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Wednesday - August 31, 2005

Xilinx Trying to Base

XLNX - Xilinx (XLNX) has an inverse head-and-shoulders working with neckline resistance just above 29. Upside volume was strong in July and expanding volume on a run to neckline resistance would be bullish.

By Arthur B. Hill - Wed 31-Aug-05 at 11:06AM in Stocks
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Micron Tests Support

MU - Micro (MU) may very well hold an important key to the semiconductor groups. There is lots of support around 11 from the 62% retracement, broken resistance and the April trendline. The stock consolidated over the last two weeks - watch 11.6 up and 10.9 down.

By Arthur B. Hill - Wed 31-Aug-05 at 11:06AM in Stocks
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Qlogic Fails at Resistance

QLGC - Qlogic (QLGC) had a sudden change of heart. The stock retraced ~50% of the prior decline with a rising price channel. Both the retracement and the pattern are typical for corrective advances. There was a sudden reversal on high volume over the last two days and this stocks looks headed lower.

By Arthur B. Hill - Wed 31-Aug-05 at 11:05AM in Stocks
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Electronic Arts High Volume Break

ERTS - Electronic Arts (ERTS) broke rising channel support with high volume and this looks like a continuation of the prior decline.

By Arthur B. Hill - Wed 31-Aug-05 at 11:05AM in Stocks
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Wachovia Triangle Break

WB - After a decline to 50, Wachovia (WB) consolidated with a triangle and broke trendline support with good volume over the last six days.

By Arthur B. Hill - Wed 31-Aug-05 at 11:01AM in Stocks
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Tuesday - August 30, 2005

A Reversal Day?

With a weak open and strong close, there were a lot of bullish candlestick reversal patterns on Monday. Namely, the Dow Diamonds (DIA) formed a bullish engulfing pattern around 104. This could be the third reversal in four months, but we need to see follow through.

Notice that prior reversals in May and July were confirmed with a strong move the very next day. This showed bullish resolve and this is the kind of follow through required to reverse the short-term downtrend. For DIA, I will be looking for a move above 105.6. One more point. Notice that DIA opened weak and closed strong for confirmation in May. Should the stock open weak today, look for a move above yesterday’s high (104.81) for the early signal.

By Arthur B. Hill - Tue 30-Aug-05 at 08:46AM in Indices
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Bank on Middies

If the market does confirm Monday’s reversal day with strong follow through, I would expect the old guard to lead the way higher. By that, I mean the stocks that have been leading this market for the last four years: the S&P MidCap Index (MID) and S&P SmallCap Index (SML).

MDY formed a falling flag over the last four weeks and is nearing support from the April trendline. The stock formed a piercing pattern yesterday and this bullish candlestick reversal would be confirmed with further strength above 130. This would also confirm the falling flag and project a move above the early August high. As long as 130 holds, I would expect the stock to work its way towards support around 125.

By Arthur B. Hill - Tue 30-Aug-05 at 08:45AM in Indices
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Material Support

Just as a bearish engulfing confirmed resistance, a bullish engulfing is confirming support for the Materials SPDR (XLB). The stock is oversold and at support. This makes the bullish engulfing all the more intriguing. However, follow through is what separates fluff from substance. Right now, this is just an oversold bounce at support. Follow through above 27.7 would confirm the bullish engulfing and argue for further strength.

By Arthur B. Hill - Tue 30-Aug-05 at 08:44AM in Industries
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Internet Architecture

This pattern is fairly typically among tech indices and stocks. There was a consolidation in June, a surge in July and a decline in August. The consolidation (gray oval) acts as support and the stock bounced off 34 twice this month. It is possible to draw a trendline extending down from mid July and there is resistance at 35.3 from last week’s high. A move above 35.3 would affirm support, break resistance and argue for further strength.

RKH broke below the lower trendline of a rising wedge and then consolidated (gray oval). Notice that broken support turned into resistance around 137 and this is the level to beat. A doji formed on Monday and the decline over the last two days solidifies resistance. There is support around 133, but I am not expecting it to hold.

By Arthur B. Hill - Tue 30-Aug-05 at 08:43AM in Industries
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Oil Services Not Impressed

Given the surge in oil prices on Monday, I would have expected bigger things out of the Oil Service HOLDRS (OIH). The stock opened strong, but failed to maintain gains and closed weak. The resulted in a black candlestick and a rising flag has taken shape over the last eight days.

