The weekly charts of the S&P 500 and the DJIA show large dark or down candles formed three weeks ago followed by two futile attempts to recover positive momentum and their 10 week (50 day)moving averages. These failed recoveries formed high wick or long upper shadow candles, which reflect an inability to maintain upward momentum and hold higher levels. A similar “spinning top” candle formed on the NASDAQ chart last week. It has a narrow opening and closing “real body” range situated between a longer upper and lower shadow and it suggests indecision.
Interestingly, a three period morningstar pattern formed on the Russell 2000 weekly chart. This pattern consists of a large bearish candle, followed by a narrow opening and closing range candle, and is completed by a large bullish candle, and reflects a transition in sentiment from bearish to bullish. The pattern is usually seen at important lows and can signal the start of a change in the direction of a trend. It is not considered a bullish continuation pattern, as suggested by its formation on the Russell chart, near a high. The question now is will the small cap and technology space lead higher or will the broader market averages pull then lower?
(Remember my analysis reflects my personal opinion of the technical condition of a particular stock chart, and is not to be considered as a recommendation to buy or sell a stock.)
HCP (HCP) is a health care REIT with an 8.5% dividend yield. The stock price is down 35% over the last year.
The weekly chart shows the steady decline in the stock from its 2015 highs which accelerated this month when the company issued weaker than expected guidance for 2016. That move took it back down to the $25.00 level or roughly the area of the 2007 and 2008 highs, and the test coincides in time with a key period on the Fibonacci timeline.
The stock saw a six session bounce off the long term support line but still has a lot of work ahead of it to just close this month’s gap. On the more positive side, the RSI is moving out of an oversold condition and Chaikin money flow is back above its centerline.
The risk/reward ratio is low for this stock.
American Airlines Group (AAL)
At first glance, it looks like a large head and shoulders pattern on the weekly chart of American Group (AAL), with a double top head and a rising neckline. But it has been my experience that long term expanded patterns seldom play out as they would on a short term timeframe.
The stock price came back down to test the neckline and potential channel support in the $36.00 area and managed a substantial bounce off that level, breaking above a downtrend line drawn off the highs since December last year. The weekly technical indications are flat but on the daily timeframe they are reflecting the recent positive price and money flow momentum.
The technical picture is undefined right now with many stocks like AAL, which experienced a strong bounce these last eight trading sessions. The moves were abrupt and generally not off well established bases. This stock has potential after a successful retest of the downtrend line or an upper candle close above the $40.50 interior support line, but from a trading perspective there are better candidates.
A reader asked if I would take a look at the Netflix chart:
The weekly chart shows the stock moving in a wide horizontal channel for about a year before breaking resistance in April, and rallying to just above the pattern price target projection. It’s oversold as reflected in the reading on the relative strength index (RSI) but money flow is still very positive, as reflected by the volume-weighted money flow index (MFI). Of note on this chart, are the two high wick candles that formed over the last two periods; they reflect an in ability to sustain higher price.
On the daily chart a large bearish engulfing candle formed in the last session, encompassing the entire range of the previous three trading days. The RSI is breaking below its overbought level, the MFI is headed down towards its centerline, and Chaikin money flow has dropped below its 21 period signal line, but is still in positive territory. It’s hard to say anything negative about this stock, which is a trader favorite and been on a tear since the beginning of the year, but the price action and these technical indicators bear monitoring.
Last week a reader asked if I would take a look at the Apple chart. I spotted a small eveningstar pattern on the daily chart which suggested a pullback and that proved to play out this week.
The trend on the weekly chart, however, is still intact and a reversal would require a break of the long term uptrend line and the horizontal support line that marks this year’s lows.
A reader requested a look at the Apple (AAPL) chart.
The weekly chart is a thing of beauty, highlighting a series of higher lows and higher highs. In between uptrending periods are clearly defined horizontal channel consolidations. The stock price is reverting around its 50 day moving average, and above its 200 day average and an uptrend line drawn off the 2014 and 2015 lows. The only negative is volume, which has been declining for the last couple of years, as reflected by the 50 day moving average of volume. Positive money flow dropped off this year, as well, with Chaikin Money Flow moving below the 21 period average of the indicator that I use as a signal line, and continuing lower.
There is some interesting price action to note on the daily chart. Large dark candles formed at the March and April highs, which were followed by moderate pullbacks whose lows defined a three month support line. This week another large bearish engulfing candle formed, and it encompasses the prior and last week’s total ranges. A bearish eveningstar candlestick pattern finished out the action this week. An eveningstar is a three day reversal pattern, that is made up of a large white candle, followed by a narrow opening and closing “doji” candle (in this case a gravestone doji with the opening and closing range near the upper end of the overall range), and completed by a large dark candle.
