Douglas Busch

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ChartSmarter Friday Game Plan 1/5/18

Markets enjoyed another lukewarm, bullish session as all the major benchmarks advanced. The Dow recorded another triple digit gain, and would be 3 for 3 this year if 1/3 would have gained a couple more points. Most encouraging is the Nasdaq's 2.5% advance this week so far heading into Friday. The tech heavy index only registered two other 2.6% weekly gains in 2017, the weeks ending 1/17 and 7/14, and a 2.7% jump the week ending 9/1, so a gain tomorrow can really show how it is flexing its muscles. Couple that with the break above the very round 7000 number and growth investors are feeling sanguine. It will pay to keep an eye on the Russell 2000 which is often considered a leading indicator as it possibly recorded a double top at the 1560 number with today and the 12/4 session (both days reversed off session highs with 12/4 registering a bearish shooting star at all time highs).

Looking at individual sectors the financials came out of their very temporary hibernation as the XLF rose by 1%. The ETF was somewhat undecided if it wanted to break above a 28.50 bull flag trigger but it has been acting strong lately. The utilities that demonstrate one of our favorite phrases, trends in motion are more likely to persist than reverse (in both directions) fell .8%. The XLU was the only major S&P sector to lose ground Thursday, and it is now in correction mode down 10% from most recent 52 week highs and firmly underneath its 200 day SMA. One could say with authority markets acted somewhat rationally, a rare event these days, with those aforementioned sectors often acting an an inverse fashion. Technology is giving bulls reason to cheer as the XLK is a perfect 3 for 3 in 2018 advancing 2.6% for the holiday shortened week thus far. Energy continues to impress as it has gained 3.8% this week so far and retail is following suit, an anomaly, but a trend that must be respected until it no longer lasts.

We are all aware that the commodity space has been acting very well overall with oil and copper just to name a couple examples. This is indicative of economic strength both here and abroad. Things acting in symmetry. Now in bull markets, the saying is a rising tide lifts all boats, but the best investors will be able to identify names that are superior. Some names may advance 20%, but others could really excel and jump 50-100% or more. In the agriculture space it is easy to decipher which name is the general. Below is the best breed stock CF and how it appeared in our Tuesday 12/19 Game Plan. Over the last one year period it has gained 32%, compared to peers POT which has added 13% and MOS which has LOST 13% during the same timeframe. People like to play the mean reversion game or laggards will catch up, but I believe in buying strength as names are firm for a reason. CF is on a current 6 week winning streak and likely to make it seven as it is higher by 2.5% this week headed into Friday. I would not be surprised to see this name travel toward to the round 70 number, which represents it all time highs recorded the week ending 7/17/15, at some point in 2018.

Past and Present View on CXO

Energy has been a clear leader going into last year, and that performance is gushing over into 2018, pun intended. As I have said recently to people who have commented that it represents lousy leadership, it could be true but PRICE action must be respected. It could also be giving other sectors that investors may prefer to lead, like technology a chance to catch its breath after a big move last year. It feels like shorts are being unwound on a daily basis, and in a perfect storm for bulls, natural longs like to see 3% GDP prints that show economic growth. And on top of that global growth is powerful. The XLE is looking for a 3 week winning streak and is rapidly seeking out a 78.45 cup base trigger in a pattern nearly 13 months long. Below is a best of breed energy play that we look at in a past and present view.

Stocks that can be bought after recent initial touches of their 50 day SMAs following breakouts are CXOCXO is an energy play higher by 6% YTD and lower by 1% over the last one year period. Earnings have been mostly lower with three straight losses of 8.7, 1.3 and 6.8% on 8/3, 5/4 and 2/22 before a recent gain of 4.5% on 11/1. The stock is higher 12 of the last 16 weeks, with 3 of the down weeks off less than 1.3%, and shows good volume trends. It has acted well POST breakout from a 134.15 cup base breakout trigger taken out on 10/2 and on 11/29 tested its 50 day SMA for the first time after the break. Enter CXO here and add to above a 144.52 double bottom trigger. Successful gap fill from 10/31 session on 12/7 adds to bullish appeal.

