Another insightful issue of the ChartWachers Newsletter has arrived!
January 19, 2019
Hello Fellow ChartWatchers!
As you may have noticed, this past week we rolled out our new-and-improved site navigation controls across the top of the StockCharts website. That might sound trivial, but the navigation controls are an important aspect of our site - they're one of the few features that you interact with every time you visit StockCharts. Whether you want to pull up a chart, log in to your account, view a ChartList or edit a custom scan, the site nav is how you get there.
With that in mind, we've redesigned our site navigation to make it quicker and easier for you to access the features that matter most. Here are a few important points about the updates:
• First and foremost, you'll notice that the box used to create a new chart is much larger and easier to use. You can change the chart type using the grey dropdown menu on the left, which now also includes the respective icons for our many charting tools.
• The links across our navigation bar have changed slightly. You'll now see "Charts & Tools", which directs you to a complete listing of all our most important site features; "Articles", which directs you to our blogs and other written commentary; and "Your Dashboard", which directs you to the homepage for your StockCharts account (if you are a member). On the right side of the nav bar, you'll also see a "Help" link, which directs you to our Support Center, and and a search icon, which you can use to search the StockCharts website for anything you want to look up.
• Lastly, if you're logged into your StockCharts account, you'll see your first name in the upper right corner of the navigation bar. You can click on your name to open the Members Menu, which includes quick access links to your ChartLists, Scans and Alerts, as well as a link to the Your Account page, the Support Center and the support team contact page. This menu is entirely new and is designed to make it even easier for you to jump to the important features of your StockCharts account.
All major U.S. stock indexes have exceeded their 50-day averages (blue lines). That still leaves their 200-day averages to contain the rally. But there are a couple of other resistance lines that still need to be tested. Chart 1 shows the Dow Industrials nearing a test of their 200-day average (red arrow). In addition, the falling trendline drawn over its October/December highs should also provided stiff overhead resistance. The Dow would have to clear both barriers to signal a major turn to the upside. The same is true of the other two major stock indexes.
The S&P 500 is in the midst of a big run that lifted most boats, especially financial stocks. Even though these stocks are leading with the biggest gains over the last three weeks, most big financials are still in downtrends overall and below their 200-day SMAs.
Take Citigroup for example. Even with the big surge, Citigroup remains below its November-December highs and nowhere close to a new high. The stock has merely returned to the breakdown zone in the 65 area. This suggests that it is more pretender than contender. True contenders (leaders) are above their November-December highs and near new highs.
Chartists looking to separate the true contenders from the pretenders should focus on three price points: the relationship between the October-December lows, the November-December highs and the 52-week high.
Stocks that formed higher lows from October to December showed relative chart strength during the market meltdown (Citigroup did not). Note that the S&P 500 exceeded its October lows in December. Stocks that subsequently broke above their November-December highs are outperforming on the upside (Citigroup has not). $SPX remains well below these highs. Stocks at or near a 52-week high are leading and in uptrends. $SPX is not even close to a 52-week high, neither is Citigroup.
And then there is the hat-trick: stocks that held above their October low in December, broke their November-December highs and traded near 52-week highs recently. These stocks are the true contenders.
The example below shows BroadCom (AVG) with a higher low from October to December (+1). Next, the stock broke above the September and November highs (+1). And finally, the stock is within 2% of a 255-day high, which is equivalent to a 52-week high. Three for three looks like a hat-trick.
Analysts meet with the management teams of companies and then return to their firms and either buy or sell based on the information they gather. It's the primary reason why technical price action precedes fundamental information. If you understand the dynamics on Wall Street, you're in a much better position to profit from it. Over the past 3-4 months, the stock market endured much volatility and turmoil, sold off hard and then rallied strongly. Many stocks appear to be technically sound, however, holding up well during the Q4 misery, and are poised for solid quarterly earnings reports. Here are three that I believe will exceed expectations based on their recent price performance:
1. El Pollo Loco Holdings, Inc. (LOCO)
Throughout the Q4 market meltdown, consumer discretionary (XLY) stocks held up fairly well on a relative basis and restaurants & bars ($DJUSRU) steadily outperformed both its consumer discretionary peers and the benchmark S&P 500. I expect we'll see solid reports from the restaurant group as a whole. But one name that really stands out to me is LOCO. It's just broken out to a 3 1/2 year high with a very strong SCTR, excellent volume trends and surging momentum:
The primary risk here, in my view, is that LOCO is short-term overbought. A near-term pullback to approach or test the rising 20 day EMA would provide a much better reward-to-risk entry.
