To kick off the new month, I'm thrilled to announce another all-star addition to our StockCharts commentary team. Brian Livingston, author of the recently-released book Muscular Portfolios, will be sharing his investing insights and money management wisdom through a new weekly blog, Muscular Investing.
Brian's background is quite unique, and his unconventional path to the investing world is a fascinating one. Before turning his attention to the markets, he was a successful dot-com entrepreneur and an award-winning business and financial journalist. From 1984 through 1991, he served as the assistant information technology manager of UBS Securities in New York City, a computer consultant for Morgan Guaranty Trust Co. (now JPMorgan Chase) and technology adviser to Lazard Freres. As a consumer advocate exposing the dark side of high tech, he wrote more than 1,000 articles from 1991 through 2010 for such publications as PC World, CNET, InfoWorld, PC Mag and eWeek. He co-authored 11 books in the Windows Secrets series (1991–2007) with over 2.5 million copies sold. In conjunction with the book series, he also founded the Windows Secrets Newsletter in 2003.
After more than two decades focusing on information technology, Brian turned his attention to the investment industry. He is now the CEO of MuscularPortfolios.com and has recently authored the book Muscular Portfolios: The Investing Revolution for Superior Returns with Lower Risk. Additionally, he serves as president of the Puget Sound regional chapter of the American Association of Individual Investors (AAII).
As both Brian and StockCharts are based in the Seattle area, I've known him and followed his work for some time now. What I've always appreciated about Brian is his data-driven, yet also very understandable approach to investing and personal finance. I've seen firsthand the amount of research and hard work that went into his new book, and it blew me away to get my hands on a pre-release copy this past summer. The attention to detail that Brian brings to his work is immediately clear to anyone who reads it. I can't wait to see him bring that same quality of content to his new work at StockCharts.
Big Drop in Apple Hurts Tech Sector and The Nasdaq Which Are Leading Today's Stock Retreat
by John Murphy
Editor's Note: This article was originally published in John Murphy's Market Message on Friday, November 2nd at 12:28pm ET.
It's usually not a good sign when the market's biggest stock takes a big hit. That's especially true when it happens the day after the company reported its fourth consecutive quarter of record revenue and profits. But that's today's biggest story. Chart 1 shows Apple (AAPL) plunging -7% and falling to the lowest level in nearly three months (after failing a test of its 50-day average). Over the past month, we've seen a succession of big tech stocks fall on strong earnings, which is never a good sign. Apple is the last and the biggest of the so-called FAANG stocks to fall. That's weighing especially hard on the technology sector and the Nasdaq market. And it's happening just as they're meeting resistance at their 200-day moving averages.
Gold, silver and platinum suffered selling pressure over the last few years, but palladium attracted buying pressure and outperformed. It is one of the few precious metals trading near a 52-week high and in a long-term uptrend.
The first chart shows three year performance for the continuous futures contracts for Palladium ($PALL), Platinum ($PLAT), Gold ($GOLD) and Silver ($SILVER). Performance for the latter three peaked in summer 2016 and fell into 2018. Palladium, in contrast, moved higher from early 2016 to early 2018 and is up over 50% the last three years.
The next chart shows monthly price bars over the last twenty years and Palladium hit a multi-year high early this year. After correcting for a few months, price broke out of a falling flag with a surge above 1000 in September. Prices stalled in October, but the breakout remains in play and bullish. Support is set at 800. The lower window shows the Palladium ETF (PALL) for reference.
On Trend on Youtube
Available to everyone, On Trend with Arthur Hill airs Tuesdays at 10:30AM ET on StockCharts TV and repeats throughout the week at the same time. Each show is then archived on our Youtube channel.
The week that finally bounced! It is always difficult to buy stocks near the lows. The volatility is high and your afraid of further drops. While we never know when the final low will be in advance, we have lots of tools that helps us see an oversold market. That was the case for the bounce we experienced this week as well.
With the bounce, its always good to see what sectors try to lead out of the hole. Materials were clearly one of the leaders.
Within Materials, there were a couple of themes. CF and Mosaic are both in the Fertilizer space. They both shot up. In coatings, Dow Dupont and Sherwin Williams were soaring. There was also Ball Corp which is a personal products packaging company (that does a whole lot more!).
We saw lots of defensive names make fresh new highs this week. Looking through the stocks in the list above this week, Ball soared to new highs. As we see defensive stocks starting to catch a bid, this company makes the metal containers for hair sprays, shaving cream, beer cans etc. So it can be defensively oriented and the stock soared to new highs as soon as the overall market bounced. This is nice as the stock consolidated after breaking out and now has the energy to move higher.
I like the moves we saw in both of the fertilizer stocks as well. When you break out from deeply oversold conditions, stocks hitting fresh new highs can be a big clue. Stay with winners in a weak market!
