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Preview: Technical Analysis

Technical Analysis

RealMoney's experts take a look at the charts and tell you what they're indicating about the market, the sectors, and the stocks that matter.

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Homebuilder Momentum Breaking Down

Wed, 20 Feb 2013 18:21 GMT

I present the weekly chart of Home Depot first below to illustrate the longer-term RSI divergence (top pane of chart) which has been building. Home Depot has essentially gone flat for the past several weeks. And this divergence is still worth watching as we await the next big move.

Along those lines, the homebuilder ETF daily chart, second below, has been relatively weak over the past few sessions after several quarters of strong market outperformance. Here, again, the top pane shows us a negative RSI divergence to price.

The notion of a resurgent housing market has become increasingly accepted in recent months. With lumber weak the past two days, keeping an open mind that upside may be limited from here for the sector, as good news has been priced in, is important as we watch these divergences play out one way or the other. ...

Click to view a price quote on HD.

Click to research the Retail industry.


Get the Bond Trade Right, the Rest Falls Into Place

Thu, 14 Feb 2013 18:38 GMT

This is a big question that I ask myself when I walk into work every morning. What are we going to do with Treasury Bonds? I mean, they've been a short since they broke down late last year. But what about now?

Here is a chart of US Treasury 10-year note yields. The rally in yields continued through the end of January in this nice clean uptrend channel stalling right around the 61.8% Fibonacci Retracement of last year's decline. Notice the RSI divergence in the summer that helped kick-start the move.


Click to view a price quote on TLT.

Click to research the Financial Services industry.


We Are Never, Ever, Gonna Get a Correction!

Wed, 13 Feb 2013 16:37 GMT

Decision time! Prepare for a pullback! I am so bullish, I can't wait to go all in on a correction!

Some of you know I have been listening to a little bit of Taylor Swift lately, and maybe it has been influencing me. But what if it never happens? Well not never, but say all of 2013? Are you ready for that? For all those waiting for a top based on sentiment, your cabbie or barber showing interest, or what ever, consider this simple 21 year monthly chart of the S&P 500. The Triple Top rejection you are waiting for may never occur. The evidence? The momentum indicators Relative Strength Index (RSI) and Moving Average Convergence Divergence indicator (MACD). The RSI is an oscillator and moves back and forth between 0 and 100. Caution flags get raised at 70 as technically overbought ...

Click to view a price quote on ^GSPC.(image)

Planning an Entry into Michael Kors (KORS)

Tue, 12 Feb 2013 17:52 GMT

With a positive reaction to earnings, Michael Kors remains a strong chart on virtually all timeframes. Obviously, if you did not play earnings it is tough to chase the stock this morning. But turning $60 into support is the main issue I am observing to plan an entry in the coming days or weeks.

As I wrote on January 13th:

Ever since KORS IPO'd in late-2011, the chart has been far more orderly than many other popular IPO's we have seen in this cyclical bull market. On the weekly chart below, you will note what is known as the "base over base" pattern, indicating a steady ebb and flow to the price action with an inherent bullish bias literally since the IPO-A huge move higher followed by a long, mild basing period. ...

Click to view a price quote on KORS.

Click to research the Retail industry.


Jackpot for the Gaming Equipment Stocks

Fri, 08 Feb 2013 19:04 GMT

The three main slot-machine makers in the gaming industry, BYI IGT WMS, have all sporting strong charts lately. IGT is considered the best, but the other two have interesting growth prospect as well, particularly with the emergence of server-based gaming. I have been looking for these three to get a nice move going for a while now, but they had teased. ...

Click to view a price quote on BYI.

Click to research the Leisure industry.


A Warning From the Charts

Wed, 06 Feb 2013 15:36 GMT

Here's something that worries me about the stock market today. The swings are getting bigger, not smaller. So volatility is expanding. The S&P 500, therefore, is putting in somewhat of a broadening formation. Definitely not a check mark for the bulls.

And if it was just that, then maybe it could be brushed off. But it's where it's happening that gives it validity. As you can see in the daily bar chart below, we're at the upper end of this multi-month trend channel:

​ ...

Click to view a price quote on ^GSPC.(image)

Not So Fast on That Bond Short...

