings you will need to develop a way to find those stocks. In fact I believe this is vitally important so I have decided to conduct a webinar this Monday, June 19, at 4:30 pm eastern. During the webinar I will discuss the method for how EarningsBeats.com stock trading candidates are selected and will discuss recent performance and how managing reward to risk really works in growing a portfolio. As an added bonus for attendees, I will be joined by StockCharts.com Senior Technical Analyst, Tom Bowley, who will discuss setting up ChartLists and how to run scans that meet specific criteria, quite a potent combo. Just click here to save a seat for the webinar.

Every trader out there knows how difficult it is to identify trading candidates, pull the trigger on a trade and come out of it with a profit instead of a loss. At least take the time to search for those companies that have both solid fundamentals and strong charts as they can add a level of protection and potential not found in most stocks.

At your service,

John Hopkins
EarningsBeats.com

 

Latest Members Dashboard Update - #AWESOME!

Hello again, everyone!  Just a quick note to tell you about an awesome new feature that we just rolled out.  We've updated the Members' Dashboard so that it is now even more customizable and useful.  The change is subtle - you would probably miss it if you weren't reading this article - but it is very powerful.

There is now a new little "Gears" button in the top right corner of the Members' Dashboard.  If you don't see it, click on "Members" and then look above the top right corner of the "Market Movers" panel next to the "ChartLists" button.  See it?  Good.  Now click it.

You will be presented with a dialog that contains two checkboxes - one for "Scan Center/Alert Center" (which should be checked) and one for "Additional Data Panels" (unchecked).

Check the "Additional Data Panels" checkbox (check-circle?) and press "Update."   VOILA!

There are now three more "Market Movers" panels just like the one on the right side of the page.  The new panels are in a row right below the first row of panels.  Initially, they all display the same thing - which is definitely boring.  BUT, you can now change each of them to be whatever you want.  Just click on the dropdown labeled "Top 10" in each panel and select something different.  Whatever settings you select will "stick" and be back the next time you visit the page.

Personally, I've put the Ticker Cloud in the upper right panel, the S&P 500 Top 10 in the next panel, the Large-Cap SCTRs in the middle panel, and the Predefined Alerts in the lower-right panel.  Here's what it looks like after changing those settings:

VERY COOL!!!

Note: Right now the settings are stored in your browser's cookies which means that if you change browsers or computer (or you clear your cookies) you'll need to re-set things up.

Just one more way we are continuing to improve the website.  Enjoy!
- Chip

 

Finding New Opportunities in an Overbought Market

The market has been on fire lately with all of the major indexes hitting all time highs. In spite of some recent weak economic reports, including a miss on Friday's jobs report, and in spite of all of the political "noise" swirling around, stocks have powered higher. In fact, both the NASDAQ and S&P are technically overbought with the Dow not far behind. And the VIX is right near all time lows as it dipped back into the 9's on Friday showing traders are very willing to own stocks.

When the market gets stretched like it is now it starts becoming harder to jump in; who want to jump in when the market could be ripe for a pullback? But in all market conditions there are stocks that have lagged, for whatever reason, that could move higher while "catching up" with the rest of the pack.

Continue reading "Finding New Opportunities in an Overbought Market" »

Midcaps May Show Truer Picture of US Stocks

Several of my recent messages have focused on the divergence between large and small cap stocks. Wednesday's message suggested that part of that divergence was due to stronger foreign markets. Large cap multinationals do better when foreign markets are strong, which is the case at the moment. Small stocks are more closely tied to the U.S. economy. So which one is giving us the right story? Midcap stocks may be giving us the truest story of the state of the U.S. market. That's because they're right in between the two other extremes. So far this year, midcaps have gained 4% which is half as much as the S&P 500 gain of 8%. But it's still twice as much as the 2% gain in the Russell 2000 Small Cap Index (and 4% better than the S&P 600 Small Cap Index). And the midcap chart looks positive. The chart below shows the S&P 400 Mid Cap Index (MID) in a sideways consolidation pattern since its early March peak. In addition, the two converging trendlines look like a bullish "symmetrical triangle" formation. That increases the technical odds for an eventual upside breakout. That would broaden out the market uptrend which has been led mainly by large cap stocks. [Small caps are leading today's market bounce with the Russell 2000 regaining its 50-day average. That's encouraging if it continues].

Are You Watching Energy Stocks?

