Don't Ignore This Chart

The Bulls Want Small Cap Leadership To Resume

Advances in the stock market are much more bullish and likely more sustainable if small cap stocks are outperforming their large cap counterparts.  Over the past three years, we've seen very volatile relative action between the S&P 500 and Russell 2000.  During periods when the Russell 2000 has led, the stock market has performed much, much better.  To the contrary, when the large cap S&P 500 leads the way, gains seem to grind to a halt.  The following chart is a simple visual of how the S&P 500 performs (bottom half of the chart) based on the relative leadership of small caps (blue arrows rising on top half of chart) vs. the relative leadership of the S&P 500 (red arrow dropping):

If you're in the bullish camp, you want to see the relative ratio climb above relative resistance (red dotted line) while the bears want just the opposite - loss of relative support (green dotted line).

Happy trading!

Tom

Pfizer (PFE) Jumps To A New 52 Week High

Pfizer (PFE) is breaking out to new 52 week highs after consolidating for 6 months. The SCTR jumped back above 80% this week which is a sign of strength. While the broad markets like the NYSE Composite ($NYA) have been trying to make new highs since May, some of the defensive stocks like Pfizer are breaking out to new highs. The consolidation range between $33 and $35 now looks to be support on any pullback. The Relative strength in purple broke out and shows clear outperformance to the $SPX.

With a strong volume signature and a higher high on the MACD, this stock looks great. Have a good weekend and for the Canadians, a good long weekend.

Good trading,
Greg Schnell, CMT

Whole Foods Market (WFM) Poor Results Test Support

WFM posted underwhelming quarterly earnings results and the stock is down significantly in early action today.  More importantly, however, is the longer-term price support that's being tested.  WFM has not had an open or a close beneath 35.90 since early 2012 although WFM has tested this area several times over the past 15 months.  Technically, the first thing WFM needs to do is hold onto price support.  From there, the stock needs to break its relative downtrend line where it's been underperforming its peers for nearly two years.  WFM announced that it will be testing newer lower-priced stores, beginning in California within a year.  The question becomes will traders buy into this new company strategy.  Loss of 35.90 support would obviously show that investors remain skeptical.  Here's the chart:

Happy trading!

Tom

Merck Forms Key Outside Reversal on High Volume

The HealthCare SPDR (XLV) has been one of the strongest sectors in 2015, but Merck (MRK) has lagged both the market and the sector. The first chart shows the HealthCare SPDR (XLV) relative to the S&P 500 SPDR (SPY) using the price relative (XLV:SPY ratio). This ratio has been rising since late December and this means XLV is outperforming SPY (the market). The middle window shows Merck relative to SPY (MRK:SPY ratio) and the lower window shows Merck relative to XLV (MRK:XLV ratio). Both ratios are falling and this means Merck is underperforming the market and its sector. Despite relative weakness, the stock is showing signs of strength at support and could be poised to bounce (second chart after the jump). 


Click this image for a live chart

Continue reading "Merck Forms Key Outside Reversal on High Volume" »

Have You Driven Ford's Stock Price Lately?

Ford (F) announced earnings and they were well above the street estimates. I wondered if that would send the stock price rocketing up on a big bullish day today. Here is the chart after earnings.

A few positives showed up today. Ford moved up more than the indexes did. It moved above a downward trend line that has been violated and failed before. It is still below the 200 DMA and the SCTR ranking is a paltry 50% which means it's average at best right now. The MACD has a slight bit of positive divergence, but this doesn't look like a must own chart yet. The increasing volume over the last two days is interesting. We should get vehicle sales for July next week I think and that might be a better catalyst as Auto makers like Ford are in the Consumer Discretionary sector which has been holding up.

I received an email from my friendly neighbourhood Ford salesman yesterday. He had trucks for sale and wanted to know if I was interested in changing my ride. Always interested in what's happening in the car business so that sent me searching for vehicles. Timing was interesting with Ford on a trader's mind with the earnings announcements.

GM's chart profile is similar with an April high in place and a trend down and to the right from there.

With no leadership in either chart and the number of companies on the S&P 500 that are on a buy signal continuing to wither, I think investors can wait to buy the stock at a later date. That was my choice on the truck today too. 

Good trading,
Greg Schnell, CMT

Chinese Holdings Weigh on Global X Social Media ETF

The Social Media Global ETF (SOCL) fell sharply on Monday to signal a continuation of the prior decline. The chart below shows SOCL breaking support with a sharp decline in late June and early July. This is the break that broke the bull's back. Notice how the ETF formed a lower high in early June and broke below the May low in early July. The subsequent bounce in mid July retraced 62% of the prior decline and carried the ETF back to the 50-day SMA. This is normal for a retracement and the 50-day acted as resistance. With a sharp decline the last few days, a lower high formed and the bigger downtrend is continuing. Chartist can now mark resistance at the mid July high. I show the three culprit stocks after the jump. 