Wed, 30 Jan 2013 15:32 GMT

I have heard that a lot lately. And Treasury Bonds are looking weak. The daily chart of the Treasury Bond ETF (TLT) is showing a break of a support area from 117.50 to 118.50 with Tuesday's closing price. Price levels not seen since May 2012. And all of the Simple moving Averages (SMA) are pointing lower. In fact there was a Death Cross on Friday. Ominous right? The next gap area

lower forms between 111.70 and 112.70. $5 is some good coin. But the monthly chart may temper your enthusiasm to bet on the demise of Bonds. The bullish Andrew's Pitchfork that has been in control since the ETF started shows that all that has happened is the Median Line attracting price and then a slight overshoot. This happened back in May 2012 as well before it launched higher, and boy does that 10+ year uptrend look strong. But there are some cracks in the story. The Relative Strength Index (RSI) is making a new lower low from the last touch at the Median Line and ...

Click to view a price quote on TLT.

Click to research the Financial Services industry.


The Future Is So Bright I Gotta Wear Shades

Tue, 29 Jan 2013 17:57 GMT

Did some surfing of the financial blogosphere along with quite a few mainstream financial publications yesterday and the social mood has made a massive 180 from where it was even 30 days ago. One thing about markets is the humans left (ex machines) never change. After a stellar January everyone is pointing to the bright skies ahead as Europe is contained, China has accelerated and the U.S. surges to... well 2%-2.5% growth. Heck even bond yields are going up -- granted to areas once considered recessionary and would be associated with a calamity. Awesome move right? Almost back to 2% on the 10 year...

Well even in the context of the past 3 years... not so impressive. But this is another bullish thesis -- the beginning of "the great rotation" out of bonds and into stocks. For real this time? We won't know without the benefit of hindsight of course... ...

Click to view a price quote on ^GSPC.(image)

The Nasdaq Catch-Up Trade

Wed, 23 Jan 2013 15:53 GMT

This past weekend in my Macro Week in Review/Preview for clients I noted that for the second week in a row the markets looked bullish but with the Nasdaq 100 (QQQ) lagging the S&P 500 (SPY), and Russell 2000 (IWM). In fact it is also lagging the Dow 30 (DIA) and Dow Transports (TRAN). If you take a look at the performance chart below since January 2nd the Nasdaq has been moving sideways while every other index has been rising. There is no rule that says that this

cannot persist, but like the stubborn little kid that does not want to follow the rest of the family, when left alone long enough it will likely try to catch up. So how do you prepare for this to happen? Well there are several ways. The simplest is to just prepare to buy the ETF $QQQ when it breaks the range over 67.50. But you could also reduce some risk and play it as a pairs trade. Sell one of the indexes that has been a high performer on a dollar for dollar basis against a long position in the ...

Click to view a price quote on QQQ.

Click to research the Financial Services industry.


Vegas Stocks: The House Always Wins

Tue, 22 Jan 2013 19:13 GMT

The monthly chart of Las Vegas Sands is one that i have referred to periodically in this blog over the years. The jaw-dropping crash from roughly $150 down to a $1 handle during the 2007-2009 bear market had many thinking the major casino operator was on the brink of going out of business. However, a sharp snapback off the March 2009 lows put those fears on the backburner.

Over the next few years, we saw a textbook psychologically progression after a crash and subsequent snapback -- a flattening out period where each bit of bad news was absorbed increasingly better. As a result, Sands is still holding the lion's share of its bear market bottom snapback rally. Plowing through $60 is sure to get bulls increasingly giddy for a multi-year base breakout. ...

Click to view a price quote on LVS.

Click to research the Leisure industry.


Biotechs Looking Frothy

Fri, 18 Jan 2013 18:17 GMT

After a spectacular 2012, the biotechs as a whole are holding up rather well in the first few weeks of 2013. However, as a bull run matures we inevitably seen leadership narrow and rotations emerge. Two of the larger components of the biotech sector, AMGN and REGN, have flashed some blinking yellow lights over the past few weeks. Note the uptick in selling volume accompanying each recent sell-off. Amgen bulls likely need to hold $83 to avoid confirming a nasty head and shoulders topping pattern, while you can bet Regeneron bears are playing for a breakdown below $164.

Make no mistake, there are other biotechs exuding resiliency here. However, there are indeed two sides to every rotation. ...

Click to view a price quote on AMGN.

Click to research the Drugs industry.


