Douglas Busch

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ChartSmarter Friday Game Plan 7/13/18

Markets:

  • Do not look know but the Nasdaq is back above the round 7800 number, more importantly on a CLOSING basis, something it was unable to do on the 6/20-21 sessions. The latter finished nearly 100 handles off its intraday high. It now negates the bearish engulfing candle from from that 6/21 day, and bulls are feeling energized. Their is truth in PRICE, and as good as it looks I would still like to witness a couple of CLOSES above 7800. I am giving my own healthy skepticism which is probably a very good contrarian sign that we are going higher.
  • The S&P 500 is has now gained ground 8 of the last 10 sessions and the last 6 advancing days CLOSED right at the top of the daily range. The most hated bull market keeps moving right along ignoring all opinions. It is looking to finish above the round 2800 number for the first time since 2/1, and the action since the beginning of February can now be interpreted as a bullish ascending triangle and a move through 2800 carries a measured move to 3050.

Sectors:

  • Technology was a welcome winner Thursday. The XLK rose by 1.6% and is now just above a 72.53 short cup base trigger. The very tight ranges the first three days of the week we mentioned yesterday, could well have been a short rest to gather stamina and resume its uptrend. Volume is still a bit on the light side, but the ETF is up 2.2% this week heading into Friday and looking for its second consecutive 2% plus weekly gain as it jumped 2.3% the prior week.
  • It is still a bit premature to declare the staples and utilities as lagging. But this is another session were the were the worst performers of the major S&P sectors. The XLP and XLU were very close to the UNCH mark Thursday. The XLP is at a critical juncture here as it sits right at 200 day SMA resistance, a line it has been below for 5 months with the exception of a couple days in February that proved to be a bull trap.

Special Situations:

The economy continues to chug along and of course there will always be arguments on both sides of its merit. The quote from Ralph Waldo Emerson comes to mind, “There are always two parties, the establishment and the movement.” Perhaps the naysayers, I am not in the camp, could point to the strength in the chart below of KAR, a used car auctioneer. This is how is was presented in our Tuesday 7/10 Game Plan. It is on a 6 session winning streak, with each day CLOSING right at the top of the daily range, a hallmark bullish trait. A cup base trigger of 56.85 was taken out on 7/9 and it is demonstrating great action POST breakout, just what you want to see from fledging breakouts. Is the firmness in the stock an indication of the reluctance to purchase new vehicles? From a trading perspective who cares. The chart is driving higher, pun intended.

ChartSmarter Thursday Game Plan 7/12/18

Markets:

  • The major averages attempted a few intraday rallies, but in the end they fell, but this time it was the Nasdaq and Russell 2000 that "outperformed" losing .6 and .7% respectively. The Nasdaq is still higher 7 of the last 9 sessions and the last 3 have had very small intraday ranges, around 50 handles (the prior 6 days were much larger). The tech heavy index is slowing as it approaches that bearish engulfing candle at 7800 from 6/21.
  • The S&P 500 lost .7% today and it too is dealing with a round number of 2800. It has came very close to that figure four times since late February. The longer PRICE can not confirm the recent correction however, and the bears have had plenty of time too, the burden of proof for going lower remains with them. For all the negative commentary with news sources the Nasdaq and S&P 500 trade just 1 and 3% off their most recent all time highs. 
  • For all the talk of the bond market being a leading indicator for equity markets, a quick look at the 10 year treasury yield is starting to shape the right clavicle in a bearish head and shoulders pattern. Softness was seen with the completion of a bearish evening star formation on 5/18 and follow through to the downside has been swift. Its chart had trouble at the big, can not call it round 3 number, unable to move decisively higher above it.

Sectors:

  • There was some clear bifurcation today within industries and the largest move was lower as energy fell more than 2% after crude recorded its worst day in over a year. Not to keep beating a dead horse but the triple top in the XLE dating back to December '16 looks more formidable with each passing week. Could the news today that the US could become the worlds largest producer in 2019 yet another headline that we will look back on and say that called the top?
  • Leading Wednesday were the utilities, that are acting like that annoying piece of gum on the bottom of your shoe, refusing to go away. I still believe that 3% plunge in the XLU on Monday means something, perhaps that the financials are set to sparkle this week. Give credit where it is due as the XLU is on a 4 week winning streak and this week is just 60% finished, but if the current chart holds, one is looking at a bullish weekly hammer candle.