ChartSmarter Wednesday Game Plan 1/3/18

Markets may have taken a little slow to the Santa Claus rally but the major averages began 2018 in jolly fashion. The Nasdaq which has been a recent laggard as it coasted into the end of last year, put on a nice show as the benchmark rose 1.5%. More importantly it broke above the very round 7000 number, which it was unable to accomplish on 12/18. Todays move registered as a bull flag breakout with a measured move of 260 handles. It was helped by strength in the big cap names like FB, AAPL, AMZN and NFLX all rose between 1.7-4.7%. The S&P 500 is shying away from its own round figure of 2700, but it put in an admirable performance rising by .8% and is looking for a bull flag breakout of its own. Keep in mind it is not unusual for a stock or index to be rejected at a round number only to come back and try again and be successful. Of course it could fail too, but a trend is more likely to persist than it is to reverse. The Russell 2000 added .9% and the Dow bounced back from a mild morning selloff to close higher by .4%.

Looking at individual groups one would come to the conclusion that 2018 started right where the previous year left off. Energy was one of the standouts Tuesday with the XLE advancing 1.6% and on the opposite end of the spectrum was utilities slumping .9% (the XLU keep in mind fell 6.4% last month). The XLE is now higher 13 of the last 19 weeks and one has to come away very impressed with last weeks UNCH finish after the prior week surged 4.7% and this week is certainly beginning in strong fashion. Sentiment in the group seems to becoming very bullish and that may be a concern but it looks to be gravitating to a long cup base trigger of 78.55 in a base more than one year long now. Beyond that I could see a move to the very round par number at some point this year, a level that was tough to see any momentum above dating back to June-July of '14 (the very round 50 number played a role in a bottoming process with a huge 11% reversal off the figure the week ending 1/22/16). Curious was the financials not joining the solid start to the year as the XLK was basically UNCH.

As we reviewed the major S&P sector gains on a YTD basis in Tuesdays report, we did mention decent strength in the healthcare group. The XLV was up by 20% on 2017, basically in line with the S&P 500, but if you dig a little deeper into the space at sub sectors you will even better strength. The IHI, the medical devices ETF, rose by 31% in 2017, a tad better than the Nasdaq and clearly stronger than the IBB which advanced 21% last year. Below is the chart of SYK, the 6th largest component in the ETF, and how it appeared in our Wednesday 12/13 Game Plan. Its allure came from the successful gap fill at the very round 150 number on 12/7 from the 10/26 session. To start of 2018 on the right foot, pun intended, its broke above an add on buy point above a 156.99 double bottom trigger after a JPM upgrade. We prefer breakouts on now news at all but the PRICE action in this name has been superior as it sits right near all time highs. One can additionally add to above a 160.72 cup base trigger.

ChartSmarter Tuesday Game Plan 1/2/18

Markets recorded a late session reversal to end 2017 on Friday giving some of the major indexes sizable losses including the Nasdaq and Russell 2000 which fell by .7 and .9% respectively. For the week that late selloff Friday snapped 5 week winning streaks for the S&P 500 and Dow with each falling .4 and .1% respectively. The Nasdaq lost .8% for the week. The Dow and S&P 500 still both look productive as they sport bull flag formations, the Nasdaq could easily test its rising 50 day SMA 100 handles lower. The week showed little volatility until Friday as the Nasdaq for one has intraday ranges of 18, 26, 24 and 18 points Monday-Thursday. So much for intraday swings with market participants pretty much away and volume soft. For the year it was a jolly one with the Nasdaq up 29, Dow 25 and S&P 500 by 19%. Some things to look forward to starting 2018 is the softness in the greenback as it has broken below a bearish head and shoulders pattern. That has some bullish inverse reaction with commodities jumping as copper put in a 16 session winning streak and energy surged nearly 5% in December. Remember in 2018 and always to watch unbiased PRICE action. Everyone will have a prediction and I have heard bears saying that "Charles Schwab clients' cash levels reached their lowest level on record recently (the 'dumb money' is all-in the market, basically)", to the elevated AAII extreme bullish sentiment readings. If anything those kind of headlines can further fuel this rally. But remember too that we must always be privy to what we can lose and capital preservation is paramount. In summary, keep your losses small and let your winners run and block out all the noise.

Looking at individual groups on a weekly basis for the last week of '17 there were not any big movers or losers. Things of note were the XLK falling .9%, the weeks worst performing group, and losing ground back to back weeks for the first time since mid August to show you how resilient technology overall has been. The staples which seems to be a consensus avoider group every year CLOSED UNCH this week, but has finished the last 4 weeks very taut, and the last 3 very tight all within just TWO pennies of each other. That type of narrow trade can often lead to powerful advances, even within the defensive staples arena. It would be remiss if we did not examine sectors for the whole of 2017 and technology was the best actor with information technology advancing 36.9%, and four of the next groups all put in a good bid for second place. The materials rose 21.4, discretionary 21.2 and both healthcare and financials gained 20%. Each of the aforementioned groups beat the S&P 500's 19.4% gain in 2017. Lagging were the utilities which added 8.3%, and the only sectors to fall on a YTD basis were telecom and energy spaces off 6 and 3.8% respectively. On a monthly basis for December most groups were subdued with the exception of big bifurcation regarding the telecoms rising 5.8% and the utilities DROPPING 6.4% and the XLU recording a bearish monthly engulfing candle from all time highs.

