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ChartSmarter Friday Game Plan 11/10/17

Markets were under pressure from the start Thursday as the major averages never saw green and it was the Russell 2000 that was in the spotlight once again coming into contact with its 50 day SMA for a second straight day before rebounding. It fell .45% after touching near the 40 RSI level where the best performing instruments tend to bottom. In the beginning of October it was in the mid 80's to give one an idea how it has quickly cooled off. To put that more in perspective the Nasdaq is still in the 60's on its RSI and has been making higher lows since kissing the round 40 figure itself in early August. One can often get a nice gauge of the overall health of the market by how leading stocks are operating. It is a very small sample size but the moves in a couple today were startling. Names like CRL from the healthcare arena slumped more than 12%, although finding support near the very round par number and a double bottom breakout trigger of 102.20 taken out on 8/22. ALRM sank more than 14% and neared its 200 day SMA, which is still rising and a line it has not felt since February. Keep in mind bottoms tend to form in a long, gradual fashion and tops just the opposite. Lets see if the markets recent taut behavior begins to start becoming very volatile. It could be a worthy sign. That being said respect how the indexes CLOSED Thursday with the Nasdaq ending the session well off the lows off 1.5% at lunchtime.

Looking at individual sectors I almost sound like a broken record mentioning that energy led Thursday. The XLE rose just .3% but it was the best performer of the major S&P sectors. Could its nascent strength be an indicator of future economic growth as we used to look to this space for information on that subject. The ETF has real momentum as it is higher by 2% heading into Friday on the back of a 2% weekly advance last week (it also put up near 2% weekly gains three weeks in a row weeks ending between 9/15-29 demonstrating this could be the beginning of something real). Cyclicals were decent actors today as the XLY rose fractionally with some retailers ignoring a weak tape. Lagging today were technology, materials and industrials with all surrendering between .8-1.2%.

Energy names have been strong lately and as I have mentioned before it pays to understand which stocks were former leaders as these will normally be the best actors of of the gate once capital returns to the space. Some names will behave better as EOG is a general in the industry only 4% off 52 week highs. Some will take a bit longer and potentially be thought of as skeptical for that reason, but reversals will occur. Below is a possible example and the chart of RSPP and how it appeared in our Wednesday Game Plan this week. It is still 20% off most recent 52 week highs but burst above a bullish inverse head and shoulders pattern and its 200 day SMA which is a very good start. The stock repeatedly found support near the round 30 number this spring and summer and now it is premature, however heading into year end a weekly double bottom pattern is shaping up with a trigger of 42.09 to be added to. Once it gets in motion it could be powerful as witnessed last year with a run well more than doubling as it gained 30 of 47 weeks ending between 2/19/16-1/6/17.

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ChartSmarter Thursday Game Plan 11/9/17

Markets continue to be stuck in the mud after a powerful overall advance. Sometimes it pays to at other instruments for possible clues for the next direction. It is often said that the bond market is smarter than the stock markets and it usually is an accurate precursor to what can potentially happen in the equity markets. High yield or junk bonds often carry a strong correlation with the stock market and if one glances at the JNK for hints, bearish is the message. The ETF is now on a six session losing streak and has undercut its 50 day SMA with active volume. It is looking at a potential 3 week losing streak, lower by .7% heading into Thursday as the S&P 500 is clawing for a ninth consecutive advance as the two diverge. For the bulls the Russell 2000 did its part bouncing precisely off its rising 50 day SMA, recording a bullish hammer, and that is your line in the sand going forward into year end

Looking at individual sectors consumer staples were strong today following up on Tuesday's 1% jump, and keep in mind that was the ETF's first gain of 1% since 7/27 to demonstrate just how weak it has been. Most likely it is just a dead cat bounce as both volume and price trends remain bearish. Technology and healthcare were the second and third best performers today and lagging were the financials and energy with the XLF and XLE falling .4 and .6% respectively. Energy is not surprisingly soft as it wrestles with the round 70 number but bulls have to be feeling sprite as the XLE rose 1.1 and 2.3% on 11/1 and 11/6 both on very active trade, and the bull flag breakout above a 69 trigger remains intact. WTI has been on a tear so it can be forgiven that its ascent has not continued given the Middle East war talk over the weekend.

As tech establishes itself as a leader, bulls are feeling a bit light on their toes. Software names have been on the ascent, perennial favorites like RHT and ADBE have been firm and CDNS is on an 8 week winning streak, and we tend to like momentum and therefore buying strength. More specifically stocks should be above their 50 day SMAs, preferably rising. Below is the chart of SPLK and how we profiled the name in our Wednesday 10/25 Game Plan. The stock is now higher 9 of the last 12 weeks and is looking for a 4 week winning streak with this week advancing 5.4% thus far, and the prior more than a combined 6%. It broke above its 50 day SMA on 10/26 and has not looked back. Volume could be a bit more energetic, but price action is hard to deny. It is acting well POST breakout from a double bottom trigger of 67.24 taken out on 10/31 and today cleared the round 70 number for the first time since August '15.

