tag:blogger.com,1999:blog-86171332024-03-13T16:33:42.334-04:00The Grape's VineFinancial, swing-trading and Elliott Wave stock analysis for short-term traders.
Disclaimer: These articles are neither buy nor sell recommendations. You must do your own analysis and consider your own risk, money management, and trading strategy before placing any trades.
Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.comBlogger540125tag:blogger.com,1999:blog-8617133.post-31653503707160759912019-01-28T23:18:00.000-05:002019-01-28T23:18:12.100-05:00Chart Setup and Annotation MethodologyGiven the amount of volatility we’ve seen in the market over the past six months, I thought I’d give an overview of how I go about preparing a chart and then reviewing the current setup. The chart I’m showing: Helmerich & Payne Inc (NYSE: HP) just happened to be one of the charts that popped up on a scan, yesterday. I don’t have any position in HP at the moment. Here's the daily chart we will review:<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIxlNYA7bLBJVjBCXH0UNluMb3RDDuhrL0zOrAisIXzXT2O4PozRa88tgQ6yGbaArTD3VUKIQa5hYaAHIESCCZNK2AG2PfN1_ln66-jBzmB9FSwOVjeBN4F8_6mrGvkg9CkvI89Q/s1600/HP+2019-01-28+Daily.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1402" data-original-width="1599" height="560" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIxlNYA7bLBJVjBCXH0UNluMb3RDDuhrL0zOrAisIXzXT2O4PozRa88tgQ6yGbaArTD3VUKIQa5hYaAHIESCCZNK2AG2PfN1_ln66-jBzmB9FSwOVjeBN4F8_6mrGvkg9CkvI89Q/s640/HP+2019-01-28+Daily.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">HP Daily Chart</td></tr>
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First, let’s look at the chart setup itself. I use a daily chart for my primary analysis and only use the weekly chart for support and resistance analysis. The chart is configured as follows:<br />
<br />• Candlesticks – I use candlestick analysis very heavily when entering a trade and again to determine if it’s time to exit that trade.<br />• Bollinger Band (20,2.0) – This gives me a nice 20-day moving average and also shows consolidation points that often result in a tradable explosive move.<br />• 50-day Exponential Moving Average. This is a heavily watched indicator by swing-traders and is a very good bellwether of current trend direction.<br />
<br />The indicators that I use on the chart are as follows:<br /><br />
• Volume – This is obvious. Volume is the most important piece of information on a chart besides price itself.<br />
<br />• I use a 63-day exponential moving average attached to volume. This tells me whether we have something exceptional happening that may require a closer look.<br />
<br />• On-Balance Volume – I plot OBV in the same pane as volume. This is a great indicator that tells us if shares are being accumulated or distributed. Attached to OBV I plot a 20-day exponential moving average that is used to signal when the trend in volume may be changing.<br />
<br />• Commodity Channel Index (CCI) – I use a 20-day CCI as a trend indicator. Readings above 100 indicate a bull trend is in progress and readings below -100 indicate a bear trend. CCI is a leading indicator and is a powerful signal for trend-following strategies.<br />
<br />• Relative Strength Index (RSI) – I use a 9-period RSI coupled with a 21-day exponential moving average for measuring momentum and – coupled with the MACD – as an entry indicator. (Note that I find a 9-period RSI more conducive to early entry in a trend system than the default 14-period.)<br />
<br />• Moving Average Convergence Divergence (MACD) – I use the MACD(5,34,5) histogram in conjunction with the RSI(9) as my primary entry. Again, I find the 5,34,5 setting to be much more accurate for short-term trading than the default 12,26,9 setting. Note that I’m primarily using the histogram, and not crossover signals.<br />
<br />• Full Stochastic (5,3,3) – I use this as an early warning indicator that a trade entry opportunity may be imminent, and it’s my primary exit “canary in a coalmine” indicator.<br />
<br />• I also have a 12-period Rate of Change indicator drawn, and I plot the strength of the stock vs the S&P paired with a 20 period EMA of the same. These two plots show additional information about the relative strength or weakness of the stock, but they are not part of my overall signal strategy.<br /><br />
So now that you know what my charts look like, let’s review the steps taken to annotate the chart before analyzing any setups.<br /><br />
1. Find the lowest low and the highest high on the chart. In this case, the low was 31 August 2017 and the high was 9 October 2018. Draw the Fibonacci levels from the low to the high. You’ll see them on my chart in grey.<br />
<br />2. Now find the highest high and lowest low of the current primary trend for the stock. In this case, the high was on 9 October 2018 and the low of the current primary trend was on 26 December 2018. Draw the Fibonacci levels from the low to the high. You’ll see them on my chart in a light orange.<br /><br />
3. Next, we need to add the horizontal support and resistance lines. I use the following schema for drawing these lines. Dotted thin light blue line is a simple (weak) support or resistance line. Dashed thick light blue is a significant strong support or resistance line. Dashed thick purple is a significant support or resistance line from the weekly chart. Don’t forget the weekly support or resistance. They produce very strong levels on the daily chart.<br /><br />
4. We should now look for major trendlines. I use a dashed green line to indicate an upward support trendline, and I use a dashed red line to indicate a downward resistance trendline. Be sure to extend them to their extremes. As you can see in February 2018, once the upward support line was broken, it became a major resistance line for the subsequent consolidation period. Notice that the current trend is down (red,) although on 26 December we started a countertrend rally that entered a small consolidation phase on 10 January 2019. That countertrend rally is shown with a green support trendline.<br /><br />
5. Next, I add the Elliott Waves for the current primary trend. These are indicated in bold black on my chart.<br /><br />
6. Once we know where we appear to be in the Elliott Wave cycle, we can determine price targets for the next wave. I show price targets using a Fibonacci extension plot in green. Notice, in this case, that the 100% extension is just beyond a major weekly support line. That’s no coincidence, and with this being the 5th wave in the cycle, that weekly support line would be a likely location for price to consolidate for an extended period.<br /><br />
So now that our chart is annotated, we can then look at the setup and determine what signals will tell us to enter or to walk away from the trade entirely.<br /><br />
1. We see that we are in Wave 4 – a consolidation wave – of a downtrend. This tells us we likely have one more downward wave to go before the cycle is complete.<br /><br />
2. Notice the downward resistance trendline and the upward support line of the countertrend rally. They are rapidly converging. A break of the support line and/or a bounce off the resistance line will be a powerful signal.<br /><br />
3. For an early warning indicator, I’m watching both the CCI(20) and the Fast Stochastic (5,3,3). What will tell me an entry is imminent is if the CCI(20) drops below 0 and the Fast Stochastic(5,3,3) experiences a bearish crossover within a day or two of each other. That puts me on alert for an entry signal.<br /><br />
4. My entry signal -- in this case, for a short position - will be a bearish crossover of the RSI(9) and it’s EMA(21) within one day of the MACD(5,34,5) histogram turning negative.<br /><br />
5. The entry trigger will be pulled if the signal occurs on a bearish candle, preferably with above average volume.<br /><br />
6. The stop will be placed above the high of Wave 4, and the (imaginary) price target will be the weekly support line near the 100% price target I drew in step 6 above. I say “imaginary” because we are not going to actually exit the trade with a pre-defined limit at that level. Rather, we will exit the trade on a bullish reversal candle coupled with the Fast Stochastic (5,3,3) signaling a bullish reversal.<br /><br />
There you have it! I hope this provides some insight into how I setup my charts, what indicators I use (and how I use them) and how I go about determining trade setups.<br /><br />
Happy Trading! Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-56766090244259086552018-02-19T17:06:00.000-05:002018-02-19T17:14:41.790-05:00Cup and Handle Breakout in KFRC with Flag FormingAll systems appear go-for-launch with KForce, Inc. (<a href="https://finance.yahoo.com/quote/KFRC?p=KFRC" target="_blank">NASDAQ: KFRC</a>,) the Tampa, FL based temporary and permanent placement agency that released very strong earnings and revenue numbers on Tuesday, 6 February. While it took a couple of days for the good news to sink in, a vertical move over the last four trading days pushed the stock to a 2-year high and resulted in a breakout of a year-long cup and handle formation on confirming high volume.<br />
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Today's analysis will focus on the daily chart.<br />
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<tr><td class="tr-caption" style="text-align: center;">KFRC Daily Chart</td></tr>
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The cup formation in the pattern started on 2 March 2017 with a failed test of a longer term high set on 8 February, just a month earlier. The round-bottom cup formed over the remainder of 2017, tapering off into a consolidation pattern to end the year. The handle represented a nice 12% decline off the right lip of the cup. Of significance, however, is that volume throughout the entire development of the handle was well below the 50-period volume-EMA. That's a major sign that the decline into correction territory was without conviction and wouldn't be sustainable.<br />
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Following the strong earnings release, we can see the 4-day vertical rise that may well be the development of a flagpole. We'll watch this for the next couple of days to see if the flag or pennant actually does form. The spinning top candle on Friday, appearing below the 50% mark for the day, suggests that it will.<br />
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A closer look at the handle itself shows that we attempted a breakout on 14 Feb, however we retreated to close precisely at the top of the right rim. The actual close occurred the next day, with a very strong bullish candle. The spinning top on Friday, however, suggests a pause or pullback to, or slightly below, the breakout line. Given the choice, a second thrust above the breakout level is the one we'd prefer to play. Just remember that we're not always given that opportunity.<br />
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A closer look at the technical indicators shows a lot of confirmation around that handle breakout. The RSI(9) broke a down-trending resistance line on that same day. The MACD(5,34,5) confirmed with a bullish crossover. The JDK RS Ratio continued an upturn above the 100 level, and JDK RS Momentum followed suit. (It's always a good sign when both the RS Ratio and the RS Momentum indicators are showing improvement above 100.) Finally, the Relative Strength vs the S&P broke a down-trending resistance line as well.<br />
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Volume, as we mentioned, was extremely depressed through the handle formation but began its rise heading into the earnings release. Breakout day and the day following the breakout experienced the highest volume of the entire formation, and the On Balance Volume indicator turned sharply upward to intersect a horizontal resistance level.<br />
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For a short-to-intermediate term trade, this is a long stock only. There's nothing that we are tracking to suggest a potential short play, here. Our strategy now is to watch the next couple of days for either a flag or pennant to develop or, if that doesn't happen, to play a break above Friday's candle if there's a continued move upward on volume above the 50-day volume EMA. We do expect a pullback before entry, but we also need to be prepared to go long if the pullback doesn't manifest.<br />
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The price target for the Cup and Handle will be $34.23. If a flag develops, then the price target for that flag play will be $3.34 above the level of the breakout. Either way, the play at the moment is long.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-85054909158550527372018-02-19T13:33:00.000-05:002018-02-19T13:33:31.286-05:00SHLX At Long-Term Support in Inverse Cup and HandleFour consecutive quarters of missed earnings and missed revenue estimates took a major toll on Shell Midstream Partners, LP (<a href="https://finance.yahoo.com/quote/SHLX?p=SHLX" target="_blank">NYSE: SHLX</a>). It looked like a positive report on 3 November 2017 would turn it around, and share price did, indeed, rise at a promising rate. That, however, was undone by news on 2 February 2018 that the company would issue 25,000,000 common units in a series of public auctions, while also providing the underwriter an option for an additional 3,500,000 common units as part of the overall deal. Shareholders were decidedly displeased, and the share price plunged 16% in just 3 weeks.<br />
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In today's analysis, we're going to examine the weekly chart since that offers an excellent overview of what has happened to this stock and also provides a glimpse into what trading opportunities we may see in the near term.<br />
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<tr><td class="tr-caption" style="text-align: center;">SHLX Weekly Chart</td></tr>
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What attracted my attention to the chart in the first place was a large gap down into support on the daily chart. That manifested as the long red candle you see here on the weekly, the last week of January 2018. The pattern itself appears to be forming an inverted cup and handle. If that's accurate, we're now two weeks into the handle portion. We would expect this handle to run about 4 or 5 weeks, although that could change depending on the health of the overall market in that same period. <br />
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In marking the weekly chart, though, a second confirming pattern emerged as well. The support line on which the stock currently rests extends all the way back to September 2015, and it has been tested on five separate occasions. The series of lower highs extend back to that same time period and the resulting pattern is a descending triangle. Now, one word of caution is in order regarding that triangle. There's a bit more white space in the pattern than I really like to see. Based on that, I wouldn't trade that pattern alone, however there is sufficient other evidence on the chart to overcome that pattern issue.<br />
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Volume on the declines is rather pronounced. That was especially true after the February announcement, but we can also see that the On Balance Volume has been trending negatively since 2015. Money, it appears, is flowing out of this stock, and not into it. Now, we do have a word of caution, here, because that volume pattern in conjunction with the price sitting on long-term support for three weeks is also consistent with a selling climax followed by an accumulation pattern. Be on the lookout for signs of major buying by the larger institutions, since we really don't want to be trapped by one final shake-out before the price is pushed higher.<br />
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There is not much insider action on this stock; the last reported transaction was a 500 share sale in September 2017 reported by director Margaret Montana. That was only 1/8th of her total share holdings, and was largely insignificant. There are, however, a large number of institutional share holders with a significant number of shares in their portfolios. If we see major movement towards accumulation, it will come from one of them, and will only be evident through a study of the price and volume action. <br />
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Looking at the RSI(9), there are some hints that that may, in fact, occur. Notice the lows of the RSI(9) each time support was reached, and compare that with the RSI(9) in this current move back to support. Notice that we don't reach those same levels. Now, it's not quite pronounced enough for me to declare it definitively as a bullish divergence, but the cautionary message is still quite clear. The downward thrust may, indeed, be weakening and we may be exhausting the number of sellers willing to dump this stock.<br />
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The other indicators we're watching are much more bearish. The MACD(5,34,5) executed a bearish crossover in conjunction with the February announcement. The relative strength vs the S&P, which has been dismal for the last couple of years, continues its steady decline and is well below a current resistance level. The JDK RS Ratio is hooking downward (and is already in under-perform territory) and the JDK RS Momentum indicator is declining.<br />
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So, how are we going to play this stock? Once again, we'll let volume be our guide. A close below that support line with confirming volume would be a sign to go short. Now, be careful. Given the strength of that support line - it's lasted 3 years and been tested at least 5 times, remember - it's highly probable that we'll experience a pull-back to that line. So, if we do go short, they will be very short-term trades designed to protect profits and exit very quickly. The potential for a bear trap here is extremely high, and we don't want to be the ones gnawing off our own paws.<br />
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If, however, we take out the prior week's highs, again, on convincing volume, we're not opposed to a long position. The top of that descending triangle will provide major resistance, of course, so we'll be looking to exit as we approach that level. <br />