In a year in which the vast majority of stocks rose handsomely, of course there were some that were not invited to the party. That is often a tell when a name gets left behind on a firm, overall tape. Below is the chart of WIX and how it appeared in our Tuesday 12/26 Game Plan and it now rests 33% off most recent 52 week highs. This was a good example of always being cautious as this stock was a strong leader during a run from 15 the week ending 2/12/16 to 86 the week ending 4/28. Since then however it has declined 18 of the last 34 weeks, and where one negative earnings reaction can be forgiven, back to back misses could spell trouble. In the very least the company now has the burden of proof to convince bulls it is on the straight and narrow. It looks like it could gravitate to the round 50 number early next year and if that does not hold look out below.

Stocks that can be bought as they tae out bullish inverse head and shoulders patterns are OZRK. OZRK is a financial play lower by 8% YTD and over the last one year period and sports a dividend yield of 1.5%. Earnings momentum is terrible with FIVE consecutive negative reactions losing 2.7, .7, .8, 2.5 and 3.5% on 10/11, 7/12, 4/11, 1/17 and 10/11/16 (it REPORTS 1/17 before open). The stock is higher 5 of the last 7 weeks and has traded between the round 40 and 50 numbers since the beginning of April '17. It found support at 40 week ending 9/8 and resistance at 50 roughly in June and December. Enter OZRK with a buy stop above a bullish inverse head and shoulders trigger of 50.25 which has a measured move to 60. One can add above cup base trigger of 56.86.

Trigger OZRK 50.25.  Stop 47.

Stocks that can be bought as they take out bullish WEEKLY flag triggers are SPLK. SPLK is a software play higher by 60% YTD and 62% over the last one year period. Earnings momentum is headed in the right direction with back to back gains of 17.9 and 8.5% on 11/17 and 8/25 after losses of 7 and 3.2% on 5/26 and 2/24. The stock is higher 10 of the last 11 weeks and the last 3 CLOSED very taut all within just .38 of each other. The round 80 number has held firm with six CLOSES above in the last 7 weeks, a number that it was unable to hold for long early in 2014 after reversing hard at the round par figure the week ending 2/28/14. Enter SPLK with a buy stop above a bull flag trigger of 84.50 which carries a measured move to 102.

Trigger SPLK 84.50.  Stop 81.

Stocks that can be bought as they take out bullish ascending triangles are SRPT. SRPT is a healthcare play higher by 101% YTD and 103% over the last one year period. Earnings have been mixed with gains of 20.1 and 4.4% on 7/20 and 4/28 and losses of 1.5 and 2.3% on 10/26 and 3/1. The stock is higher just 5 of the last 9 weeks, yet remains just 3% off most recent 52 week highs. A bullish ascending triangle began with a successful initial touch of its rising 50 day SMA after a breakout above a cup base trigger of 44.34 taken out on 9/6. Enter SRPT with a buy stop above a triangle trigger of 57.75 which carries a measured move to the round 70 number. On weekly chart could be interpreted as a 14 month cup with handle breakout as well.

Trigger SRPT 57.75.  Stop 54.

Stocks that can be bought as they initially touch their rising 50 day SMA after recent breakouts are MRVL. MRVL is a semiconductor play higher by 55% YTD and 52% over the last one year period and sports a dividend yield of 1.1%. Earnings have been mostly higher with FOUR consecutive positive reactions higher by 7.5, 4.3, 1.5 and 10.8% on 8/25, 5/26, 3/3 and 11/18/16 before a recent loss of 4.6% on 11/29, which was just after the announcement of the CAVM acquisition. The stock is higher 10 of the last 14 weeks, including a 9 week winning streak ending between 9/29-11/24 which rose nearly 30%. Enter MRVL at 21 as it would be the first touch of its 50 day SMA after a bull flag breakout above a 21 trigger on 11/20.

Trigger MRVL 21.  Stop 19.75.

