Douglas Busch

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ChartSmarter Friday Game Plan 7/6/18

Markets:

  • There were many who were uncertain if the premarket strength would hold, and the Dow fended off not one but two intraday declines of 100 handles and one has to come away impressed with the action. It still CLOSED right at its 200 day SMA, and caution is the word of the day for the price weighted index. Keep in mind two of its three largest priced names in the index are in bear market mode with MMM and GS lower by 24 and 20% respectively from their most recent 52 week highs.
  • The Nasdaq is having a run for its money on a YTD basis, where a once comfortable margin over the Russell 2000 is narrowing. The gap now stands at less than 1% with the Nasdaq up 9.9% compared with the Russell 200o up 9.3% thus far in 2018. The Russell 2000 was the only major benchmark to advance on Tuesday and is now higher 4 of the last 5 sessions after a nice bounce off its rising 50 day SMA following a break above a symmetrical triangle above 1590 in early May.
  • The VIX is at a critical juncture here as it tests not only a break above a bullish falling wedge from 6/25, but also finding support at both its 5o and 200 day SMAs. It still must be given the benefit of the doubt after breaking above those two aforementioned moving averages as it resided below them for the prior 3 months. Another risk gauge is the junk bond ETF JNK and for all the hoopla it is still making higher lows since the February correction, although it still trades underneath both its 50 and 200 day SMAs.

Sectors:

  • Technology delivered a long overdue jump Thursday offering fireworks a day after the Fourth, and the bounce was courtesy of a strong semiconductor space. The XLK added 1.4% and a push through 71 would negate a short bearish head and shoulders pattern that began the second week if May. The SMH CLOSED back above its 200 day SMA, after bobbed above and below it similar to the late April episode. Notice the ETF did not make a higher high and it still sits 10% off most recent 52 week highs and trades bearishly wide and loose.
  • Creating an odd one two punch was the consumer staples that also rose by 1.4%. The XLP is bottoming the "correct way", slowly and steadily, as the ETF recorded plenty of bullish candles in May (dojis and spinning tops) that suggested the downtrend was losing steam. Respect the last 3 weekly CLOSES have been very taut all within just .10 of each other. The largest component PG, is looking for an eight weekly gain in the last 9 and is fast approaching the round 80 number which was resistance, which was support several months throughout 2016. Bulls do NOT want to see former support become pesky resistance.

Special Situations:

  • Healthcare has been a group in play and there has been a bit of relative strength in the biotech space with the XBI just 4% off its most recent 52 week highs (XLV is 8% off its and is currently in a cup with handle pattern with a potential buy point above a 85.82 trigger). There has been breathtaking moves within the group with SRPT, most recently witnessed with 37% move on 6/19 after positive data was released. Another stock in the arena which looks promising is RGEN and below is how it appeared in our Thursday 6/28 Game Plan. It is looking for a NINTH consecutive weekly advance, up another 2.9% this week headed into Friday. Notice the last seven have inched higher in a gradual fashion with none of the weeks gaining more than 2.4% following a thrust higher of 13.8% the week ending 5/11. It is now above a year long cup base trigger of 46.91 and the adage goes the longer the base the greater the space following the breakout. Stay tuned.

ChartSmarter Thursday Game Plan 7/5/18

Markets:

  • The Dow appears to be losing a battle with its 200 day SMA as it has CLOSED below the line the last 5 days. It is now nearing correction mode off 9% from most recent 52 week highs, and is looking at a potential FOURTH weekly loss in a row, a feat not accomplished in 26 months. Just prior to the 9.3% drop the weeks ending 2/2-9, it advanced a very impressive 17 of 20 weeks between the weeks ending 9/15/17-1/26. A peek at its weekly chart shows just how taut trade was during those 20 weeks, anything but what we have seen for the majority of 2018.
  • The Nasdaq recorded a bearish piercing line candle Tuesday, and it has also registered two bearish engulfing candles in the last 9 days, one at all time highs from 6/21. We have repeatedly stressed that its success hinges a great deal on the action in AAPL, its largest component, and today it too recorded a bearish engulfing candle. It is clinging to its 50 day SMA here, but the successful retest of the double bottom breakout trigger of 179.04 taken out on 5/4 now has the look of a bear flag. A break below 182.50 carries a measured move of more than 12 handle. Volume trends have been poor with the last significant advance in above average volume coming exactly 2 months ago.
  • The best looking market to me continues to be the Russell 2000, which has witnessed two bullish hammers the last 4 sessions off rising 50 day SMA support. Remember names in this benchmark are somewhat insulated from the ongoing tariff talks as companies within derive the vast majority of their revenues domestically. Its strength has to be even more respected when one factors in its greatest weighting is the financials, nearly 18%, which have been dismal performers at best.¬†

Sectors:

