When a stock breaks out to fresh highs with light volume, a negative divergence and overbought oscillators, you need to be on high alert for a period of selling. That's exactly the signal that ORBCOMM (ORBC) provided astute traders as we entered April. Since that time ORBC has pulled back approximately 9% and is approaching key price support and its rising 50 day SMA. I would expect buyers to begin lining up near the 9.50 level. Check out the chart:
The story that stocks stop at resistance couldn't be demonstrated more clearly than reviewing this Jacob's Engineering (JEC) chart. This stock has stopped 9 times rallying to $45.00 and broke through it once in April 2015 only to gap down below it and get stuck under $45 for a year! Today we are testing it again. With the steadily improving trend on the SCTR, this looks interesting here. The Relative Strength is nearing a 1-year high, so this could pop significantly if it can break out. Why? Institutional firms that scan for new 52-week highs in relative strength would be drawn to the chart. There is no real reason to own this unless it can get through the $45 level, but all of the peers to Jacobs are starting to improve as well.
The volume has been weak (about 70% of average) which is concerning, but the turn up on the MACD while above zero is promising. There is a lot of strength in the Industrial sector now and the industrial engineering industry group looks to be following along.
A breakout here would be a beautiful entry. The rhyme of 'the wider the base, the higher the space', looks to be very meaningful in this chart. If it breaks to the upside, it could probably say goodbye to this basing area.
Greg Schnell, CMT, MFTA.
The Nasdaq 100 ETF (QQQ) is one of the weakest of the major index ETFs right now because of several large-caps within the ETF. Note that Apple (-10%), Facebook (-6%), Google (-6.5%) and Microsoft (-8%) are all down sharply this month. Amazon (+2%) is the only one of the big five that is up. The four losers account for around 35% of QQQ and AMZN accounts for 5.5%. Weakness in these four is clearly affecting QQQ as the ETF gapped down last week and broke below its mid April low with another gap on Wednesday. Despite short-term weakness, the recent decline puts the ETF as an important juncture as the 50-day and 200-day moving averages come into play. Taken with the late March low, I would mark a support zone in the 106-107 area and an important test is at hand.
FMC Corp is a large cap specialty chemicals manufacturer in the materials sector. With three business divisions now, the agricultural arena dominates their earnings but the Lithium business is starting to perk up. The FMC chart below rolled over in June 2014. After breaking below the 40 Week MA, the price dropped by more than 50%. After a rough couple of years, is there any hope that this picks up soon?
Working through the chart, the SCTR (StockCharts Technical Ranking) has moved above 75. That puts it on my radar. The Relative Strength in purple is improving as it is up slightly to new 6-month highs with the $SPX, so improving but marginal outperformance there. The price has locked in a weekly close at the highest level in 8 months which is very encouraging. The volume is still elevated and has a strong volume week on the breakout. The main point of contention is the MACD being below the zero level suggesting this could just be a bear rally. We'll need to watch closely, but the stock is starting to behave better than at any time since 2014. That should be music to a portfolio manager's ears.
The appetite for risk has increased over the past month with small-caps, mid-caps and micro-caps leading the market higher. The PerfChart below shows one-month performance for the S&P 500 SPDR (red) and seven other broad market index ETFs. The S&P MidCap SPDR (green), S&P SmallCap iShares (pink) and Russell 2000 iShares (teal) are outperforming SPY with bigger gains. The Nasdaq 100 ETF (black) is lagging with the smallest gain of the group. The Russell MicroCap iShares (purple) is the clear leader with a 6.07% gain over the past month.
Energy stocks have been strengthening throughout 2016 and Helix Energy Solutions (HLX) is a small $900 million market cap company that just broke out his past week. Its SCTR rank has quickly soared to above 90 after recently printing SCTR readings in the single digits for several months. Check out the chart:
The breakout occurred near the 7.00 level with volume expanding. A pullback to that 7.00 level with lighter volume would represent a solid reward to risk entry point. The rapidly rising 20 day EMA, currently at 6.47, should also provide solid support.
Five Prime Therapeutics (FPRX) is a small cap that trades about 600,000 shares per day. This week it is poking up to new all-time highs. In the wild world of Biotech, this stock has built a wide-ranging but solid uptrend.
While all biotechs are volatile, the group has been under pressure since the biotech top last July(see SBIO, XBI, IBB). There has been a tendency to stay away from the area but all three of the ETF's look like they are trying to break out from the bases they have formed (Not shown). Arthur Hill showed a renewed push in Healthcare as a sector in Thursday's Don't Ignore This Chart. As these groups break out of bases, watching to see who is leading can be very profitable.
Back to Five Prime's chart, the SCTR is the highest in the Biotech group. With a stock price near $50 and a solid uptrend in place, the chart looks attractive. If it can continue the relative strength uptrend, this looks like a solid place to get on board.
There has been a clear changing of the guard in April and chartists can see this change with a PerfChart on two different timeframes. The first PerfChart shows performance for the nine sectors SPDRs and SPY for the first three months of the year. Notice that the Consumer Staples SPDR and Utilities SPDR were the leaders. The Technology SPDR and Industrials SPDR were also performing well. The Finance SPDR and the HealthCare SPDR were the clear laggards because both were down around 5% in the first quarter.
Petrobras (PBR) has been pummelled on the back of a weak Brazil and a weak oil price. Scanning through the charts today, this looks pretty interesting here as it breaks above a major support and resistance level.
Electronic Arts (EA) got a big bounce off support with expanding volume and a strong Accumulation Distribution Line. On the price chart, EA plunged in late January and early February on high volume and this looks like a selling climax. The stock quickly recovered with pretty good volume and then moved into a consolidation with lots of support in the 62-63 area. A breakout was in the making in late March with the move above 66 (red resistance), but the stock fell back to the support zone in mid April. Just when it look like a support break was in the offing, EA forged a hammer and surged off support with good volume. This strong move affirms support and signals a continuation of the February bounce (~54 to 66).
Negative divergences that appear on daily charts tend to take a couple weeks to play out before we see momentum potentially resume back to the upside. That seems to be where Progressive Corp (PGR) currently stands. On PGR's most recent price high, its MACD did not follow suit, resulting in a negative divergence. I generally look for the previously-holding 20 day EMA to fail and a trip down to test the 50 day SMA, together with a MACD centerline "reset". Below you can see how PGR has followed this pattern:
Much has been made of the stock market's recent strength with the $SPX continuing to push above the 200 DMA. One of the underlying concerns for the rally has been the lack of participation for the banks. A seasoned New York Money Manager told me in my first MTA conference that if the bank charts are healthy, you are in a bull market. If the bank charts are suspect, you are not in a bull market. His reasoning was sound. They assign managers to review their customer books. When the bank stocks turn down, it is usually because they see weakness in the broader economy. Tom Bowley did an article on the bank index in yesterday's DITC. Arthur Hill does a great job of outlining the various components of the $SPX and how financials are the largest weighting in the S&P 500 index. Arthur's work is included in our paid membership.
Today I would like to focus on the price action in Bank Of America (BAC) to illustrate the Bull/Bear dilemma as I think it is quite important in the broad market. First of all, the SCTR is quite weak. Throughout this rally, the SCTR has barely budged. If we use the extremes of February, BAC has rallied 30%. If we choose $12, the rally is 20%. Both of these are great in a few months. The real problem for technicians is that the chart still remains below the resistance line shown in green. This same pattern is on the Citi (C) chart, the Goldman Sachs (GS) chart, etc.