Bad News Ignored, Good News Embraced

Thu, 17 Jan 2013 19:25 GMT

After the twin good news items today premarket there was a stinker at 10 AM in the Philly Fed. The S&P 500 came in but only very briefly and did not even fill the morning gap up. So all in all, we can say today the good news was embraced and the bad news ignored. That's a bullish sign near term. Also after the first hour the gap up is holding, a good technical sign. The longer the morning gap up holds, the better the bull case for today. As for the daily picture we finally see a clearance of that mid 1470s area which has been a headache aka Sep 2012 intraday highs. All this quicksand action has also helped work off the overbought conditions the market has been dealing with since the big gap up Jan 2. Here is an update on the channel the SPX has been traveling since mid November (with the exception of the massive headfake down late December) If you are a Tom DeMark fan the top end of the channel is roughly where he said this move would end.


It's Burger Time -- the Stocks, Not the Food

Wed, 16 Jan 2013 15:59 GMT

We learned recently from Yum Brands, YUM, that the Chinese are not eating enough Kentucky Fried Chicken and the stock took a nose dive. Many thought that fast food was the problem broadly. But I recall a wise man once saying, I'll gladly pay you Tuesday for a hamburger today. That man, Whimpie of Popeye fame, must have been buying the hamburger stocks with his money as he was asking his friends for a handout. For now it is Tuesday and a look at the charts of the burger joints shows they have had some great moves and look ready for more. Smart man that Whimpie.

Burger King Worldwide, BKW


Click to view a price quote on YUM.

Click to research the Leisure industry.


A Major Breakout for Developed Markets?

Fri, 11 Jan 2013 17:14 GMT

In addition to emerging markets, namely China, seeing strong inflows of late, the developed economies are showing promising signs of attracting rotations as well.

...consider the EFA ETF. This particular ETF concentrates on multinational firms with heavy exposure to the developed economies in Europe, Japan, Australia, and developed parts of Asia. ...

Click to view a price quote on EFA.

Click to research the Financial Services industry.


Thursday's Morning Trade

Thu, 18 Aug 2011 11:50 GMT

Are gold bugs about to get stomped on?

Early Wednesday morning on Columnist Conversation there were some comments made regarding gold and whether or not its momentum was beginning to fade. As I mentioned on CC, I believe one can lean short on Gc futures -- or the SPDR Gold (GLD) ETF -- as long as prices remain beneath 1795-1800. Any hint that traders are beginning to accept prices above that 5-point zone should send short-sellers back to their hidey holes. Short-term sellers need to see support near 1781 fail, this would likely allow for continued selling through 1765 and toward 1740-1743. As you can see on the chart below, the real fun for short-sellers begins beneath 1740.


Click to view a price quote on GLD.

Click to research the Financial Services industry.


Catching the Wave: The Golden Handcuffs

Wed, 17 Aug 2011 20:30 GMT

Good news for investors who never feel like they get advance warning of direction changes: There's now a set-up just for you. It's one of the best uses of Elliott Wave Theory (EWT) and has contributed to many of the turns I've forecast here on RealMoney.

As you know, I use several methods to measure the mood of the crowd to validate the labeling of a market's Elliott Wave structure. This came in handy in June and July when I was able to forecast a dramatic spike in the Volatility Index (VIX), as well as the projections for its run toward 48. The patterns were so clear, and the crowd's false sense of certainty about even higher VIX levels, that I was able to use my "30-minute clock" and "5-minute clock" as the VIX reached statistically impossible extremes to emphasize how fleeting those moments were about to become.

Another tool I often share with clients and RealMoney readers is the Daily Sentiment Index (courtesy of Generally, when it reaches extreme bullish readings above 90%, at least a correction is due at any time and sometimes a major direction change is indicated. Inversely, when bullish readings are below 10%, at least a rally is due at any time and sometimes a major direction change is indicated. ...


Nike Faces Steep Pullback

Wed, 17 Aug 2011 19:16 GMT

Nike is beginning to look vulnerable and may be headed for a steep pullback. The stock rebounded sharply off last week's extremely oversold condition, but this week has struggled to maintain the upward momentum.