These are potentially bearish consolidations and a move below 112 would signal a continuation lower. The downside target would be the support zone around 100-105. Careful with this one as the big trend is clearly up and further weakness would still be deemed corrective.

By Arthur B. Hill - Tue 30-Aug-05 at 08:43AM in Industries
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Monday - August 29, 2005

Nasdaq Support

The August trend is clearly down, but where can we expect support for the Nasdaq? First, the index recorded a new high for 2005 in early August and the current decline is viewed as a correction, provided it does not overstay is welcome. The April-July advance was quite sharp and some sort of pullback can be expected.

For support, I would look at key retracements, prior consolidations, moving averages and trendlines. A 38-50% retracement of the Apr-Jul advance would extend to the 2050-2100 area. This is a normal retracement after an advance. The rising 200-day SMA confirms this support zone, as does the June consolidation (gray oval). Therefore, I am establishing a support zone around 2050-2100 for the Nasdaq and will expect a bounce or consolidation in this area. A break below the support zone would be deemed excessive for a normal correction and this would turn the trend bearish.

By Arthur B. Hill - Mon 29-Aug-05 at 07:25AM in Indices
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Broad Market Support

The S&P 500 Equal Weight Index (RSP) is as good a representation of the broader market as any. It treats all S&P 500 stocks equally, regardless of market capitalization. Therefore General Electric ($3.35 billion) counts the same as Perkin Elmer ($2.53 billion).

I use this index to tell me where the broad market is heading. RSP recorded a new all time high in early August and remains in a long-term uptrend. The current decline looks like a falling flag, but is still falling and support is a couple points away. As with the Nasdaq, I am looking at key retracements, prior consolidations, trendlines and moving averages. This puts a support zone around 155-159 and I would expect the index to firm in this area. A move below the bottom of the support zone (say 154) would be deemed excessive and reverse the current uptrend.

By Arthur B. Hill - Mon 29-Aug-05 at 07:25AM in Indices
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Starbucks and Gas

I love the Starbucks experience just as much as anyone. However, I must wonder when the rising cost of gas will cut into our Starbucks experience. Let’s face it. Starbucks is pricey and there are alternatives. You can downside your order (tall instead of grande), skip the muffin, buy the beans and brew at home or not go in at all. The latter would be rather drastic. However, I do think that at some time or another Starbucks is going to feel the heat of rising gas prices as consumers look for other ways to cut back.

But what about the chart? The stock peaked in January, formed a lower high in June and broke support last week. Remember, the S&P 500 moved to a new all time high in early August and SBUX is seriously lagging. In addition, a small head-and-shoulders pattern formed over the last two months and the late July gap failed to hold. I view the support break at 50 as bearish and would expect lower prices to follow.

By Arthur B. Hill - Mon 29-Aug-05 at 07:24AM in Stocks
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Semis Fail to Hold Breakout

Because of its importance to the Nasdaq, I regularly cover the Semiconductor HOLDRS (SMH). The stock formed a falling flag and found support around 36. There was even a breakout attempt last week that failed miserably as the stock closed below 36.5 on Wednesday. The stock went on to break the late April trendline and looks vulnerable to further weakness. The high at 37.15 is now the resistance level to beat. As long as this level holds, I stay bearish on SMH and this will weigh on the Nasdaq.

RTH led the market higher in May, June and July with an impressive 20% move. This could be the back-to-school rush into retail. The stock peaked in late July and gapped lower in August. A falling flag has taken shape over the last 4 weeks and I would remain bearish as long as the upper trendline and resistance at 99 hold. The stock is approaching support and getting oversold, but a reversal is out of the question as long as 99 holds.

By Arthur B. Hill - Mon 29-Aug-05 at 07:23AM in Industries
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REITs follow Finance

On 25-Aug, I showed a chart of the Regional Bank HOLDRS (RKH) breaking down. This is obviously an interest sensitive group and so are REITs. The iShares REIT ETF (IYR) gapped down and fell sharply in early August. This move created an oversold situation that needed to be alleviated. This can be done with a flat consolidation or a bounce. IYR got a little of both and formed a pennant over the last 2-3 weeks. These are continuation patterns and a move below 63 would signal a continuation lower.