Special Situations:

One should practice looking for names that exhibit solid relative strength on days like today. When markets sell off the vast majority of stocks will get pulled along, but those that manage to shrug off the weakness could be future winners, once the market catches it breath. Below is the chart of CARS and how it was presented in our Tuesday 7/10 Game Plan. This name takes on a more bullish narrative as it broke above a bullish inverse head and shoulders pattern, that also aligned with the round 30 number. Volume was well more than double the average daily, just what you want to see. The coming days will be crucial as we know the best breakouts work right away. Wednesday the stock came within pennies of breaking above a cup base trigger of 32.28 in a pattern 6 months long. A CLOSE above that number can be used to add to ones stake or initiate a new position.

ChartSmarter Wednesday Game Plan 7/11/18

Markets:

  • Leadership was witnessed Tuesday within the Dow. Keep in mind this is a laggard as the benchmark is clinging on to UNCH territory on a YTD basis. If one wants to use an analogy comparing sector strength it could be akin to the defensive groups shining recently. Volume has been uninspiring, but PRICE action is solid as the Dow has recouped both its 50 and 200 day SMAs in the last 3 days.
  • The Russell 2000 recorded a bearish engulfing candle at the round 1700 number, which could be interpreted as a double top with the 6/21 session which also sported a bearish engulfing candle at all time highs. This index is a leading indicator and trades in an inverse fashion to the Dow at the moment regarding the tariff situation. A decisive push above the round 1700 could would be a welcome site for bulls and negate the negative candlesticks.
  • The VIX recorded a spinning top candle, similar to the 6/7 session, which often signals an end or at least exhaustion in the prevailing trend. It has lost ground 6 of the last 7 days and still sits below its 200 day SMA after the bearish death cross Monday. It certainly seems like a bounce here is at least plausible and it is higher by almost 14% thus far in 2018. Perhaps the sleeping giant has be awakened. 

Sectors:

  • One day after looking frail the utilities and staples were the best performers of the major averages as the XLU and XLP rose by 1.2 and 1% respectively. The XLU found precise support at its declining 200 day SMA Tuesday with good volume, and it must be given the benefit of the doubt even after yesterdays 3% shellacking.
  • The financials were the worst actors as the XLF was the only major S&P sector to lose ground. The ETF fell .3% after meeting precise resistance at its 200 day SMA. It recorded a bearish death cross today and it has now CLOSED below the 200 day SMA for 13 consecutive sessions. It is not a crime to finish below that line, but it should be reclaimed rapidly. The chart of the XLF shows wide and loose trading, hallmark bearish characteristics. The proof will be in the earnings this week. 

Special Situations:

The markets always attempt to confound the most, and is why the vast majority of traders fail. Investors fail to adjust holding on to set beliefs of how markets should trade instead of trading the market in front of them. One example could be how the retail names were hurt due to the AMZN effect, which they have since shrugged off rather nicely. Add to that that the consumer discretionary stocks have been holding their own despite a rising crude price, historically the opposite of what they would do. Below is the chart of RL and how it was presented in our Monday 7/9 Game Plan. It currently sits 12% off most recent 52 week highs, acceptable given the 30% jump during a 5 week winning streak the weeks ending between 5/11-6/8. It found support at its rising 50 day SMA where institutions will make a stand and offers god risk/reward potential here.

ChartSmarter Tuesday Game Plan 7/10/18

Markets:

  • For technicians the only thing better than a big early loss reversing into a sizable gain by the CLOSE, is what transpired Monday. A big early gain refusing to relinquish anything at all and remaining firm. Sure it was the lagging Dow that shined higher by 1.3%, but the Nasdaq registered its third very respectable advance higher by .9%. Volume could cooperate more, but it could deliver this week, as nonbelievers become converts.
  • Other areas of the market that contributed greatly to todays rally were the oil services and transports. Of course strength in these groups speak to the economic strength that we have been noticing. The OIH came into today with the last three weeks CLOSING very taut all within just .11 of each other and moves, in either direction, could be powerful once the breakaway happens. Look for follow through to continue. The IYT rose 2% Monday and this industry is patrolled carefully as Dow Theorists monitor for any signs of a breakdown, which for the moment look bleak.

Sectors:

  • The financials received a much needed boost as the financials as the XLF was the best performer among the major S&P sectors rising 2.3%. The ETF remains within a bullish falling wedge and many big banks will report this week. Many say that the market can not rally without this group, proven false lately, but imagine if this space can accelerate as it could have a profound effect on the overall markets.
  • The only two sectors that fell today were just what bulls wanted to witness. The staples and utilities fell with the XLP and XLU slipping .4 and 3.1%. Obviously the latter is a bond proxy and often trades in an inverse fashion to the financials, but the outsized loss Monday was alarming. The ETF did come into this week advancing 13 of the last 14 sessions, but volume Monday was anything but quiet. Perhaps this is a vote that the financials will overachieve during earnings reports this week.

