Don't Ignore This Chart

Second Shoe Looks Poised to Drop for Whole Foods

It has been a rough summer for Whole Foods Market (WFM) as the stock plunged in June and late July. Both declines were sharp and featured big gaps. The stock did bounce between the two declines, but formed a lower high in late July. Most recently, WFM has been consolidating after the July gap-plunge (blue shading). This consolidation could represent a rest after the first shoe dropped. A support break at 30 would suggest that the second shoe is dropping and target a move to new lows. The indicator window shows the SCTR below 15 since late July and this is one of the weakest stocks in the market right now. 

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Thanks for tuning in and have a great day!
--Arthur Hill CMT

Plan your Trade and Trade your Plan
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Insurance SPDR Leads Finance Related ETFs

Stocks in the finance sector have been strong the last four days with the Insurance SPDR (KIE) showing chart leadership. Note that the Finance SPDR (XLF), Broker-Dealer iShares (IAI) and Regional Bank SPDR (KRE) are all up over the past week, but KIE is the only one trading at a new 52-week high already. This means the KIE chart is the strongest of the group. On the chart below, KIE stalled at resistance in mid August and broke clear with a big move the last three days. The broken resistance zone around 72.5-73 turns into the first support zone to watch on a throwback. The indicator window shows the KIE:SPY ratio breaking out last week as KIE starts to outperform SPY. 

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Thanks for tuning in and have a great day!
--Arthur Hill CMT

Plan your Trade and Trade your Plan
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Nautilus Does Some Heavy Lifting On Friday

Nautilus (NLS) officially became a technical heavyweight on Friday as its stock price soared through price resistance to a fresh new 52 week high, bouncing bullishly off its rising 20 day EMA in the process.  Volume supported its first very bullish gap in early August and it once again confirmed yesterday's gap and breakout session.  Take a look:

The StockCharts Technical Rank (SCTR) surged above 80 as NLS has become very strong technically among its peers.  If there's one negative here, it's that the volume can dry up when the stock isn't in the news and that could lead to a bit more manipulation and volatility.  Still, NLS is work a look on short-term weakness.

Happy trading!

Tom

Bank Of America (BAC) Approaches 2016 Highs

Bank Of America (BAC) has been migrating higher over the last few months off the Brexit lows. As Bank Of America approaches the highs for 2016, the chart has some interesting traits. The last time BAC got near $15, the SCTR ranking was poor, sitting around 30. That means that 70% of the large-cap stocks had better price action than BAC. This trip to $15 is showing something totally different. While BAC has been climbing in a daily push higher, the price action is better than 80% of the large caps! The Relative Strength of BAC shown in purple has not been able to break out of the range yet. However, I will add that stocks like Morgan Stanley (MS) are starting to break out. Seeing the big financials start to outperform has to be bullish after being downtrodden from the relentless pressure of low-interest rates.

Continue reading "Bank Of America (BAC) Approaches 2016 Highs" »

Slowing Momentum And Negative Divergences Are Wreaking Havoc On Equities

The U.S. stock market has been suffering from a series of negative divergences that have run rampant throughout many sectors and industry groups.  As one weakening group sells off, money rotates to another strengthening group.  We have not been seeing wide participation moves to the upside.  The sector performance over the past month underscores this.  The energy sector (XLE) is higher by 4.05%.  The utilities sector (XLU) is lower by 4.59%.  Technology (XLK) has risen 2.49%.  Healthcare (XLV) has fallen 2.03%.  With respect to the latter, medical equipment stocks ($DJUSAM) printed a negative divergence as they broke out one month ago.  Since that time, the DJUSAM has badly lagged the S&P 500, but is now testing relative support.  Check out this chart:

Continue reading "Slowing Momentum And Negative Divergences Are Wreaking Havoc On Equities" »

Oil & Gas Equip & Services SPDR Breaks Wedge and Underperforms

The Oil & Gas Equip & Services SPDR (XES) looks vulnerable because the bigger trend is down and the ETF just broke a wedge trend line. The chart shows the 50-day EMA (green) below the 200-day EMA (red) and this suggests that a long-term downtrend remains underway. The ETF got a bounce in August, but a rising wedge formed and XES broke the wedge trend line with a decline the last three days. This reverses the short-term upswing and signals a continuation of the bigger downtrend. The indicator window shows MACD flattening out just above the zero line. A downturn and move below the signal line would be bearish for momentum. And finally, notice that the XES:SPY ratio peaked in early June and XES has underperformed the broader market the last two months. 

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Thanks for tuning in and have a great day!
--Arthur Hill CMT

Plan your Trade and Trade your Plan
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The Dow's Amazing Symmetric Triangle

The Dow did something strange and wonderful today on its intraday chart:

A perfect symmetric triangle pattern!  But one with really strange jumps up and down throughout.  Truly fascinating.  Usually Symmetric Triangles are "Continuation" patterns, which typically break in the direction of the trend prior to their formation.  But the Dow has been moving sideways for several days now so I'm not sure what this would be a continuation of.

More generally, Triangle patterns (also called "Coils") show that there is a big disagreement between the bulls (the lower uptrend) and the bears (the downtrend).  Symmetric Triangles indicate that both sides are evenly matched.  According to the old theory, as prices get closer to the projected apex of the triangle "energy coils up" (thus the name) which ultimately results in a "big release" of that energy upwards or downward.  The closer prices get to the apex, the bigger the jump.

Again, that's all "in theory."  And it's a pretty old theory at that - straight out of William Jiler's 1962 book!  But a  fascinating theory none-the-less.

Regardless, it's the big jumps that happened today at fairly regular intervals without corresponding volume spikes that caught my eye.  Similar patterns happened for other major US indexes as well.  Very strange indeed.

I can't wait to see what happens tomorrow.

- Chip

Mattel Challenges Resistance with Signs of Accumulation

Mattel (MAT) led the market from early October to early February with a 65 percent advance and then moved into a large consolidation the last six months. More recently, the stock surged off support in late June and then formed a smaller consolidation near resistance. Notice that the stock advanced with good volume on Monday and this could foreshadow a breakout. The lower indicator window shows the Accumulation Distribution Line moving higher during the larger consolidation. This suggests buying pressure within the consolidation and increases the chances of an upside breakout. 

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Thanks for tuning in and have a great day!
--Arthur Hill CMT

Plan your Trade and Trade your Plan
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Merck Breaks To An All-Time High

One company's failure can be another company's catalyst.  Take for instance Merck & Co (MRK), who on Friday, August 5th surged to an all-time high after Bristol Myers (BMY) had a failed clinical trial of its lung cancer drug.  BMY had clearly been outperforming MRK for several years up until this news hit.  Since then, the two have been moving in opposite directions with MRK closing at its all-time high.  Check out this chart:

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