If you are looking for a small gift, you might have family or friends that would like to learn more about the basics of charting. The first section of the book walks through all the chart settings to get the charts you want. The second section is why you might use charts for investing and the third section is putting it all together.
I'm not a fan of buying (or short selling) stocks and holding them into quarterly earnings reports. It's simply too difficult to manage risk. Yes, there are options strategies that you can employ to reduce risk so we could debate back and forth the merits of holding stocks into earnings. For me, though, it's just not something I'm comfortable doing. I'd much rather trade a stock after its earnings report is in the rear view mirror so I can eliminate one major risk factor.
Having said that, I know many of you do like to anticipate positive or negative earnings and trade stocks into their earnings because of the potential quick reward, so this article is for you.
We've already seen thousands of companies present their latest "report cards", but many still will be reporting over the next few weeks. I want to take a look at three that are upcoming that I find very intriguing....and for different reasons. Let's get it started.....
Turtle Beach Corp (HEAR):
Let's talk a little earnings history here first. Of its last 17 quarterly earnings reports, HEAR has moved lower 12 times. Of the 5 times it's risen, however, check out three of their gains the day after earnings:
2018 Q1: +64.6%
2016 Q3: +36.6%
2016 Q1: +43.8%
Those are massive gains! HEAR has risen after each of the past 2 earnings reports, including that 64.6% jump earlier this year. HEAR's low year-to-date stock price was 1.64 in February and it's high was 34.50 in August. From 2018 Q1 to Q2, revenues jumped 50% and its EPS rose from .16 to .40. Clearly, market participants have priced in significant growth. HEAR reports its latest quarterly results on Tuesday, November 6th after the close. Check out the chart:
I see a big move upcoming in HEAR, but which way? Over those last 17 quarterly earnings reports, keep in mind that 4 have seen declines of 13% or more the day after earnings. HEAR has seen a lot of profit taking since that August high and small cap stocks have been completely out of favor since early September. We did see small caps come to life last week, though, and a solid report by HEAR on Tuesday could set off some serious fireworks. While those explosions can be breathtaking, don't forget what can happen when you play with fire.
Twilio Inc (TWLO):
TWLO is in the software space and has been on an absolute roll since early February 2018. The stock has moved from a low of 23.25 on February 9th to a high of 88.88 on September 26th. The market's been consolidating in 2018? You'd never know it by TWLO's rapid ascent. The story here isn't simply the stock price movement, however. TWLO has blown away its revenue and EPS estimates in each of its last three quarters and has been rewarded the day after earnings as follows:
2018 Q2: +18.7%
2018 Q1: +18.2%
2017 Q4: +16.2%
TWLO has been an ATM machine for traders on the long side in 2018. Will it continue? It's impossible to answer that question with certainty, but when the U.S. stock market finally bounced last week, TWLO gained more than 20% from its intraweek low (64.19) to its intraweek high (77.95). That could be an indication that its business momentum remains quite strong. TWLO is expected to report its latest quarterly results on Tuesday, November 6th after the close. Here's the chart:
I provided TWLO as a Monday trade setup last week, along with several others including TradeDesk (TTD), another high-flying software stock that rebounded more than 20% last week. The leaders lead when the stock market regains its footing and that's exactly what we saw with both TTD and TWLO last week. You can CLICK HERE to see the trade setups provided last Monday. If this type of information is something you're interested in, check out my latest Trading Places blog article and scroll to the bottom of the page. You'll see a green "Subscribe" button. After typing in your email address in the box provided, you'll begin receiving my daily blog article every day the moment that it's published. I'll do my best to keep you updated on the latest market action and provide you my thoughts as to the short- and intermediate-term direction of U.S. equities. As always, thanks for your support!
Haemonetics, Inc (HAE):
Let's move on to healthcare. Medical supplies ($DJUSMS) had been one of the hottest areas of the market heading into October, then completely fell apart over the past month. HAE, however, has been a very strong relative performer in this space and could be setting up for another very solid quarterly earnings report. Over the last four quarters, HAE has beaten top and bottom line consensus estimates every time and the market's reaction has been quite bullish, as you can see below:
Those gains may not jump off the page at you, but there's something to be said about consistency. HAE has had negative reactions to its earnings over the past four years, but only twice has the stock fallen more than 5% the day after its earnings. We've seen HAE move more than 5% higher after earnings eight different times over that period. Clearly, management seems to do a pretty good job of executing its business plan and the stock market typically rewards companies with management teams it trusts. HAE is expected to report its latest earnings on Tuesday, November 6th prior to the opening bell. Now for the chart:
The above chart shows that medical supplies have been under extraordinary selling pressure the past several weeks, but despite that pressure, HAE has managed to easily outperform the benchmark S&P 500, suggesting significant underlying strength. It's difficult to predict what will happen to the stock price after its earnings report, but Wall Street definitely seems to be giving HAE a pass for the moment.
