The 20+ Yr Treasury Bond ETF (TLT) retreated as stocks advanced from mid April to early June and then popped as stocks dropped this week. Bonds are the natural alternative to stocks and TLT appears to be forming a classic bullish continuation pattern.

Let's first compare performance for these two opposites. Year-to-date, TLT is up 18.62% and the S&P 500 SPDR (SPY) is down 5.20%. However, performance looks a little different when we start from March 23rd, which is when SPY bottomed. SPY is up some 36% and TLT is down around 2%. The decline is not drastic, but safe-haven bonds clearly underperformed when riskier stocks surged.

The next chart shows TLT surging to a new high as stocks plunged in March and then formed a possible cup-with-handle pattern. Note that this pattern is still early stages because TLT has yet to confirm with a break above rim resistance.

This week's reversal in a key retracement zone and upturn in the PPO suggests that a resistance challenge is imminent. Notice how the April-June decline retraced 50-61.8% of the March-April advance. This is normal for a correction and the PPO signal line cross indicates an upturn in momentum.

This week on TrendInvestorPro I tested a five indicator breadth model going back to the beginning of decimalization (2/1/2001). This model's returns are as good as buy-and-hold for SPY, but with much lower drawdowns and less exposure (risk). Such models can help you stay on the right side of the market and a new signal triggered this week. Get immediate access with a subscription to TrendInvestorPro.

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Thursday was a real portfolio rattler as most stocks went for a wild dip. Once again, the Fed meeting was one of the primary reasons for the renewed cautiousness. While the market was seemingly on a new uptrend, this was a pretty big gap for a market supported by wide breadth across sectors and industries. The chart below shows the price chart for the S&P 1500 (not the S&P 500). Below are two different looks at the advance/decline percentages for breadth. In the purple area, we have a two-week moving average of the A/D percentage. The lowest panel is a cumulative look at the indicator. The uptrend is still intact, but this was a very hard rollback. The purple area shows a major surge, but also a hard drop. With the volatility levels picking up (not shown), the trend gets rockier. The information I glean from the chart below is that this was a wild swing so far, but the uptrend is still intact.

The second piece of data comes from the up/down volume percentage data. In this case, the data looks more dismal. This presentation style is from Arthur Hill, but it clearly shows this is how the market top in February started. That definitely adds more caution.

Lastly, next Friday is quadruple witching day for options expiration. The quadruple witching dates are shown in blue and they usually have extreme volumes. It is very difficult to know if the market will correct further based on the two charts above, which show contrasting information. It is reasonable to expect some volatility coming out of the options expiration, so the next two weeks look like more fireworks. All of the last four options expiration days had some swings following them.

Not a bad time to trim some of the profits off here and be watchful of further downside. The Nasdaq 100 (on the lower panel) could end up being a failed breakout, whereas the $SPX (on the top panel) would be a retest and fail of the highs. I would like to think the big breadth we have would help a lot. But 5% down days are not usually showing up in the course of a regular uptrend.

Is this the end of the trend? It has some of the typical signals for it, with hard down days, failed breakouts and tests of prior highs. So far, the advance/decline data has not confirmed. Caution is advised from my perspective. That doesn't mean sell, but its a good place to be aware of the downside risk.

 

Years ago, Peter Lynch (of Fidelity Magellan fame) preached that when looking for investment ideas, stock pickers should look closely where they shop and find those new alluring products and retail stores that held the most promise. Times change, of course, and the retail glass on the street is not as promising as it once was. But on a global level, his advice still holds merit in looking at new businesses and technologies for investment ideas. Perhaps replace the shopping mall as your focus and look to your own firm. Which new tech companies are you embracing in your own workplace. Those are great candidates worthy of some further investigation.

Picking the right stocks is certainly a critical part of any successful investing approach. But at best, that's only 50% of the equation. Let's call this Stage #1. Possibly even more important is your investor self-behavior and your specific methodology. I'll label this Stage #2.

Try applying your Peter Lynch-type radar to general issues around you. Ask yourself both what you can learn from these trends and issues and consider how you might possibly incorporate them into investing and managing your portfolio better. This generalist type of radar could be equally as powerful — or perhaps more so — than trying always to pick the next 10-bagger stock.