2. Alarm.com Holdings, Inc. (ALRM):
Software ($DJUSSW) is another very solid area within the stock market and, despite all of the selling the past few months, the DJUSSW is on the verge of a relative breakout vs. the S&P 500. A number of software stocks look solid heading into earnings, but I'll go with ALRM, a smaller software company. On Friday, ALRM closed at its highest level since going public in 2015. It's been a steady 4 year climb and volume trends suggest the rally hasn't ended:
ALRM is similar to LOCO in that it's short-term overbought. There appears to be accumulation taking place ahead of its next quarterly earnings report.
3. Crocs, Inc. (CROX):
Here's another solid consumer discretionary company with a SCTR at 98.7. CROX is part of the Dow Jones U.S. Footwear Index ($DJUSFT), which has been outperforming both the XLY and S&P 500 since October 2016. In its last quarterly earnings report, CROX posted a $.07 profit, well ahead of consensus estimates looking for a $.02 loss. We saw CROX break out to a new recent high on increasing volume to open 2019, suggesting another blowout quarter is on its way. Check out the chart:
Unlike LOCO and ALRM, CROX has seen recent selling down to initial price support and is no longer overbought. The low on December 24th was noteworthy because I look for the top of gap support to hold after a heavy volume gap higher resulting from earnings. It held beautifully before resuming its uptrend and breaking out in early 2019.
I'll be joining John Hopkins of EarningsBeats.com on Tuesday, January 22nd at 4:30pm EST to discuss earnings season, the three companies above and several others that are likely to report solid earnings in the days and weeks ahead. You can join us by CLICKING HERE to register.
Earnings Season Kicks into High Gear - Be Prepared to Profit
by John Hopkins
Earnings season began in earnest last week, with major financial companies being rewarded and helping to lead the market higher. It's one of four time periods during the year when publicly traded companies share their earnings results so that investors can get a sense of the financial health of each company.
The response to each earnings report can be quite different. For example, Goldman Sachs reported their numbers last week, with the stock soaring 10% as traders cheered their results. However, for every company that beats expectations and is rewarded handsomely, there's another company that disappoints and gets slammed. Case in point: Signet Jewelers, a company that reported its earnings last week and proceeded to drop over 20% as traders dumped the stock en mass after the numbers were released.
If you look at the chart above, you will see that it made a very nice move off of the December 24 bottom, rising more than 30% over the course of a few weeks. Then, in one swift move, it gave up over 20% - VERY painful if you were holding the stock into its earnings report. It's the reason we constantly remind our members to sit on the sidelines when a company is reporting earnings, since it's a crapshoot at best - witness the completely different responses to the GS and SIG reports.
Signet might serve as a poster child for companies that miss earnings and move lower, something traders might need to get used to more if profit forecasts are lowered. This is different than what the market has been used to the past few years, with many companies exceeding earnings expectations and being rewarded accordingly. It's one of the reasons we recently added earnings "Misses" to our ChartLists to go along with those companies that "Beat" expectations.
We're getting ready to conduct our Q4 Earnings Webinar, one of four yearly events where we delve into companies that beat/miss forecasts. It's a timely event, with earning season kicking off last week and thousands of companies set to report their numbers over the next several weeks. I will be joined by StockCharts.com Senior Technical Analyst Tom Bowley, who will discuss the combined power of formulating a ChartList while utilizing StockCharts.com technology to zero in on stocks that could become high reward-to-risk trading candidates, both on the long and short side. You REALLY don't want to miss this event. We expect a full house, so if you want to join us click here.