It represents a transition from bullishness to bearishness, and is often seen at important tops. If there is continued weakness it is likely the 50 day moving average is tested and potentially the support line. This could be a part of another healthy reversion, however if trend support is taken out, there may be talk of a triple top. It’s a little early, however, to start making those predictions about a stock that could just as easily take out its February and April highs, effectively breaking out of the weekly consolidation range, and potentially powering on to new all time levels.
Michael Kors (KORS) shares have retraced half of their historical range, tracking below their 50 day moving average since about this time last year. They are currently at the 50% Fibonacci retracement level of their IPO price in 2012 and their 2014 all-time high.
The stock is in a downtrend, that’s pretty clear, but while I wouldn’t approach it from the long side until it completed a period of consolidation, I’m equally as hesitant to jump on board the downtrend at this potential technical inflection point. Next chart, please.
A reader asked if I would take a look at the Walmart chart.
Shares of Wal-Mart (WMT) traded in a horizontal channel for most of 2014 before breaking above channel resistance in November and rallying into year end. They reversed course quickly, however this year, and are back retesting the resistance-turned-support level.
On the daily chart, the RSI is moving above its centerline and the MacD has made a bullish crossover, reflecting positive price momentum, and Chaikin money flow has moved above its 21 period average and is tracking towards its centerline, suggesting improving positive money flow.
Currently, Wal-Mart is in a neutral zone, where the parameters of a breakout or breakdown are defined by a close above the major moving averages or below the recent lows.
Mike asked me to take a look at the Buffalo Wild Wings (BWLD) chart. The last time he requested my technical take was on El Pollo Loco (LOLO), so he obviously enjoys his chicken.
Shares of BWLD fell sharply last month after an earnings report and an increase in chicken prices. The drop was telegraphed by a bearish crossover on the weekly MacD, and the RSI and Chaikin money flow indicators crossing below their 21 period averages, and confirmed by a break below horizontal support in the $174.00 area. It penetrated its 40 week (200 day) moving average and is attempting to find some footing near $155.00 and the 62% Fibonacci retracement level of its 2014 and 2015 range.
A deeply oversold condition, as measured by the Stochastics indicator, can be seen on the daily chart. The recent decline in the stock price measures out to the projected breakdown target of a rudimentary triangle pattern that formed over the prior three months, and the attempt to hold this month’s low has the characteristics of a small head and shoulders bottom. There is a lot of resistance overhead: the $160.00 neckline, 200 day moving average, and the gap, but, on the fundamental side, the stock did receive several valuation upgrades after the sell-off.
Meanwhile, a potential morningstar reversal pattern could be forming on the weekly LOCO chart. This is still a work in progress because the week is not over and the last leg of three period process is not complete. The $28.00 level remains key resistance and the uptrend line drawn off this year’s lows is still key support.
A reader asked if I would take a look at the Chipotle chart:
A large engulfing candle formed on the weekly chart, encompassing the trading range of the previous two months. The 10 week (50 day) and 40 week (200 day) moving averages, along with a long term uptrend line have been penetrated, and the stock closed very near the low for the week. Volume as a percentage of the 50 day moving average of volume was at a level not seen since July of 2012.
On the daily chart, the broken trend line looks like the neckline of an extended head and shoulders formation. That pattern projects a downside target in the $560.00 area. It remains to be seen if that bearish scenario will play out, but it will take a lot of technical repair before you can get bullish on this stock.
Mike is a regular reader and he asked if I’d take a look at the El Pollo Loco chart. Here goes:
El Polo Loco Holding (LOCO) has been trading for less than a year and on the weekly timeframe many of the moving averages and technical indicators have not had time to become useful tools. It is always raw price action and not the data that is filtered out that determines the trade, and that is what we’re looking at with this chart. The stock spent the two weeks after its IPO moving straight up before valuation concerns caused early investors to start taking profits in the $40.00 area. It pulled back and then bounced in the $28.00 area, about a 50% retracement of its initial range, and then began trading in narrower ranges around its 10 week (50 day) moving average. This price action created a large wedge or symmetrical triangle pattern that was broken hard in November after a good earnings report but concerns over higher chicken prices. The price of chicken is something that technical analysts don’t have to worry about, but, of course, the pattern breakdown was important, and the stock dropped sharply and significantly before it found support in the $20.00 area. Shares of El Pollo Loco have spent this year establishing a foothold above their 50 day moving average and beginning a slow and steady climb back up towards the 38% retracement level of August high and December low. This $28.25 level has been resistance for the last month during which time Chaikin Money Flow has moved towards positive territory and the RSI has moved above its centerline.
On the daily timeframe, the recent consolidation under Fibonacci resistance can be seen as a small inverse head and shoulders formation, with the head holding above an uptrend line drawn off the lows of this year and the neckline the first level of retracement. The price and money flow momentum indicators are all tracking above their centerlines and higher, and the stock looks like it is preparing to take out resistance. The trade is to wait for a confirmed breakout in upper candle range, and place a percentage trailing stop that fits your money management plan, because you never know what’s going to happen with chicken prices. They’re crazy.