DecisionPoint

DP Diamonds - These Sectors (and Stocks Within) Could be Diamonds in the Rough

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A reader wrote to me and asked if I could evaluate the Sector ETFs and/or include a Sector ETF in my Diamonds report for those who mainly trade these vehicles. I took a look at the CandleGlance for all of the sectors and narrowed it down to two diamond candidates. I then picked a stock in each sector that came up on my Diamond Scan. Today, Consumer Discretionary really stood out for me with the bullish breakout. Materials is probably an interesting choice to many - I'll fill you in on why I like it. Don't forget that tomorrow is reader request Thursday! Make sure to send me the symbols that you consider "diamonds in the rough".


Don't forget, on Thursdays I look at reader-requested symbols, so shoot me an email at erinh@stockcharts.com. I read every email I receive and try to answer them all! Your insight helps me to tailor my commentary to what my readers and viewers want to hear about.


Welcome to DecisionPoint Daily Diamonds, wherein I highlight five "diamonds in the rough." These are selected from the results of my DecisionPoint scans, which search for stocks that could benefit from the trend and condition of the market. Remember, these are not recommendations to buy or sell, but are the most interesting of the stocks that surfaced in my scans. My objective is to save you the work of the initial, tedious culling process, but you need to apply your own analysis to see if these stocks pique your interest as well. There are no guaranteed winners here!


Current Market Outlook:

Market Trend: Currently, we have Trend Model BUY signals in all three timeframes on the DP Scoreboard Indexes.

Market Condition: The market is pausing just a bit. The Dow did just trigger a new Short-Term PMO BUY signal. While it can be considered overbought, we must remember that, in a bull market, overbought conditions can persist.

Market Environment: It is important to consider the odds for success. The Silver Cross Index measures the percentage of stocks on IT Trend Model BUY signals (20-EMA > 50-EMA), while the Golden Cross Index measures the percentage of stocks on LT Trend Model BUY signals (50-EMA > 200-EMA). Here are the current percentages on the Silver and Golden Cross Indexes:

Diamond Index:

  • Diamond Scan Results: 23
  • Diamond Dog Scan Results: 3
  • Diamond Bull/Bear Ratio: 7.67

Consumer Discretionary Select Sector SPDR Fund (XLY) - Earnings: N/A

I immediately noticed that XLY broke out just today. It's a tiny breakout, but a breakout nonetheless. I see a longer-term ascending triangle pattern that has executed on the breakout. The PMO is on a BUY signal and has outpaced the previous top. The OBV is confirming the breakout with a breakout of its own.

The weekly chart is enticing as well. There is a symmetrical triangle which is a continuation pattern. This week's price action has afforded it an opportunity to break out of this pattern as well. The PMO hasn't generated a BUY signal yet, but it is rising in an effort to do just that.


Papa Johns Intl, Inc. (PZZA) - Earnings: 2/24 - 2/28/2020

My stock choice within the Consumer Discretionary Sector is Papa Johns. While the daily chart doesn't look all that exciting, we do have a rising PMO with a bottom above the zero line. There is a great positive divergence between price lows and OBV bottoms. Notice that the double-top never executed. Instead, price bounced off support at the confirmation line for the pattern. I would look for a move to test overhead resistance at $64.

Notice the large flag formation on the weekly chart. The minimum upside target is at the all-time high from 2016. While I am not convinced it will fulfill that target, I would still look for a move to test the 2015 high at about $75.


Materials Select Sector SPDR Fund (XLB) - Earnings: N/A

We saw a breakout on Materials late last week. It hasn't held, but, given the new PMO BUY signal, I would look at an entry near here or wait for a test at the $59 mark. I don't use candlesticks, but, looking in the thumbnail I do see a bullish hammer pattern. The expectation is an upside move tomorrow. The OBV is confirming this move higher.

There are some concerns with the weekly chart. First, overhead resistance at the all-time high in 2018 is rapidly approaching. There is a bearish rising wedge here as well. The good news is that the PMO is rising nicely and is not overbought.


Green Plains Inc (GPRE) - Earnings: 2/10 - 2/14/2020

The Materials stock that I chose from my results today was GPRE. There is a beautiful breakout and today we saw a nice pullback toward the breakout point. Price didn't close above resistance at the bottom of the trading channel formed in April, so it may still need time to develop to avoid risk. The PMO is moderately overbought, but is setting up for a BUY signal. The OBV has broken a declining trend. I would've preferred for the OBV to simply leapfrog its prior highs, but the steady rise on this rally is convincing me that isn't an issue just yet. The SCTR is in the upper part of the hot zone above 75.

The breakout looks more significant on the weekly chart. We can see that a long-term declining trend is being broken here. The PMO is rising strongly and has reached positive territory. The 17-week EMA has just crossed above the 43-week EMA.


Full Disclosure: I do not own any of the stocks presented, but I have to say that many of these are on my watchlist for adding. I am 80% cash but am looking to enter a few positions later this week.


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Erin Swenlin will be presenting at the The MoneyShow Las Vegas on May 11-13, 2020! You'll have an opportunity to meet Erin and discuss the latest DecisionPoint news and Diamond Scans. The conference is free to attend or view online!


Watch the latest episode of DecisionPoint with Carl & Erin Swenlin LIVE on Mondays 5:00p EST or on the StockCharts TV YouTube channel here!


Technical Analysis is a windsock, not a crystal ball.

Happy Charting!

- Erin

erinh@stockcharts.com



NOTE: The stocks reported herein are from mechanical trading model scans that are based upon moving average relationships, momentum and volume. DecisionPoint analysis is then applied to get five selections from the scans. The selections given should prompt readers to do a chart review using their own analysis process. This letter is not a call for a specific action to buy, sell or short any of the stocks provided. There are NO sure things or guaranteed returns on the daily selection of "diamonds in the rough."


Helpful DecisionPoint Links:

Erin's PMO Scan

DecisionPoint Shared ChartList and DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking


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Erin Swenlin
About the author: is a co-founder of the DecisionPoint.com website along with her father, Carl Swenlin. She launched the DecisionPoint daily blog in 2009 alongside Carl and now serves as a consulting technical analyst and blog contributor at StockCharts.com. Erin is an active Member of the CMT Association. She holds a Master's degree in Information Resource Management from the Air Force Institute of Technology as well as a Bachelor's degree in Mathematics from the University of Southern California. Learn More
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