Earnings season is truly an open window into the financial health of the industry. If you can zero in on those companies that beat and those that miss earnings expectations, you can put yourself into a position to profit on both the long and short side.
How This Organized Process Will Maximize Your Investing Analysis - ChartPack Update #22 (Q4, 2018)
by Gatis Roze
Yes — since 2013, our ChartPack user community has suggested thousands of powerful improvements to our quarterly presentation of ChartLists. Over these six years, StockCharts.com has grown mightily and many new members are not entirely clear what the Tensile Trading ChartPack actually is. So here are seven brief points to describe the ChartPack and how it will help investors navigate the markets.
What Is A ChartPack?
It’s a strategic collection of carefully selected essential groupings that captures the massiveness of the stock market universe and organizes it into 96 manageable ChartLists which magically appear in your account.
Then it tactically populates each ChartList with the most appropriate ticker symbols for each of the groupings (i.e. ChartList #450 — US Dow Industries).
Further, it formats each ticker (stocks, ETFs and mutual funds) into a carefully designed chart layout that visually conveys the most important information to the investor.
Insightful educational notes specific to indicators in each group appear in many of the ChartLists within the “Notes” section or below the charts in Views. (A) Ten Per Page View. (B) ChartBook View. (C) GalleryView.
These ChartLists facilitate the identification of the most attractive high probability trades the present market has to offer.
Think of the ChartPack as a 5-star smorgasbord buffet from which you can pick and choose the ChartLists most appropriate to your personal investing approach. If you are not interested in currencies, simply delete that ChartList #210 — Currencies. If you don’t invest in country funds, purge that ChartList #205 — Country Funds.
Since 2013, the Tensile Trading ChartPack user community has made thousands of suggestions and enhancements to this powerful tool that will both optimize your time and maximize your analysis.
Q4 MAJOR UPDATES TO SPECIFIC CHARTLISTS:
#10.4 — Bullish & Bearish Dashboard / 16 Long Term Indicators
Many of you have heard of “the inverted yield curve”. Simply put, it’s when rates of two-year treasury notes rise above those of ten-year treasury notes. When this occurs, historians (and the charts) typically will portend a recession on the horizon. What the press conveniently fails to explain is that the lag is significant. The actual doldrums don’t arrive for another six to eighteen months.
This ChartList is populated with carefully selected high probability indicators that historically have signaled market shifts. No one indicator can stand alone, but reviewing these 16 charts as a group — say, every month — offers you a powerful sense of whether the “weight of the evidence” is bullish or bearish.
If you jump out of the market based upon just one or two bearish indicators, you are also very likely to be the sort of investor who’ll sit in cash, not get back into the market and simply watch a 2009-to-2018 rally of 300% without participating. Not a great idea.
Instead, use the “weight of the evidence” approach. Review all sixteen indicators. What’s the evidence? This quarter, we’ve added our version of the inverted yield curve. Chart 4.12 provides phenomenal insights. Please read the extensive notes describing specifics about all sixteen charts. Notes appear in View All mode beneath each chart.
#105 — Top ETFs
This ChartList contains the top ETFs based on trading volume. It works along the same lines as the Fidelity Select Sector Funds quarterly buying and selling behaviors. Those ETFs that drop off the list yield equally tradeable ideas as those ETFs which newly appear.
As individual investors, this list is important for basic reasons beyond simply volume. The higher the volume, generally the lower the bid/ask spreads — which puts money in our pockets as individual investors both when getting in as well as when selling. Another high probability fact is that those ETFs with the most trading volume are being “endorsed” by more buyers. These are buyers who are also aware of expense costs associated with the different ETF options in each asset class and usually pick the least costly ETF.
We find this ChartList useful as a market sentiment barometer as well. The ratio of long versus short ETFs on the list ebbs and flows with market sentiment. We also trace “new” ETFs that come aboard and what they claim to track versus the classic index ETFs such as DIA or SPY.
This past quarter, we have had much rotation. Many specific classes of ETFs fell off the wagon, while dozens of new ETFs took their place. Here are some observations:
Many leveraged and inverse ETFs have joined the parade (Individual investors beware: these are for trading — not buying and holding. The distributions can shock you.) For example, DGAZ, UWTIU and SQQQ.