Click this image for a live chart

Continue reading "Chinese Holdings Weigh on Global X Social Media ETF" »

Biogen Inc (BIIB) Suffers Massive Breakdown

There are pullbacks in uptrends and then flat out trend reversing breakdowns.  We never know for sure which is which until history plays out.  But Biogen's (BIIB) massive selling on Friday has all the makings of the latter.  Any time a company rises more than ten fold in less than five years, it's generally due to very strong core growth.  The one thing investors do NOT want to see is the cutting of growth forecasts.  That's what BIIB did on Friday when they released their latest quarterly results, cutting their revenue forecast from 14-16% growth to just 6-8%.  BIIB was valued for much stronger growth and Friday's announcement sent a shock through its stock and several of its peers.  Trendline support, which held for 5 years was lost on Friday and volume soared to its highest weekly volume since 2010.  BIIB is also one of the top holdings of the IBB (biotech ETF), which has been flashing a negative divergence on its weekly chart this summer.  While a short-term bounce cannot be ruled out, I'd be careful expecting too much out of BIIB given the significance of the breakdown on Friday.  Look at the trendline breakdown:

Happy trading!

Tom

Are Municipal Bonds Getting A Boost Here?

The BlackRock MuniYield Fund (MYI) broke above the trend line this week. This move into Munis and the TLT's move to higher ground all point to a change in trend on the bond side of the landscape.

The Relative Strength shown in purple has not broken out yet and the MACD has not crossed up on this weekly chart but is very close to doing so. A rise in bond prices shown on this chart would create a decline in yields which suggests the Fed's goal of raising interest rates is slipping, based on the price action in the market.

The MACD turning higher above zero would be bullish for bond prices. The fact that momentum has returned back to the zero level and turned up would suggest a case for another bullish run with room to the upside. Should it be a failed breakout and the price rolls over right away, investors should expect a sharp move down. This bond market has moved opposite conventional wisdom of what people think will happen for the last two years. This might be another case of the bond market moving opposite Janet Yellen's expectations. The Fed meets July 28-29. A shift in position to rate hikes in 2016 would probably be a big shock to the market. As Janet Yellen testified only last week, this would be a surprise move. Time to watch the bond market very closely...

I also covered the bonds on Thursday's webinar, in case you missed it. The link to the recording is provided here. Greg's Market Roundup Live 20150723. If you are not subscribed to blog updates by email, you can go to the blogs tab and then use the drop down menu on the Right Hand Side to find your favourite authors. Click onto their blog page. Select to be updated by RSS or email in the top tight corner. It's that easy. 

If you're looking for weekend reading, I opined a long article on Martin Pring's Market Roundup blog (for subscribers) this morning that highlights some other important market trends. I think you'll find it compelling reading. Here is the link to that article - Everyone's Concerned About Industrial Disease.

Good trading,
Greg Schnell, CMT

Should FBHS Be A Fixture In Your Portfolio?

Fortune Brands Home & Security, Inc (FBHS)  surged in volume today and appeared to be on its way to a breakout above closing price resistance near 48.00.  FBHS actually printed an intraday high of 47.99 before reversing and finishing weak the final two hours.  From the weekly chart below, it's clear to see that FBHS has printed a cup with handle, a bullish continuation pattern off its prior uptrend.  We remain in the handle for now, but a high volume breakout would measure close to 60.00 in time so it's certainly worth keeping an eye on this one.  FBHS has been consolidating in a triangle pattern relative to its peers so a push to the upside in price could also see a relative breakout as well.  FBHS posted quarterly results on Wednesday afternoon that topped analysts' expectations on both the top and bottom lines.  As a result, FBHS currently boasts both strong fundamentals and a bullish technical pattern.  Take a look at the technical picture:

Happy trading!

Tom

Airline Index Perks Up with a Reversal Pattern

The Airline Index ($XAL) has been a real dog in 2015, but the index is showing signs of support and a double bottom could be emerging. The chart below shows $XAL peaking in January and moving lower the last six months. The 10-day EMA is below the 100-day EMA and the trend is clearly down. Signs of support are emerging because the index bounced off the June low in early July. 


Click this image for a live chart

Note that Tom Bowley featured the DJ US Airline Index ($DJUSAR) in his Trading Places blog as the index tested support in early July. It was a timely post that may prove even more timely for this group. Turning back to $XAL, the two lows suggest that a double bottom may be forming with the late June high marking resistance. A breakout here would confirm the double bottom and reverse the 2015 downtrend. 

The indicator window shows $XAL relative to the S&P 500 using the price relative ($XAL:$SPX ratio). $XAL still shows relative weakness, but the price relative flattened in June-July. A break above the June high would signal a return to relative strength in $XAL. 

Short-term, the chart above shows $XAL with a surge and a pennant. Pennants are short-term continuation patterns that represent a rest after a sharp move. A move above 97.5 would trigger a pennant breakout and this would increase the odds of a double bottom breakout. Chartists interested in individual airlines can check out these charts: AAL, ALK, HA, JLBU, SAVE, SKYW, UAL