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ChartSmarter Wednesday Game Plan 11/8/17

Markets recorded a weak session Tuesday with the most concerning the Russell 2000 breaking down. We have discussed at length recently how we have hinged our bullishness of the overall markets on the health of the bull flag in the aforementioned index. It did register a bearish reversal on 11/1 after an intraday move above the flag on to finish sharply off the days highs. It is a good reminder why we pay very strong attention to CLOSING prices. The next big test now is the initial retest of the rising 50 day SMA following the cup base breakout above the 1450 trigger in late September. Perhaps this is just a bull trap phase after the failed breakout, but bears should be feeling as energized as they have in months after today. Adding to the bearish narrative today was the lagging Nasdaq which slipped .3%. Of course the benchmark is still 200 points above its upward sloping 50 day SMA. The Dow and S&P 500 ended flat.

Looking at individual sectors there was a clear move to safety today with the utilities and staples performing the best with the XLU gaining over 1.2% and the XLP just behind adding 1.1%. Both of these traditional defensive groups have bifurcated with the XLU is right at fresh 52 week highs and the XLP is 7% lower than its own, however it recorded a strong session just missing a bullish engulfing candle. It is hard not to think of the utilities as a growth group these days. Lagging were the financials which have every right to a prudent pause with the XLF losing 1.4%. It is now filling in a gap from the 10/19 session which also doubles as a bull flag breakout. One industry to keep an eye on is the healthcare arena with the XLV now looking like a bear flag is taking shape. The fact that it is forming below its 50 day SMA gives the bears more to salivate with. It has not gravitated that far from its 50 day SMA and is only 3% off most recent 52 week highs, but bulls would like to see a quick reclaim of the important line. Some individual names recorded big losses Tuesday including GKOS SUPN NVRO FPRX and MNK, with all dropping by double digits with the exception of NVRO which slumped "only" 9.75%.

We are not ashamed to admit we are big believers in the candlesticks. I will of course state they come secondary to PRICE action as always but they often give vital clues as to what can potentially happen. Now unless you have been living underneath a rock this year one is well aware of the retail woes. Sure there have been some names that have been trying to right the ship, but when so many holes have been penetrated on the deck the incoming water just becomes to heavy to ignore. There have been some stout winners but when these leaders begin to show signs of wear and tear the whole group could be in trouble. One laggard that looked as if it had potential of turning the corner was CROX as it zoomed past the very round 10 number the week of 10/20 jumping more than 10% in firm volume, but has since slumped almost 20% the last 2 weeks. Below is the chart of TIF and how it appeared in our Wednesday 10/11 Game Plan and it shows how bearish candles in somewhat quick succession could prove to be tough to overcome. Dark cloud covers and engulfing candles as short term interim tops are proving enlightening.

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ChartSmarter Tuesday Game Plan 11/7/17

Markets began the new week in a moderately bullish fashion as most of the major averages posted lukewarm advances. The Nasdaq continues to show the way as it has picked up steam recently with FANG names coming back to life and rose by .3% on Monday. The S&P 500 added .1% as it looks for a ninth, not a typo, consecutive weekly gain this week. Keep in mind we just entered the stronger 6 months of the year, as the old adage implies sell in May and go away (until October). Seasonality is the tailwind for the benchmarks now one should see more traditional window dressing into big names as portfolio managers pour into big cap tech names (can not be many left). Additionally as well for tax reasons in anticipation of reform, there could be less selling of these stocks to capture more return. Are too many complacent in the belief that November and December historically perform positively? Ride the train as long as it keep in motion. It usually travels beyond what many believe to think.

Looking at individual groups it was energy that was the clear, undisputed heavyweight leader with the XLE jumping more than 2%. The ETF CLOSED above the very round 70 number and is now comfortably above a bull flag trigger of 69 which carries a measured move to 76. At the depths of the energy debacle I have to admit even I started to believe all the peak oil, 500,000 solar panels put in around the world on a daily basis, etc (no politics here just an observation) to form an opinion that these names may never recover. It is just an example and who knows what is true or not, but it is an excellent reminder to just focus on price action. How long this rally lasts no one knows, but if one has exposure to the group (I have not for a long time), let PRICE action alone dictate how you invest. Keep in mind the round numbers were instrumental with the XLE having issues with the big round par number the weeks ending between 6/20-8/1/14 and 50 provided a strong bounce the week ending 1/22/16. The staples lagged as weakness begets more weakness as the XLP lost 1.1%.

As the overall markets seem to digest recent big moves many flag have been shaped, not only on the big benchmarks with the Russell 2000 and the Dow, but many individual names as well. When one sees breakouts among former best of breed names in weak groups that have since caught fire one should play close attention. Below is the chart of EOG and how it appeared in our Wednesday 10/11 Game Plan. This former leader is reclaiming that status as it has gained ground 10 of the last 11 weeks and it formed a bull flag during a 4 week period ending between 9/29-10/20 which all CLOSED within just .65 of each other. That type of taut trade can lead to explosive moves and it jumped more than 6% last week in firm volume. It still has some room to its measured move but now is also nearing a cup base trigger of 109.47 in a base nearly one year long. Once can add to or initiate a new position above there.