Hopefully, you find the above interesting. And if you trade any of these stocks into their earnings this week, I wish you the best of luck. But as a reminder as to what can happen even to some of the best performers heading into earnings, please check out Fortinet (FTNT). FTNT has a SCTR in the upper 90s and had been a constant outperformer within the software space ($DJUSSW) heading into earnings on Thursday, November 1st after the close. FTNT beat both revenue and EPS expectations and then this happened:
FTNT was the worst performing stock on the S&P 500 on Friday, despite posting better-than-expected results. It was a definite reminder for me not to hold stocks into earnings. If you decide to make that call to own stocks into their earnings reports, just understand the downside risks in addition to the upside reward.
Charts of fundamental data are as useful as price charts in helping us visualize fundamental context and trends. In the case of earnings, the following chart shows us where the S&P 500 would have to be in order to have an overvalued P/E of 20 (red line); fairly valued P/E of 15 (blue line), or an undervalued P/E of 10 (green line). I have added three hash marks on the right side of the chart to show where the range markers are projected be at the end of 2019 Q2. Currently, price is well above the traditional value range; however, assuming no major price advance or decline, and assuming that earnings projections are relatively accurate, price will be back within the normal range next year. Even so, the market will still be at the high side of the range and, therefore, overvalued.
For over 90 years of market history price has usually stayed below the top of the value range (red line); however, since about 1998 it is more common for price to exceed normal overvalue levels. The market hasn't been undervalued since 1984.
The table below shows how earnings are expected to improve going forward, but the drop in P/E shown is only possible if price doesn't change significantly, which, of course, probably won't be the case. And in the best case shown (2019 Q2), the market will still be very overvalued.
The following table shows where the colored bands will be as earnings improve.
CONCLUSION: The S&P 500 is well above the normal value range and is extremely overvalued. Historically, overvalued conditions leave the market vulnerable for a large correction or bear market. The current conditions are not a signal for immediate action, rather, it is part of the context in which we should view the market during the process of making decisions. So let's keep in mind that valuations are working against us.
Technical Analysis is a windsock, not a crystal ball.
Happy Charting!
- Carl
NOTE: The signal status reported herein is based upon mechanical trading model signals, specifically, the DecisionPoint Trend Model. They define the implied bias of the price index based upon moving average relationships, but they do not necessarily call for a specific action. They are information flags that should prompt chart review. Further, they do not call for continuous buying or selling during the life of the signal. For example, a BUY signal will probably (but not necessarily) return the best results if action is taken soon after the signal is generated. Additional opportunities for buying may be found as price zigzags higher, but the trader must look for optimum entry points. Conversely, exit points to preserve gains (or minimize losses) may be evident before the model mechanically closes the signal.
We're deep into earnings season, which means patient traders can put themselves into a position to profit handsomely. The process starts by identifying those companies that beat earnings expectations and gap up sharply on strong volume, because these are the types of stocks that traders will be watching to pounce on when things settle down.
A perfect example is QuinStreet, Inc (QNST), a company that beat earnings expectations last week and exploded higher on massive volume. In fact, this was an EarningsBeats trade alert that rose 10% in just two days and 27% at its peak based upon its earnings report. Obviously, traders loved what they heard and piled in on the stock. However, unless you owned the stock into its earnings report, it would be tough to chase; profit taking is guaranteed to kick in at some point, a matter of when, not if. But if you learn how to be extremely patient, there's a strong chance you will get another shot at profiting from the stock.
For example, look at the chart below and you will see that, prior to the explosive move to the upside, the stock had closed between its 20- and 50-day moving averages that were right in sync. So might the stock pull all the way back to this key level of technical support? It just might, and what a gift that would be. But that might be asking for too much. Instead, the stock could easily pullback to Thursday's low of $15.86, which would represent a 9% haircut.
There will be TONS of stocks like QNST that gap up sharply after earnings, so then it becomes a matter of identifying them and being ready to get involved at key price or technical support when they pullback - which they will - and become high reward to risk trading candidates. In fact, I recently began my new FREE newsletter, the EarningsBeats Report, which includes identifying key earnings reports, potential trading candidates and educational Case Studies on actual trades. If you would like to receive this FREE newsletter, just click here and I will add you to the list.
Earnings Season brings with it all kinds of surprises, both positive and negative. Learning how to trade those stocks that beat expectations can be highly profitable.
Survey Results: The Top 10 Reasons Investors Told Us Why Routines and Organized ChartLists Matter
by Gatis Roze
In our last Traders Journal blog, Grayson and I extended an invitation to our readers to share their experiences with the Tensile Trading ChartPack. The spectrum of responses was diverse, broad and extremely insightful. We found it motivational and encouraging that so many investors have “found their stride”, as one person put it, by utilizing the ChartPack framework.