Lost of interest (i.e. volume) in Emerging Markets. Examples: EWZ, FXI, VWO, RSX and MCHI.
Growing volumes associated with Futures ETFs. Examples: VXX and UVXY.
Increasing interest in oil related ETFs. Examples: DWT and DRIP.
Many new additions are leveraged and 3X beta type ETF funds. Big rewards and big risks.
Bullish investments in Gold Miners such as JNUG.
Our suggestion is to include a review of this ChartList in your regular routines. It will pay intellectual and strategic dividends to your bottom line. Lastly and somewhat surprisingly, the data doesn’t lie. Dropped from the list due to very low trading volumes and better alternatives elsewhere were ETFs such as EEMV, UWTIF, IDU, MGC, MGV, OILNF, PID, DON, DJP, IXC and BMX.
#217 — Gold
We’ve added the Vanguard Global Capital Cycles Fund (VGPMX) to the comparative PerfChart. A reasonable option to consider in this space. We encourage users not to overlook the informative notes (contributed by many in our ChartList community). In the “View All” mode, the comments are below each of the charts. Notice the close correlations in the Gold versus Commodities ($CRB) chart. As always, consider using the Verbose View for more information.
#205 — Single Country Funds
Don’t believe the press when they keep telling you that international markets are dead and the USA is the only place to be invest. There is a lot of money to be made by regularly visiting ChartList #205 which holds 55 country funds.
As of this Wednesday (January 9, 2018) the S&P 500’s (SPY) performance for the past three months was down -9.7%. Over this same period, dozens of country funds have achieved positive returns and significantly outperformed the S&P 500. For example:
Indonesia (EIDO) – up 22.1%
India (INPTF) – up 13.6%
Brazil (BRF) – up 13.6%
South Africa (EZA) – up 9.0%
You get my point. A rational money management strategy would be to invest 5% of your portfolio in the top three country funds and rotate based on relative strength performance to Vanguard Total Market Index (VT).
One final suggestion is to consider using the Legends menu button and pulldown the Verbose feature. If you like what it does, save it!
#420-12 to 420-90 — Fidelity Sector Portfolios
It’s tough to say exactly how many times we’ve performed the Fidelity Select Portfolios quarterly update. Sure, we know that this is the 22nd ChartPack update, so we can work backwards and count the number. But remember, the ChartPack is based on our real trading routines, which both Grayson and I have been doing for far longer than the history of the Tensile Trading ChartPack. So the exact number is a bit of an unknown.
What we can say for sure, however, is that each quarter provides something new, something unusual, something worth noting or calling out. Last quarter, we were relatively stunned by the number of “unchanged” Fidelity funds – no change to the top 10 holdings list for a portfolio. We noticed more unchanged funds than in any quarter in the past five years, and it told us something important about the state of the market (which was turning quite volatile in Q3 of 2018): it was not an aggressive quarter for the big money managers. They weren’t rushing out to buy and rebalance and restructure their portfolios. It was clearly a “wait and see” period.
This quarter, on the other hand, was different. We saw only five Fidelity funds with no change to their top 10 holdings list – a low number relative to the quarterly norm.
Now, this doesn’t mean you should run out and buy everything under the sun just because. What we also noticed was that this seemed to be a very careful quarter for a lot of the Fidelity funds. That said, it was active. Perhaps the institutional side is starting to find some real deals out there after multiple months of market beatdown, but they're starting with a toe dip, not a full plunge into the pool.
Speaking of that beatdown, it’s no secret that we’ve seen a bit of strength come back into the market since the new year began. Now is the time to begin building your shopping list, because if the rally continues, sooner or later you’re going to find yourself in the buying spirit. Remember, the Fidelity updates provide a unique place to look for new trading opportunities. We look at these funds as an interesting source of tradable ideas and use them to see where and how the big money on Wall Street is deploying capital.