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SHLX reports earnings before the open on 27 February, and it's not our intent to hold any positions in either direction going into the close on Monday. The next dividend date isn't until April, so that won't factor into any short term trades for the foreseeable future.<br />
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This is a stock to add to the watch list. There are numerous potential trades setting up in the short term, and looking at the patterns, we may find some low risk opportunities to both the long and the short side over the next few weeks. As always, watch the volume signature for confirmation when assessing the probabilities.<br />
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Happy Trading.<br />
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<br />Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-45152294039116836912018-02-17T16:29:00.000-05:002018-02-17T16:29:06.296-05:00LYV Flirts with Breakout at 52-Week HighLive Nation Entertainment (<a href="https://finance.yahoo.com/quote/LYV?p=LYV" target="_blank">NYSE: LYV</a>) spent the last two trading days of the week teasing traders with the potential for a breakout above the 52-week high after spending over two months in a horizontal corrective pattern. That pattern appears to be a Wave-4 in the longer term cycle that started at the end of 2012. While a 5th wave has the potential to run 20 points or more, there's sufficient reason to watch for a head-fake before jumping in.<br />
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<tr><td class="tr-caption" style="text-align: center;">LYV Daily Chart</td></tr>
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Friday's doji just barely topped the prior day's close. While the high did briefly pierce the resistance line marking the top of the channel, it was short-lived and the stock settled for just a three cent gain on the day. The 5-day run up from the bottom of the channel was impressive (from a candle-pattern perspective) but the volume signature for that entire week was extremely lackluster. It's not a pattern we'd want to see in anticipation of a breakout.<br />
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A similar issue appears in the RSI(9). That hook at the end of the RSI is a warning sign, and we've yet to see any sign that the RSI is signalling strength. When we look at the JDK RS-Ratio and Momentum indicators, it's the same story. RS-Ratio is rising but RS Momentum is weakening. That's a major cautionary tale in itself.<br />
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Notice that the start of the week resulted in a bullish crossover on the MACD(5,34,5) and that crossover was preceded by a resistance breakout of relative strength vs the S&P. Both of those are positive signals, but they outweigh neither the volume pattern nor the RSI(9) warning.<br />
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Longer term, we expect LYV to breakout and produce a nice Wave-5 bullish run. The short term, however, may be more of a head-fake. LYV is scheduled to report earnings after the close on Tuesday, 27 February - just over a week away - and the forecasts are not good at all:<br />
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<tr><td class="tr-caption" style="text-align: center;">LYV Earnings Forecast from NASDAQ</td></tr>
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Volume is the key in this week before earnings. A breakout on week volume is a nice bull trap. It would be a potential short play, but we'll avoid any long positions one week volume. The same is true for a downward move on week volume. If there's no conviction to the move, we'll stay away from it. What I'll be watching for in the run-up to 27 February is a volume confirmed move that shows which way the major players are trading.<br />
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We'll be keeping an eye on the options action as well. Right now, there's a tremendous amount of open interest in the at-the-money March 16 47 Calls and the out-of-the-money March 16 44 Puts. We'll be watching closely for a surge in options activity surrounding any volume-confirmed move.<br />
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Also be cognizant of the overall market direction. Following the correction we experienced two weeks ago, we've seen a rebound back to the 61.8% Fibonacci level between the highs and lows of the corrective pattern. It's likely that the corrective wave is not yet over, so watch for potential weakness over the next week. I still expect this to be at least a Zig-Zag corrective wave, and if that's true, we'll again retest the bottom of that first corrective drop. Avoid taking a long position if the market indicates it's again marching towards that corrective low.<br />
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As to LYV, add it to your watch-list and be sure volume confirms any move that prompts you to open a position. It should be a volatile week in the run-up to their earnings announcement.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-70597020243297655832018-02-13T10:48:00.000-05:002018-02-13T10:48:06.632-05:00Traditionally Hawkish Loretta Mester Signals "Stay the Course"Cleveland Fed President Loretta Mester, in speaking to the Dayton Area Chamber of Commerce this morning, signaled a "stay the course" attitude regarding the Fed's current interest rate policy. Her speech follows a week of extremely turbulent price action in the markets, raising speculation that volatility in the DOW would influence the Fed's pace of interest rate hikes through the remainder of the year.<br />
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The market has currently priced in three interest rate hikes for 2018, and sentiment shows a 77.5% chance of a 25 bps increase following the March 21 FOMC meeting. Mester, one of the hawkish members of FOMC, said today that she supports a rate increase pace similar to what the Fed pursued in 2017 when they raised interest rates three times over the course of the year. <br />
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Mester dismissed the current market action as little more than the normal correction one would expect after the explosive run-up in stock prices experienced over the past year. <i>“For now,"</i> she said, <i>"I expect the economy will work through this episode of market
turbulence and I have not changed my outlook. In my view, the underlying
fundamentals supporting the economy are very sound.”</i><br />
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Historically, Mester has supported an aggressive interest rate policy, citing fears of a run-up of inflation should the Fed not raise rates quickly enough. While she expects inflation to rise at an increasing rate, she does not foresee a need to increase the rate at which the Fed raises rates. It's noteworthy that her remarks come a day before the February release of the closely watched CPI numbers. Tomorrow's numbers should be a strong signal both for inflation's rate of change and for the aggressiveness the Fed is likely to take for the remainder of 2018.<br />
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The consensus for tomorrow's CPI release, according to <a href="http://www.econoday.com/" target="_blank">Econoday</a> is as follows:<br />
<table border="0" cellpadding="3" cellspacing="0" class="actual_consensus_box" style="width: 100%px;"><tbody>
<tr class="actual_consensus_toprow"><td><br /></td>
<td>Prior</td><td>Consensus</td><td>Consensus Range</td>
</tr>
<tr><td>CPI - M/M change</td><td class="actual_consensus_box_numbers">0.1 %</td><td class="actual_consensus_box_numbers">0.3 %</td><td class="actual_consensus_box_numbers">0.3 % to 0.4 %</td></tr>
<tr><td>CPI - Y/Y change</td><td class="actual_consensus_box_numbers">2.1 %</td><td class="actual_consensus_box_numbers">2.0 %</td><td class="actual_consensus_box_numbers">1.9 % to 2.3 %</td></tr>
<tr><td>CPI less food & energy- M/M change</td><td class="actual_consensus_box_numbers">0.3 %</td><td class="actual_consensus_box_numbers">0.2 %</td><td class="actual_consensus_box_numbers">0.1 % to 0.3 %</td></tr>
<tr><td>CPI less food & energy - Y/Y change</td><td class="actual_consensus_box_numbers">1.8 %</td><td class="actual_consensus_box_numbers">1.7 %</td><td class="actual_consensus_box_numbers">1.7 % to 2.0 %</td></tr>
</tbody></table>
<br />
Numbers that come in stronger that the consensus will add pressure to an already jittery market since it will increase speculation that the Fed will add a fourth rate increase into 2018. That fourth increase is not currently factored into prices.<br />
<br />
Mester also addressed the impact the 2018 tax cuts may have on the economy as a whole. In her view, she expects the cuts to add between a quarter and a half of a percent to economic growth. This, she expects, will support an inflationary rate just above the Fed's target of 2.0%. It should also, in her view, support continued hiring in the private sector. That will spur an increase in wage growth, the primary factor driving inflation. (Wage growth in January increase 0.3% over December, and is showing an already strong annual 2.9% hourly rate.)<br />
<br />
Scott Anderson, chief economist at Bank of the West in San Francisco, doesn't share the view that inflationary growth is under control. <i>“The acceleration in average hourly earnings growth punches a hole in the narrative that wage growth remains lackluster. The Goldilocks view of inflation is being sorely challenged right now.”</i><br />
<br />
Wednesday and Thursday provide a series of economic releases that will signal Fed's direction. Definitely watch tomorrow's CPI release. If there's surprise to the upside, expect the market to react negatively in anticipation of a more aggressive interest rate schedule. But it doesn't end with the CPI. Watch these releases tomorrow and Thursday for a more complete picture:<br />
<ul>
<li>Wed - 8:30 AM - CPI</li>
<li>Wed - 8:30 AM - Retail Sales</li>
<li>Thu - 8:30 AM - Jobless Claims</li>
<li>Thu - 8:30 AM - Philadelphia Fed Business Outlook Survey</li>
<li>Thu - 8:30 AM - PPI FD</li>
<li>Thu - 9:15 AM - Industrial Production </li>
</ul>
We share Mester's view that the fundamentals of the economy remain strong. The question, however, is "how strong." By market open on Thursday, we should have a good idea as to whether the economy is too strong or if it's proceeding at a healthy pace. <br />
<br />
Happy Trading. Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-28556835224432467512018-02-11T14:56:00.000-05:002018-02-11T14:56:16.619-05:00Has the Time Finally Come for TWTR?In the midst of last week's market turmoil, Twitter, Inc. (<a href="https://finance.yahoo.com/quote/TWTR?p=TWTR" target="_blank">NYSE: TWTR</a>) posted a five-cents per share earnings beat, but also posted a $45.94 million beat on revenue. Those numbers were enough to drive a return to year-over-year revenue growth following a long history of declines. Even more to the market's delight, Twitter posted a 7% year-over-year increase in owned and operated advertising revenue. In the ensuing conference call, CEO Jack Dorsey gave a rosy preview of 2018, saying, "<i>We're investing to make 2018 a year of growth and expect our expenses to
more closely align with revenue after a year of significant margin
improvement.</i>"<br />
<br />
The market was most appreciative, drawing a significant break-away gap on Thursday in spite of a 1000+ point drop in the overall market. Twitter continued to show strength on Friday with a very strong bullish candle that didn't penetrate the lows of the previous day's move.<br />
<br />
Now, before we go too far in the discussion, Twitter is not, for me, an investment stock. While the chart shows a very good potential for upside growth, it does lack the number one component I require in any stock held for investments, and that is a quarterly dividend. Therefore, I'm looking at Twitter solely as a trade vehicle for short term capital appreciation, and would not be interested in holding Twitter as a longer term investment.<br />
<br />
With that said, let's take a look first at the Weekly Chart. This sets the overall canvas upon which our daily analysis will be drawn.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOB4fq5qybDjjpORHBY7di5Ma0HGICGU3f8jpf_h3p3TwVk1CPdPsEHB9oGheCm5o8D-tNl6M2egU6DmDo_6X14xZrlIlh2EPM1NgLSESMx5RcyXELQVAbA6jtTMPrXplVCrhOqw/s1600/TWTR+2018-02-11+Weekly.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="741" data-original-width="1401" height="338" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOB4fq5qybDjjpORHBY7di5Ma0HGICGU3f8jpf_h3p3TwVk1CPdPsEHB9oGheCm5o8D-tNl6M2egU6DmDo_6X14xZrlIlh2EPM1NgLSESMx5RcyXELQVAbA6jtTMPrXplVCrhOqw/s640/TWTR+2018-02-11+Weekly.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">TWTR Weekly Chart</td></tr>
</tbody></table>
What we've placed on this chart are the major support and resistance areas that are likely to impact any large-scale move. Notice that last week's price action broke across the 200-day moving average (that continues to trend downward) but also broke above a major pivot line that has held since July 2015.There's a good possibility this line will be tested several times over the coming weeks, so factor that into any entry and stop plans.<br />
<br />
There's a second resistance line looming around $35, and that, coincidentally enough, marked the high of our gap day. Price hit that resistance and retreated back to the $30.50 range on that day, although it did recover back to $31.51 the next day. What we need to take from this, though, is that there are sellers looming around $35 and they will have to be shaken out of the market a bit before Twitter can further advance. Expect some horizontal movement at that level.<br />
<br />
The major resistance zone, though, sits between $50 and $52.50. That level formed a double top on the weekly chart between July 2014 and April 2015, and the stock retreated from there to its all-time lows. We have due cause to respect this resistance level. For me, assuming I'm still long the stock if it reaches that point, I'll exit there and wait. It may become a good short opportunity at that point. If nothing else, we can always reenter if it shows a breakthrough across that resistance line on strong volume.<br />
<br />
What's encouraging about the weekly chart, though, is the 28-month base formed over the 2 1/3 years prior to Thursday's breakout. The P&F price target from the breakout of that base would put us at $52. Not by coincidence does that coincide with the major resistance zone discussed previously.<br />
<br />
Okay, with that foundation, let's turn to the daily chart.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSkipOo1AoR1cqpzzXk9Ov_AsmB7YrFxvbPHpc99BEOyEPfn6WtxxeD2pomWMw94vCyeNx6srRQDJSjemg2QEyp0vnstZ0OcfEjfZJ1WXWA00zzTvYQcXxcQnGzDmvgsGASCrh2g/s1600/TWTR+2018-02-11+Daily.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="703" data-original-width="701" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSkipOo1AoR1cqpzzXk9Ov_AsmB7YrFxvbPHpc99BEOyEPfn6WtxxeD2pomWMw94vCyeNx6srRQDJSjemg2QEyp0vnstZ0OcfEjfZJ1WXWA00zzTvYQcXxcQnGzDmvgsGASCrh2g/s640/TWTR+2018-02-11+Daily.jpg" width="638" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">TWTR Daily Chart</td></tr>
</tbody></table>
Most of what appears on this chart is positive, and speaks to a decent move to the upside. Consider the following:<br />
<ul>
<li>Strong breakaway gap after good earnings and forward guidance. It's even stronger considering that the overall market dropped over 1000 points that same day.</li>
<li>The breakaway gap also broke out of a strong rising channel that began developing in September 2017.</li>
<li>Volume from the start of this move two weeks ago shows very strong bullish tendencies, more than doubling the 50-day moving average of volume across the entire period.</li>
<li>On Balance Volume has been rising steadily since July 2017, showing money gradually moving into the stock. </li>
<li>The MACD shows a bullish crossover at the start of the move, and then a nice bullish bump in conjunction with the breakaway gap.</li>
<li>Relative Strength broke out of a rising resistance line.</li>
<li>The JDK RS Ratio and JDK RS Momentum lines are both rising rapidly.</li>
</ul>
There aren't many negatives to speak of:<br />
<ul>
<li>The RSI(9) is at a level that has proven to be extremely resistant on the last four moves.</li>
<li>The candle on the breakaway gap day was decidedly bearish, closing within 10% of the low. In fairness, though, that did come on a major down day in the market, and Friday's candle was decidedly bullish.</li>
<li>The breakaway candle bounced off major resistance found on the weekly chart.</li>
</ul>
So, where does this leave us? Well, given the glowing forward guidance from Twitter on Thursday, we've got at least a quarter for this stock to run without negative news weighing on it. If TWTR can break through the resistance at $35, then it has a very good shot at running to $52. That's precisely how we're going to play it. I don't intend an entry until TWTR breaks the resistance line above Thursday's candle. We'll take 1/2 profits at $48.35 (the 78.6% Fibonacci level of the entire range,) establish a trailing stop set to the prior day's low, and allow the remaining half to run until we get stopped out. The key, though, is to be patient and let it break that $35 level with volume. Do keep in mind that we expect that line to be tested once or twice as a support line, so don't set your initial stop too high. <br />
<br />
Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-55944064373636348182018-02-10T15:04:00.000-05:002018-02-10T15:04:44.852-05:00Cup and Handle May Signal FLO RecoveryFollowing three consecutive quarters of earnings beats and some positive forward guidance, Flowers Foods, Inc (<a href="https://finance.yahoo.com/quote/FLO?p=FLO" target="_blank">NYSE: FLO</a>) may have finally turned it around. A string of quarterly revenue misses dating back to November, 2015 put extreme pressure on the share price which bottomed at $13.56 in August of 2016. Since then, the company embarked on a restructuring plan that is still a major work in progress. The results are beginning to materialize, however, with their earnings beat announced on Wednesday, 7 February.<br />
<br />
What caught our attention in the wake of last week's stock market turmoil was the relative strength FLO demonstrated while much of the broader market was getting crushed. Tuesday through Friday were all up days with significant strength. In fact, there was a missed short term opportunity with FLO since it drew a double bottom with a very strong bullish candle on Tuesday, then confirmed the double bottom with a breakout on Thursday. The stock is now already trading too close to the double bottom price target for it to be a profitable play there, however.<br />
