APPLE Update

I was asked to update AAPL. I mentioned that AAPL looked like a good technical short based on a head and shoulders reversal patter that it was displaying.

Above is the current pattern of AAPL.  Notice the stock has broken the neckline of the head and shoulders confirming the pattern.

Above is a daily chart of AAPL.  Notice that the 50 day moving average is trending lower (bearish). Prior to today the stock had been oversold on a shorter term basis setting up or a bounce (today).  The stock Is still under the neckline and the 50 dma, keeping the trend reversal pattern intact.

Still Bullish

We are still bullish on the markets.  Below are just a few charts that support a bullish focus for stocks continuing to move higher.

The transportation index above is right at all time highs for this index fund. The chart is still not overbought on the RSI, giving more upside ahead.  The transportation index is seen as a leading economic indicator for moving goods from point A to point B.

The bullish percentage indicator above measures the number of stocks on a Point and Figure chart that are on a buy signal.  Clearly trending higher and above the moving averages.

The NYSE Summation Index is a breadth indicator that measures daily advances minus declines.  The index is trending strongly higher and above the moving average.

Bottom Line:  We have a higher trending market that has the look of moving higher in the coming weeks before hitting extreme overbought conditions. Thank you for reading.

Nokia Update

Nokia (NOK) has received back to back negative news that has caused the stock to experience some temporary volatility.  Back taxes owed in India and patent infringement are the cause of the volatility.

On the daily chart above.  NOK is in a 17 day consolidation level that runs from approximately 3.80 - 4.30. Having stayed at this level for this period has worked off some overbought reading.

The weekly chart above, illustrates a bullish cross (13 exponential over the 34 ) after close to two years of lower trending.  The weekly chart looks good, and I would expect a move to around the 5.00 area for this trend to continue.

Bottom Line:  We originally began buying NOK at the 2.60 level, and plan to hold the stock through 4th quarter earnings, and beyond, as long as the turn around story keeps improving.  The charts look fine with the weekly chart experiencing a bullish cross.  Thank you for reading.

Stocks Heading Higher

I was skeptical that the bottom for this correction was put in just before a shortened holiday week. But the move higher the last few days and today have been strong.  Below is the Summation Index.

The Summation Index is a market breadth indicator.  Notice that it has crossed over the moving average and is heading higher.  This is a positive sign and signals higher prices ahead for stocks.  

The chart above is short and long term bullish as the index trades above the 10 day moving average and the 200 day moving average.  A test will occur just above at the 50 day moving average.  Otherwise today was a rather strong day for the markets with decent volume.  

Bottom Line:  The markets are looking poised for higher prices in the near term.  The index is trading above the 10 dma and the 200 dma, with a test coming above at the 50 dma.  The summation index has crossed over the moving average which is bullish and signals higher prices ahead for stocks. Thank you for reading.

 

NOKIA - Before and After

We showed the technical pattern that NOK was displaying last weekend on November 17th below with a price target around $4.00.

The chart below, just a week later shows the break of the symmetrical chart pattern to the upside with heavy volume.  

Although our price target has not been reached yet, the move higher has the stock quite overbought in the short term and a pause if not a pullback would be necessary if higher prices will be seen in the weeks ahead.

The overall market eclipsed our correction targets of the 200 dma and the 50% fibonacci retrace above.  Although this looks like an oversold bounce higher with heavy short covering on a holiday week, we are giving the low, the benefit of the doubt for now.  

Bottom Line:  Even though NOK has not reached our preliminary price target yet, the stock is on a parabolic move higher, that does not look sustainable in the short term.  So we may use a stop or take profits after a +30% gain in just a few short weeks.  The overall market has eclipsed our price targets to the downside, and has put in a nice oversold bounce last week during a shortened holiday week.  Thank you for reading.

 

 

Nokia Technical Pattern

Nokia (NOK) is one of the stocks we currently own.  I mentioned in a prior post the release of their new smartphone the Lumia 920 just this past week, which has received strong reviews.  The chart is showing a commonly known "symmetrical chart pattern".

From the above chart.  The symmetrical chart pattern is one that gets narrow as time goes on.  The volatility of the stock decreases.  Another characteristic is that volume also decreases as the triangle extends, which it has.  The potential breakout (higher or lower) of the triangle should include high volume.  The target price on a break out higher would be around the $4.00 area, or the width of the pattern when it started.  

Bottom Line: We hold NOK as a turnaround story, based on the release of their new Lumia 920 smartphone with Windows 8 as the operating system. Buying the stock from a technical pattern when it breaks out of the triangle would be a play for traders looking for a technical edge to the upside with an intermediate $4.00 price target.  Thank you for reading.
 

Weekend Update

Fridays non-farm payroll report (+171K) was a positive report that the market originally liked.  But after an hour or two the markets gave way to lower prices and finished at the days low.  If the jobs report was positive, than what led to the sell off?  Below is a chart of the SPY and UUP (US Dollar ETF).