So, with that in mind, let’s take a look at some of the most noteworthy observations:
PG&E (PCG) was a crowd un-favorite. It was dropped from the top ranks of multiple funds, which does tell you something about where the institutional support for the stock is heading. Entergy (ETR), on the other hand, was picked up by a number of different Fidelity managers. This chart may be worth taking a look at.
The Consumer Discretionary sector has seen a bit of a recovery here in the recent rally, and the Consumer Discretionary portfolio team was clearly active. That fund made a number of intriguing shifts, moving away from two of the big “cord cutting” names and into some more traditional businesses.
Lots of movement in the Chemicals portfolio, which is one you may want to study. In particular, Air Products (APD) was a multi-fund add, starting to appear across a number of different portfolios.
As a sector, the Industrials space has been an important news story for many months, especially given the tariff and trade war talks. In Q4, the Fidelity Industrials portfolio saw a total shakeup that resulted in changes to 50% of its top 10 holdings list. Among the additions were HD Supply (HDS) and CSX.
The Leisure portfolio took a large position in Yum! Brands (YUM), but that was nothing compared to the Multimedia portfolio. That fund clearly doesn’t think that FAANG is dead, as it made one of the Fab Five stocks its largest holding. A long list of other changes to the Multimedia fund make it a good one to look at when you update your ChartPack.
A major player in the financial revolution / mobile payments space added across multiple funds, including Software / IT Services and Technology. The Technology fund also established very large positions in two credit card companies and Texas Instruments (TXN). Be sure to give ChartList GR-420-80 a look.
Already have the ChartPack? Here's how to upgrade:
Log in to your account, then visit the "Manage ChartPacks" page (accessible from the bottom of the Members Dashboard or from the "Your Account" page).
In the table that appears, find the entry for the "Tensile Trading ChartPack"(if you don't see the Tensile Trading ChartPack listed, that means that you haven't purchased it. Click Here to do so now).
Click the "Re-Install" button next to the Tensile Trading ChartPack to start the update process
The download should take about 15 seconds, after which you can explore the new ChartLists and other updates!
New to the ChartPack? Here's how to install it:
If you'd like to add the Tensile Trading ChartPack to your StockCharts account, Click Here.
Utilities Sector (XLU) Lights Up a New PMO BUY Signal
by Erin Swenlin
Sector rotation continues to favor the defensive sectors of Health Care, Consumer Staples, Real Estate and Utilities. Some of the more aggressive sectors are perking up now, with Financials actually making the biggest gain of the past month. Utilities in that same timeframe haven't done so much, but, in the short term, they are starting to look bullish.
Here's the Sector Summary for the past month. Financials are beginning to lead, which is positive, but technology could use a boost.
In the past year, the clear "winners" have been the defensive sectors, along with the interesting addition of Consumer Discretionary.
In the short term, XLU looks promising. We have a new oversold PMO BUY signal and a bullish ascending triangle. Carl and I noted in Friday's DecisionPoint show that seeing a PMO bottom below the signal line does make this new BUY signal a little suspect. We've found that "clean" crossovers with little hesitation tend to be the most successful. Price is nearing resistance once again at $53.50. We will need to see a breakout in order to confirm this pattern, but if it is confirmed, that would suggest that the measured price target will be near the December high. If it fails at this level, it could be in for another test of the rising bottoms trend line.
The weekly chart shows the rising trend intact, but price is also vulnerable to a drop to test it again. The IT PMO SELL signal could be an attention flag.
The rising trend is intact on the monthly chart, but the monthly PMO is holding onto a PMO SELL signal and, in fact, failed to procure a BUY signal. Tops below the signal line add to the bearishness on the chart.
Conclusion: The new PMO BUY signal has appeared on the daily chart just in time to execute an ascending triangle. However, the signal is a bit suspect, given the reluctance of the PMO to execute it, and the longer-term charts aren't particularly positive. My conclusion? We may have to test the bottom of the triangle one more time given the bearish longer-term charts. If we get the breakout, I would look for a test of the all-time highs.
Watch the latest episode of DecisionPoint with Carl & Erin Swenlin - LIVE on Fridays at StockCharts TV (4:30pm EST) or on the StockCharts TV YouTube channel here!