RKH broke below the lower trendline of a rising wedge and then consolidated (gray oval). Notice that broken support turned into resistance around 137 and this is the level to beat. A doji formed on Monday and the decline over the last two days solidifies resistance. There is support around 133, but I am not expecting it to hold.

By Arthur B. Hill - Mon 29-Aug-05 at 07:22AM in Industries
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Networking Trouble

Corning (GLW), Motorola (MOT) and QualCom (QCOM) have made the Networking iShares (IGN) one of the top performing ETFs over the last few months. The uptrend remains, but IGN is having trouble around 30 as bearish candlesticks form. A bearish engulfing and a shooting star formed over the last few weeks (red ovals). These require confirmation and a move below 29.2 would do the trick. As long as last week’s low holds, the candlesticks are not confirmed and this is just a consolidation.

By Arthur B. Hill - Mon 29-Aug-05 at 07:21AM in Industries
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Thursday - August 25, 2005

Blame Retail

The Retail HOLDRS (RTH) can be blamed for recent weakness in the broader market. This group is an important part of the Consumer Discretionary sector, which is the most prone to economic fluctuations. As such, it should be watched for early clues on economic strength or weakness.

RTH led the market higher in May, June and July with an impressive 20% move. This could be the back-to-school rush into retail. The stock peaked in late July and gapped lower in August. A falling flag has taken shape over the last 4 weeks and I would remain bearish as long as the upper trendline and resistance at 99 hold. The stock is approaching support and getting oversold, but a reversal is out of the question as long as 99 holds.

By Arthur B. Hill - Thu 25-Aug-05 at 09:53AM in Industries
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Banks Breaking Down

The Finance sector is the largest sector in the S&P 500 (~20%) and Regional Banks are part of this sector. The Regional Bank HOLDRS (RKH) peaked in mid July with a bearish engulfing and started leading the way lower. The Nasdaq and S&P 500 peaked on 3-Aug and relative weakness in banks was not a good sign.

RKH broke below the lower trendline of a rising wedge and then consolidated (gray oval). Notice that broken support turned into resistance around 137 and this is the level to beat. A doji formed on Monday and the decline over the last two days solidifies resistance. There is support around 133, but I am not expecting it to hold.

By Arthur B. Hill - Thu 25-Aug-05 at 09:53AM in Industries
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QQQQ Inverted Hammer

QQQQ failed at 39.2 three times in the last six days and formed an inverted hammer with the latest failure on Wednesday. This is a bullish candlestick reversal pattern that requires confirmation. The bulls were able to rally the stock intraday, but not strong enough to hold these gains and the stock closed weak. Hence, the long upper shadow. A move above 39.2 would break resistance over the last six days, confirm the inverted hammer and reverse the short-term downtrend.

By Arthur B. Hill - Thu 25-Aug-05 at 09:52AM in Stocks
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Large Lead Lower

The S&P 100 underperformed on the way up and looks set to lead on the way down. The index formed a bearish rising wedge and broke lower trendline support with a sharp decline over the last two days. There was a consolidation at trendline support (gray oval), but this has been resolved to the downside.

The consolidation highs now become resistance and the level (572) for the bulls to beat. The index is getting short-term oversold and nearing support around 560. This may lead to a consolidation or even a bounce, but this is not enough reason to turn bullish.

By Arthur B. Hill - Thu 25-Aug-05 at 09:52AM in Indices
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Transports At Support

The Dow Transports led the market higher in July and lower in August. The Average broke resistance at 3650 with a surge in July and this level turns into support. A falling flag formed over the last 4 weeks and this looks like a throwback to broken resistance.

An inverted hammer formed yesterday and this bullish candlestick reversal shows intraday buying pressure that failed to hold. More importantly, this provides a level to watch for a bullish breakout. A move above 3750 would break falling flag resistance and confirm the inverted hammer. This would be bullish for the Dow Transports and signal a continuation of the July advance.

By Arthur B. Hill - Thu 25-Aug-05 at 09:51AM in Sectors
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Wednesday - August 24, 2005

Air Products Deflating

Air Products (APD) is a major player in the Chemicals industry and Materials sector. Weakness in this stock will filter through to both. On the price chart, the stock declined sharply in April and then formed a rising wedge in May and June. The stock broke rising wedge support, but managed to firm around 58-62 the last few weeks. That could be changing as APD failed at 61-62 and looks poised to break triangle support. In addition, MACD moved below its signal line and into negative territory.