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Those Round Numbers

The round numbers theory is one we pay attention to greatly. Names will often find support and resistance there temporarily giving investors the chance to trade around core positions, adding or shaving as they come into play. Some of the figures we like best are 10 (rare but we like to see names climb above single digit and many funds will shun stocks below), 20 as they shed teenager status and 90 and par as these two have relevance as names that pass through 90 historically trade through par and beyond. Below we look at four examples that highlight the round number theory and all are still near spots that investors can take advantage of.

Here is the chart and how it was presented in our Wednesday 9/27 Game Plan. The Denver CO energy name has certainly benefited from a nice sector rebound and Friday recorded its first weekly CLOSE above the very round 20 number since going public. It has more than doubled since coming public in April '16 and one can enter here and add to above a 20.54 double bottom trigger.

Stocks that can be bought as they take out the round numbers are CDEVCDEV is an energy play lower by 4% YTD and higher by 32% over last one year period. Its last earnings reaction rose 4,5% on 8/8 and the previous 2 fell by 1.1 and 6.4% on 5/11 and 3/23. The stock is higher 4 of the last 5 weeks and by 5.3% thus far this week and has recent strong weekly gains of 12.3, 7.6 and 6.2% ending 7/14 (bullish engulfing week), 7/28 and 8/11. The round 20 number has been tough to pierce and it was above weeks ending 12/16/16-1/6/17 and 4/14 but no CLOSES above. Enter CDEV with a buy stop above 20.20 and add to above double bottom trigger of 20.54.

Trigger CDEV 20.20.  Stop 18.75.

Below is the chart of MSI and how it was presented in our Thursday 10/12 Game Plan. The stock is enjoying a current 6 week winning streak with all 6 weeks CLOSING either at or very near the top of the weekly range, a bullish trait. It burst above a bull flag trigger of 90.25 on 10/26 and could very well surpass it measured move, which are guidelines not rules. As a bonus this Friday it broke above a 93.85 cup base trigger.

MSI is a tech play higher by 8% YTD and 20% over the last one year period and sports a dividend yield of 2.1%. Earnings have been mixed with an UNCH finish on 8/4, a loss of 1.9% on 5/5 and gains of .7 and 6.5% on 2/3 and 11/4. The stock lost 6 of 8 weeks ending between 8/4-9/22 with back to back bearish shooting star weekly candles ending 7/28-8/4, but has gained last 2 weeks by combined 6%. Enter MSI with a buy stop above bull flag trigger of 90.25 which obviously aligns with very round number. Names that travel thru 90 often reach par and beyond. A break above flag carries measured move to 97.

Trigger MSI 90.25.  Stop 88.50.

Below is the chart of WYNN and how it was also presented in our Thursday 10/12 Game Plan. This name was looked at as a bounce candidate off its 50 day SMA, but it also illustrates the round number theory well as it encountered nice support at 140 and 150 was resistance in late September and early October. See if it can base here now just above 150 and see former resistance become support.

Stocks that can be bought as they touch their 50 day SMAs for the initial time after a recent breakout are WYNN. WYNN is a best in breed leisure play higher by 66% YTD and 47% over last one year period and sports a dividend yield of 1.4%. Earnings have been mixed with gains of 5.9 and 7.9% on 4/26 and 1/27 and losses of 5 and 9.3% on 7/26 and 11/3. The stock is higher 5 of the last 8 weeks including gains of 7.4 and 6.5% weeks ending 8/18 and 9/1. Round numbers came into play with 140 resistance on 6/26 and 7/25 which then became support on 9/25 and 10/9. 150 number resistance on 9/29 and 10/5. WYNN broke above a double bottom trigger of 139.76 on 9/1 gaining 3.2% on firm trade and touched its 50 day Monday successfully recording a hammer. Enter at 142.

Trigger WYNN 142.  Stop 137.50.

Below is the chart of VRTX and how it was presented in our Thursday 11/2 Game Plan. To be fair right up front the trigger was NOT touched missing by a measly .51. but demonstrates the power of the round numbers. It certainly looked like a gap fill from the 7/18 sense was in order, but the round 140 number acted as a floor on 10/26 and now sits just below the 150 figure as of Fridays CLOSE. If it can climb back above its 50 day SMA a double bottom base is taking shape.

Stocks that can be bought after recent bullish engulfing candles are VRTXVRTX is a healthcare leader higher by 94% YTD and 84% over the last one year period. It has produced back to back earnings drops of 2.1 and 4.4% on 10/26 and 7/27 after losses of .7 and .2% on 4/28 and 1/26. The stock is lower 5 of the last 8 weeks and this week by 5% so far. Last week was significant as it registered an 11 point reversal off the round 140 number which was resistance dating back to the weeks ending 8/7-21/15. It has reacted well to clinical data this year advancing 20.4 and 20.8% on 3/29 and 7/19 respectively. VRTX recorded a bullish engulfing candle on 10/27 in firm volume and look to enter on a pullback into it at 141.50.

Trigger VRTX 141.50.  Stop 138.25.

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