Don't Ignore This Chart

Check Point Breaks Out Of Very Bullish Pattern

My favorite kind of stocks are those that advance and then base for an extended period of time before breaking out.  The consolidation period rids the stock of weak holders, providing a much better foundation for a sustainable rally.  Check Point Software Technologies (CHKP) fits the bill after reacting quite positively to its latest quarterly earnings report, beating Wall Street consensus estimates on both the top and bottom lines.  Best of all, technical conditions are very strong as you can see below:

While the breakout is clear and momentum is strong, CHKP is very extended in the near-term and represents a much better reward to risk trade on the long side if prices pull back temporarily to test either the breakout level or its rising 20 week EMA.  I'd keep an eye on this one and wait for some profit taking.

Happy trading!

Tom

Netflix Flashes A New High (NFLX)

Netflix continues to deliver content to homes and profits to investors. After reporting good numbers vs. expectations, Netflix popped up to new highs. It wasn't all scrolling credits for the company as the stock sold off continuously on Thursday after the huge gap to new highs. This is a weekly chart that looks good as long as the stock holds the breakout above $130. 

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FAST Makes A Quick Move Higher

I wrote about Fastenal (FAST) in this blog just two weeks ago.  This is a stock that had been in a sideways consolidation pattern for many years after a prior uptrend.  So I was looking for the next breakout.  However, when a stock consolidates for years, you want to see the actual breakout before jumping on board.  Otherwise, you could have capital tied up for a long, long time with nothing to show for it.  Well, the breakout was finally made simultaneously with its quarterly earnings release earlier this week.  Check out this long-term weekly chart:

I like entry at the current level as me might see FAST explode from this level.  To be a little on the safe side, I'd consider a second entry at the rising 20 week EMA, currently at 45.53.  A weekly close beneath the 50 week SMA at 44.28 would make sense.  My target here would be 65.00 in time.

Happy trading!

Tom

BroadCom Holds Gap Zone and Resumes Breakout

BroadCom (AVGO) is showing upside leadership again with a flag breakout last week and a 2% surge today. Overall, the stock advanced to a 52-week high in August and then embarked on a long consolidation. A large symmetrical triangle formed as the stock traded flat from September to early December. The bigger trend was clearly up during this consolidation and a consolidation within an uptrend is usually a bullish continuation pattern. It represents a rest within the uptrend and a breakout signals a continuation higher. AGVO broke out with a gap-surge in mid December and then fell back with a falling flag into early January. Notice that the gap zone held in early January as the stock surged through flag resistance. This flag breakout reverses the short-term pullback and opens the door to new highs. Chartists can use the early January low to mark support. 

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Walgreens Boots Alliance Kicks Up WBA

Walgreens Boots Alliance (WBA) has recently pushed above a breakout level and then pulled back to retest. Today, the stock looks ready to breakout above the previous resistance shown in red again. Thinks looks like an important area to watch. If defensive stocks start to accelerate, this is well positioned to be one of the first to break out.

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Fewer New Highs, but Even Fewer New Lows

The chart below shows the High-Low Line for the S&P 500, new highs/lows as a histogram, and the S&P 500. Notice that new highs exceeded 50 several times from mid November to mid December. This showed good internal strength because over 10% of stocks in the S&P 500 were hitting new highs. New highs have since dwindled and did not surpass 50 since December 12th. This shows less strength within the index, but we have yet to see a serious expansion of new lows. 

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We May See Major Resistance Test On 10 Year Treasury Yield In 2017

Banks threatened another breakout on Friday before stalling and dropping after an early morning surge higher.  Bank of America (BAC) credited higher interest rates for its earnings beat Friday morning and said it was anticipating significantly higher net interest margins in 2017.  So how much higher will the 10 year treasury yield ($TNX) move?  Well.....technically, it's easy for me to imagine the TNX rising to test a major yield resistance level at 3.00% and its long-term downtrend line closer to 3.50% sometime during 2017.  With a TNX close at 2.38% on Friday, there's plenty of room for yields to move higher before testing major resistance.  Check out the chart:

It's been a decade since we've tested this long-term downtrend line so rising to that level would not seem out of the question, especially since the Fed has told us to expect rate hikes in 2017.  Should that downtrend line be tested, bank profits should continue to expand rapidly, leading to industry outperformance in my view.

Happy trading!

Tom

Mastercard Taps New Highs (MA)

Mastercard (MA) does not seem to be impaired with the slowdown in the retail stocks. This chart is bottom left to top right! Today, Mastercard pushed to new highs and at time of writing was just off the highs. With the SCTR above 75, price breaking to new highs, and the momentum shown on the MACD turning up, this looks strong.

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Healthcare Stock Pre-Reports Strong Results, Breaks Out

Stryker Corporation (SYK), a medical technology company, preliminarily reported their latest quarterly results and indicated they'd be ahead of expectations.  That announcement resulted in a gap up and breakout above previous price resistance on Wednesday.  Over the past couple days, we've seen a bit of selling that could provide a short-term buying opportunity as both price and gap support have been tested.  Check it out:

I'd look for those two support levels to hold, but the rising 20 day EMA can't be ruled out for a test as well.  Given the recent high above 127, however, the recently selling has significantly improved the reward to risk of entry between the current price and that rising 20 day EMA, currently at 119.43.

Happy trading!

Tom

A High and Tight Consolidation for IWM

After a big surge from early November to early December, the Russell 2000 iShares (IWM) moved into a tight trading range the last four weeks. Chartists should watch the resolution of this trading range for the next directional clue. The chart shows Bollinger Bands confirming a volatility contraction as the bands narrowed significantly. We can measure the distance between the bands using the BandWidth indicator, which is shown in the indicator window. Notice that BandWidth dipped to its lowest level since early September. 

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