Saturday, February 17, 2018

LYV Flirts with Breakout at 52-Week High

Live Nation Entertainment (NYSE: LYV) 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.

LYV Daily Chart
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.

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.

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.

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:

LYV Earnings Forecast from NASDAQ
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.

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.

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.

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.

Happy Trading.

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