<br />
For those interested in an intermediate term play, it's worth looking at the Cup and Handle drawn by the stock on the daily chart from February through the breakout of the Handle at the end of the last trading session. <br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisTBYejx-WMzH5Hee3djOe3vnKtkDnUtrafLJl6CHwvYgM4rUGqJzEbSk_PTcCjXUbpMkHll8o_xDUCvLY3vXBMbCercksY2Ajl9Mf7QEKkFz5QO9d3pZag2Fq5f0Rj3K5e117aw/s1600/FLO-2018-02-10-Daily.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1397" data-original-width="1396" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisTBYejx-WMzH5Hee3djOe3vnKtkDnUtrafLJl6CHwvYgM4rUGqJzEbSk_PTcCjXUbpMkHll8o_xDUCvLY3vXBMbCercksY2Ajl9Mf7QEKkFz5QO9d3pZag2Fq5f0Rj3K5e117aw/s640/FLO-2018-02-10-Daily.jpg" width="638" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">FLO Daily Chart</td></tr>
</tbody></table>
The target price from the breakout is $23.52, representing the 78.6% extension of the right rim of the cup from the bottom of the cup. Now, there's a fair amount of resistance right at the breakout level, so do expect the stock to retrace back to that resistance level at least once. The bounce off that retest would be the safest entry, and given the underlying volatility in the market, that's precisely when I intend to enter. <br />
<br />
Looking at some of the other technicals lining up on the chart, we can see that this breakout also involves a channel that formed from the low of the cup last August. That channel did breakout once before, and you can see that it offered a bit of support towards the end of 2017 before collapsing. Be cognizant of it, however, it's also more likely that the support will hold the second time around. (If it doesn't, get out of the trade fast.)<br />
<br />
There are two cautionary tones in the RSI(9) and in the MACD(5,34,5.) Both are showing a bearish divergence which should give us pause. The MACD just drew a bullish crossover, but I'm concerned about that divergence. It's another reason to wait for a pullback to support before entering.<br />
<br />
Relative Strength - the bottom-most indicator I'm showing - is sitting right on a resistance line. I'd really like to see RS break through that line and hold before entering as well. When you look at the JDK-RS line and the JDK-RS Momentum line, all indications are that it should do just that. RS is improving, and more importantly, the momentum of the RS line is improving. <br />
<br />
We're going to play this as an intermediate length trade. I expect it to take several weeks to reach the target after a true breakout - meaning, after a breakout and then a pullback to or just below the breakout level. By waiting for that pullback, though, we'll be able to set a much more aggressive stop just below the handle top, and set ourselves a much better risk/reward ratio. It should also give the overall market time to settle down a bit and show us its true next move.<br />
<br />
Add this one to your watch list and wait for the pullback. There's no point in rushing the trade given the volatility in the broader market.<br />
<br />
Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-86738180042747909002017-02-15T17:51:00.000-05:002017-02-15T17:51:47.901-05:00Rising Wedge Signals Trouble For PAADespite a bullish channel pattern on the weekly chart, Plains All American Pipeline L.P. (<a href="https://www.google.com/finance?ei=W9GkWJHCBMuaeaXyqDg&q=paa" target="_blank">NYSE: PAA)</a> is showing all bearish signals across multiple time frames from the daily through to the monthly charts. For our analysis, we'll start with the broadest view on the monthly.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-jwkJKhK/0/XL/i-jwkJKhK-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-jwkJKhK/0/XL/i-jwkJKhK-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">PAA Monthly Chart</td></tr>
</tbody></table>
Since inception, PAA drew a strong 5-wave impulse leading to what appears to be a Wave-I top in September, 2014. Wave-II appears to be in progress now, forming what is shaping up to be either a zig-zag or a flat correction. Wave-A retraced over 61.8% of Wave-I, however, which is an extremely deep corrective pattern. From its current position, Wave-C is somewhat limited to the downside, otherwise the entire wave count will be invalidated. (Wave-II cannot retrace 100% of Wave-I to be a valid count.)<br />
<br />
The RSI(9) oscillator does signal a bearish divergence on both the highs and the lows, however, so continued weakness appears to be in the offing. From the overall monthly pattern, we do expect a Wave-C to the downside, however given the volume signature in December 2015 through February 2016, we believe significant demand exists between $15.00 and $17.00, so it's not likely for Wave-C to travel below those levels. Watch for a shallow correction from the current level.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-Wwht4c6/0/XL/i-Wwht4c6-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-Wwht4c6/0/XL/i-Wwht4c6-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">PAA Weekly Chart</td></tr>
</tbody></table>
On the surface, the weekly chart would appear to offer a contrary interpretation. A strong, tight bullish channel marked price starting in February 2016 and continuing through to the present. Note, though, that price has traveled horizontally since November 2016 and has been riding the support line for most of 2017. On Balance Volume is rising, however price is not rising in conjunction with the indicator. Both the RSI(9) indicator and the MACD(5,34,5) have rolled over into a bearish configuration. Similarly, the 200-day moving average is above price, has rolled over, and is now descending. These are all indications that a downward price move is pending.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-FcfrP6r/0/XL/i-FcfrP6r-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-FcfrP6r/0/XL/i-FcfrP6r-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">PAA Daily Chart</td></tr>
</tbody></table>
That brings us to the daily chart. The most recent trend, starting in September 2016, formed a rising wedge pattern. That, as we've discussed in other posts, is a bearish signal. Price tends to break downward from a rising wedge pattern, although the price target from such a pattern is somewhat unpredictable.<br />
<br />
The other major warning sign is a diagonal trend line that starts in April 2016 and had seven firm touches before being penetrated to the downside on 12 January 2017. Since then, it has acted as resistance with three touches. <br />
<br />
Volume since the first of the year has been bearish as well. Notice the extremely weak volume over the first week of February, and notice the falling volume in general for all of 2017. Interest in the stock appears to be waning, and demand is required to drive price higher. <br />
<br />
From a fundamental perspective, we see that PAA lowered its dividend from $0.70 to $0.55 in October, 2016. This is accompanied by nine consecutive quarters of missed revenue, and 5 out of 10 quarters of missed earnings. "Troubled" would be the best way to describe the company. Trading at a P/E of 78.38 - nearly triple its nearest competitor - it's hard to envision much in the way of an upside, even with the favorable energy infrastructure outlook fostered by the current US Administration.<br />
<br />
The only play we see for PAA is to the short side. We are looking at two possible entry points. The first is a short trade on a close below the support line of the wedge. In that case, we'll place a protective stop just above the horizontal resistance line around $33 and we'll set a price target at the horizontal support line around $25.<br />
<br />
The second potential play is if price rises a bit further within the wedge. In that case, we'll watch for a reversal at one of the three major resistance lines: the diagonal resistance line (in red), the blue horizontal resistance line, or the top of the wedge. A reversal at either of those points will signal a short entry with a protective stop above the next highest resistance line. Again, our target will be the horizontal support line around $25, although we'll watch for an early exit if the wedge support line appears to hold. Watch this one carefully since the breakdown, when it comes, may be swift.<br />
<br />
Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-32322856217747950532017-02-13T18:06:00.000-05:002017-02-13T18:06:10.108-05:00MGM Near Rounded Bottom Breakout MGM Resorts International (<a href="https://www.google.com/finance?q=mgm&ei=ADWiWMm4D8m0mAGJ6rPIBA" target="_blank">NYSE: MGM)</a> formed the left lip of a rounded bottom pattern the week of 3 March 2014. From there, the pattern developed with near perfection, including a classic bump mid-way through the pattern that would have been an ideal swing trade opportunity had this stock been on our radar at the time. The right lip of the pattern formed the week of 21 November 2016, and the consolidation period that is still running is typical of this type of formation.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-h4nFKnr/0/XL/i-h4nFKnr-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-h4nFKnr/0/XL/i-h4nFKnr-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">MGM Weekly Chart</td></tr>
</tbody></table>
Price was rising steadily into the pattern in 2014, as is typical 62% of the time. The horizontal consolidation we are currently experiencing will mark our entry, should this stock break to the upside as is expected. More on that when we analyze the daily chart, however.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
To get a price target for the pattern, we'll take the low of the pattern from the height of the left rim and then use the 61.8% extension measured from our right rim breakout point. That gives us a potential target of $36.87 and a nice 3:1 reward:risk ratio.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-HmMndqC/0/XL/i-HmMndqC-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-HmMndqC/0/XL/i-HmMndqC-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">MGM Daily Chart</td></tr>
</tbody></table>
The daily chart offers additional evidence of the potential move. From the pattern low in February 2016, coinciding with the bottom of the "bump" on the weekly pattern, the upward impulse pattern has drawn at least 3 full waves, with wave 4 either in progress or having just completed. It's wave-5 that we intend to ride for this trade. The price target obtained on the weekly is within range of a wave-5 target and, in fact, falls about a point shy of that target. So we can stick with it as a decent measure.<br />
<br />
The consolidation that appeared on the weekly forms a tight channel with a slightly downward bias on the daily. It has numerous touches both top and bottom, making it an extremely reliable formation. Notice, too, the diagonal trend-line that extends up from the bottom of Wave-2. We traded briefly below that trend-line, but with today's close, price is once again above it. We don't yet know if that line will be significant, but with at least four touches, we can't ignore it.<br />
<br />
We'll be playing this stock as a traditional breakout, albeit from a rounded bottom. Our entry will be long on a close above the current channel. The protective stop will be just below the support line of the channel, and our price target will be $36.87.<br />
<br />
The only caution is that earnings are reported before the open on 16 February. Per our trading plan, we cannot enter a position this close to an earnings date, so we'll have to wait until Friday for an entry, assuming price hasn't outrun us by then. It's entirely possible, though, that earning could be the catalyst for the move, so be ready to play it after the turbulence that typically marks an earnings day.<br />
<br />
Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-86829405209186275622017-02-08T17:56:00.000-05:002017-02-08T17:56:14.408-05:00PHM Weekly Descending Triangle and Daily Bull FlagTwo seemingly contradictory signals are flashing on the daily and weekly charts for PulteGroup, Inc. (<a href="https://www.google.com/finance?q=phm&ei=yZybWKiNE6KsmgGTx4ygDQ" target="_blank">NYSE: PHM)</a>. We'll start our analysis with the weekly chart, since that gives us a broader perspective on the intermediate term trend. <br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-MCmwpBw/0/XL/i-MCmwpBw-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-MCmwpBw/0/XL/i-MCmwpBw-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">PHM Weekly Chart</td></tr>
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I had to step back to the monthly chart (not shown) in order to put this pattern into context, and it turns out that what we see on the weekly is, indeed, the start of what appears to be a five-wave impulse. The first motive wave lasts about 18-months, ending in May, 2013. What follows is at least a double flat correction. Whether or not that turns into a triple remains to be seen. For now, Wave-2 appears to be still in flight, although there are hints in the last two weeks that Wave-3 may have started.<br />
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The interesting pattern throughout Wave-2, however, is a descending triangle. The number of touches on the top resistance line are significant, with six touches completing as of two weeks ago. The support line is much weaker, although it, too, is well defined. It's important to note that descending triangles break to the downside over 70% of the time, however a downside break in this case would be inconsistent with the Elliott Wave structure. We'll have to watch that, since it may force us to reconsider our wave count.<br />
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I've also shown a diagonal support line coming out of the last Wave-A bottom. Whether or not that support has teeth remains to be seen, but I show it just in case. Notice, too, that OBV remains flat, although there have been signs of strong demand entering the scene in recent weeks.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-X7pnK96/0/XL/i-X7pnK96-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="438" src="https://photos.smugmug.com/photos/i-X7pnK96/0/XL/i-X7pnK96-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">PHM Daily Chart</td></tr>
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That pattern that caught my eye, however, is evident on the daily chart. Following a five-day upward thrust, a tight bull flag pattern formed the last week of January and continues through to the present. Using 61.8% of the flagpole height as our price target, we have a potential upward breakout target of $23.32. That'll give us a 3:1 reward to risk ratio, so it's worth further analyzing the chart.<br />
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We're seeing strength in the RSI(9) oscillator, especially as compared to the last major high on the chart. The overall RSI has flashed a bullish divergence at least since the beginning of December. The same is true for the OBV which shows an extremely strong rise coinciding with the flag pole development. The demand signature for those five days is especially strong.<br />
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In fact, the only cautionary tale on the chart thus far is the bearish crossover in the MACD(5,34,5) indicator. Watching the pattern, however, it's easy to predict that a breakout of the flag will coincide with a bullish crossover, and that's a signal for which we'll be watching.<br />
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Trading this stock is relatively straightforward. It's a classic bull flag trade, so we'll go long on a breakout of the flag. Our protective stop will be just below the flag, and our target is $23.32. If we see a bullish crossover of the MACD prior to breakout, we'll take that signal and enter long at that point. You can see on the chart that it's been a reliable signal for this stock, so it'll be worth the risk to play the potentially early entry.<br />
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The next earnings date isn't until April, and the next ex-dividend date is expected to be in March, so there's nothing artificial in the way of a trade. We'll play this one as it develops.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-38405426225905641782017-02-07T18:10:00.000-05:002017-02-07T18:10:39.523-05:00LPX In Tight Horizontal ChannelOne glance at the monthly chart for Louisiana-Pacific Corp. (<a href="https://www.google.com/finance?q=lpx&ei=NEeaWLkX1uGYAY2rm7AO" target="_blank">NYSE: LPX)</a> reveals a chart that has been in a corrective state for virtually its entire trading history. The small-cap building products manufacturer is gradually improving its balance sheet while also growing market share for its <i>SmartSide </i>product family - a realistic-looking wood-grain siding alternative that purports to be lighter and more durable than other traditional artificial siding products. This has not been enough to garner interest capable of pushing the stock into a typical 5-wave impulse, however, and as a result, it continues to oscillate in an endless corrective wave cycle.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-4ZwkCkR/0/XL/i-4ZwkCkR-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="436" src="https://photos.smugmug.com/photos/i-4ZwkCkR/0/XL/i-4ZwkCkR-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">LPX Weekly Chart</td></tr>
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The weekly chart shows a lengthy up sloping channel that is showing no signs of ending its nearly two-year run. Volume is starting to diminish, however, which does not bode well for any attempt to mount an upward surge. It takes demand to drive a stock higher, and thus far, we're not seeing much of it.<br />
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On Balance Volume on the weekly remains flat, and there's no hint of a divergence either way in the RSI. Thanks to the undulating nature of the channel, the MACD(5,34,5) has been a rather decent indicator of the turning points, however, so we'll certainly keep an eye on that going forward.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-jm2jqJ6/0/XL/i-jm2jqJ6-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-jm2jqJ6/0/XL/i-jm2jqJ6-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">LPX Daily Chart</td></tr>
