The Weekly Report For November 19th – November 23rd |
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| The markets in the United States moved higher this week amid optimism that the “fiscal cliff” concerns would be resolved and some favorable economic indicators. The housing market showed signs of improving and jobless claims came in lower than expected, but consumer sentiment came in lower than the economists’ estimates of 84 at 82.7 and U.S. leading indicators remain somewhat depressed at 0.2% compared to 0.6% during the previous period.
International markets also showed signs of improvement this week, after Japan’s Nikkei hit a two-month high and Greece’s creditors agreed to reconvene Monday in order to try and reach an agreement to release the next round of bailout funds. Germany also reported that its business confidence rose unexpectedly in November, providing a positive spin on the eurozone most important economy driving growth.
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resistance levels
The Market Has Spoken
Welcome to the final quarter of 2012. That means two things: [1] brace yourself for Q3 earnings season and, [2] buy the dips. But couldn’t a batch of weak reports from corporate America send stocks tumbling into a traditionally scary October? Exactly. That’s why you want to be ready to buy the dips.
The market has been speaking loud and clear since the June lows. Portfolio managers are more afraid of missing incredible values in equities than of worries overseas, or ho-hum 1-2% growth here. Heck, they’re not even that worried about the Fiscal Cliff – even if PMI data says business owners are.
So there’s still plenty to worry about. But we already had our correction and stocks have since taken out lots of resistance levels to make new highs. That strength is very likely to continue into a seasonally strong time of the year. Last week, S&P 1,430 found early buyers.
A test of 1,400-ish would be our next big opportunity. Just don’t blink.
Best,
Kevin Cook,
Senior Stock Strategist, Zacks Investment Research
Bernanke Put Irrelevant? (I told it yesterday… but Zacks corroborating is good, even if it is not in a larger sense)
Kevin Cook here for Steve the rest of this week as he takes some R&R…
They came. They heard. They cried all the way home. The weak bulls that is, who, after reading Ben Bernanke’s prepared remarks before his Senate testimony, ran for the exits on fears that QE3 isn’t coming after all. Then, before you could say “low volume rally” it was the bears’ turn to feel sick as the market reversed and ramped from S&P 1345 to 1365 in a few hours.
The constructive technical picture that the S&P has built since the June lows keeps feeding on its own strength. Two weeks ago as the index headed toward support at 1330, I warned that this may merely be the “shake-out before the break-out” to new post-correction highs above 1375. So far, the bulls still own the field in the rising price channel as they plan the assault on the next resistance levels.
But something else is going on regarding the fundamental picture. While the economic data has certainly been weak and earnings have been a mixed menu of bland to sour, the sentiment about whether we need or want more QE any time soon has shifted. It’s as if market players are relieved we don’t desperately need it and we can fearlessly put the spotlight on Congress for their second shot at budget-wrangling stardom… or disaster.
Whether or not our politicians can actually make good and tough compromises, pro equity investors seem to be looking past a lot of our current headwinds. It’s as if they see 2011 all over again, but without the unnecessary cascade of stock prices. Last year we didn’t go into recession and Europe didn’t implode.
So the playbook of portfolio managers is this: “Stocks are by far the most attractive investment vehicle in the land, and their downside risk is likely tolerable. But we cannot afford to miss the upside.”
For more on this bull-bear debate, be sure to check out the economics conversation we started on whether or not this summer will be a “3-Peat” of the last two. You can find it on the Real-Time Insight blog at “Fool Me Thrice?”. Our Chief Equity Strategist and resident quant John Blank offers some compelling arguments for higher stock prices.
