Waters Corp (WAT) was hit hard with a double-digit decline in October, but the stock ultimately firmed in November-December and turned up in 2017. Waters Corp is in the top 20% of S&P 500 stocks for year-to-date gain. The chart also looks rather promising. Even though the October decline was rather dramatic, notice that the stock found support in a logical area. First, resistance levels from June-2015 to April 2016 and support levels from April 2016 to June 2016 combined to mark a big support zone in the 130-138 area. Second, the decline retraced 50-61.8% of the prior advance, was over 40% (February 2016 to August 2016). Thus, it still looks like two steps forward and one step backward for this stocks (long-term uptrend). Most recently, the stock firmed for a couple of months and broke its first resistance level with a move above 142.5 the last two weeks.
Gilead (GILD) has an interesting chart setup this week. Gilead has been bouncing while the US markets have had their worst two day stretch in a while. So let's define the chart setup and the risks.
In early December, Gilead tested below $71. The next week it rallied almost 8%. Then, while the broader markets stabilized sideways, Gilead range traded 5% week after week. In early January, Gilead tried to rally again and was stopped by the downtrend line. Now the two trendlines have a range less than $4 between them. That puts the risk setup pretty low with a great company and the price trading $50 lower than the highs and 40% off the highs. Even the great companies like Microsoft broke down to 50% off their highs in the huge bull market moves. So great buying opportunities come along if you can define your risk and get an appropriate rate of return. With a $4 stop from here, Gilead could trade down to $68.50 before you are stopped out. An upside close on a weekly chart above $76.50 would convincingly break the downtrend. The 40 WMA at $77 have been a great line of friction on the charts so that is an overhead hurdle as well.
So far, the $71 level has held for a weekly close going back 4 months. A 4-month base is pretty significant in a defensive sector during a big bull market move. While the biotechs have been going sideways for almost a year (IBB), Gilead has only been holding in for the last 4 months so something has changed.
The Hang Seng Composite ($HSI) is having a good year with a 6% gain year-to-date. The weekly chart also looks bullish because the big trend is up and a correction just ended. First, the index broke resistance with a sharp advance from late June to early September. Second, the index hit a 52-week high in early September. Third, the 10-week EMA moved above the 40-week EMA in early August.
I can be as wrong as the next guy when it comes to Bullish, Cautionary or Bearish, so I’ll lay out my thoughts and you can ponder them, discard them, laugh at them, whatever you choose. I do not own NVDA, so its a lot easier for me to say the interim top is close at hand. These are my thoughts, the market may have others. Trade it based on your thoughts. This is not a buy or sell recommendation.
Looking at the chart below, using the SCTR can be as difficult as other indicators. It is never easy with whipsaws and false signals. The continued testing of the 75 level through 2014-2015 always suggested NVDA was a solid company with good investor interest. When it finally locked in and took off, it was much easier. The pullback in February 2016 is clearly a whipsaw. The whole market was pulling back so investors were selling things generally. Momentum stocks get sold even faster. That would have been a decision moment for me. Even if you sold and got back in, it would be ok. The bottom line is the SCTR is still screaming strong. But let’s talk about other indicators because the SCTR does not drop quickly on a parabolic move.
The Relative Strength in purple is still rising. Recently we had a multi-month trend line break. (dotted orange line). When stocks go on these massive runs, the end is near when they start behaving in line or worse than the $SPX is what I have noticed. So I would not want the red line violated on the purple area chart for an interim top for short term traders.
Price is clearly parabolic. On the high in December, the stock was double its 200 DMA (Green line). The huge volume piling into the stock before the final push and blowoff volume on the second high on the MACD suggests caution to me. The much lower momentum low on either the MACD or the PPO is a warning flag. The PVO is very weak, considering the stock is testing all time highs. In December/ January of 2015 we saw the same kind of readings. The stock corrected all the way back to the 200 DMA.
I am always aware of typical historical strength that lies ahead. Along those lines, it's important to note that the Dow Jones U.S. Travel & Tourism Index ($DJUSTT) has been the fourth best industry group in terms of February performance. priceline.com (PCLN), a component of this index, not only shows this same strong historical strength, but it outperforms its peer group during the month of February. So keep in mind that investing in PCLN in February in the past has been extremely profitable. Here's how PCLN has performed during each calendar month over the last 19 years:
Average monthly gains are clearly the strongest for PCLN from January through April. PCLN has already shown strength during January and I'm expecting see more strength over the next few months, especially if a technical price resistance level near 1600 is cleared.
Baidu (BIDU) has gone nowhere for a year as a large triangle pattern formed on the weekly chart. There are, however, signs of support and a short-term bullish pattern is emerging on the daily chart. First, the weekly chart shows a triangle that extends from around 120 to 218 at the widest point in late 2015. The range consistently narrowed throughout 2016 and extended from 162 to 198 the last three months of 2016. The narrowing range tells us that volatility is contracting and chartists should be alert for a volatility expansion (big move).
In what could be a good sign for housing and the economy, Home Depot (HD) exceeded its summer highs and hit a 52-week high. Home Depot is an interesting company because can be considered part of the housing industry and the retail industry. These two industries are very important to the consumer discretionary sector and this is the most economically sensitive sector. The chart below shows HD getting its first higher high with the November surge and break above 130. The stock then stalled with a small wedge/pennant and broke out with another surge in December. HD formed another bullish continuation pattern with the falling flag into early January and broke out with a move above 136 eight days ago. Buying pressure remains strong as HD surged over 1.5% on Monday and recorded a fresh 52-week high. Note that 52-week highs are rarely isolated events and this suggests that there are more to come in the next few weeks and months. At the very least, the big trend is clearly up when a stock hits a 52-week high. The indicator window shows MACD turning up moving above its signal line.
Thanks for tuning in and have a great day!
--Arthur Hill CMT
Plan your Trade and Trade your Plan
My favorite kind of stocks are those that advance and then base for an extended period of time before breaking out. The consolidation period rids the stock of weak holders, providing a much better foundation for a sustainable rally. Check Point Software Technologies (CHKP) fits the bill after reacting quite positively to its latest quarterly earnings report, beating Wall Street consensus estimates on both the top and bottom lines. Best of all, technical conditions are very strong as you can see below:
While the breakout is clear and momentum is strong, CHKP is very extended in the near-term and represents a much better reward to risk trade on the long side if prices pull back temporarily to test either the breakout level or its rising 20 week EMA. I'd keep an eye on this one and wait for some profit taking.
Netflix continues to deliver content to homes and profits to investors. After reporting good numbers vs. expectations, Netflix popped up to new highs. It wasn't all scrolling credits for the company as the stock sold off continuously on Thursday after the huge gap to new highs. This is a weekly chart that looks good as long as the stock holds the breakout above $130.