At its August 9 lows NKE had dropped over 15% from its 52-week peak, a level reached in early July. The selloff gained steam once the 200-day moving average was violated but as the June lows neared the pressure began to ease. Nike found support near the $78 area before mounting a 50% retracement of the July/August collapse. This level, just slightly above $85.50, stopped the low volume rebound dead in its tracks. With the 1% loss today NKE is now fading further below its 200-day and appears headed lower in the near term.

Volume is running very light today, but I believe the price action is very damaging. The $84 to $85.50 area could potentially evolve into a key mid-term top. A retest of the June lows followed by a period of healthy basing action is likely needed before bulls will have the strength to power NKE past yesterday's peak. ...

Click to view a price quote on NKE.

Click to research the Consumer Non-Durables industry.


Fortinet Flirts With a Key Level

Wed, 17 Aug 2011 18:13 GMT

Before taking a look at today's chart, I wanted to briefly comment on market volume. Many have mentioned the declining volume over the last seven trading sessions as the market attempts to stabilize and move higher. The S&P 500 index volume bars on the daily chart show the strong volume that accompanied the downdraft at the beginning of the month and the apparent reversal in volume which raises suspicions about the recent gains.

You've seen the inverse "V" highlighted many times. Relative to the 50-day moving average of volume, however, the volume has been strong on those days when the index has moved higher. The percentage volume oscillator has been reconfigured to measure the percent difference between the one-day and 50-day moving average of volume and, while declining, it has been well above the average (the last bar reflects the partial session and not the daily volume). This is not an observation that supports any particular thesis on the future of the market -- it's just another point of information to keep things in perspective.

S&P Volume, DailySource: ...

Click to view a price quote on FTNT.

Click to research the Computer Software & Services industry.


Searching for the Next Market Leaders

Wed, 17 Aug 2011 17:30 GMT

Few stocks have made significant progress in repairing technical damage they suffered during the mini-crash that ended on Aug. 9. As a result, I believe the majority will now chop higher, posting uncertain upticks that will eventually run into a fresh buzzsaw of selling pressure. In turn, these market mechanics predict a retest of the lows and, perhaps, breakdowns to even lower lows.

But a few mavericks and market groups do well during every major downturn -- whether it's a broken tech bubble or a banking collapse. For example, Express Scripts posted a series of new highs after tech sold off at the start of the new millennium while, in the last bear market, McDonald's was trading just a few points shy of an all-time high in December 2008.

Although this decline could last into 2012, it's a perfect time to look for signs of rotation into groups, sectors and issues that might provide market leadership going forward. No, I'm not interested in regurgitating the basket of high-yield plays that allow you to lose money at a slower pace. Rather, let's see if we can find the next stocks that will post new highs in 2011. ...

Click to view a price quote on ZAGG.

Click to research the Specialty Retail industry.


The 'Re-Risk' Crowd Is in Control

Wed, 17 Aug 2011 16:24 GMT

It didn't take very long for the "risk-on" cabal to return to the markets. The financial press in recent days was rife with stories of abbreviated vacations and wired-in sunbathing, especially among the high-frequency trading crowds. They allegedly made a killing over the past few weeks; this should come as no surprise, given the tremendous volatility all markets have displayed since the end of July.

For traders unable to access the overnight markets the past several days, the "feel" of the market has been somewhat different. The swings in the S&P 500 futures market have been quite dramatic, with a few decent long entry points offered during the past couple of evenings.

S&P 500 Emini Futures -- 5-DaySource: Bloomberg ...

Click to view a price quote on SPY.

Click to research the Financial Services industry.


Fitz Bits: Steer Clear of Morgan Stanley

Wed, 17 Aug 2011 16:00 GMT

Let's check out some reader requests. Morgan Stanley NetApp Tiffany Starbucks Research In Motion

Each day, I'm featuring several reader requests for the current technical take on a stock. I can't assure you that I'll get to yours, but I will certainly make every attempt to do so, as long as the stock meets the following criteria.

1. The average daily trading volume needs to exceed 250,000 shares. If a stock trades too thinly, chart analysis doesn't help much, because there just are not that many traders involved. One big buy or sell order can move the stock in ways that chart analysis just cannot predict. So let's stay above 250,000 daily shares. ...

Click to view a price quote on MS.

Click to research the Financial Services industry.


