Stocks got hammered on Tuesday with the S&P 500 falling the most this year (1.24%) and breaking below its March low. Even with the seemingly big decline, the index is still just 2.25% from an all time high. Darden Restaurants caught my attention because it did not break below its early March low. Instead, the stock surged the last eight days and broke a triangle trend line. Overall, DRI is in a long-term uptrend because the stock surged to new highs in November-December. After a 30% advance in just eight weeks, the stock was extended and ripe for a correction. A triangle unfolded as the stock worked off these overbought conditions the last three months.
Bank Of America has been a top performing stock for the last 9 months. It has continually worked its way higher. Tuesday's price action marked a significant reversal as the stock is now testing horizontal support for the last three months. The SCTR is a great buying signal, but it tends to be very late on selling stocks in a strong uptrend. I prefer the Relative Strength shown in purple as a much better indicator for selling something in a strong uptrend if you are a swing trader. Today, the Relative Strength sits on a 4-month support line. This needs to hold.
Ford (F) looked as if it was simply consolidating after a sharp surge and breakout, but this consolidation strung out and the stock broke to the downside on Monday. The chart shows Ford breaking above the September high with a surge in November-December. The stock fell back after this breakout and again surged with a big two-day advance. It looked like Ford was poised for further gains in early January, but the stock fell right back and then embarked on a long consolidation.
I know it was Fed day Wednesday, and Quadruple Witching Options Expiration Day today. I know it's St. Patrick's Day and they'll be partying around the world with green beers and Shamrocks. So in the world of StockCharts, we need to get on the St. Paddy's day bandwagon as the EEM chart is sending a green message today too. Look at the green volume candles for EEM on Wednesday and Thursday. This volume is soaring with 250 million shares trading in a two day period! The really interesting part is that the same sort of volume hit the ETF on the Trump Jump back in November, but those days were selling days. The ETF has rallied ever since.
Oracle Corp (ORCL) needed a solid earnings report last night after the closing bell to reach all-time highs and it delivered exactly that. ORCL posted both top line and bottom line (.63 vs .57) results that exceeded Wall Street consensus estimates and this morning's open cleared price resistance to soar into "blue sky" territory. Prior highs were reached at the end of 2014. Check out today's gains:
ORCL's momentum clearly began 4-5 weeks ago as we saw the MACD make a bullish centerline crossover. That was accompanied by a break of its two year downtrend. Last night's big earnings report and today's breakout is simply the culmination of what the market began expecting as we moved into 2017. Key price support now resides at 44.50-45.00 on any pullback.
Flags and pennants are continuation patterns, which means their bias depends on the direction of the prior move. A flag or pennant after a surge is a bullish continuation pattern that represents a rest within the uptrend. An upside break signals an end to this consolidation and a resumption of the bigger uptrend. These are short-term patterns for more aggressive traders. The chart below shows Paychex with a classic high-and-tight pennant. Notice that the stock hit 52-week highs in December and March, and the 50-day EMA is above the 200-day EMA. The surge from ~57.5 to ~63 (~9%) created a short-term overbought situation and the stock worked this off with a trading range. PAYX recently broke pennant resistance and it looks like the uptrend is set to continue. A break below the pennant low would call for a re-evaluation.
Thanks for tuning in and have a great day!
--Arthur Hill CMT
Plan your Trade and Trade your Plan
Gaming ETF (BJK) has been consolidating for a while. Today, while the market was under pressure, BJK pushed higher and looks set to hit new highs. It has had one close slightly higher than todays levels back in December 2016. While it has been underperforming over the last four months, todays rally in the face of broader weakness was very bullish.
The cup-with-handle is a bullish continuation pattern that forms as part of a bigger uptrend. There are three parts to this pattern. First, a cup forms as prices correct and rebound to form a "V" or "U" shape. Second, prices hit resistance at the prior high and rim resistance begins to form. Third, prices consolidate just below rim resistance and a handle takes shape. A break above rim resistance confirms the pattern and signals a continuation of the bigger uptrend. Classic measuring techniques suggest that the subsequent advance should equal the height of the pattern. This implies a 20% advance from the breakout area.
The Dow Jones U.S. Heavy Construction Index ($DJUSHV) is currently testing its rising 20 week EMA and is near key support in its four month sideways consolidation range from 440-480. Friday's close was 447 and the weekly RSI is now at 43, typically a solid level on the RSI where we see price reversals occur. If the DJUSHV does, in fact, begin to recover and head back towards 480, one stock poised to recover could be Granite Construction (GVA), which is currently testing major support. Take a look:
While there's no guarantee of a rebound in the DJUSHV or in GVA shares, there are reasons why we could see a reversal in both in the near-term and the reward to risk in trading GVA would seem to be solid at the current time and price.
Last week, Lowes (LOW) gapped up and touched a fresh high above the 2016 highs. This week it has consolidated in a range but is holding up nicely as the markets wobbled. The 50 Million shares of volume for the week was the highest positive week candle in 3 years. On the price, notice the two year sideways consolidation between $60-$80.