Fed day: Bullish?

Fed funds rate left unchanged at 5 1/4. Just in case you don't know where to find the actual FOMC statement, you can read it for yourself here. Scroll down lower on the page to the link for this month's statement. It's interesting to see the subtle changes in language between this statement and the last one. It does seem that they are opening the door for potential rate cuts on the horizon.

The markets have bounced in a big way. Most of the major indexes are showing double bottom structures that arguably confirmed yesterday, or definitely today. Here's the SPX. This action tells us we have to ease off on the bearish posture and entertain at least a neutral if not slightly bullish posture for the short term. However, I'm inclined to think it won't be easy to clear potential resistance at the 1450/1460 area.
Just remember to consider your basic approach to trading/investing. With the assumption that most of us are "trend" traders, in periods of indecision like now, we can reduce our exposure to either direction and/or focus on much shorter time period trades, preferrably with attainable targets.

The total volume on the NYSE shows an "accumulation day" with gains on more shares traded today than yesterday. But the volume for today and the previous two days is still low compared to the activity since the big drop on Feb. 27, so I'm not going to get too worked up about the bull case just yet.

The VIX reached an intraday low beneath where it started on Feb 27. Somehow, with the craziness of the last three weeks, I don't see the VIX settling back into a nice comfy trading range below 12.50 again. If not, we should expect some continued choppiness.


AAPL looks like it is back in play as it has crept its way back above resistance. But I'd prefer to wait for a bounce of some sort. It is too extended from any support for my taste.


CTSH has three green arrows with a fresh one on the MA. It also has moved out of a symmetrical triangle formation with lower highs and higher lows acting like a winding coil. It lacks the volume needed to give it conviction on the breakout, but it at least gives us a target. That would be the nice round number of $100 based on the height of the open side of the triangle added onto the level at which the stock broke above it.
With a stop below today's low, around 90, that's better than a one/two risk/reward ratio.

VSEA and its buyers laughed off my resistance line and bought heavily today sending the stock up almost 8%. It's a bit far for my blood to jump in now. This is one heck of a volatile stock. The front month Implied Volatility is 40% compared to 12% for the SPX, 18% for the QQQQ and 22% for the SMH. One lesson to learn from this one is to pay close attention to stocks that are holding up well while the market is dealing with selling and volatility.



Finally, to give Starbux a bit of attention since it's been discussed actively on the list, here is a long term, weekly view.


Looking closer at the daily chart, it's amazing how similar this double bottom reversal pattern is to the last time the stock made it down to this support area. When the second bottom was formed with a Morning Doji Star (but not exactly - no gap down to the Doji), you can see how the volume came in strong the next day. I've circled the formation with the smaller circle inside the bigger double bottom pattern.
In any case, as Jim and Basant discussed in their exchange, it does seem like a wait for a bounce off of new support around 31 would be prudent. There is potential resistance overhead in the 33 area and the stock has moved dramatically in the last week alone. Regardless, today was a very bullish candle with volume increasing each of the last two days.



(Not to self: Be Brief or be brilliant.) ;-b

[Update: Just as I finished this post, I read another blog with recent mentions of SBUX. LOL! It's wonderful to see that there are always people seeing just the opposite things in the market.
Here's a guy with what seems like a pretty respectable blog for worthwhile reading. The 2nd and 3rd most recent posts are on SBUX and his case for a long term double top. Could be.]

Matt

AAPL news

Following the line of thinking in the last post, it's interesting to see the major gap in AAPL today come after a more severe sell-off than AAPL has seen in months. Perhaps the stock is just tired and all of the technical analysts saw the stock put in a lower high and then break horizontal and diagonal support and this accelerated the selling.
(Click image to see it larger)


(Kind of amazing that the stock gapped down to open right at the old resistance/support just above 78, no? Do you think other people watching AAPL are also drying lines on charts?)