Scooping Up Potential Gems on the Cheap

Wed, 17 Aug 2011 15:45 GMT

Before I push into a couple more potential long-side trades, let me say that Tuesday was constructive for the bullish. If the market could just retrace back into the three high-volume wide price-spread anchor bars from last week, that would probably be the extent of the first pullback. If it doesn't, then the first retrace will likely come from higher levels. Given the roadmap I have in front of me and which I shared with you last week, either situation would probably complete the first pullback before the slow crawl higher.

So the odds on trade remains long at this juncture -- buying the weakness in select areas, and preparing for a slow climb. Certainly if you already hold too much inventory, then this article is probably falling on deaf ears. But if you pushed inventory out above -- or even if it was below -- and if there's a lot of cash in your portfolio, realize this: Once the S&P 500 clears the 1200-to-1205 resistance zone, the swing point this market wants to shoot for is probably 1248.

With that in mind, here are two stocks that I picked up on weakness yesterday. The first is CommVault Systems , a maker of information-management software applications, including automated backup and restoration applications, as well as real time virtual backup imaging. It's a subscription-based model, which I prefer from a sales perspective due to the reoccurring revenue stream. The company reported earnings Aug. 2 and the stock received a nice bump higher, leaving a gap on the chart with heavy volume. The problem was, the market was heading down the tubes and pulled the shares lower. Here's the chart. ...

Click to view a price quote on CVLT.

Click to research the Computer Software & Services industry.


Wednesday's Es Morning Trade

Wed, 17 Aug 2011 11:22 GMT

Review of Monday and Tuesday's Es Trading

The majority of the Es volume over the past two days has taken place between 1189.50 and 1195.25. The bulls are currently trying to build support for a push toward 1212.50, but each time prices approach 1200, the higher prices cut off demand. The bears are trying to push prices back toward 1172.50, but each time prices approach 1184.50, supply evaporates. The market is balanced between 1189.50 and 1195.25, and while the money trade has been to fade prices outside of balance back inside of it, I suspect that trade will stop working very soon.

If you look at the trading shortly after 2 p.m. from Monday on the chart below (inside the green box), you'll see where prices were sustained above 1195.25 and began breaking higher into the close. Unfortunately for the bulls, prices were sent straight back down in the final seconds of the session, and we walked in on Tuesday to a sharply lower open. The bears suffered a similar defeat Tuesday. Between 12:30 and 12:45 p.m., prices began to hold beneath 1189.50. This price action attracted some aggressive sellers, but these sellers were only capable of controlling the flow for about 25 minutes. Dip-buyers stepped in and quickly pushed prices back above 1184.50 and toward our balance area. Again, the market is in balance and awaiting further information to support a more aggressive and sustained push higher or lower. ...

Click to view a price quote on SPY.

Click to research the Financial Services industry.


Eyes Peeled for False Breakdowns

Wed, 17 Aug 2011 11:00 GMT

Tuesday seemed like one of those days the market could have fallen apart, yet it didn't. That doesn't mean bears won't try for it again this week, though. After all, options expiration is coming Friday.

In my view, Tuesday's decline was partly to do with expiration and partly to do with that high put-call ratio we saw on the CBOE Volatility Index (VIX) last week. As I explained last week, in past instances it sometimes it took a few days, but the result was always least one down session soon afterward.

It is possible the market is headed toward a test of the lows right now, but I somehow believe we are not quite ready for it. It continues to feel a bit too soon. Even if we use the 1987 comparison, when we saw a retest one week later, we still saw another retest six weeks later. ...


A Time for Caution

Tue, 16 Aug 2011 19:16 GMT

In Thursday's column, I highlighted a couple of overhead gaps as likely near-term upside objectives. I explained that rather than look for a further selloff right then, I'd look for

the filling of some of the recent overhead gaps, beginning with yesterday's at the 1172.53 level on the S&P. Above that is the gap from Monday's massive selloff at the 1201.67 level.

Those gaps have now been completely filled; yesterday's high of 1204.49 in the S&P 500 was almost 3 points above last Monday's gap. In fact, after this morning's gap-down opening, the SPX popped back up above the top of that gap, giving sellers another opportunity to sell into that resistance zone. Now it's backing off again. If the SPX were to pop back above yesterday's high at 1204.49, that would open the door to a further pop, back up to you know where -- yep, previous support at 1249, which is now major resistance. ...