By Arthur B. Hill - Wed 24-Aug-05 at 09:24AM in Stocks
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Hansen Natural

Recent selling pressure in Hansen Natural (HANS) points to at least a high level consolidation and possibly a correction that could lot off 20%. The stock peaked in late July with a harami and three long black candlesticks on high volume. There was a strong open in mid August, but this was met with selling pressure and another high volume decline. More recently a flag has taken shape and I would expect more downside. The next support zone is around 30 from the March-April consolidation.

By Arthur B. Hill - Wed 24-Aug-05 at 09:24AM in Stocks
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Myriad Genetics

Myriad Genetics (MYGN) is part of the hit biotech group. The stock broke trendline resistance in July and then formed a falling flag. These are corrections and the decline occurred on low volume, which indicators light selling pressure. Tuesday’s trendline break and surge on high volume signals a continuation higher and opens the door to the mid 20s. A move below 17 would challenge the breakout and a move below 16 would be bearish.

By Arthur B. Hill - Wed 24-Aug-05 at 09:23AM in Stocks
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Molecular Devices

After a gap and high volume surge above resistance, Molecular Devices (MDCC) settled back down with a falling wedge (magenta trendlines). These are corrective patterns designed to alleviate an overbought situation. Notice that broken resistance turned into support around 20 and the stock is starting to firm (gray oval). Two inverted hammers formed (23-Aug and 17-Aug). These show intraday buying pressure and further strength above the upper trendline would confirm these bullish candlestick reversals. Such a move would also solidify support around 20.

By Arthur B. Hill - Wed 24-Aug-05 at 09:23AM in Stocks
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Torchmark Volume

Insurance company Torchmark (TMK) is seeing good upside volume and a recent trendline breakout. The stock surged in late April/early May and then retreated the last 3-4 months. The April low held and the stock surged above trendline resistance with above average volume. This is not an exciting stock, but the move solidifies support at 50.5 and I would look for it to work higher in the coming weeks.

By Arthur B. Hill - Wed 24-Aug-05 at 09:22AM in Stocks
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Tuesday - August 23, 2005

Semi Support

Yesterday I showed the Information Technology SPDR (XLK) trading right at trendline support and today I am showing the Semiconductor HOLDRS (SMH). This stock is also trading right at trendline support and formed a falling flag over the last few weeks. Semis were up on Monday and this is positive for the group and the Nasdaq. However, they cannot do it alone and further strength is required to signal a continuation of the Apr-Jul advance. I am looking for a move above 37.1 to confirm the flag and project an advance to the low 40s. As long as the flag falls, the downside target is around 35.

By Arthur B. Hill - Tue 23-Aug-05 at 07:16AM in Industries
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More Indecision in DIA

Big spinning top candlesticks formed yesterday in a number of indices, stocks and ETFs. These have small bodies (open/close) with long upper/lower shadows that represent the intraday high and low. The bulls controlled early price action, but the bears wrestled control away and forced prices lower. However, the bulls managed one last gasp to force prices back to the middle and the result is little change from the open. What a battle for support.

The 4-5 week pattern in the Dow Diamonds (DIA) is looking like a diamond. Most books write about these as bearish reversals, but I view them as a neutral consolidation. The last four candlesticks featured failed rally attempts and a move above 106.5 would break resistance, provided it holds of course. Conversely, a move below 105 would be bearish.

By Arthur B. Hill - Tue 23-Aug-05 at 07:16AM in Indices
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Ryland Still Sane

Despite a sharp decline in August, John Dorfman of Bloomberg likes Ryland Homes (RYL) and gives it the right to stay in his “sane portfolio”. Dorfman is looking ahead 12 months for this portfolio and it is likely to outperform the overall market in an uptrend.

On the price chart, RYL is trading right at support and is oversold. Broken resistance around 71 and the October trendline converge to affirm this support area. In addition, the August decline marks a 50% retracement of the Apr-Jul advance. RSI moved below 40 for the fourth time in 12 months and prior dips occurred close to a bottom in the stock. A bullish catalyst is needed at this point. This might include a gap, candlestick reversal or high volume bounce.