Maybe it's all just a coincidence as often seems the case with Technical Analysis. But maybe someone or some very broad collective of smart people (the market) smelled something fishy and knew it would be good to sell some AAPL. The news today is of a further development in the options saga that seems to be sweeping the tech companies in particular. "The Recorder, a San Francisco-based publication owned by American Lawyer Media, reported late Tuesday that federal prosecutors are looking into forged documents at Apple related to administering stock options." Steve Jobs has apparently hired his own atttorney, independent of the company's legal team. Here's a link.

Again, perhaps it's just coincidence, but it's very intersting that news like this comes out after the stock has been selling off and not in the midst of a great rally.

So if you owned stock in this company, what would you have done to preserve your profits? I suppose it depends on your time frame and where you bought it. If you bought any time in the last 4 months, I would think a break of intermediate term uptrending support line and the horizontal support from old resistance would have been a pretty good place to get out. But if you owned the stock for longer and were playing it on a much broader time horizon, the trend support line on the 5 year chart would be reasonable to use and still be in the stock. All the same, looking at the weekly chart we see decreasing volume on the latest rally and the weekly candles show a clear turnaround and break of support on heavier volume. Selling covered calls on your position or even buying puts as a hedge would have been very reasonable. Maybe it still would be.


As I write this, the stock has recovered pretty impressively, up over 2pts. from the open. The market may well shrug this news off now and buy shares at this discount. What we'll now look for as trend traders is to see what happens when the next lower high is put in. That could be the more attractive bearish entry for a short term trade.
The Long term trend is still bullish, trend unbroken. It's worth observing, though, that the most recent high is not very much higher than the last high in January. The short term is definitely bearish and the intermediate term is right on the cusp of becoming bearish.
Whatever happens, we can play it in either directiton as long as we choose our entres wisely and manage our risk more so.

Scrolling through the list

As the Nasdaq is looking ever more questionable and the SOX has definitely broken its uptrend support line, AAPL seems to have broken down in perhaps a very significant way. It has Definitively lost the horizontal and diagonal support and now it looks like the 50 MA too. That makes three strikes. Next likely support is at 78. The 200 MA is all the way at 70.

(Click images to see them larger.)



BHI is holding above 74.50 support and the 200 MA. Yesterday's inverted hammer made a bullish Harami.



The continued strength from COH warranted a mention from Mike Coval in Wednesday's Market Commentary.



CRDN is in a bull flag and holding above the 20 MA.



CTSH has a trend that looks a little long in the tooth and might be ready to break its Uptrend support and the 50 MA in one shot.



CWTR doesn't look very pretty and just bounced off the underside of the 200 MA. Chart shows a couple bearish divergences with the MACD in the last year. Interesting to see how common these are and how powerful a signal they seem. Here's an article on the subject.



HWAY looks to be warming up to breakthrough the 200 MA with the help of the 20 MA and support just below at 46.50.


ISE looks more likely to test the 200 than climb back up to the 50. The intermediate uptrend is coming in jeapordy with a test of the latest low.
A few posts back, I suggested a 50/45 bull put. I paper traded it and on the break of the support line closed it for a small loss.



KBH seems to be respecting the 200 MA and looks inclined to use it as support now. There is decreasing volume on the pullback from the recent high.



NTAP is right a the crux of testing horizontal and diagonal support and shows a potential double top with a bearish divergence on the MACD. Volume spikes recently have been on buying days.



RIMM had earnings today after close. There are a lot of writers pointing out overvaluation. The stock has more than double since August. But with earnings coming in at a penny more than the analysts' expectation, the stock was up over 5% after hours. Here's a good summary of the announcement.
With a fresh bounce off the 50 MA, if Friday closes up above 141, this could be a nice bullish entry for further upside movement. A Bull Put spread might be a nice conservative approach.
Implied volatility on RIMM ran up above 55% into this announcement. Perhaps there will still be a nice level of it to sell tomorrow.



UNT still has a longer term downward bias, but may find support at 48.80 and its 50 MA.