Special Situations:

With all the hoopla surrounding SBUX with plastic straws (what about eliminating their much bigger cups while they are at it), one could have prospered with DNKN. SBUX even after todays lukewarm lift is still near bear market mode as it trades 19% off most recent 52 week highs. It is still dealing with the 15% slump the weeks ending between 6/22-29 with the week ending 6/22 being accompanied by the largest weekly volume in the last 5 years. On the other hand DNKN sits right at all time highs, and its dividend yield is comparable at 2% compared to DNKN's 2.9%. Like SBUX that is grappling with the very round 50 number, DNKN recorded its second consecutive CLOSE above the 70 figure. The 70 number aligned with a bull flag breakout which carries a measured move to 76. It is easy to spot the difference in jolt in these two coffee plays.

ChartSmarter Monday Game Plan 7/9/18

Markets:

  • The Nasdaq ended the week in fine form recording its first back to back 1% gains since the 4/3-4 sessions as it now stands just 2% off most recent all time highs. It is now back above a 7637 cup base trigger after a brief bear trap. Look for a retest of the bearish engulfing candle at the round 7800 number from 6/21 at all time highs.
  • The Russell 2000 continues to impress with the best weekly gain higher by 3.1%, followed by the Nasdaq rising 2.4, the S&P 500 by 1.5 and the Dow by .8%. It is clearly resuming its uptrend after last weeks halt to an 8 week winning streak, and this week registered a bullish engulfing candle. The small cap benchmark has gained 10.3% YTD, second only to the Nasdaq up 11.4%, and the leadership both demonstrated this week shows "risk on" appetite has returned.
  • The Dow rose by a pedestrian .8% this week and is the only major average lower YTD off by 1.1%. Friday it rose above its upward sloping 200 day SMA, although it took several sessions to do so unlike the prior two occurrences on 4/2 and 5/3 with both sessions under the secular line intraday, but managing to CLOSE above each time.
  • The VIX has declined 5 of the last 6 days and Friday slumped more than 10%, but more importantly undercut its 50 and 200 day SMAs and the break above a bullish falling wedge has failed quickly, just the opposite of what one wants to see. We know the best breakouts work out right away. To add to the bearish narrative it recorded a bearish MACD crossover.

Sectors:

  • Healthcare led the way Friday as the XLV rose 1.4% breaking above a cup with handle trigger of 85.82. On a weekly basis it scored the best gain as well jumping 3.1%, its best move in 4 months. It was aided by BIIB's weekly jump 23% advance with the stock coming within 3 handles of a three year high. The IHI should be watched closely as it is now within 1% off all time highs and has risen 11 of the last 13 weeks.
  • Technology was a strong actor for a second straight session as the XLK added 1.2%. The ETF recouped its 70.52 cup with handle trigger originally taken out on 6/1. Three of the last 6 days have been higher by more than 1% as it continues to receive support at an upward sloping 50 day SMA (7/2 registered a bullish engulfing candle higher by "only" .9%). AAPL, MSFT and FB which make up more than 1/3 of the ETF are all acting well technically.
  • Energy was the only major S&P sector to lose ground last week, falling marginally by .4%. The XLE has carved out a double bottom base with a potential 77.75 trigger, but one looking for "value" has to come away somewhat impressed with the OIH. It is now 12% off most recent 52 week highs (XLE is 5% off its) after failing to break above a cup base trigger of 29.63 in late May. The 200 day SMA is holding up strong, and on the RSI it shows an inverse head and shoulders with the bullish zone threshold line of 50 being the neckline. A break through the figure will indicate a positive trend change.

Special Situations:

There have been many energy skeptics, including myself, recently but one has to give credit where it is due. The XLE continues to defend its bull flag breakout above 74, but seems hesitant to want to break above a long triple top just below 79 dating back to December '16, January '18 and again this May. Until it breaks above I would continue to be cautious, but that feeling is becoming less so with time. Below is a former best of breed play PE, and how it was presented in our Monday 6/25 Game Plan. It broke ABOVE a bearish head and shoulders formation in late June, and moves in the opposite direction can be powerful. The stock recaptured its 50 day SMA on 6/27 and has defended the round 30 number too CLOSING above it 6 of the last 7 sessions. Look to add to above a 33.53 cup base trigger and oil bears could be in for a crude awakening, pun intended. Admire the pedigree at the top here as the CEO is the son of the CEO at powerhouse PXD.