By Arthur B. Hill - Tue 23-Aug-05 at 07:15AM in Stocks
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Corny Energy

Archer Daniels Midland (ADM) surged on an upgrade from a Citigroup analyst and a plug on Mad Money with James Cramer (TheStreet.com). Both see lots of potential from corn-derived ethanol and plastics. These two areas benefit as other energy (petro) prices rise.

The stock remains in a long-term uptrend (blue trendline), but suffered a setback earlier this year with a sharp decline below 20. Broken resistance turned into support and the stock bounced back with the rest of the market over the last few months. Yesterday’s gap reinforces support at 20 and this is the level to watch for a failure. The bulls have regained the upper hand with the gap, but will loose it should the stock decline below 20 and fill the gap.

By Arthur B. Hill - Tue 23-Aug-05 at 07:15AM in Stocks
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Monday - August 22, 2005

XLK at Support

In addition to the Finance SPDR (XLF), I will also be watching the Information Technology SPDR (XLK) for clues on the Nasdaq and S&P 500. The stock declined over the last few weeks and is now trading at trendline support. Broken resistance and the 50-day simple moving average confirm support around 20.6. There are lots of reasons for support and it should hold. Should XLK not hold, a break below support would be quite negative.

By Arthur B. Hill - Mon 22-Aug-05 at 06:46AM in Sectors
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XLF Consolidation

For clues on the S&P 500, turn to its biggest sector: Finance. The Finance SPDR (XLF) has been locked in a trading range the last ten days. The rising wedge trendline break was negative, but the stock stopped short of a major support break at 29.2. I am now watching the 10-day trading range for clues. A break above 30.1 is short-term bullish, while a break below 29.4 is short-term bearish.

By Arthur B. Hill - Mon 22-Aug-05 at 06:46AM in Sectors
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XLP Triangle

After a big advance late last year, the Consumer Staples SPDR (XLP) formed a triangle consolidation in 2005. The stock has been locked in a contracting range for over seven months. The July breakout attempted failed and the stock declined on high volume in August (red oval). There is a lot of support between 22.5 and 23, but long-term direction will not be established until the triangle is broken.

By Arthur B. Hill - Mon 22-Aug-05 at 06:43AM in Sectors
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PD Gaps Lower

There are three types of gaps: breakaway, continuation and exhaustion. A breakaway starts a trend, a continuation continues a trend and an exhaustion gap ends a trend. Phelps Dodge gapped down on Wednesday and then consolidated above 105. The gap has yet to be filled and should be considered breakaway (bearish) unless there is a move above 111. Further weakness below 105 would further confirm the gap and argue for a move towards the support zone around 95.

By Arthur B. Hill - Mon 22-Aug-05 at 06:42AM in Stocks
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JNJ Consolidates

The Vioxx ruling on Friday hit Merck and the HealthCare sector pretty hard. Even Johnson & Johnson (JNJ) was knocked for a loss on the day. Despite Friday’s decline, JNJ remains in a consolidation with a potentially bullish setup. First, the stock retraced 50% of the prior advance. Second, the decline formed a falling price channel. Both are typical for corrections and a breakout would be bullish. The stock has consolidated between 62.5 and 65.5 the last three weeks. A move above 65.5 signals a continuation higher and opens the door to a test of the April high. The bears have the upper hand until there is a breakout to reverse the five month decline.

By Arthur B. Hill - Mon 22-Aug-05 at 06:42AM in Stocks
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Wednesday - August 17, 2005

Mini Vacation

I will be taking off Thursday and Friday for a mini vacation with family and friends. Blogging will resume on Monday 22-Aug. Have a great weekend.

By Arthur B. Hill - Wed 17-Aug-05 at 06:00PM in General
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XLK Triangle

Relative weakness in the tech sector is not healthy, but the lower wedge trendline has yet to be broken. While the S&P 500 and Nasdaq moved to new highs in August, XLK failed to exceed its Dec-04 high and has yet to break triangle resistance. The swing within the triangle is up as long as the rising wedge holds. A move below 20.5 would break this trendline and be call for further weakness towards 19.

By Arthur B. Hill - Wed 17-Aug-05 at 05:58PM in Sectors
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SPX Breadth

The S&P 500 is a broader index and its AD Line has kept pace recently. The indicator moved to a new high in July and confirms strength in the underlying index.