VSEA broke out big today, 5.7% on a day when the SOX is down 1.3%. Only news I could find was of a live webcast for their coming earnings announcement in January.



WCC looks to be having trouble. Continued selling today on big volume. 56.50 is likely support. Peter R. at Shadow Trader always says that volatility contraction leads to volatilitiy expansion. Notice the three Moving Averages coming together over the past few months. With the price now below the 200 with the others likely to follow, could this be the beginning of a more meaningful move down?
Perhaps a bounce a bounce off the 56.50 area support level could be played with a bull put spread for a bounce with the intention of buying back the short on continued breakdown.




ZMH wants to go higher though couldn't quite make it beyond resistance today and formed a shooting star which technically still needs confirmation, though the past few weeks have shown a number of bearish candle patterns.



It's interesting to look through the list and find that I'm still bullish in the short term for 10 of the 15 stocks. However, some of those "bullish" stances could easily change very soon: NTAP, CTSH, CRDN

Indexes and some of our list.

I hope everyone had a good weekend. I'll be going to an Advanced Technical Analysis workshop in near D.C. this week, so postings will probably be on the less frequent side. However, I've put together a pretty lengthy post here which should give you plenty to chew on for a while.

Don't forget to check for the key economic events for the week ahead. You can find key events, earnings announcements and splits for the coming week in the "Week Ahead" page found in the left column on the "Strategies" page on the the Investools site. Otherwise, for a simple view of economic events, click here. There you can click on each event for a link to more info.

Taking a quick look at the major indexes, the SPX looks quite strong, continuing its trend with higher highs and higher lows. One potential bit of caution is Friday's shooting star which would be validated as a potential reversal point or resistance level with a gap and close down or big black candle for monday. This would be consistent with the current channel resistance.

(Click images to see them larger)


The VIX index has been very volatile since breaking the downward resistance line. Now it's back to lows and has used it as support on friday. Until this index makes a meaningful move above the 13 area, I won't get too excited about prolonged bearish action in the market.



I don't usually pay too close attention to the Dow or place a lot of weight on it as an indicator of market direction. Regardless, it is interesting to note that while it did break horizontal resistance to a new high this week, the old trend channel support may now act as potential resistance. There is also a shooting star of sorts, though not quite the ideal with its upper shadow less than twice the length of the body.


As for the Nasdaq, though not in the most convincing way, it did close above the recent lower high and the pennant formation. It doesn't seem to have great momentum at this point, but the bias remains up.



The Market Forecasters shows the intermediate lines on both charts moving up in the upper reversal area, so these are read as bullish. Regardless with the market trends still clearly in tact, this stochastic indicator is not yet quite ideal for these conditions.

From our list:

AAPL is in a good position for a low risk entry ( i.e. near support). However, "Apple Computer Inc. said Friday it has delayed filing its annual report with the Securities and Exchange Commission due to its ongoing investigation into stock option grants." So it wouldn't surprise me if investors were a bit lukewarm on the stock following this news.



BHI has broken decisively above the 75 resistance area. All those who bought in under that level have been validated and are now sitting pretty. Getting in now near the 75 area would be ideal on a test of support in coming days. The P/E of 11.3 shows a discount to the Group's P/E of 22.4. With growth expected at 23%, that gives us a PEG of about .5. Seemingly too good to be true. From what I can tell, there seems little reason this stock shouldn't revisit its high and likely go further. Very good also to see the group moving quickly up the Big Chart in the past few weeks.



Our other oil stock, UNT hasn't quite broken the longer term downtrend convincingly, so it's still in the dog house with me. There is also a bearish divergence between the higher high in price and the lower high on the MACD.



CRDN looks to have support at 55 and some potential resistance 56.30 or so, but nothing blatant until the high around 62.50.



