Don't Ignore This Chart

Bulls' First Test: FAIL

While we cannot rule out the possibility of a sustained advance to clear technical hurdles, the first attempt today was an epic fail at or just below a critical short-term resistance zone.  Given the high volume selling over the past 7-10 days and loss of key price support levels and MACD centerline support, the first critical test - in my opinion - is the area of price resistance and the falling 20 day EMA.  In the case of the NASDAQ, key gap resistance resides at 4800, while price resistance is closer to 4900 and the now-declining 20 day EMA just below 4900.  We've seen a very strong rally off Monday's open - the NASDAQ was up more than 10% from that open - but it's reversed lower this afternoon after moving into that 4800-4900 resistance zone.  Take a look:

Note also that the key Fibonacci retracement levels of 50% and 61.8% fall in approximately the same resistance area as well.  The bulls are going to need to pack a punch to clear this zone.  In the meantime, it would seem prudent to use this area to capture short-term trading profits (or to short for those who have that bias) until the market tells us otherwise.

Happy trading!


SCTRs Surge for Non-Stock ETFs (Yen, Euro, Volatility, Gold and Bonds)

There has been a big changing of the guard over the last few weeks as stock alternatives gained in relative rankings. The table below shows the StockCharts Technical Rank (SCTR) for our ETF universe, which excludes inverse and leveraged ETFs. It is sorted by the one-week change for the SCTR. I took the liberty of drawing a red line through some of the low volume ETFs. Even though these are ETFs, the leadership group is sending a clear message. Stocks went out of favor. Volatility, some currencies, bonds and gold moved in to favor. Volatility spiked and I will show a chart for the Citi Volatility Index Total Return ETN (CVOL) after the jump. 

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TLT and GLD gap down

Two areas associated with protection are the TLT, the long bond ETF and GLD, the GOLD ETF.

This morning, both are gapping down. It will be worth watching to see if the market can break out here as this does look like a potential interim bottom. If this cannot get a bid, investors are probably moving into more aggressive areas of the market. It's a place to watch for the reversal to be confirmed.

In volatile times, the reversals are vicious both ways. Today, TLT is making 10 day lows so let's not get too ahead of ourselves. One month lows would be 120. So while this is looking through a magnifying glass, it's a good place to hunt for very short term clues.

Good trading,
Greg Schnell, CMT

Massive Hollow Red Hammers Taking Shape

Stocks opened weak, plunged after the open and then recovered around midday. The Dow dipped below 15500 in the morning and then moved back to the 16200 area by noon ET. The opening gap, deep dip and recovery mean that several stocks could form big hammers today. These are short-term candlestick reversal patterns that form with a small body at the top of the high-low range. The example below shows Pfizer (PFE) with an opening gap below 33, a morning dip below 29 and a current price near 32.90. The body of the candlestick represents the open-close range. It is hollow because the current price is above the open, but the candle is red because the current price is still below the prior close. The candlestick represents a big intraday reversal, but the stock still needs to fill the gap in the 33-33.5 area to negate the support break. Note that the predefined scans page is full of hammers. A screen shot and link are provided after the jump. 

Click this image for a live chart 

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When Technical Support Breaks Down - The $SPX Goes Splat!

The selling was broad based across the market today. This market had a lot of issues regarding the number of stocks holding the market up. With breadth thinning every week, it appeared to be a matter of time before the market would have a larger pullback. The size of the intraday move yesterday and today indicates that the large institutions were selling this pull back. 

While this chart may bounce off support on Monday, the three lines above the current level will be important tests of resistance. The 2000 level was a good support/resistance level on the way up. How important that level is on the way down will be important. We cut through it like a hot knife through butter today, but it may become an area where we oscillate around.

The next level would be the 2040 level which used to be support for the last 6 months. It is not uncommon for a break of a Head/shoulders topping pattern to have a rally back up to the neckline which is the red dotted line. 

Lastly is the 2077 level which is the 200 DMA. The 200 DMA is now a bounce of 100 points which will be an extreme test of market resiliency if there is no market encouragement from central banks. 