  • Ongoing concerns in the financial space show no signs of abating as the XLF fell .9% on Tuesday. The ETF recently registered a bearish death cross and has now CLOSED nine straight sessions below its 200 day SMA, as the fourth time touching that secular line since 4/2 proved fatal. The group is diverse, and many names have seen alarming moves as BLK broke below a bearish descending triangle whose trigger aligned with the very round 500 number. IBKR is looking at a potential sixth consecutive weekly loss down 1.6% so far this week, and has lost ground 27 of the last 36 sessions after failing to break above a bull flag at the round 80 number in early May. NOAH is now 32% off its most recent 52 week highs and has slumped 9.3% this week already, after the prior three declined more than 21%.
  • The only sector that fell greater than the financials today was the group bulls did not want to see. Technology slipped 1.2% via the XLK as the ETF is having a tough time with the round 70 number, as it has recorded just one CLOSE above in the last 7 sessions, with 6 of those above 70 intraday. Its failure to see any follow through above a cup with handle breakout from a 70.52 trigger on 6/1 is a red flag, as we know the best breakouts tend to work out right away.¬†Some notable moves in this group come from MU which is now remarkably in bear market territory lower by 20% from most recent 52 week highs. A logical entry there could be a touch of its still upward sloping 200 day SMA which would still be making higher highs and lows. Sure it still rests about 7% from that level, not a move that would be out of the ordinary in this market climate.

Special Situations:

The old saying goes anything good takes time, and the same can be true when it comes to charting. As we have been witnessing in 2018 wide and loose trade can be typical of topping action, and the opposite can be said about bottoming traits. It is a process that is gradual and smooth. Below is the chart of RPM and how it appeared in our Monday 6/25 Game Plan. For the last 2 years it has basically traded within a range between 46-56, and last week cleared those confines in brilliant fashion. It recorded its first double digit weekly gain in more than 5 years rising 12.6% that was accompanied in the strongest weekly volume in that timespan as well. News from Elliott management were responsible for the advance. It has now reached its measured move from a bullish inverse head and shoulders breakout, but selling completely here could prevent longer term shareholders from reaping big rewards by exiting a long position to soon.

ChartSmarter Thursday Game Plan 6/28/18

Markets:

  • The Dow finally succumbed to too many touches of its 200 day SMA and CLOSED underneath the secular line. It is looking for a rare third consecutive weekly loss, which has not happened since a 4 week losing streak in May '16. It has declined 1.9% so far, and the bullish harami cross recorded yesterday has been nearly negated already. Today finished 450 handles off intraday highs, meeting resistance at a now declining 50 day SMA.
  • The Nasdaq is off by 3.2% this week so far already and it is following through lower, after last weeks rare doji candle. Looking at some of its largest constituents one can see how one can take a negative view. GOOGL has now recorded a double top at the round 1200 number with bearish shooting star candles on 1/29 and 6/20. Keep in mind its chart trades wide and loose, a hallmark bearish characteristic. AMZN registered a bearish shooting star weekly candle last week at all time highs and the bearish engulfing candle from 6/21 looms large.
  • The VIX may be signaling something ominous as it looks to CLOSE above it WEEKLY 200 day SMA for the first time in 8 weeks depending on Fridays finish. In all of 2017 it ended above its 200 day SMA just twice in 52 weeks, and its break above a bullish falling wedge looks good after todays bullish hammer candle.

Sectors:

  • Energy was the best performer for a second straight session Wednesday with the XLE rising by 1.3% almost tripling its second best rival. It did CLOSE above its 50 day SMA and registered a bullish inverted hammer candle. Four of the five last session finished in the lower half of the daily range, which speaks to wary bulls.
  • Utilities continue to impress as the XLU was the second best actor today higher by .5%. Bears have tried to push this ETF lower to no avail, and the selling pressure may be abating. Since the week ending 2/16 there have been firm weekly advances of 3.2, 3, 2.8 and 3.1% the weeks ending 2/16, 3/30, 4/27 and 5/25. It is higher by 2.3% this week thus far and may be headed for another strong week depending on Fridays CLOSE. On its weekly chart one can see the very real potential of the rare bullish three white soldiers formation.
  • The financials are now on a 13 session losing streak, not a typo, and this week is lower by 2.7% so far. I did hear an unconventional view the interest rates may be headed lower and that QE may be initiated once again. The way the sector is acting it may not be so far fetched. The ETF has not witnessed a week of accumulation, volume supporting a firm weekly return, since the week ending 12/1/17 which jumped 5.2% in double active weekly volume.

Special Situations:

Technology has been a soft spot for sometime as the XLK is now lower by 3% this week headed into Thursday, and that is on top of the 1.3% loss the week before. Optimists may say that the last two times that back to back weekly combined losses occurred the ETF seemed to stabilize. The weeks ending 2/2-9 and 3/16-23 fell by 7.3 and 9% respectively, but the very next weeks rose by 5.7 and 1.8% the weeks ending 2/16 and 3/30. Below is the chart of DXC and how it appeared in this Tuesday's Game Plan. It is looking at a potential third weekly loss in a row down 2.8% this week headed into Thursday, and that would be only its third 3 week losing streak since it started trading public in April '17. It is failing at the round 80 number which was previous support, and look for that figure to be resistance going forward or the short catalyst will no longer exist.