Like the S&P 500, the indicator fell back over the last two weeks to test broken resistance and the 50-day SMA. With the new high recently and lack of a negative divergence, I don’t see any reason for alarm just yet. However, I could not and did not express the same opinion for the Nasdaq 100 AD Line. I will be watching the Aug-04 trendline for signs of material weakness in the AD Line for the S&P 500.

By Arthur B. Hill - Wed 17-Aug-05 at 05:57PM in Breadth
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NDX Breadth

The Advance Decline Line for the Nasdaq 100 is lagging. This line is a cumulative measure of advances less declines (daily). The indicator reflects the level of participation when the Nasdaq 100 moves higher or lower.
Participation in the May advance was broad and strong as the AD Line moved sharply high. However, participation in the July advance was not as strong as the AD Line stalled near the early June high (red line). The Nasdaq 100 easily broke its early June high and the AD Line has formed a negative divergence for all intents and purposes. This shows that fewer stocks partook in the July advance and this is not healthy. The AD Line went on to break the May trendline, 50-day SMA and is now poised to test support form the July low. Unless the AD Line can recover and move back above its 50-day SMA, my stance on breadth is bearish.

By Arthur B. Hill - Wed 17-Aug-05 at 05:57PM in Breadth
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Tuesday - August 16, 2005

Disney Perks Up

After a big run from Aug-04 to Feb-05, Disney (DIS) has been in corrective mode the last several months. The stock bottomed in early July with a surge on good volume. A falling flag then took shape and the stock moved higher the last four days. Upside volume was strong three of the last four days and a break above 26.5 would be bullish.

By Arthur B. Hill - Tue 16-Aug-05 at 07:43AM in Stocks
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Silver Stock Breakout

It is hard to argue with this breakout. Coeur D’Alene (CDE) surged in late May, consolidated around 3.5 and then surged again in early August. The move broke resistance on high volume. Low priced stocks have above average risk and this one is no exception. A move below 3.5 would be negative and a move below 3.25 bearish. Until such a move, I would look for higher prices in the coming months.

By Arthur B. Hill - Tue 16-Aug-05 at 07:41AM in Stocks
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B2B Breakout

While the Nasdaq moved lower, the B2B Internet HOLDRS (BHH) gapped higher in early August and held the gap. The stock also broke resistance and consolidated over the last eight days. A move above 2.35 signals a continuation higher and a move below 2.2 starts to fill the gap.

By Arthur B. Hill - Tue 16-Aug-05 at 07:40AM in Industries
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Deja vu for Russell 2000

The Russell 2000 iShares (IWM) have a setup similar to January working. In January, the stock broke trendline support and then consolidated in the low 60s. Instead of breaking support at 60 and continuing lower, IWM broke resistance at the end of January and labored higher into early March (black caret). The rally failed here and the stock moved to new lows. Most recently, the stock broke the trendline extending up from May and consolidated between 65 and 66.5. A move above 66.5 gets the bulls going, but a break below 65 argues for a continuation of the early August decline.

By Arthur B. Hill - Tue 16-Aug-05 at 07:40AM in Indices
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Diamonds Consolidation

Just like the late May/early June period, the Dow Diamonds (DIA) remains range bound with support at 105.5 and resistance at 107.2. Trading within the range is a mess and the stock needs to break free for the next directional signal.

By Arthur B. Hill - Tue 16-Aug-05 at 07:39AM in Indices
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Micap Flag

The S&P MidCap Index (MID) broke a sharp trendline extending up from mid May and consolidated the last five days. The consolidation has a slight rise and looks like a rising flag. These are short-term bearish consolidations that require confirmation. A move below the lower trendline and Friday’s low would signal a continuation lower and target a decline to the next support zone around 680.

By Arthur B. Hill - Tue 16-Aug-05 at 07:38AM in Indices
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Monday - August 15, 2005

Guru Picks Value

Guru Investor, John Reese, is out with seven new picks on the MSN Strategy Lab (click here). In particular, Reese added Cooper Tire & Rubber (CTB). His picks usually show strong rising price charts and most have recorded recent 52-week highs. CTB is a bit unusual in that the stock has been trending lower since mid 2004 and recently formed a lower high (~21). There is a lot of support around 16-17 that extends back to the Dec-02 highs. With the stock coming into this support zone, the risk-reward ratio is improving for new longs. However, I would wait for some evidence of support and a short-term (candlestick) reversal.