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Now, it's the daily chart that caught my attention in the first place. The higher lows starting in February, 2016 do form a good support channel, and we note that on the chart, however it's the very tight horizontal channel that formed in December that most interests us. Just look at the number of three and four day swing trades that channel has produced since the channel formed.<br />
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Interestingly, the MACD appears to be providing a very consistent signal for directional shifts going back at least to the November time frame. Until that changes, we'll continue to take our cues accordingly. <br />
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Where we expect some deviation in the pattern is where we see the diagonal support line now intersecting our channel. This suggests that our horizontal channel may turn into an ascending triangle. If that happens, of course, we'll need to watch for a breakout play to either side. Currently, the intermediate trend is up - and an ascending triangle tends to break to the upside - but that could easily change on a whim.<br />
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LPX reports earnings before the open tomorrow, so we'll need to watch what those earnings do to our pattern. Consensus estimates are for $0.19 EPS and $539.90 Million in revenue for the quarter. Annual estimates are for $0.84 EPS and $2.26 Billion in revenue. The pattern for this stock over the past year, though, has been for price to form a spinning top on earnings day, but not do much of anything else. We'll see what tomorrow brings.<br />
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How we trade this stock will depend on the pattern that emerges post-earnings. Until we see evidence that the MACD is no longer reliable, our trades will be long on a bullish crossover and short on a bearish crossover. Our exit strategy will be to trail a stop $.05 below the low each day and ride it until stopped out. Our protective stop will be set to just above or just below the signal candle depending on whether we are taking a long or a short position. <br />
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If the ascending triangle does form, of course, we'll change strategies to a triangle breakout and play that accordingly. Until then, let's enjoy the oscillation this stock is currently providing.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-50029406515927807322017-02-06T18:36:00.000-05:002017-02-06T18:36:03.904-05:00OMC In Descending Triangle on DailyOmnicron Group, Inc. (<a href="https://www.google.com/finance?q=NYSE%3AOMC&ei=HAGZWPnsItGTefPTuJgJ" target="_blank">NYSE: OMC)</a> attracted my attention with a Zero Line Reversal (ZLR) trigger yesterday followed by a MACD(5,34,5) bullish cross-over today. That combination suggested movement may be imminent, and therefore the chart was worth a closer look, and indeed, that closer look was certainly warranted. <br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-wd6ZLXS/0/XL/i-wd6ZLXS-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="436" src="https://photos.smugmug.com/photos/i-wd6ZLXS/0/XL/i-wd6ZLXS-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">OMC Daily Chart</td></tr>
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It was the extremely strong move today on very high volume that triggered the cross-over. The chart pattern, though, is what's intriguing. Since November, 2016, the stock has formed a descending triangle and today's price action places the close directly on the resistance line. We will watch tomorrow's action closely since we'll either see a breakout of the triangle - a long we would want to trade - or a bearish reversal back into the center of the pattern.<br />
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With horizontal support and resistance straddling today's long candle, a potential trade in either direction is likely early this week. Normally, a descending triangle tends to break to the downside, and the fact that we entered this triangle from the bottom increases those odds, but when we look at the weekly and monthly charts, we'll see that the intermediate and longer term patterns favor just the opposite.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-JC6FwwW/0/XL/i-JC6FwwW-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-JC6FwwW/0/XL/i-JC6FwwW-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">OMC Monthly Chart</td></tr>
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The Elliott Wave count on the monthly chart shows an impulse pattern that started back in the early 1990s. After trading sideways for just over a decade, Wave-III began after the Financial Crisis and is currently in it's 5th sub-wave. Remember, third waves extend frequently, so we can't assume this is the last sub-wave before another correction.<br />
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The monthly pattern is riding the rails along the resistance line in a channel that dates back to 2009. Not surprisingly, if Wave-III is truly approaching its terminus, the RSI(9) oscillator is showing a bearish divergence. Still, from a monthly perspective, we're not yet seeing signs of the reversal that will mark the start of Wave-IV, although all of the Elliott Wave targets have been satisfied.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-9VCHpBm/0/XL/i-9VCHpBm-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="430" src="https://photos.smugmug.com/photos/i-9VCHpBm/0/XL/i-9VCHpBm-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">OMC Weekly Chart</td></tr>
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The bearish divergence is also present on the weekly chart, so the ensuing downtrend may come sooner, rather than later but again, we're not yet seeing signs of the reversal that would mark Wave-III's demise. What does stand out on the weekly that is not evident on the other charts, though, is an ascending wedge pattern that is rapidly nearing its apex. An ascending wedge is a bearish pattern that typically breaks to the downside. The Elliott Wave count on the weekly suggests we still have three waves remaining, however that wedge looks like it will force a decision within the next few weeks. <br />
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The current direction on the weekly, however, is up, not down, and that's what we truly needed to learn from the two longer term charts.<br />
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We already alluded to how we plan to trade this stock. We'll take a long position on a breakout to the upside - something which is poised to occur in the next day or two. Our protective stop will be just below the triangle support line and our price target will be just above $92. If, however, we get a bearish reversal, tomorrow, we'll hold off entering any positions until we get a subsequent break either above or below the triangle. It's the triangle pattern we're looking to play in this stock, so let it show us which way it wants to run.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-18517620578496257702017-02-05T15:33:00.000-05:002017-02-05T15:33:59.769-05:00NI Forms Horizontal Wave-B ChannelFrequently, the first major warning sign of an impending breakdown in a specific stock comes from the volume signature, to see the full picture we typically need to step back to either the weekly or the monthly chart. Often the daily noise masks what's really occurring and only on the longer time frame charts will it clearly manifest. That is certainly the case for Nisource, Inc. (<a href="https://www.google.com/finance?q=NYSE%3ANI&ei=aHiXWKm9A83kmAHAjJvQCw" target="_blank">NYSE: NI)</a>.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-cftXcKx/0/XL/i-cftXcKx-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="436" src="https://photos.smugmug.com/photos/i-cftXcKx/0/XL/i-cftXcKx-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">NI Monthly Chart</td></tr>
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Looking first at the monthly, we see a very strong 5-wave impulse leading to a Wave-I top in July 2016. Traders watching the volume patterns, though, were warned of the impending top as early as September, 2015. Any interest at all in the stock fell off the cliff right at the end of Wave-4, and it's been flat ever since. This will become even more evident when we examine the weekly chart, but for now, just be aware that the first warning signs started there.<br /><br />The RSI(9) suggests that the decline is not yet over. When we compare the price lows of Wave-A and Wave-4 with the corresponding RSI level, we see a distinct bearish divergence. This strongly suggests that the correction currently in flight will have a relatively lengthy run. The MACD(5,34.5) would agree, having rolled over into a bearish crossover just after the Wave-5 top. The shape of that crossover is one that suggests it has a lengthy run ahead of it.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-P3KJZnZ/0/XL/i-P3KJZnZ-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="432" src="https://photos.smugmug.com/photos/i-P3KJZnZ/0/XL/i-P3KJZnZ-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">NI Weekly Chart</td></tr>
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We'll turn now to the weekly chart. You can see change in volume signature here, as well, and you can also get a much better feel for just how long that disinterest has persisted. The entire 5th wave was accompanied by lackluster volume. Encouragingly, though, the subsequent correction is also generating very little interest. <br />
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The bearish divergence in the RSI is evident on the weekly chart as well, again confirming the conclusion that the correction has a ways to go. Of interest, however, is the bullish crossover in the MACD. That's a good indication that Wave-A did end where we suspected, and that we're now into the Wave-B pullback. The MACD has been a good indication of major wave initiation, so watch for a bearish crossover to signal the start of Wave-C.<br />
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The bottom of Wave-A retraced 50% of Wave-5, so it's likely that Wave-C will take us at least to the 61.8% level or lower. That 61.8% line sits just above a good support line that marks the Wave-i top, so we'll be watching for signs of a MACD bullish crossover around that level. Of course, we won't know at the time if that's a Wave-III start or a Wave-X start, but either way it will be a tradeable up-wave.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-s8MtSQB/0/XL/i-s8MtSQB-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-s8MtSQB/0/XL/i-s8MtSQB-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">NI Daily Chart</td></tr>
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We come at last to the daily chart. When this first popped up on our scans, this weekend, it looked like it had potential for an imminent trade setup. Our analysis, however, shows that not to be the case. The Elliott Wave count is both consistent and defensible. I did wonder if the lengthy channel we're not exploring could be a wave iv in the current Wave-A, but I really can't find a legitimate count that would produce that result. So the conclusion I do reach is that Wave-A ended in November and we're well into a flat Wave-B corrective pattern.<br />
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The next major direction we can anticipate is a Wave-C move that should be to the down side. I hesitate playing anything to the upside in this stock unless we see a sudden change in the volume signature that would indicate demand is once again coming into dominance. What I'm watching is the intersection of the current channel with that diagonal resistance line. There will be some downward pressure as we approach that convergence, but until then, there's nothing setting up that draws our interest. We need Wave-C to initiate to find a good reward to risk play, so we'll exercise patience and await that development.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-63826264024103515812017-02-04T14:31:00.000-05:002017-02-04T14:31:10.409-05:00MS Breakout on Daily and Weekly ChartsFinancial stocks received another boost this week with definitive signs coming out of Washington that some of the regulations imposed by Dodd-Frank will be brought back under control. Between the promise of higher interest rates and the indication that financial regulations will be loosened, the climate continues to support growth for the top financial industry firms. <br />
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The regulatory impact is not trivial. In 2014 alone, the top six banks in the US spent over $70 Billion on regulatory compliance <a href="http://www.pymnts.com/news/security-and-risk/2016/banks-spend-and-hire-in-new-regulatory-environment/" target="_blank">(Pymnts.com: Regulations, Regulators And The High Cost Of Banking Compliance) </a>and that number continues to grow. Indeed, unchecked regulations are the greatest risk faced by top financial firms in 2017. Attempting to unravel the ridiculously complex 22,000 page Dodd-Frank fiasco is a major step in the right direction.<br />
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The executive action taken this week by President Trump to target excessive and complex financial regulations <a href="https://www.nytimes.com/2017/02/03/business/dealbook/trump-congress-financial-regulations.html?_r=0" target="_blank">(NY Times: Trump Moves to Roll Back Obama-Era Financial Regulations) </a>was well received in the industry, and it's against that backdrop that we begin our analysis of Morgan Stanley (<a href="https://www.google.com/finance?q=NYSE%3AMS&ei=5RmWWNmnBYqHmQGCw76YCg" target="_blank">NYSE: MS)</a>. <br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-J5pdDMx/0/XL/i-J5pdDMx-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="438" src="https://photos.smugmug.com/photos/i-J5pdDMx/0/XL/i-J5pdDMx-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">MS Monthly Chart</td></tr>
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The monthly chart for MS shows just how much the financial industry has suffered since the peak in early 2000. The post-9/11 recession took its toll, and the financial crisis in 2008 sent most of the top names in the industry into penny-stock territory. The recovery from those basement level prices continues to be slow. For MS, they also come with a few warning signs. <br />
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Notice the lengthy descending triangle pattern forming on the monthly chart. Now, that pattern will likely take several more years to run its course, but it does not bode well for any truly long-term investments. Even the current up-trend is at risk since price is now trading on the resistance line while volume and range are decreasing. The likelihood of a pullback on the monthly is high.<br />
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The RSI(9) oscillator on the monthly chart would agree. Comparing the highs in mid-2015 to the high traced over the prior month, we see a bearish divergence forming in the RSI. This, again, signals longer term weakness that will ultimately initiate a pullback.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-rLxSHPZ/0/XL/i-rLxSHPZ-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-rLxSHPZ/0/XL/i-rLxSHPZ-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">MS Weekly Chart</td></tr>
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The weekly chart, which gives us a more intermediate-term picture, is a bit more optimistic. From an Elliott Wave perspective, Waves-I and II are complete and Wave-III is in progress. Now, there are two possible counts for the current wave, and in retrospect (after annotating the daily chart) I really should have gone back to the weekly to show the alternate count. Rather than Wave-1 completing in November, 2016, it would appear Wave-1 completed in August and Wave-3 completed in November. That does make a difference, since it leaves only one wave remaining to complete the impulse, although it's entirely possible for Wave-5 to extend one or more times.<br />
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The RSI(9) oscillator shows continued strength through the entire move, although that strength is starting to wane as the horizontal consolidation runs its course. This consolidation on the weekly takes on the appearance of a bull flag, however, with the near vertical weekly move that started the week of 7 November. The price target for that flag would be $49.60, marking the 61.8% extension of the flagpole. Note that the target falls just shy of the conservative price target for Wave-5, which is $50.85. <br /><br />The weekly close on Friday marks a breakout from that consolidation flag pattern. It comes, on the weekly, however, following a bearish cross-over of the MACD(5,34,5) momentum indicator. The strength of the breakout, therefore, needs to be treated with caution.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-gxtRq5f/0/XL/i-gxtRq5f-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-gxtRq5f/0/XL/i-gxtRq5f-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">MS Daily Chart</td></tr>
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So this brings us to the daily chart and our short-term swing-trade strategy for MS. As on the weekly, we see the breakout from the two-month horizontal consolidation pattern. (Notice that it hardly resembles a flag at this level, however, and we would not trade it as such for a swing-trade.) Volume was very strong on the breakout day, adding confirmation to the breakout.<br />
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On Balance Volume continues to rise as it did throughout the horizontal consolidation, providing clues that the stock is under accumulation. That's not surprising, given the prospects for the financial sector as a whole as we discussed earlier. <br />
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The Elliott Wave count shows wave-4 at or near completion. One aspect of the count that troubles me, however, is that waves 2 and 4 do not appear to alternate. Well, 4 is much choppier than 2, however for alternation we typically see one of the waves cutting a deep pullback while the other is shallow. That's not the case here, so there is the potential for a pullback before Wave-5 begins in earnest. Be aware of the possibility and plan accordingly.<br />