The above chart shows the inverse correlation that the US Dollar has with the S&P 500. Another words, as the dollar gains strength, the S&P 500 trades lower.  The US Dollar gained strength due to the positive job creation report before the markets opened and held that strength throughout the day.  

The chart above is the S&P 500 trading ETF with the 200 day moving average just -3.24% below.  Volume on the decline Friday was mild.
  

Bottom Line:  Regardless what the media attributes to the market being lower on Friday, or any day for that matter, it is really very simple.  Stronger dollar equals lower prices for the market as illustrated above with few non-correlation days in between.  Thank you for reading.

Contact: 586-431-8000

 

Weekend Update

As mentioned in our mid week update, we are in a pullback (-4%-6% move lower) or a correction (-10% move lower from a high) at present.  During times like these, it is a good idea to take a longer term view and check the intermediate and longer term charts to gain some perspective.

Above is a weekly chart of S&P 500 index SPY.  Really does not look like much of a correction yet at less than -5% to date and compared to prior market corrections per chart above.  The up trend is still intact with the above weekly chart.  If we correct another -5% lower, the charts would still be in an up trending pattern.

Above is a monthly chart.  Fresh highs were achieved in September, so we can expect some sort of pullback from those highs prior to making new highs in the longer time frame.

The chart above is called a P&F chart, or point and figure chart.  P&F charts are unique because they do not construct charts based on time, it plots prices based on change of direction by plotting X's as the price rises and O's as the price falls.  The chart above has a bullish price objective of 168.00 or around 19% higher from Friday's close. 

Bottom Line:  As discussed in our mid week update, this market is trending lower and may have another (-3% to -5%) on a shorter time frame.  But looking at longer term charts, a pullback is the best thing for this market to experience for potential higher prices ahead. Holding a substantial cash position of 50% or more, and writing covered calls to gain some income for holding what we believe to be quality stocks will reduce some of the risks to portfolios.  We are currently 30-40% long at present. Thank you for reading.

Contact: portfoliomgt1@gmail.com

Market Watch September 22, 2012

The market made a new high a week ago than pulled back just a bit.  So let's take a look at what the charts are telling us to gain some perspective on what the near term holds.  Below is a 60 minute chart of the S&P 500 fund (SPY).

From the chart above.  The 60 minute is in a neutral pattern neither overbought or oversold, just trending sideways at or above the moving averages.

The daily chart is overbought and can use some consolidation or a pullback to the 20 day exponential moving average prior to moving higher.

The weekly chart above, has just entered into overbought territory.  Prior to moving higher, I would expect to see some sideways to a small pullback. 

Bottom Line:  Charts are showing some overbought signals, so I expect next week we remain in a trading range to work off those conditions prior to resuming the predominant trend, which is higher.  Thank you for reading.
 

Fed Pumps More Liquidity With QE3

Just to show how slow the economy is recovering, the federal reserve announced on Thursday the release of QE3 (quantitative easing three).  Under QE3 the government will purchase up to 40 billion dollars of mortgage backed securities per month
I want to focus on how the overall market and some specific commodity related assets have already appreciated this year to date.  Below is a chart of the S&P 500 (SPY).

This ETF is already up 18% for the year.  This chart has the look of some extreme front running the QE3 announcement.  The chart is extremely over bought on the daily chart. 

The chart above is the price of oil / barrel.  Notice that this is the highest price per barrel at 96.25 that a QE program has been initiated.  

Above is a chart of food commodities which include soybeans up 44% year to date, wheat up 41%, and corn up 21%.  Perhaps more QE front running has occurred within this soft commodity sector as well.  

Bottom Line:  Just about all markets have been priced extremely high.  If this was a telegraphed call that many traders have made in front of the QE announcement, than we should get a good pullback from today's prices.  The stock market and some commodity sectors are being priced at extremely high risk levels. Thank you for reading.
 

Front Running QE3 - Part 2

This article was published here Front Running QE3 - Part 2 at Seeking Alpha.

Market Watch August 18, 2012

Divergence:  Is when the price of an asset and an indicator, index or other related asset move in opposite directions.  Divergence can be seen as positive or negative.  Three charts below show of such negative divergences against the S&P 500 making new yearly highs this past week.  First lets show the S&P 500 chart making a new high for the year below.  Click to enlarge.

The first divergence is against copper.  Copper is a leading commodity that is used in almost every building project whether residential or commercial.

Next is the transportation index.  This index is the most widely gauge of American companies moving products.  Again we see the negative divergence.

Lastly, the BPNYA is known as the bullish percentage of stock charts in the New York Stock Exchange.  Basically measures the breadth of the stock market.  With the market making new highs, breadth should confirm or be close to also making highs.

Bottom Line:  The market has made a new high for the year this past week. But there are some negative divergences as seen from the three charts above. The market can continue to move higher despite these negative trends, but eventually the negative trends will catch up, and stocks will face a correction. We will be sellers as the market continues to trend higher and eventually may initiate a short position in the market when the time is right. Thank you for reading.