By Arthur B. Hill - Mon 15-Aug-05 at 08:06AM in Stocks
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Economy Fuels Oil

David Pauly of Bloomberg (click here) believes that pricey oil is not hurting an expanding economy. This chart is a classic case and point. Both the NYSE Composite and West Texas Intermediate Crude have risen steadily since October 2002. While both may look overextended and ripe for a pullback, the big trends are clearly up.

By Arthur B. Hill - Mon 15-Aug-05 at 08:05AM in Oil
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Overstock Overthetop

Herb Greenberg of CBS MarketWatch (click here) thinks lawsuits are distracting from the real issues at Overstock.com. Herb usually finds the cup 1/2 empty. Similarly, Seth Jayson at The Motley Fool (click here) finds plenty of reason for concern over the latest public relations surge. On the price chart, OSTK surged above resistance with high volume on Friday. Looks like a bullish breakout. However, this is the first day of big upside volume since, well, early February. This suggests a bit of short covering and I don’t see much upside volume in the base. The stock has a lot of resistance between 50 and 60 with my ideal reversal point around 55.

By Arthur B. Hill - Mon 15-Aug-05 at 08:04AM in Stocks
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Cramer Radio and Gold

Cramer Radio (click here) notes that “gold shines through sell off”. This is clear on the price chart, which was posted on Friday. GLD reversed off support in July and surged above triangle resistance in August.

By Arthur B. Hill - Mon 15-Aug-05 at 08:03AM in Gold
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Friday - August 12, 2005

Gold Breakout

There's gold in them thar hills.

By Arthur B. Hill - Fri 12-Aug-05 at 11:55AM in Gold
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Sector Overview

The Finance SPDR (XLF) broke down over the last few weeks, but the Information Technology SPDR (XLK) and Consumer Discretionary SPDR (XLY) are still holding support levels. It would not take much to break support in these two key sectors and turn the tide in the S&P 500. Meanwhile, the Energy SPDR (XLE) and HealthCare SPDR (XLV) are showing good relative strength, while the Materials SPDR (XLB) is making an attempt to break free of resistance at 29. It is tough turning 30.

By Arthur B. Hill - Fri 12-Aug-05 at 11:54AM in Sectors
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Thursday - August 11, 2005

Rising Sun

Despite a sharp decline in US stocks over the last few days, the iShares Japan ETF (EWJ) has risen sharply and is challenging resistance at 11. The pattern at work looks like a sharp advance and triangle consolidation. This can also be interpreted as a pennant, which is a bullish continuation pattern. There is a lot of support at 9.8-10 and a move above 11 opens to door to a multi-month advance. A failure and move below 9.8 would be bearish.

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By Arthur B. Hill - Thu 11-Aug-05 at 08:45AM in International
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And Rising Yen

The performance of a country based ETF is tied to its currency. For example, a rising iShares Japan ETF (EWJ) would be enhanced by a rising Yen and hurt by a falling Yen. Therefore, the ideal time for longs is when the country’s index and currency are on the rise.

I’ve already shown the iShares Japan ETF (EWJ) chart and this chart shows the Yen Index (XJY). A long white candlestick formed in July and this solidifies support around 89 (green oval). The index consolidated and then broke above 90 yesterday. The Yen Index now looks poised to move higher and this should benefit the iShares Japan ETF (EWJ) as a rising Yen can buy more Dollars.

By Arthur B. Hill - Thu 11-Aug-05 at 08:44AM in International
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Bears Chase Bulls

This chart, courtesy of the VTO Report, shows bullish/bearish advisor sentiment. Bullish sentiment remains strong and above 56%, but still below the Dec-04 high around 64%. What is interesting is that bearish sentiment AND bullish sentiment increased in July (white boxes). The number of skeptics grew in July.

By Arthur B. Hill - Thu 11-Aug-05 at 08:44AM in Sentiment
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Large and Lethargic

The S&P 100 ETF (OEF) surged for 5-6 days in early July and then consolidated for the next four weeks (magenta trendlines). What a bad encore to such a strong advance. A three bearish candlestick reversal patterns formed within this consolidation, but the stock recovered from the support break at 57. The red ovals show a harami and two bearish engulfing patterns. A move below this week’s low would confirm the last bearish engulfing and argue for lower prices.