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Looking at the MACD, we see a Zero Line Reversal followed immediately by a bullish crossover. Both of these are very strong bullish signals in the context of the current chart. The RSI(9) is confirming price action and displaying no signs of a divergence either way.<br />
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With this in mind, our trading strategy for MS is as follows. We'll play the breakout that occurred on Friday, and take a long position just above the high of Friday's candle. We'll place a protective stop just below the low of Friday's candle which coincides with the middle of the horizontal channel. (If we trade that deep into the channel, it negates the breakout signal, and we will want out of the trade immediately.) Our price target will be $49.59, the target set by the weekly chart's bull flag. As always, we'll exit the trade immediately if price action appears to turn against us. <br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-40362841223473588942017-02-01T18:00:00.000-05:002017-02-01T18:00:20.579-05:00XL in Ascending Triangle Nearing BreakoutWhile XL Group PLC (<a href="https://www.google.com/finance?q=NYSE%3AXL&ei=cGCSWMmLHpW4e-rnlsgO" target="_blank">NYSE: XL)</a> displays nothing but corrective action on the long-term charts, the daily chart is displaying a well-pronounced Ascending Triangle pattern with price within range for a breakout to either side. The weekly chart offers our first set of clues on direction, however, so we'll begin our analysis there.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-pHFvGnQ/0/XL/i-pHFvGnQ-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="436" src="https://photos.smugmug.com/photos/i-pHFvGnQ/0/XL/i-pHFvGnQ-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">XL Weekly Chart</td></tr>
</tbody></table>
There are enough Elliott Wave impulse rules violations for me to conclude that price action is still in a corrective pattern. Coming off the second high in December, 2015, there is a 5-wave pattern that would lead down to a Wave-A (in June, 2016) and it's possible to draw a 3-wave pattern up to Wave-B in October, 2016. The current pattern is an ascending triangle - or a diagonal, in Elliott Wave parlance - and in its position at the start of Wave-C we do need to be mindful of a potential break to the downside to complete that wave.<br />
<br />
What dominates the weekly chart, however are the numerous channels that are consistently tested over the prior six-years. Of particular interest (aside from the upper and lower boundaries of the main channel) is that very strong pivot line in pink near the middle of the channel. Price is now resting just above that channel and it's also encountering a second diagonal support line coming up from the Wave-A bottom. <br />
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Volume is signalling a strong breakout as well. While it's been declining since that single strong weekly candle the week of 7 November 2016, it has now contracted into a coiled spring, indicating a potential violent breakout in the near term. Let's look at the daily chart for more clues as to direction.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-XLm6fXW/0/XL/i-XLm6fXW-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-XLm6fXW/0/XL/i-XLm6fXW-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">XL Daily Chart</td></tr>
</tbody></table>
Well, from the June 2016 low, it's easy to envision a Wave-1 completion in late July, a Wave-2 completion in November, and a Wave-3 completion in mid-November. The current wave, then, would be a Wave-4 (which matches the formation of a diagonal in the Elliott Wave schema.) If this count is correct - and it's hard to draw a different plausible count - then the breakout would be to the up side for a Wave-5 that could rack up as many as 5-points in the move. That, coincidentally, would take us to just above the 100% price projection of the ascending triangle. Now, I never like to use 100% price projections, so I'd be more inclined to set the conservative target at the 61.8% level around $40.19.<br />
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Volume is showing strength on the daily chart as well. Notice how volume contracted significantly over the last two weeks, but it has surged over the last two trading days. OBV is also rising, giving us an indication that the stock is under accumulation.<br />
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Looking below the chart, we see two very bullish indicators in the MACD(5,34,5). There was a Zero Line Reversal around 12 January, and that was followed by a bullish crossover today. The crossover's somewhat weak and is the second in as many weeks, however it's still more bullish than not.<br />
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Given the distance we've already traveled in the triangle, the only way we will play this is as a breakout. A reversal off either trend line at this point does not generate sufficient profit potential to make it worthwhile. Instead, what we will do is place a buy stop just above the resistance line in the triangle. Our protective stop will be just below the support line of the triangle, and the price target will be the 61.8% triangle-height extension from the breakout.<br />
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Remember, the charts show a <i><b>probability</b></i> of an upward breakout, not a guarantee. That's all we are ever able to trade - probabilities. There are no guarantees in swing-trading.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-27468355807752242832017-01-31T18:57:00.000-05:002017-01-31T18:57:26.415-05:00NWL At Resistance in Wave-A of CorrectionThe scan that brought Newell Brands, Inc. (<a href="https://photos.smugmug.com/photos/i-b9tNZ5Q/0/XL/i-b9tNZ5Q-XL.jpg" target="_blank">NYSE: NWL)</a> to my attention tonight looked for bullish crossovers in the MACD(5,34,5) indicator. Now, remember, I don't use an indicator based trading system, so this scan is only intended to identify stocks that are worthy of analysis. Since this was a bullish crossover scan, I was expecting to see a stock that was signalling a move to the upside. What I found, however, was a stock with more downside potential in the short-term.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-b9tNZ5Q/0/XL/i-b9tNZ5Q-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-b9tNZ5Q/0/XL/i-b9tNZ5Q-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">NWL Monthly Chart</td></tr>
</tbody></table>
Looking first at the monthly chart, we see that NWL was in a corrective pattern for well over two decades. Without expanding the chart further to the left, in fact, we really don't know if the current pattern is merely a continuation of that correction. For our purposes, however, it truly doesn't matter. We're looking for trades that complete in a few days, not a few years.<br />
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What we can see from the monthly is that a motive wave started at the end of the financial crisis in 2009. A full five waves also completed in August, 2016. A corrective pattern following that 5-wave impulse is now in progress. Whether or not Wave-A is complete on the monthly, however, remains to be seen. The retracement level, however, suggests there's more room to move to the downside. <br />
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The RSI(9) oscillator on the monthly chart shows a strong bearish divergence. That divergence ran virtually the entire length of the uptrend, in fact, signalling intense weakness could follow. The MACD agrees. While the MACD ascended in conjunction with the uptrend, it did so with numerous signal line crossovers indicating an overall weakness in the move. A bearish crossover immediately followed the peak, and the distance between the main line and the signal line is widening. That, too, suggests the downward move is not yet over.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-LjZfkwP/0/XL/i-LjZfkwP-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="436" src="https://photos.smugmug.com/photos/i-LjZfkwP/0/XL/i-LjZfkwP-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">NWL Weekly Chart</td></tr>
</tbody></table>
The weekly chart tells a similar story. We see a strong motive wave leading to the peak in August, 2016, although that Wave-4 correction was deep and very short, time-wise. Coming off Wave 5, however, the sub-waves comprising Wave-A are issuing a cautionary tale. The most likely wave count shows three complete sub-waves and Wave-iv either complete or in progress. That implies another downward push to get to the end of Wave-v, which would also end Wave-A. When we look at the length of Wave-i, we can see a potential decline of another six-points before we reverse into Wave-B. <br />
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Volume is declining, which adds to the bearish sentiment, although it looks like supply has waned significantly in the last few weeks. It's not coming close to the volume experienced in Wave-iii, although in a counter-trend wave, that really isn't much of a surprise.<br />
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RSI(9) on the weekly is, at the very least, confirming price action. When we look at the lows, we can conclude that a bearish divergence is evident, although it can be debated that the last valley wasn't low enough to support that conclusion. Given how low it was compared to the prior valley in price and indicator, it does suggest to me that there's plenty of weakness remaining. <br />
<br />
MACD, on the other hand, does show a bullish crossover, and it does not confirm the divergence suggested in the RSI. That MACD signal is the only indication we have that the downward move in Wave-A may be at an end. For now, however, I'm trusting the wave count and the overall price pattern, and that tells me there's more room to the downside.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-KhVst2m/0/XL/i-KhVst2m-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="436" src="https://photos.smugmug.com/photos/i-KhVst2m/0/XL/i-KhVst2m-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">NWL Daily Chart</td></tr>
</tbody></table>
The five-wave impulse we see on the daily is actually the five sub-waves that comprise the Wave-4 to Wave-5 move on the weekly chart. This does give us a good measure of the full retracement pattern in Wave-A against the prior motive wave. Thus far, Wave-A retraced 50% of Wave-5, so there is certainly more room to the downside. From the weekly, we determined that another 6-points to the downside were likely to complete Wave-A, and on the daily we can see that such a move would land on the 61.8% retracement level. That's a very common retracement level for a Wave-A move, and that adds credence to the analysis.<br />
<br />
The current pattern leading into Wave-A comes into much better focus on the daily. The three sub-waves that completed already are well defined, and Wave-iii subdivided into five sub-waves that are also very well defined. Wave-iv is a bit more complex, and it appears to be an irregular a-b-c corrective wave with Wave-c ending in a diagonal. It's likely, based on this, that Wave-iv is complete and that suggests the next move is to the downside to finish Wave-v. <br />
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I'd now like to draw your attention to the resistance lines that are all converging over the course of the next three days. There's a significant amount of pressure on the stock at this level, and when we look at the volume signature for today's long bullish candle, we can see that the conviction to the upside is really not that strong. <br />
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The RSI(9) shows fundamental weakness that has plagued the stock since the Wave-5 high, and that weakness continues through the current move. The MACD experienced a bullish crossover today, however that indicator has been extremely choppy for the past couple of weeks and I would not consider it reliable at the moment.<br />
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The pattern formed by the short-term resistance and support lines shows a symmetrical triangle pattern with price rapidly approaching the apex. We need to watch the next move closely. It's certainly possible, from the current position, that the stock breaks through resistance and starts a Wave-B move. It's more probable, however, that price moves to the downside and tests support (at a minimum) and possibly breaks to the downside. <br />
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We're going to trade this stock based on the breakout direction. If we see a break above resistance with confirming volume, we'll take that trade to the long side. That would indicate that Wave-B is in progress, and we'd set a conservative price target around $51.84, coinciding with the bottom of the 29 July exhaustion gap and the 61.8% retrace of Wave-A.<br />
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If, however, we break below support, we'll take that trade to the short side. Our price target will be in the $41.72 range, coinciding with a support line, the 61.8% retracement of Wave-5, and the price projection obtained from the weekly. In either case, the protective stop would be above the resistance pattern for a short trade and below the support pattern for a long trade. Either way, there's a decent reward to risk ratio, although it does look a bit better to the short side.<br />
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Happy TradingKannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-34978288217140336322017-01-30T18:39:00.000-05:002017-01-30T18:39:41.905-05:00Zig-Zag Correction in AEP Sets Up Long for Wave-c of BOn a day when the Dow Jones Industrial Average <a href="https://www.google.com/finance?q=INDEXDJX%3A.DJI&ei=VsSPWIHuBcHCeN_nl8AP" target="_blank">(INDEX: DJIA)</a> retreated 122 points to close back below the 20,000 milestone, American Electric Power Company (<a href="https://www.google.com/finance?q=NYSE%3AAEP&ei=QsOPWNCpIcq_evSXhOAL" target="_blank">NYSE: AEP)</a> registered a .38% gain and pushed to the top of a two-month long horizontal channel, while setting up for a potential upside breakout.<br />
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The monthly chart shows a stock that started its current 5-wave impulse pattern at the end of the financial crisis in 2009. Wave-I completed in July, 2016 and the stock is currently running its course in a Wave-II corrective pattern. Note that, while we show Wave-A as complete on the monthly, that is not a conclusion we can truly reach just yet. The first downward move only covered a 23.6% retrace, so there's a lot more potential to the downside. We'll need to see how this behaves.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-KpjTktv/0/XL/i-KpjTktv-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="434" src="https://photos.smugmug.com/photos/i-KpjTktv/0/XL/i-KpjTktv-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">AEP Monthly Chart</td></tr>
</tbody></table>
The RSI(9) on the monthly chart shows a bearish divergence, and the length of that divergence suggests that this correction could cover a lot of ground. Note that the MACD does not show a divergence on the monthly, but it has provided very reliable crossover indications at the beginning and end of each wave. Given the reliability throughout Wave-I, from a monthly perspective we should be able to use it to signal the start of Wave-B. From the current pattern, it does not look like we've reached the bottom of Wave-A, so there appears to be more weakness in store.<br />
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The weekly chart's wave count tells a slightly different story with respect to Wave-A.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-R9C4zTB/0/XL/i-R9C4zTB-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="436" src="https://photos.smugmug.com/photos/i-R9C4zTB/0/XL/i-R9C4zTB-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">AEP Weekly Chart</td></tr>
</tbody></table>
Here, we can see the formation through the Wave-I top, and it looks like Wave-A was a valid 5-wave impulse. We also see the reaction off what appears to be the Wave-A bottom with Wave-a, and it looks like Wave-b has gone horizontal. From the current setup, it appears this overall corrective move will be a Zig-Zag, so the monthly is correct in signalling more weakness towards the downside. The weekly, however, is telling us we have a bit of room to the upside before that next drop occurs.<br />
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As in the monthly, there's a bearish divergence evident in the RSI(9). The divergence is also evident in the MACD on the weekly, as we compare the heights of the last three highs. As was the case in the monthly, the weekly crossovers have been reliable signals. There's a bit of a warning flag in the current MACD, however, in that it could develop into a Zero Line Retrace pattern. We have to watch the movement of the main line here, since the way it's hooking, it could just brush the zero line and then turn down again. A crossover at that point would be an extremely bearish signal.<br />
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So now let's turn to the daily chart to figure out how we want to trade this stock.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-NMcdCM2/0/XL/i-NMcdCM2-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="436" src="https://photos.smugmug.com/photos/i-NMcdCM2/0/XL/i-NMcdCM2-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">AEP Daily Chart</td></tr>
</tbody></table>
There's a bit more strength showing on the daily chart than we see on either the weekly or the monthly. First, that horizontal pattern we've experienced for the last two months came on a break of a strong diagonal resistance line. When we complete the upward move, we need to watch the behavior as we once again approach that line since it could be a strong support line in the future.<br />
<br />
The horizontal channel that formed starting in early December did so bounded by two very strong horizontal support and resistance lines that ran the length of 2016. The upper line was a major pivot line, flipping from support to resistance and back again several times over the prior year. Each time, it proved to be a very strong signal line.<br />