JDSU Preview: Falling Expectations

Tue, 16 Aug 2011 18:16 GMT

Can you say "beta"? With the Nasdaq down 2%, JDS Uniphase is down almost twice that, cutting short a nascent rally from $10 to $12 in front of earnings, which are to be reported after the close Wednesday. ...

Click to view a price quote on JDSU.

Click to research the Telecommunications industry.


Hot Action in Home Depot

Tue, 16 Aug 2011 17:16 GMT

Home Depot is the top gainer in the Dow Industrials today. The stock is surging on heavy trade after this morning's second-quarter earnings report. Investors jumped on shares in the pre-market, sparking a powerful gap-higher open that lifted shares more than 5%. Volume is running very heavy, and this will be the stock's fourth straight above-average positive day. The surge today extends an impressive recovery from last week's extremely oversold condition.

The rollover in late July gained steam once HD fell below its 200-day moving average. Throughout July, volume remained well below average while the stock held near the upper end of its 2011 range. When volume returned during the last week of July, it was all downside, leaving behind an important midterm top near $37.25. The aggressive selling continued into early August, and by the beginning of last week it had reached triple its daily average. The extreme downside momentum pushed HD to its most oversold level since the October 2008 lows.

On Thursday, the rebound began with an impressive key reversal. HD opened with a gap-lower open but finished the day with a 5.4% gain on very heavy trade. The pre-earnings trade remained very positive, with another two days of gains totaling 4.5% as trade levels stayed well above average. With the addition of today's ramp, HD is now 15% above last week's lows and may have left behind a major bottom in the process. ...

Click to view a price quote on HD.

Click to research the Retail industry.


Seek Safety in Utilities

Tue, 16 Aug 2011 17:13 GMT

Traders are finding themselves paralyzed by the uncertainty of volatility. The three-day rally could be a light at the end of a dark August tunnel, or a bull trap algorithmic freight train that will crash us back, Wile E. Coyote-like, to retest the lows. It is hard to commit to a market that can swing so wildly in response to macro events that shift from country to country and session to session. Fear takes two distinct forms: the concern of missing a "snapback" move and the anxiety that the 8% bounce off last week's low will evaporate as soon as it is bought.

The major indices have undergone real technical damage; long-term support has been broken and the intermediate trend is lower. While there may be some short-term positive news from the eurozone and calming words from Warren Buffett (but remember that Berkshire Hathaway has underperformed the S&P 500 index by 25% since the March 2009 low), banking and sovereign debt issues will take time to repair.

The market is not positioned either fundamentally or technically to recover quickly and rally. This is why I have been looking at long positions in special situations, such as Annaly Capital Management and Newmont Mining , and I've been buying incrementally using weekly support and resistance and longer term-moving averages, as with Cree and Tibco Software . ...

Click to view a price quote on SO.

Click to research the Utilities industry.


Seeking Relative Strength in Utilities

Tue, 16 Aug 2011 16:30 GMT

The best way that I know to find potential trades in an upset market is to zero in on those sectors that show relative strength, then drill down and find the best stocks within them. I prefer stocks that have shown good relative strength during the recent drubbing or which have retraced to support (on an intermediate-term basis) with lighter volume. I also want some sign that the buyers coming back into the stock are for real.

Yesterday I was searching through the utility sector for potential buys on the coming small retrace that I expect to occur in the near future. I came up with four names from that sector, but only the first one fits into the category of holding up well during the recent market spill. That company is Connecticut Water Service, and here's its chart.

CTWS - DailySource: ...

Click to view a price quote on D.

Click to research the Utilities industry.


Catching the Wave: D�j� Vu Patterns

Tue, 16 Aug 2011 14:45 GMT

The crowd is often caught off guard when trends change in large degrees because most financial media outlets tend to focus on short-term trends, which compels the audience to stay tuned in order to keep in sync with the markets.

There are several things to look for when deciding if an uptrend has changed directions. First, lower volume on higher-price highs than the last peak. If prices are higher this peak than last but volume didn't expand, the old uptrend may be morphing into a new down trend. Also, lower highs than the recent highs but on higher volume often suggest distribution, or net selling by the smart money.

Second, look for narrower breadth than the last peak. If prices are rising but fewer stocks are participating, the trend is weakening. Third, technicals like stochastics, RSI, MACD and others can signal a waning trend. ...