The majority of the comments we received alluded to the fact that most investors personalized the collection of 94 ChartLists to meet their own needs — precisely what we’ve encouraged thousands of users to do. Use it as your organizational foundation but then prune the ChartLists which are not appropriate to you personally. The benefits of these routines and organized ChartLists are powerful. The discipline is up to you, but you will be rewarded in the end.
So here are the Top 10 appraisals and comments from your fellow ChartPack users. Ask yourself how you might embrace these investors’ lessons and insights. If you take your routines and organization seriously. the markets will take you seriously and will be less likely to disrespect you financially.
1. Quote:
“I’m at my best, most productive and most profitable when my daily routines are identical.”
“It’s counterintuitive but I have a fear of markets changing. That fear is diminished when I follow my ritual chartlist reviews and the market changes reveal themselves to me in an organized manner. So in truth, it’s the unknown changes I fear. I’m much less fearful when I can understand these changes.”
— Brenda B., North Carolina
Conclusion: Clarity comes from understanding WHAT is happening in the markets now. That clarity is not the absence of fear; it just provides the courage to move forward.
3. Quote:
“Obviously, I can’t control the market’s outcome, but doing the same analysis and routines the same way all the time achieves the outcome I want with respect to myself. I’m more focused on working on what I can control, and this allows me to better accept market outcomes and all the rest”
— Jon C., Texas
Conclusion: Staying focused and staying on track doesn’t happen without discipline and a roadmap to follow.
4. Quote:
“Being a good investor is much like being a good poker player. A good poker player can usually beat another player who doesn’t understand the odds as well. A good investor who understands probabilities and risk and can give themselves the best expectation of a profitable trade by how and what they decide to trade. As in poker, you can’t change the card you’re going to be dealt next, but if you nudge the probabilities and put the odds in your favor, you’ll win the tournament.”
— Olivier R., Nevada
Conclusion: Your ChartList organization facilitates the pursuit of the highest probability candidates while minimizing the risks.
5. Quote:
“My family life is disorderly and chaotic most of the time. With my investing life, I need total separation. I need my investing workday to be carefully crafted. I try to be extremely disciplined so as to minimize my time and maximize my market insights. Finally, the organization and composition of my ChartLists offers me that.”
— Stephen Y., California
Conclusion: Control your environment and use your precious time wisely.
6.Quote:
“I’ve come to realize that profits don’t just materialize at the granular level of individual stocks. My Big Picture stock trades, which are based on sector and industry analysis have produced astounding results with much less volatility and more consistency."
— Margot N., New York
Conclusion: A relative strength methodology that incorporates market, sector, industry and stock analysis together yields higher probability trades with less risk. This is the basis of our book,Tensile Trading (Wiley 2016).
7. Quote:
“I have embraced the ChartPacks approach of analysis that starts with a telescope and ends with a microscope. It’s somewhat magical how it unearths the market’s true DNA.”
— Neil R., Kansas
Conclusion: Timeframes really do matter! Know your personal trading timeframes.
8. Quote:
“I’m an engineer by training. I love the news. I love to understand why things are happening. I also find myself being easily nudged off course regularly. I know these two things about myself. The ChartPack changed my life. I truly try now to focus on what is happening in the markets and my routines minimize how often I now get nudged off course.”
— Imran Z., California
Conclusion: If you can master precisely what to focus on, the noise and disinformation will disappear.
9. Quote:
“The number of stock market superstitions I had embedded in my psyche was unbelievable. My routines and ChartLists have forever changed me as an investor and all in good ways.”
— Jung P., Arizona
Conclusion: Savvy investors master a workflow that works for them.
10. Quote:
“My portfolio management has been the biggest beneficiary of deploying a disciplined and consistent approach to asset allocation. Understanding and monitoring how the markets critical spheres interact has yielded cutting edge insights. I can identify present opportunities and tackle them immediately in the most appropriate market manner. The results are there.”
— Scott M., Washington
Conclusion: It’s easier to believe something when you see it. This gives you the confidence to act upon that which the charts are showing you and therefore to pull the trigger.
Trade well; trade with discipline!
- Gatis Roze, MBA, CMT
As a StockCharts Member, you unlock all of our most powerful tools and features, including saved charts and settings, custom scans, technical alerts and much more. Discover all that StockCharts can do with our free 1-month trial and start charting like a true market pro.
Gold, silver and platinum suffered selling pressure over the last few years, but palladium attracted buying pressure and outperformed. It is one of the few precious metals trading near a 52-week high and in a long-term uptrend.
Within Materials, there were a couple of themes. CF and Mosaic are both in the Fertilizer space. They both shot up. In coatings, Dow Dupont and Sherwin Williams were soaring. There was also Ball Corp which is a personal products packaging company (that does a whole lot more!).
In our last Traders Journal blog, Grayson and I extended an invitation to our readers to share their experiences with the 