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What we show on the chart from Wave-A is what looks to be an a-b-c Zig-Zag that will lead to a Wave-B top that corresponds to another major resistance line that has shown staying power in the past. From there, if it's a true Zig-Zag, we can expect a lengthy downward move in Wave-C, and that would explain the bearish divergences showing on the weekly and monthly.<br />
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For each of the significant waves, once again we see that MACD provided a good signal, so we're watching it here for a sign that Wave-b is in flight. Today, in fact, we did get a signal line crossover (which is what flagged this chart in my scans) and the stock moved to the top of the horizontal channel, poised for a potential breakout play.<br />
<br />
The MACD is also showing signs of a potential Zero Line Retrace (ZLR) which, approaching it from the top, would herald another move to the upside. That's consistent with the short-term expectation of a rise to complete Wave-c of Wave-B.<br />
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So that is the move we are currently looking to trade. On a break of overhead resistance, we will enter long with a protective stop just below the lower support line. Notice how the height of Wave-a extended from the bottom of Wave-b takes us to the next major overhead resistance line. There is also a potential resistance line that is not shown, but sits very close to the 76.4% extension. We'll use that as our conservative price target, since this next move has a high probability of ending between the 76.4% and 100% extensions. That move will complete Wave-B, and when you look at the length and shape of Wave-A, we believe there will be several swing-trade opportunities in Wave-C as well. Market conditions at the time will determine which of those waves we attempt to trade.<br />
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Happy Trading. Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-77762187786383980922017-01-29T15:57:00.000-05:002017-01-29T15:57:19.285-05:00MDT Cup and Handle Setting Up LongI've stated several times in the past year that I do not trade based on indicators. My decisions to enter or exit a trade are made based on a price and volume analysis, and my trading plan requires me to trade in the direction of the overall trend of both the stock and the market. "The market" in this sense, depends on the stock being considered. The default chart layout that I use includes a correlation line (which I don't normally show in these articles) between the stock and each of the major indices: S&P 500, S&P 600, S&P 400, NASDAQ Composite, and the Dow Jones Industrial Average. Whichever index shows the highest correlation value for that stock is the one I use as "The Market" for that stock, and it's the trend the price must follow for me to enter a trade.<br />
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In today's article, we will analyze Medtronic, Inc. (<a href="https://www.google.com/finance?q=Medtronic+NYSE&ei=YkSOWNH5MJS3mQGAwrf4Dg" target="_blank">NYSE: MDT)</a>, a Large Cap Health Care stock that trades on the NYSE. Based on that, we would expect MDT to correlate to either the Dow Industrials or the S&P 500, wouldn't we? Well, here are the full set of indicators I use to analyze my stocks, shown for MDT on daily chart.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-mC82RK9/0/XL/i-mC82RK9-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="344" src="https://photos.smugmug.com/photos/i-mC82RK9/0/XL/i-mC82RK9-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">MDT Daily Chart Indicators</td></tr>
</tbody></table>
Well, there's a surprise! MDT, at least for now, correlates best with the NASDAQ Composite, and it has done so since at least late November. So when we look at market trends, for now we need to look at the NASDAQ Composite index, and possibly the S&P 500 since that is also showing a strong correlation. The Mid cap, Small cap, and Dow Industrials are pretty much irrelevant in this case.<br />
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Now, the reason I mention indicators at all is because I do use them to scan for stocks worth analyzing. The scan that found MDT, today, was a "MACD ZLR scan." This scan looks for stocks where the MACD(5,34,5) Line approached the zero line from the top, barely brushed it, and then moved higher. Since "close is close enough" in trading, I use a range of 2% above and 2% below the zero line to calculate "zero".<br />
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For Stockcharts.com users, here is the scan. You may copy and paste this directly into the Advanced Scan Workbench and modify the basics to meet your own trading preference.<br />
<br />
<blockquote class="tr_bq">
<span style="color: #cfe2f3;"><span style="font-size: x-small;">[type = stock] AND [country = US] AND [sma(63,Daily Volume) > 1000000] and [[exchange is NYSE] or [exchange is Nasdaq] or [exchange is Amex]]<br /><br />and [Close >= 20.00]<br />and [Close < 100.00]<br /><br />and [2 days ago macd line(5,34,5) >= [2 days ago max(252, macd line(5,34,5)) - 2 days ago min(252, macd line(5,34,5))] * .02]<br />and [yesterday's macd line(5,34,5) <= [yesterday's max(252, macd line(5,34,5)) - yesterday's min(252, macd line(5,34,5))] * .02]<br />and [yesterday's macd line(5,34,5) >= [yesterday's max(252, macd line(5,34,5)) - yesterday's min(252, macd line(5,34,5))] * -.02]<br />and [today's macd line(5,34,5) >= [today's max(252, macd line(5,34,5)) - today's min(252, macd line(5,34,5))] * .02]<br /><br />and [<br />[group is ConsumerStaplesSector]<br />or [group is CyclicalsSector]<br />or [group is EnergySector]<br />or [group is FinancialSector]<br />or [group is HealthCareSector]<br />or [group is IndustrialSector]<br />or [group is MaterialsSector]<br />or [group is TechnologySector]<br />or [group is UtilitiesSector]<br />]</span></span></blockquote>
This is for long setups only. You can use it for short setups by changing the first and last MACD test to be a <= comparison and changing the first and last MACD calculation to be -.02. The middle two MACD tests remain unchanged.<br />
<br />
What this setup does is identify stocks that have shown signs of a resurgence to the uptrend. I use it to attempt to locate stocks that may be exiting a Wave-2, Wave-4, or Wave-B corrective wave. Remember, though, that all trades are based on the price and volume action, not the indicators. They are only used to find stocks that must then be properly analyzed. <br />
<br />
So, after that rather lengthy introduction, let's take a look at MDT.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-nDZ4CZ8/0/XL/i-nDZ4CZ8-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="436" src="https://photos.smugmug.com/photos/i-nDZ4CZ8/0/XL/i-nDZ4CZ8-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">MDT Daily Chart</td></tr>
</tbody></table>
The dominant features on the chart start with that significant gap down on 22 November. From its position at the time, identifying the type of gap would have been problematic. It's position makes it unlikely it was a breakaway gap since a downtrend was already in progress, although it could qualify as a continuation gap. Subsequent price action, however, suggests that this was really an exhaustion gap. The volume pattern around the gap suggest a selling climax, and the downward move met a lot of demand on 3 January with a strong bullish reversal candle.<br />
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The post-gap pattern now resembles a cup-and-handle formation. It's even more pronounced if you draw the cup excluding the three low spikes and stick to the bottoms of the candle bodies. Now, normally we think of cups-and-handles as appearing at the top of an uptrend and representing a pull-back followed by a resumption of the uptrend. There's nothing that requires such an entry into the pattern, however, and the general psychology of the market participants creating the pattern remains the same when it represents a reversal off the bottom. In both cases, we have a pattern high from which there was a significant pull-back. The high was retested - the right rim of the cup - and price showed a weak retreat on declining volume off that retest - the handle. <br />
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In many ways, the handle also resembles a flag or pennant, and it can certainly be traded as such. When the right rim of the cup is relatively steep, as it is with MDT, it can act as a flagpole and provide a price target nearly identical to that of the cup-and-handle price target.<br />
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Before we talk about our trade strategy, there are a couple of other chart items we should review. There's a weak resistance line formed from the last bullish spike before the gap and the last retest of the cup. That resistance line is where price closed on Friday, constituting a third-touch of the line. If price retreats from here, that line could gain significance, so we do need to watch behavior early in the week.<br />
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Notice that both the RSI and MACD show a bullish divergence. That's encouraging and suggests a resumption of an uptrend that is still in progress on the weekly and monthly charts. (I'll post them at the end of this article, but not discuss them due to the growing length of today's review.) One word of caution, though. Both the RSI and MACD are momentum indicators. While they measure two different aspects of price, we do need to be careful when using them together since they can give a false appearance of signal strength. If you trade based on indicators, I recommend using only one momentum indicator along with a volume indicator, a trend indicator, and price action. <br />
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With all this in mind, there are two ways we can trade this stock. Current price action signals an aggressive long entry on a break above the diagonal resistance line. Protective stop could be set below the low of Friday's candle, below the low of Thursday's candle, or most conservatively, below the low of the handle. As each setting increases risk, be sure to adjust position sizing to mitigate that increased risk. <br />
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Using this aggressive entry, the conservative price target is the high of the cup. It's a high probability target in that it would represent a third test of that high. For an entry at this point, though, that's really the only safe conclusion we can reach.<br />
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The second more conservative approach is to wait for a close above the high of the cup rim. A protective stop would be just below that support line that also represents the 50% retrace of the gap to low pattern. The price target, however, is shown above in green, representing a range straddling the 100% retrace of the gap combined with the 61.8% extension of the cup-and-handle formation. This setup has a higher reward to risk ratio than entering on the handle, and it allows time for the stock to penetrate the resistance at the cup rim.<br />
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Depending on market behavior, I'm tempted to play both setups, but that's a decision I'll finalize when I see how the futures are looking before the open Monday and Tuesday. If there isn't sufficient strength to push the stock quickly from this level to the rim, I'll pass on that trade and watch for a rim break before entering long. Patience is always a virtue in trading.<br />
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Here are the weekly and monthly charts, respectively. They're included so you can see the additional analysis that setup what we are watching on the daily chart.<br />
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Happy Trading.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-qjM3PJj/0/XL/i-qjM3PJj-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-qjM3PJj/0/XL/i-qjM3PJj-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">MDT Weekly Chart</td></tr>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-TsczzQZ/0/XL/i-TsczzQZ-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="370" src="https://photos.smugmug.com/photos/i-TsczzQZ/0/XL/i-TsczzQZ-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">MDT Monthly Chart</td></tr>
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<br />Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-12851445844415654122017-01-28T14:07:00.000-05:002017-01-28T14:07:03.378-05:00SYMC is a Tale of Three ChartsOne of the scans I run on a daily bases searches for potential flag setups. These minor pauses in a trending stock often offer good entry points when the trend resumes, provide, of course, the overall stock pattern is correctly interpreted.<br />
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A stock that caught my attention in today's scan was Symantec Corp (<a href="https://www.google.com/finance?q=symc&ei=j9qMWPHsFYGge7Hev7gH" target="_blank">NASDAQ: SYMC)</a>, the nationally known cyber-security software developer most familiar to consumers as the maker of the Norton anti-virus suite. The three-day consolidation underway following a healthy upward move is what tripped today's scan.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-sf5hvLB/0/XL/i-sf5hvLB-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="370" src="https://photos.smugmug.com/photos/i-sf5hvLB/0/XL/i-sf5hvLB-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">SYMC Daily Chart</td></tr>
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There are a lot of positives on the daily chart. The slope of the 200-day SMA shows a healthy uptrend. A 5-wave motive is in progress, although we'll see on the weekly and monthly charts why I start the Elliott Wave count in May 2016 and not February. On Balance Volume is rising at a slow, but steady pace. The RSI(9) oscillator is confirming our price action, and finally, the stock recently broke out of a descending triangle pattern and has not pulled back in the month since that breakout.<br />
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There are two warning signs on the daily, chart, however. The first is that obvious high spike in volume on 25 January. The size of the candle that day is rather small, warning us that we may need to take a closer look at the price action since something out of the ordinary has occurred. It's possible that this spike is indicative of climactic action signalling an end to the uptrend.<br />
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The second warning sign is the price target for our potential Wave-(v). Using the rule of thumb that, when Wave-(iii) is longer than Wave-(i), the conservative price target for Wave-(v) is the height of Wave-(i). Now, nothing constrains Wave-(v) in this pattern, however history shows that this rule of thumb works with enough consistency to be a valid predictor of price action.<br />
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I show the Wave-(v) price targets as a Fibonacci extension measured from the end of Wave-(iv). We're already trading above the 61.8% extension, and that's a level I normally use as my most conservative target in any price calculation. So based on this, the end of Wave-(v) can occur at any time. A count on the hourly time frame, however, suggests that this slight 3-day pause is a fourth wave in an impulse that started 3 January, so if that's the case, we may yet approach the 100% extension.<br />
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I'm going to jump to the monthly chart next, since that's the chart that puts everything in focus.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-CbNr4fS/0/XL/i-CbNr4fS-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="370" src="https://photos.smugmug.com/photos/i-CbNr4fS/0/XL/i-CbNr4fS-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">SYMC Monthly Chart</td></tr>
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That a motive wave ran from 1999 to 2005 appears obvious on the chart. Since price following that 2005 peak has not retraced 100% of that move, we're safe (for) now in labeling that peak the top of Wave-I. The question before us now is what to do with Wave-II. Has it ended, or is it still in progress? If it ended, when, and what does that tell us about Wave-III?<br />
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What I show on this chart is one of many possible wave counts. It has problems, but then, complex corrective waves always generate massive headaches when trying to piece together their puzzle. I've shown, in this case, the various subwaves that lead me to conclude that Wave-II ended in February 2016 and that Wave-III is in progress. I also show my conclusion that, for the long-term trend, Wave-1 and Wave-2 of Wave-III have completed and Wave-3 of Wave-III is in progress.<br /><br />Of note on the monthly chart is the breakout of the ascending channel that formed much of Wave-II. Following that breakout - which occurred on high volume - we had a pullback and a retest of the support line. That retest was rejected and price spiked to an all-time high this month. That's good news for those looking for a bullish move out of SYMC and it offers confirmation that this wave count may be correct.<br />
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There are two warning signs, however. First, volume is once again declining, and this month's candle - despite its length - has thus far experienced very light volume. In other words, volume is not confirming price this month. Another way of showing that is via the On Balance Volume (OBV) indicator. Throughout the current uptrend, OBV has oscillated a bit, however the overall indicator remains flat. We're not seeing any signs of accumulation, and we really do need that to occur in order to sustain a lengthy upward move.<br />
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The second warning comes from the RSI(9) oscillator. When we compare the height of the RSI now to the height during the three prior price highs, we see a pattern indicative of a bearish divergence. At best, the RSI is not confirming price action, and it may possibly be signalling weakness that will lead to a downturn. So, while we believe for the moment that we have a valid wave count, we do need to be aware that it could be invalidated at any time.<br />
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I've left the weekly chart for last since it really needed the monthly analysis to put it into perspective.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-GrJHQPb/0/XL/i-GrJHQPb-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="370" src="https://photos.smugmug.com/photos/i-GrJHQPb/0/XL/i-GrJHQPb-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">SYMC Weekly Chart</td></tr>
