Hello Fellow ChartWatchers!
You know, sometimes we overthink things. Actually, in the realm of Technical Analysis, overthinking things is an epidemic! People are constantly asking us for more indicators, more tools, more features more data - more, more, more! "If I just have this one additional thing, then I will have everything I need to make money in the market." Hog wash.
The fact is StockCharts will continue to provide a huge collection of proven, helpful tools and indicators for everyone who wants to use technical analysis in whatever way they want, but I have to tell you - for 99.999% of you out there - we already have everything you need. Just overcome whatever "analysis paralysis" you have and start using our basic stuff to make better investing decisions!
Specifically, look at stocks with great relative strength and strengthening momentum and use stops to manage risk. In other words, be a momentum investor.
That's it. Great relative strength and strengthening momentum. From a technical perspective, that's all you need to focus on. Until you have those three concepts mastered, there's not much point in looking at other areas of technical analysis - they are just "optimizations" that can often lead to trouble. I'm totally serious.
Q: "OK Chip. How then do I find stocks with great relative strength and strengthening momentum?"
A: Glad you asked! Look at stocks with high SCTR values. Next question?
Q: "Wait. That's it? High SCTR values? How high? (also, what's a SCTR?)"
A: SCTR stands for StockCharts Technical Rank - a number between 0 and 100 that tells you how strong a stock is technically relative to the other stocks in its group (e.g., large caps, mid caps, etc.). Stocks with rising SCTR values above 75 have great relative strength. They are your hunting ground. Until you are 100% positive that none of the stocks in that category are for you, there's no point in looking elsewhere.
To see the specific stocks I'm talking about, go to the StockCharts homepage and click on the "SCTR Reports" link located immediately below the yellow chart. Next, select the group (large cap, mid cap, small cap, etc.) you are interested in from the dropdown at the top of the page. Boom! There's your list sorted by SCTR. Start at the top and work your way down until you find something you like. (You can also watch this weekend's ChartWatchers LIVE webinar for tips on SCTR scans.)
Q: "Wait. How do I know if I like one of these stocks?"
A: Its chart looks like this:
Long, steady uptrend with a positive, increasing MACD line, and - ideally - lots of green Elder bars. If the chart doesn't look like this, move on. Lots of other charts do.
Q: "Hang on. That stock looks pretty overbought to me. It has been in an uptrend since at least last October! Haven't we missed that move?"
A: That is the #1 over-thinkers fallacy in my opinion. Here's a question for you. Don't you wish you'd bought EA back in December when it was at 45? Absolutely, right? Now, look at the chart of EA back in December:
Wait a second! This chart of EA in 2014 looks just as "overbought" as the current EA chart doesn't it? Yes- yes it does. And that's my very, very important point. To put it another way:
In order to be someone who profits by getting in in the middle of a big move, you have to be someone who is willing to buy at "the top."
No matter when you buy, the stock might be at "the top." That doesn't mean you should go into analysis paralysis and never trade. You simply need to employ good risk management strategies (including stops) so that if the stock does turn against you, it won't hurt you. BUT HERE'S THE IMPORTANT POINT: Stocks with great relative strength and strengthening momentum will continue to rise much more often than not. In the long run, riding well established trends (with good risk management) is a far more reliable way to find winners than trying to pick turnarounds or brand new trends.
Q: "Where can I learn more about these "good risk management strategies" you are talking about?"
A: Simple - "Trading for a Living" by Alexander Elder. Read it. Twice. Gatis Roze's blog is another awesome resource for trading skills.
Now, a word of warning. Because I used it as the example in this article, EA will - of course - tank on Monday. It's pretty much guaranteed. But even if that happens, don't overlook (or overthink) my message. Just move on and find other stocks with great relative strength and increasing momentum - they are always out there somewhere. Our SCTR Report page can definitely help you find them.
Oil surged in early June and looked poised to break flag resistance. A little follow through last week was all that was needed. US stocks did their part as the Russell 2000 and Nasdaq hit new highs. The Dollar did its part as the US Dollar Index fell 2.8% this month. The tea leaves were aligning for a breakout, but oil did not oblige and remained stuck below flag resistance. Failure to break out suggests buyer fatigue that could foreshadow weakness in the coming days or weeks.
The first chart shows August Light Crude Futures (^CLQ15) in the top window and the USO Oil Fund (USO) in the bottom window. The futures contract is the best security for analysis because it is the true source. USO, on the other hand, is a hybrid security made up of several futures contracts with rollovers and management fees.
Click this image for a live chart
As the chart shows, Light Crude Futures have been working their way lower in what looks like a falling flag, which is a bullish consolidation. There is only one problem: the flag is still falling. This means the immediate trend is still down. A break above 62.5 on the futures and 21 for USO would reverse the six week slide. Short-term, chartists can watch this week's lows for signs of a breakdown within the flag. A move below 59 on the futures contract and 20 on USO would be bearish. The second chart shows August Brent Futures (^BQ15)** and the US Brent Oil ETF (BNO) with similar characteristics.
Click this image for a live chart
Thanks for tuning in and have a great weekend!