Best,
Kevin Cook
Senior Stock Strategist, Zacks Investment Research
Stocks On Fire As The Market Bounces
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Commentary:
After putting in a low of $127.14 on June 4, the S&P 500 SPDR (ARCA:SPY) ETF has been moving higher, and overall, it is up 2.83% in the last month (from $131.97 to $135.70). During that time, though, some stocks have been on fire, making double-digit returns. Each has its own particular levels to watch both to the upside and downside. If the resistance levels are taken out, look for further upside. If the support levels are taken out, though, the market will lose a few of its leaders and the stocks and market could correct lower. |
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| Sprint Nextel (NYSE:S) | |
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Sprint Nextel (NYSE:S) is up 32.91% over the last month, from $2.37 to $3.15 and has been one of the top performing mid-cap stocks recently. For the first time since October, Sprint has been able to hold above the $3 level. Formerly, the stock was stuck between the October low at $2.10 and $3, but the breakout signifies a further advance could be under way. The target based on the breakout is $3.90. Back in 2010 and early 2011, $3.75 to $4 was a support area that may now pose resistance. While the direction appears to have turned higher in this stock, a drop back below $3 negates some of the bullishness. Moves below $2.75 and $2.44, both support, mean the trend is not higher after all, and the stock is likely to continue to move sideways or head toward primary support at $2.10. |
| Questcor Pharmaceuticals (Nasdaq:QCOR) | |
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Questcor Pharmaceuticals (Nasdaq:QCOR) struggled to breach 2011 levels, even when the market was trending higher earlier in the 2012, but it too appears to have now broken out. The stock is up 26.55% in the last month from $40.71 to $51.52, and recently put in a fresh 52-week high at $51.88. With the long-term and short-term trend higher, there is no immediate upside resistance, and the breakout target is $58 to $60. There is a support band between $46 and $44; a drop below indicates the stock is moving back into the range between $45 and $32.83. |
| Edwards Lifesciences (NYSE:EW) | |
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Edwards Lifesciences (NYSE:EW) has been moving aggressively higher over the last several sessions, as it pierced through the psychological $100 mark. The stock is up 21.85% from $84.10 to $102.48 in the last month. Primary support is at $92 and marks the long-term breakout point. If a pullback toward this point occurs, it presents a buying opportunity. If the stock moves much below this, though, the breakout may be false and the stock could proceed lower. The next support levels are $88 and $81. There is little overhead resistance at the current time, but the steep price action is likely to be unsustainable and some sort of pullback is probable in the short-term. |
| Seattle Genetics (Nasdaq:SGEN) | |
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Seattle Genetics (Nasdaq:SGEN) is in a long-term choppy trend higher, but has recently accelerated to the upside. The stock is up 17.78% from $21.43 to $25.24 in the last month, performing very well on this market bounce. The upper band of a long-term trend channel going back to 2009 is currently crossing right near $26. This indicates that $26 is a likely resistance point. If the stock can’t push through it, watch for a correction. $22.50 to $22 is the nearest daily support level, and if breached, it signals a further decline to $20. |
| Ocwen Financial (NYSE:OCN) | |
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Ocwen Financial (NYSE:OCN) is up 21.02% from $14.89 to $18.02 in the last month and has been in a strong trend higher since end of 2010. The trend channel for this stock also indicates it is nearing the upper band, and a potential resistance zone. $18.50 to $19, if the stock reaches that level, could be a short-term topping area. Support is at $16.50, with a drop below that signaling a decline to the long-term trend line support at $15. |
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Bottom Line:
The last month has produced some big winners as the stock market has managed to rally off its lows. Some of these stocks are likely to top out soon. Watch the resistance areas when applicable; if the stock can’t get through it, it will likely correct lower. On the other hand, there are a couple stocks that still look like they have room to move. Having broken long-term patterns these stocks may continue to lead this market higher. No matter what stock though, a drop below support is a warning signal and indicates the upside may be over – at least for the short-term. |
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| Charts courtesy of stockcharts.com
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free! |
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The Weekly Report For April 2nd – April 5th
Commentary:
After jumping on April 2 the major index ETFs are finishing off this abbreviated trading week in a more sedate fashion. The majority of indexes finished down on the week, although just slightly. The major development is that all four ETFs pierced their upward sloping trendlines which had supported them since at least December. This means that for first time in over three months there is price confirmation that the resistance levels these indexes are facing may be coming into play. Earnings season also kicks off next week with Alcoa (NYSE:AA). With the the complacent climate and steady trend (so far) expect increased volatility in the coming weeks as technical factors come into question and fundamental traders shift positions on earnings announcements.
SEE: The Utility Of Trendlines
The S&P 500 SPDRS (ARCA:SPY) ETF broke below its trendline which has been in place since December 2011. This is a warning signal of a potential reversal, but can also just be a reflection of the more sideways like movement seen since the middle of March. Therefore, a drop below the March 23 low of $138.55 more clearly signifies a further correction is likely forthcoming. Currently the ETF is still holding above support, and therefore, remains in the uptrend making higher highs and higher lows. Monday marked another 52-week high for the pair at $142.21, so further upside cannot be ruled out. The $142 to $144 area is likely to be strong resistance based on long-term and short-term factors. Support in the S&P 500 SPDRS is not until $134.50 with primary support at $130.
Dow Jones Industrial Average SPDR (ARCA:DIA) is finishing lower on the week and also penetrated the upward sloping trendline which was in effect since October 2011. Since the middle of March 2012 the ETF has been moving predominately sideways, which can be used to justify the trendline break. Therefore, the March 23 low at $129.71 is a more reliable indicator of potential weakness. If the ETF moves below that point a further correction is likely, with a target near support at $127. Primary support is $123. As long as the March 23 low holds this is an uptrend though. A new 52-week high was put in on April 2 at $132.68, so it is possible there is more upside left. DIA continues to trade within a long-term resistance zone which extends all the way up to $141.95.
