Don't Ignore This Chart

Russell 2000 On Verge Of Breakdown But.....

Small cap stocks tumbled today, losing 1.23% and far exceeding losses incurred on the other major indices.  Since Monday's close, the Russell 2000 has dropped approximately 3% while the benchmark S&P 500 has retreated less than 1%.  One hallmark of a bull market is the outperformance of small cap stocks relative to the S&P 500.  It's a signal that market participants are in "risk on" mode.  The past three days that has not been the case.  It's not a sign to panic, but it is beginning to raise my eyebrows.  The following shows relative strength in the Russell 2000 throughout 2016, but a sudden reversal this month:

The action on Thursday broke both trendline support and absolute price support.  There is further price support just below 1190, which is exactly where the Russell 2000 closed today.  Tomorrow begins a very bullish historical period for U.S. stocks and, based on this chart, it's fairly important to see the Russell 2000 begin to outshine the other indices right away.

Happy trading!


Chubb Reverses at Key Level with a Gap

Chubb trended lower from July to October, but a gap-laden reversal off a big support zone suggests that this decline may be reversing. More importantly, this decline looks like a correction with a bigger uptrend. Let's look at the evidence for a long-term uptrend. First, Chubb (CB) hit a 52-week high with the June surge. Second the 50-day EMA is above the 200-day EMA. Third, the stock is above the rising 200-day EMA. These indications point to a long-term uptrend. 

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This Foreign Country ETF Is Starting To Outperform

The Japanese $NIKK has started to break out to the upside. However, the currency is dropping. For investors, we have seen this movie before. Using the ETF's that hedged the currency worked out much better for investors last time the Yen dropped and the $NIKK soared. Below is a chart of the DXJ and you can see this trade setup back in 2014. This is hedged to the Japanese Yen and is becoming one of the top performing ETF's based on price action again. 

Using an SCTR above 75 can help find some of the strong country ETFs. I'll be covering this off on my

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Euro ETF Forms Massive Consolidation within Downtrend

The Euro ETF (FXE) formed a large triangle after a sharp decline and this pattern could be just a big rest within a bigger downtrend. After falling some 25% in one year, FXE found support in March 2015 and moved sideways the last 20 months. This sideways pattern looks like a massive triangle consolidation that could be considered a continuation pattern. This means it represents a rest after the big decline. A break below triangle support would resolve this pattern and signal a continuation of the bigger decline. Within the pattern, the Euro broke upswing support with a sharp decline in May-June and is nearing a big test of support. The indicator window shows the US Dollar ETF (UUP) challenging the upper trend line of a falling channel. 

Thanks for tuning in and have a great day!
--Arthur Hill CMT

Plan your Trade and Trade your Plan

Will The Bull Market Resume? Watch This Chart

There are fundamental, technical and historical factors that drive U.S. equity prices.  Earnings and interest rates have very clear fundamental impacts.  The Fed has done everything in their power to keep interest rates at historically low levels in an attempt to promote growth.  We could debate back and forth how successful they've been.  I would argue that the low rates and cheap money have absolutely been beneficial to the bottom lines of Corporate America, but rates could be at the beginning stages of an extended advance.  That's where technical indicators come into play.  Big investment firms talk to management teams about how their quarters are progressing and invest their own and clients' money accordingly.  That demand vs. supply shows up on the charts and astute technicians pay attention not only to the money pouring into equity markets, but also where that money is flowing.  If market participants are truly bullish about the fortunes of the U.S. economy, they'll want to be invested in aggressive (vs. defensive) areas of the market.  I follow a few key ratios to determine how bullish traders truly are.  If bullish, we should see these relative ratios rising.  Check out the 10 year monthly chart of the S&P 500 with three key ratios plotted beneath the price action:

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American Express Beats Earnings, Raises Guidance And Challenges Resistance

Wednesday, after the closing bell, American Express (AXP) posted quarterly results that blew away consensus estimates for EPS and also managed to top revenue estimates.  Furthermore, AXP raised its guidance on a forward-looking basis and shareholders are being rewarded today with a gap higher on massive volume.  AXP is up nearly 9% at last check and could be looking at higher prices if it can clear price resistance as follows:

Today's close will be important.  Leaving a tail above price resistance with a close beneath it would suggest the higher likelihood of a short-term pullback.  However, closing above 66.50-67.00 would encourage more technical buyers, especially given today's volume.  Also, the surge in price is being accompanied by a similar surge in its SCTR ranking.  Momentum here is building on both a fundamental and technical basis.

Happy trading!


Natural Gas ETF Breaks out of Continuation Pattern

The FirstTrust Natural Gas ETF (FCG) has been one of the top performing ETFs this year with a year-to-date gain of around 18%. As the chart below shows, the overall trend is clearly up and the ETF is forming a small bullish continuation pattern. First, a rising channel defines the uptrend with a series of rising peaks and rising troughs. Even though the early October high did not exceed the early September high, the ETF remains well within the channel and well above the prior low. The September low and lower trend line combine to mark key support in the 24-24.5 area. 

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Alphabet (GOOGL) Makes A New 52 Week High

Alphabet (GOOGL) broke out above resistance to a new 52 week high and a new all time high today. The SCTR has been gently climbing and pushed above 75 today. The Relative Strength is breaking out to new 8 month highs. The price cleared the narrow trading zone between $775 and $810.

With the volume accelerating on the breakout,it looks like a nice confirmation of the move. The MACD has been flattening out and crossed up from a nice low location giving it lots of room to expand.

Earnings are due out on October 27th, 2016.

Good trading,
Greg Schnell, CMT, MFTA.


Can the Consumer Discretionary Sector Turn it Around in Q4?

The consumer discretionary sector is one of the weakest performing sectors over the last six months, but the overall chart looks constructive and I am watching the October highs for a breakout. Note that I am analyzing the Equal-weight Consumer Discretionary ETF (RCD) because it tells us how the "average" stock in the sector is performing. In contrast, the Consumer Discretionary SPDR (XLY) is weighted towards large-caps because the top ten stocks account for 52% of the SPDR. 

The EW Consumer Discretionary ETF declined the last two months with a move to the mid 80s, but I think this is a correction within a bigger uptrend for two reasons. First, the overall trend is up because the ETF formed a higher low in June and recorded a 52-week high in August. Second, RCD surged over 10% from late June to mid August and the ETF was entitled to a correction. A correction is perfectly normal at this stage. 

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Bottomline Is Hoping Gap Support Is The Bottom

About seven weeks ago, Bottomline Technologies (EPAY) produced excellent quarterly earnings results when its top line edged Wall Street consensus estimates and its bottom line crushed them.  Market participants were expecting 9 cents per share and management delivered a huge beat - to the tune of 18 cents.  That doubling of expected quarterly profit excited traders and EPAY was higher by nearly 17% at its high the next day.  EPAY's average daily volume is currently 400,000 shares, but the day after earnings, volume soared to 3.5 million shares, its highest volume day since 1999.  So the technical question becomes, "can EPAY hold the top of gap support created by that high volume earnings-related day?"  Here's the visual:

I enjoy trading gaps as they help to define risk.  In this case, EPAY resides almost squarely on key gap support.  In addition, its RSI has fallen from overbought territory in early September at 70 to a much more palatable level close to 40.  I'd look for renewed strength from this area.

Happy trading!