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The current 5-wave impulse is obvious on the weekly, but equally obvious is that 5-wave patterns throughout the correction were the norm. Were it not for the monthly chart, there would be little reason to believe that this current impulse is nothing more than the next wave in the correction.<br />
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What does add some credence to the Wave-III theory is the overall volume signature. We see some serious demand entering the picture at the move up from what we believe to be the bottom of Wave-II. Indeed, each of the motive waves that occur throughout this upward move are accompanied by rising volume with a strong demand signature. <br />
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The volume pattern in the tight symmetrical triangle was accompanied by an interesting volume pattern. A lot of shares changed hands in this consolidation, and the subsequent breakout was on rising volume. <br />
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Now, the bad news. The RSI(9) oscillator shows a pronounced bearish divergence on the weekly chart. This move could very well be short-lived, at least according to the RSI. Additionally, when we look at the symmetrical triangle, we see that it is actually a pennant formed from the Wave-(iii) motive. I've added the Fibonacci extension targets to the breakout of that pennant, and price has already closed at the 50% extension with a high nearly reaching the 61.8% mark. That 61.8% target is a typical end-point for a pennant breakout such as this one. <br />
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So, how are we going to trade this one? Well, I'm going to take my cues from the daily chart. Regardless of the Weekly or Monthly wave counts, it's obvious that we're currently in the fifth wave of a 5-wave impulse on the daily. The current pause may be the end of that wave, it may be the mid-point of the wave, or - most likely - it's the fourth wave of a 5-wave move on the hourly chart.<br />
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Remember, the overall market is trending up with strength, so right now we're only taking long positions. Therefore, if this stock breaks to the downside from here, we'll mark Wave-(v) complete and wait for Wave-(a) to play itself out before going long on Wave-(b). If, on the other hand, we break to the upside, we'll open an immediate long position. We'll set a price target of 28.41 with a stop just below the low of the entry day. This is a two or three day trade at most, and it's a pure motive-wave play. We will want out of the trade at any hint of weakness. Based on the pattern on the chart, however, we believe the probability is strong for a short-term trade to the upside with a maximum 3-day trade horizon.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-63762687088895652272017-01-27T18:53:00.000-05:002017-01-27T18:53:41.613-05:00ATI Breakout From Ascending Triangle, Forms Bull FlagThe monthly chart of Allegheny Technologies (<a href="https://www.google.com/finance?ei=RdOLWOG7NcmLe__FufAM&q=ati" target="_blank">NYSE: ATI)</a>, the small-cap Pennsylvania based specialty materials and components producer demonstrates the the long-term pressures on the US steel industry. The stock has yet to enjoy a true motive wave to the upside, and it's four-year climb to its all-time high turned out to be a three-wave correction that is likely Wave-A of a longer move.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-hqJ9PRW/0/XL/i-hqJ9PRW-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="366" src="https://photos.smugmug.com/photos/i-hqJ9PRW/0/XL/i-hqJ9PRW-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">ATI Monthly Wave</td></tr>
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The long-term pattern from 2007 to the present is a descending triangle that is nearing its apex. The good news for ATI is that there are signs on the monthly chart that the breakout will likely be to the upside. The RSI(9) pattern is strengthening, and the last two peaks on the price chart - lower highs - compared to the RSI show a bullish divergence.<br />
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The volume pattern is showing signs of strength as well. The amount of supply that entered the scene in the last downward move shows evidence of climactic activity, and the subsequent upward monthly candles are increasing in intensity. <br />
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The price is now trading in the resistance zone, so we're watching this stock to see if it will break to the upside or retreat back towards support and the bottom of the triangle pattern.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-TbssdhG/0/XL/i-TbssdhG-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-TbssdhG/0/XL/i-TbssdhG-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">ATI Weekly Chart</td></tr>
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The weekly chart makes things a bit more interesting. We can see the resistance zone that clearly and can see that we closed the week in that zone. What didn't appear on the monthly, however, is the fact that this week's candle constituted a breakout from an ascending triangle that ran the length of 2016. The volume pattern from this week is the highest volume recorded in at least the last five-years, and it offers strong confirmation of the legitimacy of the breakout. <br />
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The fact that we closed in the resistance zone does raise the odds for a pullback. If that occurs - and it occurs 57% of the time in an ascending triangle upward breakout - then we will watch for how well the triangle top - now a support line - holds. Remember, we're not long-term traders, so we're using the weekly chart to gauge the directional trend, allowing us to enter short-term swing-trades in the direction of that trend. So understanding the pressures imposed on the monthly and weekly charts improves our odds of entering a short-term trade in the same direction as the longer term trend.<br />
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Looking at the RSI(9) oscillator on the weekly chart, we've had consistent signals in support of the overall price movement. This week's RSI(9) close, however, is a bit troubling. Given the strength of the overall move, this week, a higher move in the RSI, preferably above 70, would have provided stronger confirmation of the breakout. Instead, the RSI closed at the same level as the prior peaks that retreated from the resistance line of the triangle. That's a sign of weakness that may be a harbinger of a pullback, at least to support. Keep an eye on it.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-pHX7Vt4/0/XL/i-pHX7Vt4-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-pHX7Vt4/0/XL/i-pHX7Vt4-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">ATI Daily Chart</td></tr>
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Now let's take a look at the chart that caught our attention in the first place. Here on the daily chart, there's no sign of that overhead resistance, which is another reason we always want to examine at least the weekly chart. The ascending triangle, however, is obvious on the daily, and that was an extremely strong resistance line that was broken early this week.<br />
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That break, on the highest volume on the chart, also occurred on a strong breakaway gap. It was better than expected earnings that created the gap, however the 15-month high is seen as a strong positive for the stock. The remainder of the week created the next pattern in which we have significant interest. We're in a tight bull flag pattern now and still showing more strength than weakness. Thus far, there's been no attempt to retreat as low as the bottom of Tuesday's wide-range candle, and certainly no attempt to close the gap.<br />
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In the months leading up to this week's move, On Balance Volume began a steady but gradual rise, indicating that subtle accumulation was occurring over the long term. The RSI(9) on the daily appears to be in agreement. The oscillator began to show signs of strength a month or so before the earnings announcement, again indicating increased interest in the stock. The spike in price saw a corresponding spike in the RSI, and it continues to run strong.<br />
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We show two separate price targets on the chart. The green target Fibonacci extension is the price target for the ascending triangle breakout, and the melon Fibonacci extension is the price target for the bull flag assuming it breaks to the upside. The area we will set for our actual target is where the 100% triangle extension and 61.8% bull flag extension overlap. So we're looking at a conservative target in the $25.60 range.<br />
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We will trade this stock as a traditional bull flag. The entry will be long once the stock closes above the flag on confirming volume. The stop will be just below the flag and the target will be $25.59. We'll wait for that close above the flag, however, since we still need to be wary of a potential pullback to support that closes the gap. Overall, however, this appears to be a solid setup with a good probability of success.<br />
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Happy Trading. Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-32638218105186492292017-01-26T19:33:00.000-05:002017-01-26T19:33:39.006-05:00Wave-II Correction in Flight For CONE.After publicly trading for just over a year, CyrusOne Inc. (<a href="https://www.google.com/finance?ei=cYiKWPGYMYO-ea2emKgL&q=cone" target="_blank">NASDAQ: CONE)</a> started a steady bullish motive wave that ended in mid-June, 2016. The last four months of Wave-I were parabolic, with the slope of the rise at times approaching the vertical. With Wave-I complete, a corrective set of waves ensued and apparently continue.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-76vmbwm/0/XL/i-76vmbwm-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-76vmbwm/0/XL/i-76vmbwm-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">CONE Weekly Chart</td></tr>
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The corrective wave off the high recorded five sub-waves down to what appears to be the end of Wave-A. If that's the case, then Wave-B is in flight right now. The retrace from the bottom of A, however, has already recovered 61.8% of the correction, so depending on the type of corrective pattern we experience, a reversal to Wave-C can occur at any time. We'll pay close attention to the end of Wave-B since that level will determine how deep of a correction we will probably get in Wave-C.<br />
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It's important to note the strength of the support line running the entire length of the motive wave, up to and including the bottom of Wave-A. That support line has the potential to mark the end of Wave-C, so we'll need to be cognizant of the candle patterns as we retest that line.<br />
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So knowing that we may be ending the upswing in Wave-B, let's take a look at the daily chart.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-ddrz4zX/0/XL/i-ddrz4zX-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-ddrz4zX/0/XL/i-ddrz4zX-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Cone Daily Chart</td></tr>
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On the daily, it looks like Wave-A was an extended motive wave. What's shaping up to Wave-B on the weekly chart, however, isn't quite playing by the rules having covered 5 sub-waves thus far. Wave-B, by definition, is a three-wave pattern. Now, this could rectify itself by creating a 5-3-3 or 5-3-5 pattern to the top of Wave-B, so let's see how it develops.<br /><br />What stood out when analyzing the chart was the bullish channel that formed for the current wave. Both support and resistance have held firm through the entire 5 sub-wave move, and over the last two days, price has bounced off resistance and headed south into the middle of the channel. Today, it broke through the 10-day EMA, and it's fast approaching the 200-day SMA. It's also important to note that the two consecutive down days occurred as the Dow broke the 20,000 barrier for the first time. Yesterday's down bar was on much higher than normal volume, too, causing the OBV indicator to hook down. The trend in the OBV is still up, but that's an indicator that lags price by a significant margin.<br />
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The RSI(9) oscillator is the one shining light on the chart. Compared to the overall pattern, the RSI is signalling a strong bullish divergence over the long term. Of course, that may be a harbinger of the subsequent Wave-III move that will follow this correction.<br />
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As a short-term swing trader, here's how I plan to play this stock. As long as the overall market trend is bullish, my only interest is playing this to the long side. So with that in mind, we'll watch its behavior at the support line of the channel. The channel is four-points wide, so if we get a good bullish candle at support and the market is still trending up, we'll play the long. The stop will be just below the support line to create a good reward to risk ratio, and also to get us out of the trade immediately if the bounce is a head fake.<br />
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If the breakout is to the downside, however, we'll wait for a reversal. Now, keep in mind the wave count, since the reversal could be part of the 5-3-3 or 5-3-5 completion pattern of Wave-B. We only want to trade in the direction of the market trend, so if possible, we'll try to catch each of the upward waves into the pattern. <br />
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Longer term, it's really Wave-III that we want to catch. That, however, could still be off into the far distance, based on the amount of time it took for Wave-A to run. For now, let's play the short term patterns to the upside and enjoy the current strength in the overall market for as long as it lasts.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-47208175540603251892017-01-25T19:19:00.000-05:002017-01-25T19:19:40.424-05:00ACAD in Ending Diagonal in Weekly Wave-IIOne of the technical screens that I use to locate imminent trade candidates searches for stocks resting on a technical support or resistance line. Arcadia Pharmaceuticals (<a href="https://www.google.com/finance?q=acad&ei=cjSJWPnRK5TAmgGSzKHgBw" target="_blank">NASDAQ: ACAD)</a> appeared on that screen today, however it was the overall pattern that intrigued me. The technical scan showed the stock resting on a horizontal support line but it also displayed both an ascending triangle and a descending triangle each connecting to that central support line. It was a pattern I could not resist analyzing further.<br />
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We'll start with the weekly chart, today, since the overarching pattern offers a necessary perspective in this case.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-8tXt9MX/0/XL/i-8tXt9MX-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-8tXt9MX/0/XL/i-8tXt9MX-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">ACAD Weekly Chart</td></tr>
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Arcadia emerged from penny-stock status in late November, 2012, and the initial pattern quickly resembled a traditional five-wave impulse. Indeed, we can count a valid 5-waves that end in mid-July 2015. The ensuing corrective pattern was both deep and chaotic, however, forcing us to take a harder look at the overall wave count.<br />
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As you can see with the sub-wave and primary wave counts we show on the chart, we believe the five-wave impulse to be a Wave-I at the higher order. (This view is, in part, justified by a quick study of the monthly chart.) This puts the corrective pattern in focus, and we are able to count a valid 5-wave impulse to Wave-A, a three-wave correction to Wave-B, and the in-progress five-wave impulse that will ultimately lead us to Wave-C. Whether that continues into a compound correction or if that completes Wave-II remains to be seen, of course.<br />
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Note the triangle pattern that forms support and resistance. That will come into play further as we study the daily chart. From the weekly, however, we can see that we're just starting Wave-v of Wave-C, and if this will be a true zig-zag correction, this will be a long and deep pattern leading down to roughly where I have C shown on this chart. As far as the weekly chart is concerned, our only move is to the short side.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-3TWJXPN/0/XL/i-3TWJXPN-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="370" src="https://photos.smugmug.com/photos/i-3TWJXPN/0/XL/i-3TWJXPN-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">ACAD Daily Chart</td></tr>
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The area of focus on the daily chart is that final upward move we saw in the weekly. That last move is what triggered the technical screen, after all, since we can see that it broke through resistance, retested it as support a couple of times, and now rests directly on that line. Were it not for the overall Elliott Wave count, this would appear to me to be an excellent long trade opportunity. From an Elliott Wave perspective, however, danger signs abound.<br />
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The A-B-C correction dominates the daily chart, and if Wave-C is a 5-wave impulse, as it appears to be on the weekly chart, then it is clearly not yet over. That signals more distance to the downside before any true uptrend can occur.<br />