There will be lots of commentary on the website this weekend including Chip Anderson and Greg Morris doing a webinar tomorrow morning. That should be very interesting. I would encourage everyone to scroll through the webinar archives, the recent blogs and the blog articles that have been written over the last month by using the drop down menu on the right hand side to select the individual blog.

Good trading,
Greg Schnell, CMT

Can Apple (AAPL) Save Computer Hardware?

The Dow Jones U.S. Computer Hardware Index ($DJUSCR) is testing significant price support created by the breakout in the fourth quarter of 2014 and the subsequent retracement back to that level just three months later.  Recent weakness in Apple (AAPL) shares, along with other computer hardware stocks, has this index looking vulnerable to a much bigger selloff if price support is lost.  Trendline support has been lost, MACD centerline support has been lost, relative trendline support vs. the S&P 500 has been lost and now price support is being tested.  What's perhaps most problematic is that AAPL has continued to perform well vs. its computer hardware peers despite deteriorating technical action on its own chart.  In the bottom indicator window, AAPL has lost its 20 week EMA support, a level it held for the past two years.  In addition, and not shown here, AAPL fell below its 20 DAY EMA on its daily chart and has been failing to clear overhead resistance at that moving average recently - bearish action indeed.  Finally, AAPL's worst performance seasonally occurs in September as it's risen just 42% of the time in September over the past 20 years with an average return during September of -1.8%, its worst monthly performance in terms of return.  Check out the chart:

Be careful in the very near-term.

Happy trading!


Yes, Virginia, there Really Is Information in Stock Prices

Just ask HD and WMT. These two big retail stocks are part of the Dow Industrials and the S&P 500. Despite a common industry group, the performance for these two stocks could not be any more different. The chart below shows year-to-date performance for Home Depot (HD) and Wal-Mart (WMT). One is up around 18% and the other is down around 18%. Note that Chartists can create a performance SharpChart by entering two or more comma-separated symbols in the symbol entry box. We'll look at these charts individually after the jump. 

Click this image for a live chart

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One Airline Keeps Climbing Higher. Who Is It?

The airline Industry group pulled back quite hard in the second quarter. However one airline company bucked the trend and forgot to pullback. JetBlue (JBLU) just keeps on climbing bottom left to top right. A steady ascent is a comfortable ride for investors as well.

As long as JBLU continues to outperform the market, this has all the traits of flying at 38000 feet. Smooth and comfortable. It also continues to outperform its peers which is an even bigger accolade in a tough business. We can see the SCTR at the top of the chart does a good job holding up to the flight plan. If I have one concern the volume is low in August, but that is always a problem in the summer months. This airline is not showing any traits of losing altitude currently other than some small divergences on the MACD making lower highs from a very high level.

Good trading,
Greg Schnell, CMT

Amgen Returns to the Scene of the Crime

Amgen (AMGN), a big biopharma stock, broke out with expanding volume in July and hit a new 52-week high. After becoming short-term overbought, the stock fell back to the breakout zone. There are two things to note here. First, broken resistance turns into the first support zone. Second, a pullback to a resistance breakout is known as a "throwback". It is viewed as a test of the breakout, and a strong breakout should hold. The stock is showing signs of support with two bullish engulfing patterns in the last five trading days. Look for a follow through break above 171 to confirm the bullish engulfing patterns. 

Click this image for a live chart (PCLN) Fills Gap, Confirms Bullish Pattern

After its latest quarterly earnings report, traders rushed into (PCLN) as it surged nearly 100 dollars from 1283.99 to 1382.61 on a post-earnings gap.  Patient traders, however, have seen PCLN return to its pre-earnings level as it closed on Friday at 1283.80 just seven trading days later.  Perhaps the better news is that PCLN broke out of an inverse head & shoulders pattern on its weekly chart and recent weakness has provided a potential retest of the breakout level.  The selling has also helped to unwind overbought oscillators on its daily chart (only weekly chart shown below).  Take a look:

The MACD on PCLN also seems to be showing improving strength and upside momentum acceleration.  Finally, PCLN is again outperforming its peers as it did in 2013, when its stock price surged.

Happy trading!