Don't Ignore This Chart

Home Construction iShares (ITB) Hit Critical Support

At 10am EST this morning, March new home sales were released and they fell well short of expectations.  Is that a long-term problem for home construction ($DJUSHB) or is it an opportunity for traders to move into this area of the market at lower prices?  Well, you'll have to be the judge.  But technically, this has been, and continues to be in my opinion, one of the strongest areas of the stock market.  The DJUSHB broke out of a bullish ascending triangle in February 2015 at the 550 level and has since been back to test price support there.  Well, don't look now but we're testing that support once again.  The rising 20 week EMA is currently at 552 and there's considerable strength on the weekly MACD as it set a new high recently that corresponded with a fresh price high.  Generally, I find that rising 20 period EMA support holds when momentum is strong.  So the big question today and tomorrow (since this is a weekly chart) is - where will this group close out the week?  A tail below support and a close above would provide a solid reward to risk entry into the group.  Rather than show the DJUSHB chart below, I'm showing the iShares equivalent (ITB), which is tradable for those who like to trade ETFs.  Take a look:

Happy trading!

Tom

Techs Lead and Staples Lag on Market Carpet

The image below shows the Sector MarketCarpet at "sector" level, which means we are seeing solid boxes for each of the nine sectors. There is a table on the left that ranks sector performance and this MarketCarpet shows performance for the current week (so far). The technology sector is the strongest, followed by industrials, healthcare and consumer discretionary (cyclicals). The consumer staples sector is the laggard and is barely positive for the week. We will look at the technology sector in detail after the jump. 


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Activision Flies the Flag at Half-Mast

Activision Blizzard (ATVI) sports a bullish continuation pattern and improving momentum. The stock gapped up in mid January and broke out in early February. ATVI was overbought after a 25% surge and worked off these overbought conditions with an extended flag. I say extended because eight weeks is getting long for a flag pattern. Nevertheless, the flag represents a consolidation and a flag breakout would signal a continuation of the January-February surge. The indicator window shows MACD holding above zero and moving above its signal line this week. 


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Apple Gets a Volatility Squeeze

Trading in Apple has turned dull over the last six weeks as the stock moves in a tightening consolidation. The volatility contraction can be seen by the Bollinger Bands, which contracted to their narrowest since October. Notice that BandWidth moved below 5%. Also notice that the October squeeze featured a head fake to the downside and then a sustained breakout to the upside. John Bollinger notes the following: "Typically what you'll see is a Squeeze, followed by a band tag, followed in turn by the real move". 

Apple is currently in the midst of the Squeeze and making a move towards the upper band. The head fake does not always happen, otherwise it would be too easy to trade. Apple is currently one of the strongest large-caps in our universe because its StockCharts Technical Rank (SCTR) is near 90, which puts it in the 90th percentile. Relative strength and the bigger uptrend suggest that the break will be to the upside. Should this breakout quickly fail, chartists should position for the head fake and watch for a downside break, which could become the real move. 

Salesforce.com Winds up for the Pitch

After surging to new highs in February, Salesforce.com moved into a consolidation as volatility contracted. Notice that the Bollinger Bands narrowed over the last few weeks the BandWidth moved to its lowest level since mid October. Even though a volatility contraction does not give us directional clues, the stock did hit a new high in February and the big trend is clearly up. If the bigger trend is the dominant force, then the stock has a bullish bias and the odds favor an upside breakout. A move above 70 would trigger a breakout and signal a continuation of the bigger uptrend. 


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Netflix (NFLX) Impresses With Blowout Earnings

After the close on Wednesday, Netflix (NFLX) topped revenue and earnings expectations and promptly rose to all-time highs.  NFLX had been consolidating in bullish sideways fashion for over one year following its prior uptrend.  Volume today is extremely heavy suggesting accumulation and, in my opinion, likely higher prices ahead.  The close today will be important to determine appropriate entry points.  A solid finish would indicate today's open to be a solid gap support level, or 532.00.  Failing to hold that level on the close, however, would potentially set up NFLX for two possible levels of support - at price support at 486.30 and the bottom of gap support at 475.46.  Take a look at the chart:

Happy trading!

Tom

Small Caps Print Bearish Shooting Star Doji

On Monday, the Russell 2000 ($RUT) was breaking out to an all-time high intraday.  Unfortunately, it wasn't confirmed on the close as this benchmark of small cap stocks reversed late in the day.  It not only left a bearish tail to the upside and closed at its open and near its low of the day (aka shooting star doji), but this failure was notable because it was at all-time closing high resistance.  It doesn't help that it occurred on April 13th, just before income tax liabilities are due.  The balance of today will be interesting for sure, but based on yesterday's technical developments, the odds appear to be stacked against small caps in the very near-term.  There's also a long-term negative divergence in play, further muddying the waters for the longs.  A battle could take place just beneath the 1250 level where gap, price and trendline support all converge.  A close above 1267 would negate this bearish development.  Check out the chart:

 

Techs and Large-Caps Take the Lead in April

The performance pecking order changed in April as large-caps and techs moved from under performers to out performers. Even though small-caps and mid-caps are underperforming so far in April, they are still outperforming on a longer timeframe (since early February). The PerfChart below shows month-to-date performance for nine major index ETFs. The Nasdaq 100 Equal-Weight ETF (QQEW) and Nasdaq 100 ETF (QQQ) are the top performers with gains just above 2%. The S&P 100 ETF (OEF) is third with a gain of 1.93%. The S&P SmallCap iShares (IJR) and S&P MidCap SPDR (MDY) are the laggards with gains less than 1%. 


Click this image for a live chart

Baidu Plays Catch Up with an Island Reversal

Julius de Kempenaer noted the surge in Chinese stocks in his most recent RRG post and Tom Bowley noted the breakout in SouFun in a blog post on Wednesday. I will add a third China-related post to the mix by pointing out Baidu. Chinese stocks have been on a tear the last few months with the China iShares (FXI) surging over 30% since October, but Baidu (BIDU) is a noticeable laggard because it is back near its October lows. Tencent (TCEHY), a competitor, was lagging from October to December, but caught a bid the last few months and surged to new highs. As the chart below shows, BIDU may be poised to play catch-up as an island reversal formed over the last few days. Notice the gap below 206 on Monday, two trading days below 206 and then gap above 206 on Wednesday. This reversal created an island where those establishing short positions are stuck with losses. This is a short-term bullish pattern that remains in force as long as the gap holds. Longer term, the stock is still in a downtrend with resistance in the 218-220 area. Follow thru above this level is needed for a bigger breakout. 


Click this image for a live chart

Click here for the RRG article. Click here for the SouFun article

SouFun Holdings (SFUN) Soaring With China Rally

SFUN serves as a real estate internet portal in the Peoples Republic of China and is rallying strongly today on the heels of overall strength in most Chinese shares.  Technically, the downtrend in SFUN has been reversed on a series of positive technical developments.  First, SFUN had been in a very tight down channel since struggling at price resistance just above 12.00.  There was a gap higher on very strong volume in late March that started SFUN's resurgence.  Note that on the subsequent pullback that both gap support and the now-rising 20 day EMA held, a bullish development.  SFUN has been rallying for the past week with today's strong move representing a breakaway gap and easily clearing channel resistance with a daily MACD shooting through centerline resistance.  It's quickly become overbought, but momentum is definitely bullish suggesting this rally is likely to continue - with overbought pullbacks to be expected.  Check out the chart:

Happy trading!

Tom