Energy stocks have been declining since December for the most part. This would be one of the best clues that the investors do not like the trends inside the industry. Now the Bullish Percent Index for Energy is under 20%. Here is the good news. The sector can stay down here for a while, but eventually, these stocks will come to life. As a matter of fact, there is a nice rhythm in the momentum for energy stocks. Let me put a few charts up to whet your appetite for a little black wine sometime later this year.

First of all, here is the Bullish Percent Index for Energy ($BPENER). We can see the Index is near the lowest levels of the last few years. The level around 15% to 20% is usually where meaningful bottoms are built. We can also see the momentum shown by the MACD is very low. The MACD is also flattening out here. So, the first clue for us is that the downside momentum is waning somewhat but that does not mean the bottom is in for energy stocks. You can see that looking at the Exploration and Production ETF (XOP) as well as the Energy Sector ETF (XLE).

Continue reading "Are You Watching Energy Stocks?" »

The Most Important Assumption in Trading

Trading and investing are all about putting the odds in your favor, and chartists can increase their odds with one key assumption: the trend will remain in force until proven otherwise. Coming from the writings of Charles Dow, this assumption means a trend in motion is expected to stay in motion. In other words, assume that the trend will extend, not end. Using a top-down approach, you can incrementally increase your odds of success by starting with the broad market trend, and then extending your trend analysis to the sector, the industry group and the stock. This article will show an example using two classic moving averages to determine the big trend. 

The S&P 500 SPDR (SPY) represents the broader market and we can use the classic 50-day and 200-day moving averages to identify the primary trend. Personally, I prefer exponential moving averages because they put more weight on recent data. In addition, chartists can use the Percentage Price Oscillator (PPO) to measure the difference between two EMAs. The chart below shows the S&P 500 SPDR (SPY) with the PPO(50,200,1) in the indicator window. The red lines show when the PPO turns negative and the green lines show when it turns positive. There were just ten crosses over the last ten years and some whipsaws, but the trends outweighed the whipsaws. The uptrend that started in 2012 lasted over three years and the current uptrend is over a year old. 

Continue reading "The Most Important Assumption in Trading" »

S&P 500 and SPY Trigger New Weekly PMO BUY Signals

The S&P 500 garnered a new PMO BUY signal on the weekly chart. Now we have two Scoreboards that are completely green. Technology has been a darling for quite some time so it is no surprise to see the oldest BUY signals residing on its Scoreboard. The two SELL signals remaining on the Scoreboards are on the Dow and OEX. The weekly charts for all four Scoreboards are below.

Continue reading "S&P 500 and SPY Trigger New Weekly PMO BUY Signals" »

Foreign Markets Retest The Highs

With the big swing this week, some of the foreign markets are retesting breakouts. Below are just a few markets to watch in the next few weeks.

Australia ($AORD) failed to hold the breakout to new highs and has now lost the 10 WMA. While losing the 10 WMA is not that big of a deal, the size of the downward stroke right after trying to break through previous highs suggests not a lot of support for the breakout. The 40 WMA is just below and the first test of the Moving Average is usually a bounce. The lower channel is around 5400 with the 40 WMA about halfway in the channel.

Continue reading "Foreign Markets Retest The Highs" »

Rising European Currencies Are Pushing the Dollar Lower

While stocks were rebounding last week, the dollar wasn't. Chart 1 shows the Power Shares Dollar Index ETF (UUP) falling again Friday to the lowest level since November. It may seem surprising to see the dollar continuing to drop with bond yields bouncing along with stocks. The dollar drop, however, may have more to do with improving European currencies. Chart 2 shows the Euro surging to the highest level since last October. Improving economic conditions in the eurozone (as reflected in strong stock prices), as well as an uptick in inflation, are supporting that currency. The Euro has the biggest weight in the Dollar Index (57%). As a result, its rise is the biggest reason the UUP is falling. Chart 3 shows the British Pound climbing to an eight month high as well. That's a sign of more optimism in the UK economy. All of which suggests that the drop in the dollar may have less to do with deteriorating conditions in the US, and more to do with an improving situation in Europe. That also explains why global funds have been rotating into Europe. American investors are getting dual benefits from rising European stocks as well as currencies. That's giving a added boost to European stock ETFs that are quoted in weaker dollars. The falling dollar, however, is finally giving a lift to commodities.