COH appears to be easing its momentum a bit in keeping with its group rank on the big chart. However, it is still in a nice, healthy uptrend after breaking two significant resitance levels with volume. As it move into its uptrending support line and the 30 MA, this might be a very good place to look for a bounce entry to ride a run up in anticipation of its earnings announcement on Jan. 22. This could be a good time to look at buying options too as the Implied Volatility is at a low point and it will likely start to rise approaching the earnings announcement. This will inflate the premium in the options.



ISE somehow doesn't quite look like it's going to break through this ceiling. It's strangely back below the high from back in March and the big volume jump to a new high with volume on 10/25 after earnings didn't quite set off a new move. 55 remains as resistance. All that said, the uptrend is still in tact and we have just made a successful bounce off the support line. Good entry point using Friday's open as a support line and the trend line as an exit signal. Makes for a risk reward of 1/5. VERY GOOD. Also, a Jan 45/50 bull put spread for roughly $1.55 credit could be very successful using the same lines as an exit.


KBH will be a difficult one to play, I think. The homebuilders do seem to have put in a bottom for the time being and have pulled above that area with an accompanying rise up the big chart. However, Friday's Big Chart rank did show a slight pullback as there is considerable overhead supply with lots of potential resistence every step of the way. KBH may see the nice round number 50 as support now, but there seems resistance at about every $5 incriment as we go up. That's not necessarily a bad thing as long as we can get in near support levels and get out at each target. For now, I'll leave this alone and expect a more sideways bias.



NTAP broke back above 40 on Friday with considerable volume(see 11/21 for a "fake out"). Perhaps it will now hold as support. We've now got three fresh green arrows with recent volume spikes being buying days.



It will be interesting to see what happens with RIMM after its earnings announcement on Thursday. It's in a strong uptrend about to receive a third green arrow on the MACD.
This article makes for a case of overvaluation which seems quite believable seeing as the P/E is twice that of its group and it has a PEG of around 3. (Here's a good link for an explanation of P/E and PEG.) Perhaps we can watch this for a bearish play if it breaks the uptrend support.


Okay then. I think that's enough for now. I would love to see some comments on all this, if nothing else, just to let me know people are in fact reading, thinking about and questioning this all and not just glancing at it.
Have a great monday! :-)

A is for AAPL

For the first post of this blog, I thought it fitting to start with AAPL. Not only is it the first stock on our list in alphabetical order, but it is among the most closely watched and heavily traded stocks out there at an average of about 23,000,000 shares a day. Take a look at the options chain and you'll see very good numbers in the Open Interest column. A market like this with so many eyes and players in the same pit, it is assured to be priced to perfection and with nice, tight spreads between the bid and ask.

Have a look at this article from thestreet.com. Reading that and looking at the chart almost makes one feel like a moron for not already owning the stock. Even as recently as 11/9/06 we had a buy signal with the investools method - three green arrows and a close above resistance. A few days earlier, however, would have been a reasonable buy too with a support bounce off the MA.

Let's take a long term look. Here's a 10 year chart. (Click chart to see it bigger)
Here's a 5 year, weekly chart:
Two weeks ago it broke above the resistance of its all time high to a new high. The average is lower than the weekly average, but it was a short trading week around Thanksgiving. The following week was something of a tug of war on higher than average volume. After opening the week higher, it trade lower than the close of the previous week and then pushed back up off the lows to close slightly lower than than the previous week. A test of new support seems needed. But will 100 act as a magnet?


Now for the grand finale, the daily chart. It looks like the stock could need to come in to test support in the 86 area. But if it breaks overhead resistance, it seems likely that the allure of the 100 level will lead traders and investors to take it there quickly.


There have been a lot of very good buy points in this rally since July. Of course, hindsight is always 20/20. Remember, on a trending stock, the MACD is the more significant indicator to watch.
Though it does seem due for a pullback now, notice the sideways action over the past week on higher than average daily volume. The past three days, in particular, show some bullish resilience with buying off the lows of the day.

Anyone want to chime in with a potential trade here? Or the trigger for a trade?
Though I'm still new to this blogging thing, it should be set up to facilitate comments.

See you in Edison.