SEE: Support & Resistance Basics
PowerShares QQQ ETF (Nasdaq:QQQ), representing the Nasdaq 100 index has two upward sloping trendlines of interest. The steeper trendline which began in December 2011 was penetrated on April 4 and April 5, but this is not necessarily a sell signal. A drop below the March 15 low of $66.35 is a better indicator of a potential larger reversal. The dominant trendline which began in October does not intersect until $60, and is therefore in no danger at this time. Having put in a recent 52-week high on April 3 at $68.55 further upside cannot be ruled out, but support should be watched closely as volatility is likely to return in the coming weeks. Support is at $65 and $63. Anticipated resistance is at $70 if the ETF moves higher next week.
SEE: Index Investing
Russell 2000 iShares Index (ARCA:IWM) ETF, representing the Russell 2000 index, is finishing down on the week and also broke below its trendline on April 4. Since February 2012 this ETF has been moving sideways, and has experience false breakouts both to the upside and downside. Currently trading very close to the March 23 low at $81.25, a move below that mark is like to trigger more selling resulting in a test of the March 6 low at $78.41. There is significant support anticipated between $77 and $75.50 in the event of a larger decline. Last week the ETF made a swing high at $84.66, therefore, until $84.66 or $81.25 (even $78.41) is significantly penetrated this can be considered a ranging environment.
The Bottom Line
The trend has slowed in the the major index ETFs as recent price action has been more sideways in recent weeks than trending. This has resulting in the price moving through all the upward sloping trendlines, but it is not necessarily a sell signal. A drop below a supportive price level–recent lows–is a better indication of a potentially larger reversal. With earnings season kicking off next week, combined with the currently complacent nature of the market, volatility is likely to pick up next week.
At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.
Charts provided by stockcharts.com
Four Stocks That Won’t Quit
Commentary: The market has been strong in 2012; the S&P 500 SPDR (NYSE:SPY) ETF, which represents the S&P 500 stock index, is up 6.04% YTD. After putting in a high last Thursday, SPY has failed to moved above that high in the three trading sessions since. Despite this brief sideways lull, there are stocks which continues to push higher and are leading this market higher. Outperforming the market throughout the whole year and having already broken above resistance, these stocks are trending higher and at least for now show no signs of stopping.
Tata Motors (NYSE:TTM) is up 53.51% this year to $27.80 from $18.11. The ascent has been sharp, keeping the RSI in a perpetual “overbought” state, yet that does not seem to be dampening the performance. On-balance volume still shows this stock being accumulated. In 2010 the stock made a run from $17 to a high of $37.65 in five months. If 2011 is setting up a similar scenario there are a few levels to watch. $29 is a resistance level from mid-2011. Breaking through this sets up a test of the next resistance levels at $30 and $31. Tuesday saw the stock accelerate and blast higher out of the small consolidation pattern it had been in. A drop back the below that consolidation pattern, $25, indicates a further pullback. Since Tuesday was also gapped higher, the low on Tuesday–$26.70–an be used as a potential stop as that gap should now provide some support. (For related reading, see Interpreting Support And Resistance Zones.)
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Coach Inc (NYSE:COH) is another stock that seems relentless this year, up 26.38% to $75.82 from $60.04. Looking at the chart there have been very few down days this year, and with no resistance in sight it is unclear where the stock will stop. The RSI is confirming the move higher and the on-balance volume is also moving up, which is a positive sign. On-balance is not as strong as it should be though for the current price, which is cause for some concern, yet price is showing no signs of stopping just yet. Based on Fibonacci levels and the trend channel movement the stock has been moving in, the upside target is estimated at $81 to $83. Due to the steep ascent there is not much support near by; $70 to $68 is the nearest support area. A drop below $67.35 signals more downside to come. (For related reading, see Top 4 Fibonacci Retracement Mistakes To Avoid.)
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St. Jude Medical (NYSE:STJ) is moving solidly in 2012, up 24.94% to $43.64 from $34.93. The stock was hit hard in the last half of 2011, losing more than 40% of it’s value. This rally the stock has been on puts it very close to the 50% retracement level of the 2011 decline. While there is no immediate resistance overhead, not until $46, there was a lot of activity in the current price area back in August and September of 2011. That could be a potential problem as the on-balance volume indicator is not confirming this move above November price levels. Despite the technical obstacles, St. Jude made a new high for the year on Tuesday, closing above a recent price range and indicating further upside. The next target is $46, primary resistance. Support is at $42, with a drop below signaling a further decline. (For related reading, see The Psychology Of Support And Resistance Zones.)
