Thursday, July 30, 2015

H&S top in Huntsman (HUN)

Here is the 6-year weekly chart of HUN:

Next is the 2-year daily chart showing a massive 22-month Head & Shoulders Top:

As always, don't chase. If we wish to short this set-up, we could wait for rallies to the $21 level and set our stop somewhere around $22. Such an entry has a more favorable reward-to-risk ratio than hastily shorting around $19 - but that's just one possibility. We need to determine our risk tolerance and comfort level. It is always best to err on the side of caution.

What if there are no retests of the neckline that give us a more favorable entry spot? Then let this trade go. There will be many more opportunities. Stay patient. 

And, of course, every pattern - no matter how well-defined and textbook, can fail. We must respect our stops and move on when a pattern fails and becomes something else.

Monday, July 27, 2015

Analysis of US stock indexes

First, a 15-month daily chart of SPY:

Stocks have traded in a tight range since December 2014 and especially since February 2015. The profitable approach has been to buy weakness and sell strength. Will this playbook change? Let's look at the other indexes.

The next chart is the NYSE index:

In April 2015, we considered whether the NYSE index was breaking out of a massive continuation H&S bottom to start yet another uptrend in our current epic bull market. Now, a much more bearish possibility seems likely. Repeated attempts to close and stay above the 11,100 level failed and the NYSE is now breaking down from a possible bearish rising wedge. Prices are breaking down after retesting the lower boundary. The next critical test will be the 10,650 level that provided support at the lows of March and early July. If 10,650 does not hold, then the NYSE will have broken down from a well-defined H&S top within a rising wedge:

Stay patient and calm. Participate with the trend rather than trying to predict the trend - which is impossible. And remember: if we don't want to trade, then we don't have to trade.

Sunday, July 26, 2015

FedEx: Reversal or Consolidation for the Next Leg Up?

Let's look at the weekly chart of FedEx:

After recovering from the financial crisis low of 2009, FedEx formed a massive 3-year continuation Head & Shoulders Bottom that launched the current uptrend.

Next is the daily chart:

FedEx has formed a textbook rectangle and its stock price is at the crucial 164 support level. A decisive close below 164 would complete a reversal rectangle with a price target of around 144. Of course, FedEx can bounce from the 164 support level and the rectangle become yet another continuation pattern that starts yet another uptrend. Stay patient and follow the trend rather than anticipating or predicting the coming move.

Thursday, July 23, 2015

Gold: chart analysis $GLD

First, the weekly chart of GLD:

Next, the 2-year daily chart:

We could argue that GLD's decline this week was launched by a well-formed continuation descending triangle. That said, prices can do anything, including going back up to the 110 level or beyond. Remember: patterns fail often. Should GLD continue to decline, there may be support at 100, which was resistance in 2008 and 2009. If 100 does not hold as support, then I see 84 as the next major support level. But first, let's watch for a retest of the 110 level.

Intel: increasing weakness amid a potentially massive top

Here is Intel's chart:

Prices have closed below the neckline of a possible H&S top. Caution seems appropriate for both longs and shorts. If we are long in Intel shares, we have to consider the possibility that a big topping pattern has been triggered. If we are short or looking to short, then we can't be overconfident because prices may close above the neckline in a hard retest. And, of course, every pattern can fail and change into something else.

Thursday, July 16, 2015

Gold Miners $GDX: starting another big move down?

Let's look first at the weekly chart of GDX going back to 2006:

Gold miners have made a round trip since the financial crisis lows. Next, let's look at the 1-year daily chart:

I see a well-defined continuation H&S top. But just below is the potential support of the 2008 low. It will be intriguing to see which possibility - a massive continuation H&S top that continues the downtrend vs. the possible support (buying) that may arise around the 2008 lows - plays out.

When I discussed this possible continuation H&S top in April, I suggested that the right shoulder could turn out to be a bullish running wedge that turns this possible continuation H&S top into a continuation H&S top failure, which I consider a distinct pattern with powerful bullish implications. But by early June it became clear that the right shoulder was indeed a bearish rising wedge. And it's fine to be wrong - traders will be wrong most of the time. What's important is not losing much - if any - of our trading capital when we are wrong. And one way to minimize our losses is to enter a trade only at advantageous spots. Thus, we would not chase the recent decline even if not chasing means we sit out this trade. Prices may retest the neckline in the coming weeks or months. Such a retest would offer a much more advantageous entry. But if there is no retest, then we should remember: there will always be more set-ups.

Tuesday, July 14, 2015

Stocks are still range bound. Stay patient. Not trading is a strategy.

Even with the volatility attributed to the ongoing Greek debt problems, China's stock market decline, and other uncertainties, U.S. stocks are trading in a tight range, as they have been throughout 2015:

In this kind of range-bound trading, the higher probability trade is to sell or short strength and buy weakness. Stocks will break out of this range at some point. When the breakout, up or down, occurs, our task is to accept the price action and trade (or not trade) accordingly.

Update: Intel ($INTC) earnings release tomorrow

We discussed a possible H&S top forming in Intel. Intel is set to release its second-quarter earnings tomorrow. I almost always exit my position before the earnings report no matter how promising the set-up. Staying with a position hoping for a favorable reaction to an unknowable earnings report is unnecessary gambling. Sometimes I stay with a small position if I have a favorable entry point or, more likely, my emotions have gotten the better of me. Remember, there will always be other opportunities.

Thursday, July 9, 2015

Wells Fargo $WFC: bearish ascending wedge?

Let's look at the daily chart of Wells Fargo:

I interpret this chart as a possible 7-month bearish ascending wedge with a 1-month H&S top in the last part of the wedge. A smaller pattern within a larger pattern can often launch a breakout from the larger pattern. Also, I sometimes see prices trade above the upper boundary of an ascending wedge, as they did here, before they return inside the pattern and break down.

These are mere possibilities and never guarantees. That said, I always find interesting the pattern-within-a-pattern as it can provide an early entry point or additional support for a particular interpretation. But there is a risk to such fascination: I must be careful not to obsess over a particular outcome and ignore the actual price action. I will re-evaluate my interpretation should prices close above the right shoulder high of the H&S top.

Tuesday, July 7, 2015

Massive H&S top in Intel (INTC)? QQQ SPY DIA

Here is a weekly chart of Intel (INTC):

Intel is testing a 2.5 year trendline support and may be also trying to break down from a massive H&S top. The meeting of two major technical development is always interesting. That doesn't mean that the H&S top is guaranteed to work and produce a significant epic decline. Prices may recover and stay above the multi-year trendline and invalidate the H&S top interpretation. We have to avoid being obsessed with a certain outcome. Instead, we must accept the actual price action. Believe what we see, not what we want to believe.

Let's end with the daily chart of INTC:

Again, traders must focus on protecting our trading capital. We need not chase a breakout if it means risking more than prudent. There will always be other trader.

It's also interesting to consider the implications for the broader market should this H&S top interpretation prove correct. But remember, we must not get too attached to a particular interpretation. Focus on entering a trader at an advantageous spot that limits risk. If we miss a breakout, so be it. Let it go and confidently and calmly wait for the next attractive set-up.

Sunday, July 5, 2015

SPY: Was that a Head & Shoulders Top?

Last week, we discussed various bearish possibilities for the U.S. stock indices, including a possible H&S top in SPY.

The following chart shows SPY forming a possible bear flag after the initial decline:

Whatever our interpretation of the current market, remember that our priority is protecting our capital and not making money. There will always be other set-ups to trade.