Stocks that can be bought as they retest prior bull flag breakouts are SFIX. SFIX is a recent retail IPO that is now lower by 14% off most recent highs. It recorded just one earnings reaction and it slumped 9.8% on 12/20, but it did bounce near the very round 20 number and CLOSED in the upper half of the daily range. It is higher 6 of the last 7 weeks and recorded a huge 50% combined gain the weeks ending 11/24-12/1. On 12/26 it screamed above a bull flag formation trigger of 25 (several sessions recently were above 25 but 12/20 was first finish above), could be viewed as an ascending triangle too, which carries a measured move to 35. Enter SFIX here as it has retested that bull flag breakout and held.

Trigger SFIX here.  Stop 22.45.

Stocks to be considered shorting opportunities are RHT. RHT is an "old tech" play higher by 72% YTD and over the last one year period. Its most recent earnings reaction falling 5.3% on 12/20 perhaps can be forgiven as the prior THREE all rose by 4.1, 9.6 and 5.2% on 9/26, 6/21 and 3/28. The stock is lower 3 of the last 5 weeks and now 8% off most recent 52 week highs. It fell 2.3% this week showing relative weakness as the Nasdaq fell .8%, and showed bearish follow through after the prior week ending 12/22 slumped 4.5% recording a bearish engulfing candle. Enter RHT with a sell stop below a bear flag trigger of 119.50 that would carry a measured move to 109. There have been no CLOSES below 120 since climbing above on 10/12 even though several were below intraday.

Trigger RHT 119.50.  Buy stop 123.

Good luck.

The author is flat.

Trigger summaries:

Buy stop above bullish inverse head and shoulders OZRK 50.25.  Stop 47.

Buy stop above WEEKLY flag trigger SPLK 84.50.  Stop 81.

Buy stop above bullish ascending triangle SRPT 57.75.  Stop 54.

Buy initial touch of rising 50 day SMA after recent breakout MRVL 21.  Stop 19.75.

Buy pullback into bull flag breakout SFIX here.  Stop 22.45.

Sell stop to short below bear flag RHT 119.50.  Buy stop 123.

ChartSmarter Tuesday Game Plan 12/23/17

Markets slogged into the weekend with the Dow, Nasdaq and S&P 500 all declining very modestly in the .1% neighborhood. The Russell fell .3%. For the week the "big three" had similar returns as well all gaining between .3-.4% and the Russell 2000 added .8%. All of the four aforementioned benchmarks now have the look of tight bull flags, I would like to see them have a few more days in duration, but it is hard to knock the price action here. We are heading into two consecutive holiday shortened weeks which tend to be positive, and with just one week left in '18 without any major moves the Nasdaq will end up outperforming the S&P 500 and Dow, and it would be the fifth year in the last 6 it has done so. All four have moves that are admirable thus far this year with the Nasdaq higher by 29.3, the Dow 25.3, the S&P 500 19.8 and the Russell 2000 by 13.7%. Key next week would be moves above round numbers of 7000 and 2700 for the Nasdaq and S&P 500. Wishing everyone an excellent end to the year and a healthy and prosperous 2018.

Looking at individual sectors there were no outsized winners or losers today as all 9 major S&P groups all finished within .7% of each other. Energy just missed out on a third straight day of the strongest group with the XLE rising .2% compared to the materials higher by .4%. "Lagging" today were the financials and healthcare with the XLF and XLV dropping .3%. The XLU snapped a 6 session losing streak Friday, albeit fractionally, but did complete a bullish harami cross pattern just underneath its 200 day SMA. For the week it slumped 4.7% in active volume, its worst weekly loss since the week ending 9/4/15. In fact the last 2 weeks have slipped more than 6%, with both weeks accompanied in the strongest weekly trade in 9 months. On a weekly basis energy was the best actor by a long shot with the XLE jumping 4.8%, its best weekly gain in 20 months. With the current momentum of energy, going forward its going to be harder and harder to complain about a laggard showing leadership. It has earned that distinction and should be respected.

We are big on PRICE confirmation with CLOSING prices, and below is a wonderful example why. APC was a laggard in an already soft space until the overall group caught fire recently. The jury was out on which way this space was going to move for the last 3 months, but with this weeks stance bulls have to be pretty excited going into year end. Here is the chart of APC and how it appeared in our Tuesday 12/12 Game Plan. There was a picturesque bearish head and shoulders setting up and the round 50 number played a role in both of the clavicles. If one thought he would be smart and proceed with a premature short and add to with a break underneath the neckline learned an expensive, but hopefully worthwhile lesson. The trigger was never hit and it is now on a 5 day winning streak up 11.4% for the week. Keep in mind we did discuss how moves can be powerful when a break occurs in the OPPOSITE direction of where one would traditionally break. There is nothing to do here now, there are better fish to fry, but put this one firmly in your memory bank for the next time you try and outsmart the market.