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What didn't appear on my technical screen, however, is the current wave pattern in the upturn. We appear to be in an ending diagonal pattern in wave-iv. Now, we entered this pattern from the top, and typically, the ending diagonal exits in the direction from which we entered. That would imply an upward move, and we do anticipate that to Wave-v of this sub-wave impulse. But this is wave-4 of the overall move, and wave-5 will be to the downside. That's the warning I show with that down arrow in black. Wave-5 must complete Wave-C, and Wave-5 is a continuation of the downward impulse of that correction.<br />
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Despite the strong candle drawn today, we don't believe the Wave-iv (which will be Wave-E of the diagonal) downward move is complete. We're still too far from the support line that forms the lower part of the diagonal. We'll watch the next moves, of course, since no pattern is perfect, and we need to trade what is, not what the books say it should be. <br />
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Before we look to place a trade, however, we need to see evidence that Wave-C is complete. This is one case where we'll take our cues from the weekly chart. The signal is cleaner there, and we should have a better indication when the next impulse - a Wave-III on the weekly chart - begins.<br />
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Given the overall strength of the market - the Dow crossed the 20,000 barrier today, after all - we are not interested in taking a short position. Until Wave-C ends, we'll keep this chart in reserve for the inevitable pull-back of the overall market. When the market does correct, this may be a prime candidate for a short position. For now, however, we'll take a pass on entering a trade here.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-19920743190445015122017-01-24T18:25:00.000-05:002017-01-24T18:25:13.748-05:00Ending Triangle Breakout in AME May Signal Start of Wave VAfter a two-year long corrective wave, the aerospace industry's electromagnetic device supplier Ametek, Inc. (<a href="https://www.google.com/finance?q=NYSE%3AAME&ei=sdmHWIH6AdSIe63PqagL" target="_blank">NYSE: AME)</a> broke out of an ending triangle pattern on both the daily and the weekly charts. The pattern took over twelve months to develop, offering the potential for a lengthy run following the breakout.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-sStHpmt/0/XL/i-sStHpmt-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-sStHpmt/0/XL/i-sStHpmt-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">AME Weekly Chart</td></tr>
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The long term trend in AME continues to be bullish, and the triangle on the weekly may have completed Wave-IV of the long-term trend. We still need more evidence to reach that conclusion - evidence we may have on the daily chart - however the initial breakout in early December followed by the pullback to the triangle near the end of the month and the subsequent January bounce off both that triangle and the 10-period EMA all bode well for a resumption of the uptrend.<br />
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Wave-III on the weekly was a two-year pattern that was more than double the price movement of Wave-I. This eliminates any physical restrictions on the height of Wave-5 should it truly be in progress. We'll know for sure if price closes - and remains - above the resistance line formed by Wave-II and several subsequent tests of that peak.<br />
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The breakout started with a bang, driving the second highest weekly volume on the chart. It's easy to see that virtually all of the volume to date implies strong demand, and that bodes very well for the subsequent impulse wave. Volume has, indeed, declined since the twin spikes, however that decline merely brings us back to the 200 period volume moving average. Overall, it's a bullish signal.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-hNNmfqB/0/XL/i-hNNmfqB-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-hNNmfqB/0/XL/i-hNNmfqB-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">AME Daily Chart</td></tr>
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The entire triangle pattern is glaringly obvious on the daily chart. The volume spike off support at the end of Wave-C as well as the volume spikes on the retest are both good indicators that this is a legitimate breakout and we may well be into Wave-V. Since November, the price action drew a bullish channel at a modest slope. Price is riding the support line at the moment, and it has been doing so since the beginning of the year.<br />
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Now, it's obvious that we missed the prime entry point which came on the retest of the triangle (which is now positioned as a support line.) That doesn't, however, mean that another trade setup is not about to appear. Notice that we've traced five full sub-waves since the November low. Well, we've almost traced them. Wave-v is still in flight, and while its minimum target has been met, there's nothing preventing it from running further before a corrective wave kicks in.<br />
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Based on the length of Wave-III, we expect Wave-V to run at least 21-points, and given the length of Wave-III, it can certainly run further than that. Based on this, there are two entry points for which we will patiently wait.<br />
<ol>
<li>Wave-v thus far continues to include candles that touch the lower support line. That's the first possible entry. If we get a one-candle pullback to support, we'll enter long on a bullish reversal candle. The stop will be just below the lower support line, and we'll ride the remainder of Wave-v. </li>
<li>The preferred entry at this point, however, will follow a short sub-wave a-b-c correction. Wave-v - once it completes - will likely signal the end of Wave-1. Once that happens, we'll wait for Wave-2 to run its course and then attempt to catch the start of Wave-3. That wave should be at least a 10-point run, so our patience will prove quite rewarding if we catch it in time.</li>
</ol>
Be aware that AME reports earnings before the open on 7 February. Earnings have not gone well of late with eight consecutive revenue misses. In fact, six of the either have merely met expectations on earnings, with the other two beating earnings by only a penny. Clearly, another quarter of dismal earnings could negate the entire chart pattern and send the stock into free-fall. On the other hand, good earning surprise (especially if revenue beats expectations) could be the stimulus needed to send this stock to the Wave-V price target. We won't hold a position through the earnings date, of course, however we do need to be prepared to jump on board if a move immediately triggers.<br />
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Be patient, wait for the right entry point, and be wary of the earnings date. If we play this one right, however, it could prove quite lucrative.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-61986851912446561962017-01-24T10:35:00.000-05:002017-01-24T10:35:17.953-05:00Slight Pause in Markets But No Real Sign of TroubleAfter the sharp upward spike in the US markets following the November election, the nearly month-long horizontal movement we've experienced recently has naturally generated a bit of hand-wringing. Several pundits on the financial shows this morning, in fact, were questioning whether the so-called "Trump Rally" is now over. Against that backdrop, let's set both politics and emotions aside and simply examine what the daily, weekly, and monthly charts are telling us.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-tFgqg2Q/0/XL/i-tFgqg2Q-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="370" src="https://photos.smugmug.com/photos/i-tFgqg2Q/0/XL/i-tFgqg2Q-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Dow Industrials Daily Chart</td></tr>
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Let's briefly glance at the daily chart since this is where the impression of a pause appears to originate. When studying the overall market, however, the daily chart is not the focus, nor should it be. Charles Dow, in creating the original stock Indices, intended to smooth the wild daily fluctuations - what he considered noise - in order to study the actual market trends. Liquidity was much lower in the late 19th century than it is today, of course, but on the macro level that daily fluctuation still constitutes little more than noise as we'll see in a moment.<br />
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What we can see on the daily, however, is that the Dow 30 experienced two bursts - one in February to April and one in November to early December - that accounted for all of 4500 plus points that were gained in 2016. Three months out of twelve accounted for all of the gains. Another way of putting that is that the market trended for 25% of the time. That's in-line with historical expectations.<br />
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So let's toss the daily chart aside and take a look at the overall broader trend in the market by looking at the monthly chart.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-nRGpDmG/0/XL/i-nRGpDmG-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="370" src="https://photos.smugmug.com/photos/i-nRGpDmG/0/XL/i-nRGpDmG-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Dow Industrials Monthly Chart</td></tr>
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Here's where the behavior for the last 30-years comes into focus. The current long-term bull market started in the late 1980s. We experienced two major recessions in that period, starting with the post-9/11 correction followed quickly by the Great Recession of 2008. Look a bit closer at the 9/11 recession, though. That downturn did not start with a terrorist attack in New York City; it started in January 2000 with the end of the first impulse wave in this bull market. Wave-I ran for nearly 13-years and it went parabolic starting in 1995. <br />
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The corrective wave that started in January 2000 turned out to be an A-B-C running flat correction that encompassed both the 2001 and the 2008 recessions. Wave-II ended in March 2009, and retraced just over 50% of Wave-I. It was a long (9-years) and deep (50%) correction, which tells us that Wave-IV (whenever it starts) should be a short and shallow correction.<br />
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Wave-III started in March 2009 and it is an extended wave. Sub-wave 1 was, in itself, sub-divided into five sub-waves and that ended with the first of the corrections in May 2015. (Remember the hand-ringing around that one? How many pundits prematurely proclaimed the death of the bull in 2015?) That A-B-C flat correction ended sub-wave 2 in February 2016. We now find ourselves in Wave 3 of III. This sub-wave appears to be subdividing as well, and is now in Wave-iii of that subdivision. Notice that, on the monthly chart, the current so-called pause barely registers as a blip on the chart with price resting along a bull channel resistance line that started nearly 8-years ago.<br />
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From here, let's zoom in a bit to the weekly chart. <br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-836vmmw/0/XL/i-836vmmw-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="370" src="https://photos.smugmug.com/photos/i-836vmmw/0/XL/i-836vmmw-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Dow Industrials Weekly Chart</td></tr>
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This adds even more perspective to the recent market action. Everything on this weekly chart is part of the current Wave-III. It's one, long impulse wave that - according to the Elliott Wave count - has only just begun.<br />
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Sub-Wave 1 ended in May 2015 and at the weekly level we can see that the tremendous growth experienced in 2016 was really a double-flat corrective pattern. The weekly shows us that corrective Wave 2 only ended in October 2016. The next sub-wave (Wave-i) ended in early December, and this pause is merely Wave-ii of the 5-sub-wave impulse that will lead to the end of Wave-3 of Wave-III.<br />
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Notice the strong bull channel that runs through the entire chart. There's no evidence that the channel is weakening, and there is some evidence that a support line may be forming near the top of that channel. We'll keep an eye on that as Wave-iii develops since Wave-III has the potential to be accelerate into a parabolic pattern similar to Wave-I.<br />
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So, is the so-called "Trump Rally" over? Well, if we look at the monthly and weekly charts, we can see that the "Trump Rally" was a myth from the outset. The market's behavior has thus far followed the overall pattern in a consistent fashion since this 5-wave impulse kicked off in 1987. The Elliott Wave patterns continue to be consistent and in-line with the broader theory. <br />
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As short-term traders, we're very much interested in the trends that manifest on the weekly chart. So we're aware that we're currently in a short-term Wave-ii corrective pattern, but it's setting up to be a short and shallow wave. The overall trend is still up, and that's what we are trading until signs emerge that a deep corrective wave will intervene. At present, there are no signs of such a wave on either the weekly or monthly charts.<br />
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Happy Trading. Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0tag:blogger.com,1999:blog-8617133.post-75405414164571125752017-01-23T18:35:00.000-05:002017-01-23T18:35:56.324-05:00APA Nearing Channel Support in Daily Wave (iv) of 3The long term trend for Apache Corporation (<a href="https://www.google.com/finance?q=apa&ei=WoiGWKCSLtTGe_vyh8gL" target="_blank">NYSE: APA)</a> continues to be corrective. The stock climbed to a Wave-I high that completed in May, 2008, but the financial crisis and Great Recession plunged the stock into a correction from which it has yet to recover. Over the past 8-years, it drew an A-B-C zig-zag correction that completed in January, 2016. There is insufficient data, however, to determine if the current long-term pattern is the start of Wave-III or if Wave-II will develop into a double or triple complex correction. For now, the safe assumption is that the correction continues.<br />
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On the weekly chart, the volume signature changed dramatically at the end of 2015, and showed strong evidence that climactic selling may have signaled the end of the long term correction, or at least ended the bearish leg of the correction.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-9B6CWTd/0/XL/i-9B6CWTd-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-9B6CWTd/0/XL/i-9B6CWTd-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">APA Weekly Chart</td></tr>
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The two areas highlighted on the chart show the price pattern around the extremely high volume patterns. From a Wyckoffian perspective, this may have signaled the start of an accumulation phase. What is interesting is the volume decline we've experienced since the last spike in September, 2016. Notice how volume on the downward weeks is extremely light as compared o the rest of the pattern. That suggests that supply is diminishing rapidly. The Elliott Wave count on the weekly, however, suggests that a sideways or possible retrace pattern may follow.<br />
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Price is resting on support in the short-term uptrend, and it's possible that the wave count may need adjusting if the stock bounces off support to the upside. We'll have to watch that over the next couple of seeks. For now, however, that channel is the dominant pattern and it's the one we bring with us into the daily chart analysis.<br />
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<tr><td style="text-align: center;"><a href="https://photos.smugmug.com/photos/i-tjQN6wq/0/XL/i-tjQN6wq-XL.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="368" src="https://photos.smugmug.com/photos/i-tjQN6wq/0/XL/i-tjQN6wq-XL.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">APA Daily Chart</td></tr>
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The daily chart is dominated by the bullish channel, although at this level we come up with a slighly different wave count. At this level, it appears that price is in Wave (iv) of Wave-3 with more room to the upside before Wave-3 completes. Based on this, the only trades we're considering at the moment are to the long side.<br />
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There's evidence building, however, that the uptrend is weakening quickly. When we look at the slope of the resistance lines, we see a gradual but noticeable flattening of the slope. While the stock is still drawing higher highs and higher lows, the height of the highs is weakening fast. Then when we look at the RSI(9) oscillator, we see a bearish divergence off both the highs and the lows. In total, we can conclude that the overall short-term uptrend is nearing an end.<br /><br />Because of the Elliott Wave count, and because of the strength of the support range that we're rapidly approaching, we can't justify a short position at this time. So the way we plan to play this is to watch for a bullish reversal pattern within the green area indicated on the chart. We'll go long on such a signal if - and only if - the volume associated with the reversal is higher than average. We need to see commitment to the next upward wave in order to enter.<br />
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On a long position, our protective stop will be just below the lower support line. Our target will be just below the lowest resistance line, accounting for the declining slope of those lines as a whole. Even with the declining slope, the trade will have a 4:1 reward to risk profile, so as long as the overall market cooperates, this will be a trade worth entering. It's important, however, to ensure that volume confirms the reversal. As we near the top of the channel, we can then watch for signs of weakening that will justify a short entry. For now, however, our only setup is long.<br />
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Happy Trading.Kannafoothttp://www.blogger.com/profile/04548556572562266584noreply@blogger.com0