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Gap Inc (NYSE:GPS) has been consolidating since February 2, a day on which it gapped significantly higher. Tuesday saw the stock gap higher again, and break out of the consolidation area. The stock is now up 20.43% for the year, to $22.34 from $18.55. With Tuesday’s signal of strength, based purely on price, the stocks could test the very significant $23.50 level. In 2011 $23.50 was elusive and only once, intra-day, did Gap climb above the mark, putting in a yearly high at $23.73. There are some concerns though. While volume was large on Tuesday’s gap higher, it was smaller than what we have seen on previous big moves. Therefore, volume is not confirming so it makes sense why there is a also a divergence on the on-balance volume indicator. For this stock to keep running it will need significant volume to back it up, especially if it is to climb to, and surpass, $23.50. But right now, price continues to march to the upside and RSI is acting very well. Near-term support is at $22 to $21.85, with primary support at $21. A drop below $21 indicates the stock could slide further, especially if volume continues to wane.
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Bottom Line
2012 has been a good year for stocks, and these four stock are still breaking resistance and leading this market higher. All have at least some room on the upside to keep moving, but risk should be always be managed and support levels should be watched. The trends are aggressively higher at this point, but with aggressive rallies like this the corrections can also be steep. (For related reading, see Connecting Crashes, Corrections And Capitulation.)
Charts courtesy of stockcharts.com
Stocks On Fire in 2012
Commentary: Overall stocks have been pushing higher in early 2012 with the S&P 500 SPDR (NYSE:SPY) ETF up 3% from $127.50 to $131.32. Yet, some stocks have been exploding. The following foreign stocks, all listed on the NYSE, have been on fire in 2012, up more than 25% so far.
Royal Bank of Scotland (NYSE:RBS) is up 27.38% this year, from $6.61 to $8.42. The stocks has been recovering after hitting a multi-year low at $5.36 in November of 2011. Since January 19, 2012 the stock has been trading between $8 and $9, unable to reach either level. A breakout from this range it likely to be a significant factor in the long term direction of the stock. Overhead resistance is at $9.15–the October 2011 high. If the price pushes through that resistance level there is little resistance until $10 followed by $11. On-balance volume is rising which is a positive and should continue to rise if the price moves higher. A drop below $8 on the other hand is a warning signal that the stocks could slide back to lower levels. (For related reading, see Support And Resistance Reversals.)
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Sterlite Industries (NYSE:SLT) is up 26.56% in 2012, from $7.23 to $9.15. Like RBS the stock hit a multi-year low in 2011 at $6.64 and has been recovering since. The recent recovery has broken the downtrend which was in place since mid-2011, but the stock is struggling to break through resistance at $10. If $10 is broken to the upside the target is $11.50. $8.50 to $8 is the support area based on a gap up which occurred on January 17, 2012. A drop back into that support area–especially below $8–is bearish, but if the stock can hold support and push through resistance the stock could recover much of its 2011 losses. On-balance volume is rising, and is a positive for the stock price. (For related reading, see Support & Resistance Basics.)
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Lyondellbassell Industries (NYSE:LYB) is up 28.77% this year, from $33.47 to $43.10. The move higher has already cleared many of the resistance levels in its path. Still overhead though is $45 followed by the 2011 high at $48.12 (on an dividend adjusted basis the stock has already cleared these levels). While the stock is currently in over-bought territory, on-balance volume is moving aggressively higher confirming that buyers are willing to put their money on the line. With the stock recently breaking through resistance at $42 it now likely the high at $48.12 will be tested. A move through there should test the psychologically important $50 level. Support has developed just above $38.50 and a drop below this level is an early warning signal. There is also upward sloping trendline support at $37, drop below this level warns of a potential reversal. (For related reading, see 3 Reasons Not To Trade Range Breakouts.)
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Icici Bank (NYSE:IBN) lost more than half its value between July and December of 2011, but is up 28.63% from $28.15 to $36.21 in 2012. Heavy resistance lies overhead at $40, which is the level to watch. A rise above $40 could trigger buying into $45. The stock traded in a range between $45 and $50 in mid-2011 which should now act as resistance…at least initially. The rally higher this year has been aggressive but the stock put in a recent low at $33.85 (hammer candle) on January 30. If the price continues to push higher in early February, threating to break the $40 level, this low can be used as a stop loss level. The stock remains in an uptrend as long as the price stays above $32.75, a drop below signals a potential reversal.
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Bottom Line
As the overall market has pushed slightly higher in 2012, some stocks have exploded. RBS, SLT, LYB and IBN are all up more than 25% year-to-date. The on-balance volume indicator shows strong buying interest in these stocks, and if resistance is broken these stocks could continue to make big gains. There is resistance overhead though and risk should be properly managed. With the aggressive run-ups these stocks have seen pullbacks are always a possibility so support levels and trendlines can be used to control risk and set stop levels.
Charts courtesy of stockcharts.com
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