Technical Analysis is a windsock, not a crystal ball.
New Pre-Defined Groups And A Look At FAANG Stocks On Relative Rotation Graphs
by Julius de Kempenaer
If you are a regular user of Relative Rotation Graphs you are probably aware of the pre-defined groups (universes) that you can choose from when you open the drop-down box at the top op the chart.
In order to make life easier (for our users) and provide structure, I am working on a project to get more pre-defined groups added to that list.
A few months ago the group "Asset Allocation" was already added at the top of the list and a few headers were inserted in the list to make it more readable.
The most used and probably most important set of RRG groups is listed under US-sectors. The first one is the group that holds all 11 sector ETFs (SPDRS) against SPY as the benchmark.
Underneath that group, you will find groups for each of these sectors, the individual stocks that make up that sector, with their respective sector indexes (ETFs) as their benchmarks.
Simply clicking on one of these groups will open up that universe on an RRG with the appropriate benchmark.
But There Is More
Very recently the header US MARKETS was introduced. Here you will find some general market-related groups like sets of Growth and Value indexes or Size (Small-, Mid-, and Large-cap indexes). But also the members of the Dow Jones Industrials index and the major markets and major indexes that have always been on the list.
Also new is the group of international stock market indexes, just above the group international ETFs. Now be careful here as these are quite different universes. The ETFs are all listed in the US and quoted in US Dollars and measured against SPY as the benchmark. The universe of stock market indexes looks at the actual underlying indexes and compares them against $DJW, the Dow Jones Global index.
For example, the EWJ ETF that tracks the MSCI Japan index has a big FX component embedded as it is the is the price of the MSCI Japan index multiplied by the price of USD/JPY. This can, and probably will, be quite different from the $NIIKK index (Nikkei) in the other group. This is really something to be aware of as in these international ETFs there are essentially two markets (equity and forex) and thus two sets of supply and demand blending together. A gain in one component can be off-set by a loss in the other component and vice versa or they can re-enforce each other when the both move in the same direction.
The Canada and Commodity groups will be updated soon.
If you scroll further down you will also find two groups for currency universes. One using USD as the base and the other one using EUR as its base.
Looking forward I am planning to continue to add more of these predefined groups to this list in order to provide useable Relative Rotation Graphs that can be accessed without too much work on your part as well as providing a structure or a framework for analysis.
I am thinking about fixed income related groups like the components of the Government bond yield-curve. Maybe a pre-defined group with "factor ETFs" on which I wrote this article last week.
If you have any suggestions on particular groups or universes that you would like to see included please drop me a message at my email address which you can find below this article or drop a note in DISQUS as long as the discussion is still open for commenting.
Despite the efforts to provide pre-defined universes to run RRGs on, there will always be people who want to look at customized universes. Be it a group of stocks that have some common denominator or the stocks that someone holds in a portfolio, the RRG function on Stockcharts.com makes that possible. This Relative Rotation Graph above holds the five FAANG stocks (FB, AAPL, AMZN, NFLX, and GOOG). For the benchmark, I have chosen the NASDAQ 100 index, ticker $NDX.
It can really be any ticker symbols you like but I thought to use this one for a change instead of SPY or $SPX etc. which we see all the time.
What is interesting to see here is that four out of five have curled up and are now at a RRG-Heading between 0-90 degrees and GOOG has just crossed into the leading quadrant. The odd one out is still AAPL which is still pushing further into the lagging quadrant.
The quick takeaway from the RRG is that the original FANG stocks are worth keeping an eye on as they seem to be improving from a relative point of view but it seems better to avoid AAPL, at least for the time being.
If you like this RRG just click on the image and then "open the live image", it will open this RRG in a new tab. From there you can save this RRG as a bookmark in your browser and make it available at one click later on so you do not have to create it every time you want to inspect the FAANG stocks on a Relative Rotation Graph.
My regular blog is the RRG blog If you would like to receive a notification when a new article is published there, simply "Subscribe" with your email address using the form below.
Julius de Kempenaer | RRG Research
RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered TradeMarks ®; of RRG Research
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