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.
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,
The DecisionPoint Scoreboards had significant changes this week. Note the difference between last Friday's DP Scoreboard and today's. Scoreboards went from very bullish to very bearish in one week. The intermediate-term BUY signals that were replaced on the SPX and OEX had been in place since March!
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.
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,
Technology stocks (XLK) produced gains of more than 10% in the third quarter of 2016, more than double that of any other sector. Industrials (XLI) were the second best group, posting a quarterly gain of 4.80%. We all know the bigger names in technology, so this article will focus on other names in key technology industry groups that perhaps you haven't been paying attention to. Let's start with computer hardware ($DJUSCR).
Hello Fellow ChartWatchers!
Well, after 18 years of writing these newsletters - and doing webinars and hosting conferences and writing educational articles - I am reliquishing those duties to others so that I can focus (re-focus?) on my real passion - making the technology behind StockCharts.com really great.
Last week's ChartCon event - which was amazing and went off with almost zero glitches - marked a milestone in my development as a writer/educator. It feels like I've said most of what I needed to say and that continuing forward in that space would just involve lots of repetition. In addition, there are many, many behind-the-scenes technical things here that haven't gotten the attention they deserve and it is pretty clear that the only way that's going to happen is for me to focus on those things full time.
So, from a practical perspective, I will be handing over the reins of this newsletter and its corresponding webinar to Grayson Roze. Watch for great things from Grayson in the coming weeks. We will also be re-packaging some of my better articles into a "greatest hits" series that can help you continue to get the most out of StockCharts.com. Finally, I am challenging the other commentators here to up their game and include even more educational "how to's" and "step-by-step" help in their articles and webinars.
Pretty much everything I've said over the years boils down to a couple of key points:
- Keep it simple - narrow your focus. John Murphy uses 4 indicators, why do you need 37?
- Focus on Momentum (MACD) and Relative Strength (SCTRs). They are easy to understand, easy to use and work great.
- Reject any kind of "get rich quick" approach. Learning to trade successfully takes time and patience.
- "Why" doesn't matter. Focus on what the charts are saying. Find trends and ride them until they weaken. Forget about why.
- Focus on "actionable information" and reject anything that leads to analysis paralysis. Always ask yourself "Will this information cause me to make any changes?"
Hopefully you got a chance to see me expand on these ideas in my ChartCon talk.
Moving forward - John, Martin, Arthur, Tom, Greg #1, Greg #2, Julius, Erin, Bruce, Gatis, Grayson and all of our other commentators will give you lots of great articles to read for the foreseeable future. And I'll be in the background, coding up a host of new tools and capabilities that will make StockCharts.com even better.
While the world continues to debate the path of every pipeline, investors are not debating the path of the pipeline companies.
Three of the larger pipeline companies are in focus this week as another LNG project on the west coast was approved in Canada. One of the major pivot points on these approvals is that the pipelines required to feed them would also need to be approved.
With three majors working on access to get Crude Oil and Natural Gas products to tidal water for exporting, it is timely to look at the stocks.
Kinder Morgan (KMI) made new 9-month closing highs on Friday.
Deutsche Bank dominated the news late in the week, but US banks have been largely unaffected and bullish flags are taking shape in two bank-related ETFs. The charts below show the Bank SPDR (KBE) and the Regional Bank SPDR (KRE) in long-term uptrends. Notice that the 50-day EMAs are above the 200-day EMAs and both ETFs hit their highest levels of the year in late August. Both ETFs pulled back in September, but I view short-term pullbacks as opportunities when the bigger trend is up.
Hopefully I won't be stepping on Greg Schnell's Canadian toes, but as I was going through charts from last Wednesday's webinar, I saw that $TSX just had a new LONG-TERM Price Momentum Oscillator (PMO) BUY Signal. These are incredibly infrequent; for the last twenty years, we've only had nine long-term PMO crossover signals...that's BUY and SELL signals combined.