It took two months of consolidation, but Cabot Corp (CBT) finally pulled it off. It cleared neckline resistance in its inverse head & shoulders pattern at the 52.50 level. One of the keys of any continuation pattern is that it requires a prior trend in place to continue. CBT trended higher throughout July, August and September and then its SCTR ranking channeled lower as it consolidated in its recent inverse head & shoulders pattern. The breakout occurred today on nice volume and here's how it looks visually:
Now as it's broken out above price resistance, you can see that its MACD is now surging and its SCTR rank has broken its recent down channel. All of this sets up for higher prices, but how much higher? Well, the beauty of patterns is that they provide measurements and targets upon breakout. In this instance, the inverse head & shoulders measurement is based on the distance between the neckline and the bottom of the inverse head, which is 5 points. Tack that on to the breakout of 52.50 and you get a potential measurement to a 57.50 target. While not shown above, there's long-term price resistance at 57.50 from the 2014 price high on CBT. That would corroborate the likelihood of an advance to that price level. In the meantime, best entries into CBT would now be neckline support at 52.50 and the rising 20 day EMA, currently at 51.37.
Apple (AAPL) reversed its long-term downtrend with a series of breakouts this summer and the stock is currently trading over 20% above its May low. Notice how the stock broke the early June high, the red trend line and the 40-week EMA with a surge in July-August. The 10-week EMA also crossed above the 40-week EMA in August. Even though the stock underperformed in October-November, Apple found support near the rising 40-week EMA and could be poised to continue higher.
There have been some Agriculture related stocks pushing to new 52 week highs recently. I wrote about Agrium (AGU.TO, AGU) recently. Today, Bunge (BD) jumped up to a 52-week high. This $10 Billion market cap company has just completed a one-year base and looks set to move higher. I usually like the SCTR to break into the top quadrant (above 75%) in relative strength. This appears to be climbing higher and recently pushed above 75. WIth the breakout to new highs in price and the S&P relative strength at retesting 9 month highs, this looks like the strength is improving. With volume around 1 million shares, this is nice.
The chart below shows year-to-date price action for the Milan Index ($MIB) and German DAX Index ($DAX). Note that the MIB is down around 22% year-to-date and the DAX is down around 2% since January. In contrast, the S&P 500 is up around 6% so far this year. The next directional move for European stocks could hinge on these two indexes. The Milan Index is in a downtrend overall and just below the 200-day SMA. The highs extending back to August mark resistance in the 17000-17500 area and a breakout here is needed to reverse the downtrend. Such a move would be quite bullish for Italian stocks and this would also benefit Europe.
I pulled up one month returns for all industry groups and there were several groups that have performed quite poorly over this period, despite the overall market strength. Toys ($DJUSTY) are down 6.78% over the last month, but a negative divergence on its weekly chart is likely the culprit. Internet stocks ($DJUSNS) have fallen 4.59%, but the pullback to 1100 was somewhat warranted after a huge run up. Gold mining ($DJUSPM) fell 14.02%, but in my opinion has been a lagging group for quite awhile and given the dollar's strength, we'll likely see more selling in this area. Renewable energy ($DWCREE) has been very weak and has lost 14.02%, but rising crude oil prices could help this group in 2017. There are technical signs of improvement.
On a week where GM and Ford had nice positive pushes, Tesla (TSLA) fell almost 8%. So how do we handle Tesla from here? It looks to me that Tesla is testing this major support area after breaking it back in January. How investors treat the stock is critical at this juncture. First of all, the SCTR is under 5. So 95% of the stocks are behaving better than TSLA. That's a problem. If support breaks here, this looks like a big potential drop. Secondly, we can see that TSLA's SCTR has been unable to stay in the top 25% for the last year. This poor performance is increasing as we see the SCTR being down around 10% for 3 full months now. With this weeks candle moving from one trend line down to the support line, any higher high would be a bullish breakout. Conversely, if next few weeks price action starts to drop below the horizontal support line, this might be a better short than a long.
Xilinx (XLNX) is a $13.5 billion semiconductor company and it nearly broke out of a very bullish inverse head & shoulders pattern on heavy volume today. But it didn't. Instead, it reversed lower along with most semiconductor stocks and tested its rising 20 day EMA. The technical picture here still remains quite bullish as you can see from the chart below:
The biggest problem for XLNX right now isn't XLNX. It's the weak relative performance of all technology stocks. The Dow Jones U.S. Semiconductor Index ($DJUSSC) fell 4.5% on today's session. Obviously, if its peer group continues to struggle, XLNX will have a much lesser opportunity to break out of this bullish pattern. The 20 day EMA and 50 day SMA are two key moving averages that could mark a potential inverse right shoulder so look for reversing candles there. Continuing high volume and a close beneath the 50 day SMA would likely lead to further selling and a possible rectangular consolidation. That development could lead to a drop in XLNX down to the 49 level to test its October low.
Celgene (CELG) showed bullish price action throughout 2016 and recently formed a bullish pennant that could set up an even more bullish 2017. Let's work from left to right on this chart starting with the big base that looks like a double bottom. CELG broke the "thick" trend line extending down from the July 2015 high and exceeded its April 2015 high to confirm the double bottom. One would normally expect a double bottom breakout to hold, but the stock pulled back below 100 with a rather deep decline. Nevertheless, CELG managed to hold above the February-June lows and broke out with a massive surge in early November. The stock was clearly overbought after this surge and worked off these conditions with a pennant consolidation the last three weeks. A pennant breakout would signal a continuation of the prior surge and open the door to a test of the 2015 highs. Note: there is a short video at the bottom of this commentary.
Hilton Hotels (HLT) finally broke above a base it has been building for a year. The new 52 week highs are important. The SCTR is breaking above 75 in concert with the breakout on the stock. The Relative Strength shown in purple is breaking out to new highs as well.