Arthur Hill CMT
Back in December we reviewed a group of Solar related stocks and positioned our chartlists for alerts if they did break out. Well, that worked out swimmingly well as January brought the all clear and the stocks soared. Lots of them shot up and made nice big moves to the upside. But as time rolls through, each day is a data point and the charts have some major tests of support in play right now. The solar stocks sold off when crude oil sold off and started to turn up before crude turned up. Now the question is what to do when the price of crude oil has been range bound for two months. The solar charts couldn't be more mixed. Sun Edison (SUNE) is the lone ranger hitting new highs week after week.
While the target for Sun Edison is $32 just based on simple channel width measurements, Friday's high is close enough for me. That's the bull case. The rest of the charts don't look as sunny. I'll focus the rest of this article on the Solar ETF, TAN.
Here is the chart for the Solar ETF (TAN). While it has a wonderful name, the technicals on the chart feel like they have thunder clouds looming. Will they just blow past or will they unleash a storm? The SCTR is still nice and high. However, it gave a thunderstorm warning when the SCTR dropped from the 90's to the 60's. This weakness can sometimes signal a looming change in trend. If you look back to 2014, there are some interesting signals that we got from the SCTR. After being pinned to the top of the ETF group for months during the early part of the year, the SCTR suddenly dropped and rebounded. In May, 2014 the stock price tested the 200 DMA. With a big rebound the SCTR bounced back up in June 2014. It gave us one more chance to exit near the highs with a final push in September 2014. This change in trend can be an ominous sign. Currently the SCTR pullback has been mild, but the price action was a big drop of 20% with a major gap. Now some solid resistance sits at $44-45 after the 200 DMA test.
Probably the most difficult information on the chart is the lack of volume in a sun drenched June. Even the bounce off the 200 DMA couldn't produce an above average volume candle. With Thursday's across the board rally in the US markets, the Tan ETF had 103,000 shares change hands. The typical low volume level is 100,000 and usually marks a trend change. No one seems to be running to any of the energy industry groups now which leads me to believe the energy sector has another leg down. If the oil price, Natgas price, solar price and coal price continue to wobble, what will hold the energy sector up? I published a chart of the $USD on Don't Ignore This Chart which is currently at a neck line for support. If that holds, which is what support levels are supposed to do, then the weakness in energy could persist. If the $USD breaks below support, that could help oil and commodities in general. Will that feed into solar as an energy contributor as well?
While I wouldn't be aggressively shorting solar because we are hitting new highs on the indexes, the double top denoted by the red line on the TAN chart is in play. With a 1 year spacing, its important to keep the big picture in mind.
Let's look at the TAN chart on the weekly over 7 years to see the big picture. Starting at the top, the SCTR has given us pretty good warning signals after a long run. The three red circles suggest a dip, a bounce back and then a rollover. The purple SPURS are trending down which is a difficult pattern to expect new money to move into. The price ceiling at $50 couldn't be at a more important support and resistance line. The support level of $32 becomes a critical support level. A flat 40 Week MA shown in green is cautionary when it is making a lower high on the MA from the 2014 high.
With the volume trend rising during the 2013 up trend, weekly volume continued to be close to the 50 Week EMA. Our recent volume is about 60 % of the EMA. That doesn't feel bullish or look bullish. The MACD has rolled over and the chart lacks sunshine. If you are long solar, you may wish to tighten your stops as the trends appear weak unless the support on the $USD breaks. That might change the weather outlook for this sector.
Greg Schnell, CMT
What a week!
First, on Wednesday the Fed made its interest rate announcement, making it clear they are going to leave all options open, including the pace at which rates are changed in the future. This gives them the maximum flexibility to make changes relative to current economic conditions without backing themselves into the corner. This announcement calmed the market, saw bond yields retreat, and by the next day there was a nice rally.
The nice rally on Thursday was followed by some profit taking on Friday but history was made as well when the NASDAQ made another all time high. That new milestone is really something to behold considering no one really thought the NASDAQ would fully recover after the pounding it took as a result of the infamous tech bubble starting in the year 2000.
Now that the Fed is out of the way the next major event will be the monthly jobs report two weeks from now and then, sneaking up right on the heels of the jobs report, earnings season will begin again the following week.
If you stop and think about it all of the key economic reports, world events and Fed Speak that hits the news wire every day are important but what it almost always boils down to is the bottom line; are you making any money? And if you are making money, are you missing, meeting or exceeding market expectations?
I draw your attention to the chart below because it's a great example of how attracted traders are to companies who beat earnings expectations. In this case Sigma Designs (SIGM) beat both revenues and earnings per share handily drawing a powerful market response on very heavy volume. And it's also why this stock made our Candidate Tracker list; we like to keep an eye on stocks that beat earnings plus have strong charts as they seem to hold up quite nicely no matter the market condition.
This fascination with the combination of strong earnings and strong technical charts has led us at Invested Central to some changes in our core business. In fact, I will be hosting an online event this Tuesday, June 23 at 7:30 PM eastern to show more examples of the power of identifying these types of trading candidates and how they get presented to our members. To join me just click here to register for this free event.
At your service,
Invested Central/Earnings Beats