The Regional Bank ETF (KRE) is bouncing off the trend line today after testing below the trend line yesterday. This is a strategically important place on the charts for the regional banks. The breakdown in Relative Strength to new 4 month lows suggests this trade is losing support as investors look to other areas of the market for outperformance. However, the market has spent a week trying to base here as you can see in the zoom box after falling.
Small-caps are still leading the market since early November, but they are lagging in 2017 as year-to-date performance turned negative. The PerfChart below shows year-to-date performance for seven major stock indexes. The Nasdaq 100 is up around 10% and leading the pack by a wide margin. The Dow Industrials, S&P 500, S&P 500 Equal-Weight Index and S&P MidCap 400 are positive year-to-date, but up significantly less than the Nasdaq 100. The Achilles heel of the market is clear when we look at the S&P Small-Cap 600 and Russell 2000, which are now negative year-to-date. We are almost three months into 2017 and these two small-cap indexes have nothing to show.
Stocks that combine poor fundamentals, technicals and seasonal weakness are probably stocks to avoid. QUALCOMM Inc. (QCOM) is one such stock as it was hit in January with multiple lawsuits and Apple's (AAPL) suit against QCOM really damaged the QCOM chart technically. Here's a look at the breakdown that occurred following the AAPL suit announcement:
China Unicom (CHU) is a huge telecommunications company as it ranks 4th in the world for subscribers. This week it extended a breakout and pushed up to fresh new highs. The SCTR is at it's highest level in 2 years and is above 75, which I think is a big positive. The weekly MACD made a positive cross above the zero level which usually suggests a lot of momentum to go higher. The base built below the red line is exceptionally good with higher lows since last summer.
The Russell 2000 has been under selling pressure but is now testing key support on both its daily and weekly charts. There is a slight negative divergence that's present on its weekly chart, so that would be a signal of possible weakness ahead. The good news is that none of the other major indices have similar momentum issues on their longer-term weekly charts. Still, let's focus on the small caps and take a look at the support that's holding on the daily chart:
Stocks got hammered on Tuesday with the S&P 500 falling the most this year (1.24%) and breaking below its March low. Even with the seemingly big decline, the index is still just 2.25% from an all time high. Darden Restaurants caught my attention because it did not break below its early March low. Instead, the stock surged the last eight days and broke a triangle trend line. Overall, DRI is in a long-term uptrend because the stock surged to new highs in November-December. After a 30% advance in just eight weeks, the stock was extended and ripe for a correction. A triangle unfolded as the stock worked off these overbought conditions the last three months.
Bank Of America has been a top performing stock for the last 9 months. It has continually worked its way higher. Tuesday's price action marked a significant reversal as the stock is now testing horizontal support for the last three months. The SCTR is a great buying signal, but it tends to be very late on selling stocks in a strong uptrend. I prefer the Relative Strength shown in purple as a much better indicator for selling something in a strong uptrend if you are a swing trader. Today, the Relative Strength sits on a 4-month support line. This needs to hold.
Ford (F) looked as if it was simply consolidating after a sharp surge and breakout, but this consolidation strung out and the stock broke to the downside on Monday. The chart shows Ford breaking above the September high with a surge in November-December. The stock fell back after this breakout and again surged with a big two-day advance. It looked like Ford was poised for further gains in early January, but the stock fell right back and then embarked on a long consolidation.
I know it was Fed day Wednesday, and Quadruple Witching Options Expiration Day today. I know it's St. Patrick's Day and they'll be partying around the world with green beers and Shamrocks. So in the world of StockCharts, we need to get on the St. Paddy's day bandwagon as the EEM chart is sending a green message today too. Look at the green volume candles for EEM on Wednesday and Thursday. This volume is soaring with 250 million shares trading in a two day period! The really interesting part is that the same sort of volume hit the ETF on the Trump Jump back in November, but those days were selling days. The ETF has rallied ever since.
Oracle Corp (ORCL) needed a solid earnings report last night after the closing bell to reach all-time highs and it delivered exactly that. ORCL posted both top line and bottom line (.63 vs .57) results that exceeded Wall Street consensus estimates and this morning's open cleared price resistance to soar into "blue sky" territory. Prior highs were reached at the end of 2014. Check out today's gains:
ORCL's momentum clearly began 4-5 weeks ago as we saw the MACD make a bullish centerline crossover. That was accompanied by a break of its two year downtrend. Last night's big earnings report and today's breakout is simply the culmination of what the market began expecting as we moved into 2017. Key price support now resides at 44.50-45.00 on any pullback.
Flags and pennants are continuation patterns, which means their bias depends on the direction of the prior move. A flag or pennant after a surge is a bullish continuation pattern that represents a rest within the uptrend. An upside break signals an end to this consolidation and a resumption of the bigger uptrend. These are short-term patterns for more aggressive traders. The chart below shows Paychex with a classic high-and-tight pennant. Notice that the stock hit 52-week highs in December and March, and the 50-day EMA is above the 200-day EMA. The surge from ~57.5 to ~63 (~9%) created a short-term overbought situation and the stock worked this off with a trading range. PAYX recently broke pennant resistance and it looks like the uptrend is set to continue. A break below the pennant low would call for a re-evaluation.
Thanks for tuning in and have a great day!
--Arthur Hill CMT
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