ChartSmarter Wednesday Game Plan 6/27/18

Markets:

  • The Dow recorded a bullish harami cross Tuesday as it touches its 200 day SMA for a third time in the last 3 months. It is still down 9 of the last 11 sessions since three extraordinarily tight CLOSES between 6/8-12 which all finished within less than 5 handles of each other. Easily the best performer from within was GE up nearly 8%, not helping the price weighted index as it is a teenager, but it may benefit as it is being booted from the benchmark and names historically act better the following year then the names that replace them.
  • The Nasdaq rose .4%, a lukewarm showing but hardly making a dent into the prior 3 day losing streak that had a 300 handle range from top to bottom. AAPL will have a big say there and although it has lost its bull flag trigger of 190 in rapid fashion, it did successfully retest a double bottom trigger of 179.04 taken out on 5/4 today. It will have a big say as the largest component makes up nearly 7% of the Nasdaq.
  • Just to give investors an idea of how vastly the US is outperforming take a look at Investors Business Daily's screenshot from this weekend of nearly every country sector ETF is in the red YTD, with the exception of Small Cap China. Brazil, a big laggard, is off nearly 21%. Talk about a lonely environment. Is this relative strength to be applauded, or will it drag the US major averages lower with it eventually?

Sectors:

  • Energy was the best behaved sector as the XLE advanced 1.3%. I still believe it is a dead cat bounce, but my opinions mean little. Price action shows it did hold the bull flag breakout at 74 from 5/9 and it is now flirting with its 50 day SMA and can be bought above their and added to through a double bottom trigger of 77.75.
  • Runner up today were the cyclicals which was good to see. The XLY already benefitting from a nice retail space, received an added boost today from the homebuilders and the ETF rose .7%. LEN gave a brief burst of euphoria to long shareholders after earnings were reported this morning, but CLOSED underneath its downward sloping 50 day SMA. This is most likely temporary as the name is an alarming 29% off most recent 52 week highs.

Special Situations:

We always like to capitalize the word CLOSE in our work, and for good reason. Many times there will be whipsaws above a long or below a short order intraday, only to see price reverse and go against you. Of course this is for traders who have a longer time frame as they will hold stocks overnight, and for many months as I like to. Below is the chart of a lagging casual diner play JACK and how it was presented in our Monday 6/4 Game Plan. Anyone who attempted to get in front of the pivot was hurt as the bear flag that aligned with the round 80 number was never breached (it held on 2/9 as well). It has since almost 10% and is approaching the very round 90 number. There is no long catalyst, but is a good example of being patient and waiting for your spots.

ChartSmarter Tuesday Game Plan 6/26/18

Markets:

  • Indexes were pummeled to begin the week as the Nasdaq was a vast under performer, slipping 2.1%. This is where growth investors take their cue from and it is sending negative signals. Looking at its daily chart shows wide and loose trade, often indicative of toppy action.
  • The S&P 500 CLOSED right at its 50 day SMA today, and the Dow did so at its 200 day SMA too. We talked last week about it coming into contact with that important line to frequently this year. It is now nearing correction territory off by 9% from its most recent 52 week highs, as the S&P 500 and Nasdaq are 5 and 4% off their respective highs.
  • The VIX came alive in a big way Monday gaining nearly 30%, breaking through a bullish falling wedge pattern, which could lead to a big measured move. It followed through firmly from last Thursdays bullish engulfing candle and sprinted decisively above its 50 day SMA today. The 20 number put a stop to the rally cold, but that could prove temporary.

Sectors:

  • Remember those pesky utilities and staples. They have been stout recently and do not seem to be going away. The XLU and XLP were big winners Monday with gains of 1.7 and .5%. The XLU is now above its 200 day SMA, and the rounded bottoming formation that has taken place for the last 5 months looks legitimate. It has been gradual, although the group tends to trade anything but erratic, just the way you want to see bottoms form.
  • EIGHT of the top ten XLP holdings were higher Monday, but I prefer the XLU as volume has been elevated on the downside for the staples. But as always judge each individual chart within the ETFs on their own merit. That being said the XLP is vying for its first 4 week winning streak this week.
  • Technology was assaulted Monday as the XLK slumped 2.1%. The pause the 2 weeks ending between 6/8-15, which recorded spinning tops at all time highs (which often signal a pause in the prevailing trend), now look like fatigue instead of healthy digestion. The ETF has printed big weekly losses so far in '18 of 4.4 and 7.7% the weeks ending 2/9 and 3/23. This could be footprints of institutions trimming positions.

Special Situations:

The economy seems to be firing on all cylinders as the talk of 4% GDP heats up. I am certainly not an economist, and I solely look at the PRICE action in individual names and let them speak for themselves. Now in every industry their will be winners and losers, which could occur for a variety of reasons whether it be poor management, geographical location, etc. Below is the chart of FLR and how it appeared in our Wednesday 6/20 Game Plan. This was a former best of breed name that is now in bear market mode down 22% from most recent 52 week highs. It has been below the 200 day SMA for nearly 2 months now and seems to be failing at the very round 50 number too. Formidable opponents to ignore. Getting back to the 4% chatter, things often look best at the top, however I am not in that camp.