In previous Traders Journal blogs, Grayson and I have dubbed this "observational investing". For us both, it's been a sort of "secret sauce" for our own portfolio management as our powers of observation have matured over many years in the markets.

A simple example presently comes to mind. Singapore and Hong Kong have a combined population of 13 million. They've had 29 COVID-19 deaths (as of June 5, 2020). If the USA had a similar fatality rate, our death rate would be 4,100 instead of 24-times higher with over 100,000 deaths. Two lessons jump out at me which may be applied to my portfolio management.

1.

Both Singapore and Hong Kong had a blueprint ready to be implemented at the first sign of an outbreak. I've written many blogs about how important it is to have a roadmap (i.e. 10-stages of stock market mastery) and both bullish and bearish scenarios for all your equity positions before you ever buy into your position. You simple cannot wait for the proverbial mud ball to hit the fan before strategizing how you'll best deal with it. Have your playbook ready. All pro sports teams subscribe to this paradigm — as an investor you should, too.

2.

Both Singapore and Hong Kong acted quickly — aggressively and strategically! Procrastinating during a pandemic will literally kill you. Procrastinating in addressing your portfolio positions can kill you financially. I've said this many times before — just because you choose to ignore the markets does not mean they will ignore you.

You see my point. It's not too late for you to fine tune your radar in both Stage #1 and Stage #2. Look at all the valuable lessons around you which you can grasp if you simply frame them within your money management endeavors.

 

Trade well; trade with discipline!

- Gatis Roze, MBA, CMT

StockMarketMastery.com

• Author, "Tensile Trading: The 10 Essential Stages of Stock Market Mastery" (Wiley, 2016)
• Presenter of the best-selling "Tensile Trading" DVD seminar
• Presenter of the "How to Master Your Asset Allocation Profile DVD" seminar
• Developer of the Tensile Trading ChartPack for StockCharts members

I remember hearing (and still hearing) from other analysts that one should remember that the bottom of the chart isn't a support level. This is especially true when you are looking at a stock that has been making new all-time lows. Yesterday, a DecisionPoint Diamonds reader requested I look at US Natural Gas (UNG) with an eye toward bottom fishing. In my mind, "bottom fishing" is finding an extraordinarily beat-down stock or ETF with the intention of catching the stock when it finally reverses. These type of investments carry a lot of risk, so position-size thoughtfully.

Yesterday's daily chart looked far more enticing as UNG had enjoyed two days of higher prices. It was forming a short-term double-bottom, it was in a bullish descending wedge pattern and it was seeing a positive divergence between OBV bottoms and price lows. The bearish RSI is a problem, but, as of yesterday, the PMO hadn't turned down yet. This definitely piqued my interest for a short-term trade.

 

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As investors, we want to accomplish two basic things:

(1) Determine the trend and condition of the market and

(2) Select stocks that will ride that tide.

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Then, I looked at the weekly chart below and realized there was no support except at the bottom of the chart... which wasn't zero. It was $10. While yesterday it looked like UNG might be able to turn it around off that support level, I did warn that new all-time lows were completely possible. Additionally, the weekly PMO wasn't favorable.

The monthly chart for UNG also tells me that, if I were to trade it, it should be considered a VERY short-term investment, one that would need to be watched continually all day. The PMO is on a SELL signal and isn't in oversold territory yet.

If you are thinking of risking a small position, here's a look at the 15-min bar chart. It gives us hints as to where we might look for an entry. I've marked support at today's low; it's at the bottom of the chart, but we know it could fall further. It does appear that UNG is ready to rally. The PMO has turned up and the RSI has risen out of oversold territory. Notice that overhead resistance is right there. I would be watching to see if:

1. Support holds at the all-time low
2. The RSI reaches above 50
3. The PMO has a positive crossover
4. Overhead resistance is broken

That would be the safest entry, although you could go in early and, if indicators don't turn bullish, you could then exit. Remember, these very short-term charts are quite helpful for timing your entries.

Conclusion: It may seem silly to even write about the bottom of the chart not being support. However, the brain may make visual assumptions or set biases that you're not always aware of. I do want to caveat that UNG hasn't formally set a bottom that could be considered support on the daily/weekly/monthly bar charts. Until we have a higher intraday low, a true support line hasn't been set.

If you'd like a trial to our website newsletters, contact support@decisionpoint.com and we will hook you up!

Happy Charting! - Erin

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Diamond of the Week (Tuesday 6/9 DP Diamonds Report):

Below is the original article, but I have updated the charts through today and have added new commentary in italics.

Gilead Sciences Inc (GILD) - Earnings: 7/30/2020 (AMC)

"I owned this one, having purchased it after I presented it as a "Diamond in the Rough" in April. After it gapped up and got to my target at the March high, I waited to see what might happen given its position in the news cycle regarding a new vaccine. When it began to tumble, I sold it and made a profit I was good with. Well, this one could be ready to make another move. We have a double-bottom pattern. It failed to execute on yesterday's breakout when it closed back within the pattern. Today it wasn't able to breakout but it stayed comfortably above the 5-EMA. The RSI has now moved back above 50. The PMO triggered a crossover BUY signal. The OBV is confirming the rally and the SCTR is rising." Obviously, this one did not work out this week, but most stocks took a huge hit Thursday. However, this has increased the potential gains available on a stock that still has bullish characteristics. While the RSI did drop below 50, it is neutral and the SCTR is healthy. The PMO had a whipsaw SELL signal that I can overlook based on the strength of the decline yesterday. The best element of the chart would be the OBV positive divergence. While I still have the double-bottom annotated, we could be seeing a triple-bottom lining up.

The most difficult overhead resistance is probably around $82.50, but I believe it will break above given the weekly PMO trying to turn up.

 

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Technical Analysis is a windsock, not a crystal ball.

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Helpful DecisionPoint Links:

DecisionPoint Alert Chart List

DecisionPoint Golden Cross/Silver Cross Index Chart List

DecisionPoint Sector Chart List

DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

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ITBM and ITVM

SCTR Ranking

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Every day, there are thousands of companies to select from when looking for trading candidates. This includes companies in different sectors, of different sizes and with different prices. That's a lot of companies to choose from, so how does one go about zeroing in on the ones that might turn into profitable trades? One very efficient way is to use the scanning tools available at StockCharts.com to help you find golden opportunities.

As an example, look at the chart below on Take Two Interactive Software (TTWO). This is a stock on our Strong Earnings ChartList - companies that beat both top and bottom line expectations - that we uncovered as a promising trading opportunity by using the StockCharts.com scanning feature.

In fact, EarningsBeats.com Chief Market Strategist Tom Bowley featured the stock in his Daily Market Report this past Monday after the stock had pulled back and reversed sharply. At the time Tom shared the stock, it was trading near $129, with the stock adding on $10 points by Wednesday - a nice 4.3% pop - and so far it has held well above that level while continuing to present a high reward-to-risk opportunity.

The great thing about using scans is you can define the criteria you want to use to find trading opportunities. For example, at EarningsBeats.com we have created 5 specific scans that all of our members can use, including High Volume, Downtrend Reversal (pullback scan), 20-Day Moving Average Test (pullback scan), RSI 40-50 Test (pullback scan) and 52-Week Highs (Breakout scan.) These scans can be used to scour the entire market or, in our case, our Strong Earnings ChartList, which currently contains 289 companies that beat both earnings and revenue expectations. We can then narrow down the list even further - for example, to those stocks with the highest SCTR rankings - as we look for the "best of the best."

In order for the trading community to gain a better understanding of the power of scanning, Tom Bowley will be conducting a FREE webinar this Monday, June 15 at 4:30pm Eastern Time. This "Scanning Strategies" session will include teaching some of the important basics of scanning, as well as uncovering stocks on our Strong Earnings ChartList that might be ripe for a good trade. If you would like to attend this FREE webinar and are currently NOT a part of the EarningsBeats.com community, just click here to sign up for our free EarningsBeats Digest that comes out every Monday, Wednesday and Friday; you will receive room instructions on Monday prior to the event. It's going to be a good one!

At your service,

John Hopkins

EarningsBeats.com