By Arthur B. Hill - Thu 11-Aug-05 at 08:43AM in Indices
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Dow Slugfest

When it comes to candlestick analysis, I prefer to use the ETF instead of the underlying indices. The prices of ETFs, especially the open, are based on actual trades. In contrast, the open for the Dow Industrials and other indices is based on which stocks were open at the start of trading. Some stocks may open later and this is not reflected in the opening price . The open is very important to candlestick formation and it is important to have a robust opening price that is based on an actual trade.

DIA opened strong on Wednesday, surged above 107, dipped below 106 and then closed at 106.24. What a roller coaster. The resulting candlestick is a spinning top and this signifies indecision. The bulls and bears were slugging it out all day, but neither could grab the upper hand and the result is a standoff. Overall, the stock remains in a trading range with support at 105.5 and resistance at 107.2. These are the level prior to the wild price action of the last three days and I think we should watch these levels for the next significant move: above 107.2 bullish and below 105.5 bearish.

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By Arthur B. Hill - Thu 11-Aug-05 at 08:43AM in Indices
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Wednesday - August 10, 2005

Are Donuts Back?

Atkins Nutritionals filed for bankruptcy last week and carbs are making a comeback. So is Krispy Kreme. After a bottoming in February, the stock formed a large triangle over the last several months and recently bounced off the lower trendline with good volume in early August (green carets). The pullback over the last four days was on low volume and the stock is moving again today. This reinforces support at 6.9 and the next resistance area is around 9.

By Arthur B. Hill - Wed 10-Aug-05 at 10:47AM in Stocks
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Merck Stabilizes

Merck (MRK) is firming near a key retracement and should be watched closely for a breakout. The decline over the last three months retraced 62% of the prior advance. This Fibonacci retracement is typical for corrections and the stock consolidated since mid June (gray oval). There is a lot of support around 30 and a break above 32.5 would signal a continuation of the Jan-Apr advance. The stock yields 4.9%, but the company may not be completely out of the woods with regards to Vioxx.

By Arthur B. Hill - Wed 10-Aug-05 at 10:47AM in Stocks
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Utilities Full Circle

What a long strange trip it’s been. The Dow Utilities peaked in Dec-00 and declined below 300 by the end of 2001. Enron was removed from the average in Dec-01, but this did not stop the decline as the energy trading fallout extended to DUK, NI, WMB and CNP. The Average reached its nadir in Oct-02 with a classic selling climax (red caret).

That was then and this is, well, December 2000 all over again. Almost three years since the low and 5 years since the high, the Average moved back above 400 last week. WOW, what now? Obviously, the Average is overbought and 400 represents resistance. Even though I am not looking for a sharp reversal or steep decline, the salad days are over and I would expect the average to move into a trading range (gray rectangle).

By Arthur B. Hill - Wed 10-Aug-05 at 10:46AM in Sectors
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Tuesday - August 09, 2005

The Three Little Gaps

The S&P 500 Equal Weight Index (RSP) provides a good lesson in gaps. Gap 1 is a breakout away gap that started the big advance off the May low. It was never filled as the stock moved higher immediately. Gap 2 in early July was a common or continuation gap that signaled a continuation of the current uptrend. It also was never filled as the ETF moved higher immediately. Even though it is only two days old, gap 3 could be an exhaustion gap. The ETF recorded a new all time high last week and then gapped down. The gap is thus far unfilled and should be considered short-term bearish as long as it remains unfilled. A move back above the gap zone (163.5) would put the bulls back charge.

By Arthur B. Hill - Tue 09-Aug-05 at 09:16AM in Indices
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BSX Finds a Bid

This is one for the bottom pickers out there as Boston Scientific (BSX) has had problems with its stents and a number of recalls. Since the free fall at the end of May, the stock stabilized between 27 and 29. An ascending triangle formed over the last few months and upside volume has been outpacing downside volume since early June. A break above the late July high would bullish and could carry the stock back above 30.

By Arthur B. Hill - Tue 09-Aug-05 at 09:15AM in Stocks
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Sara Lee Reverses

Sara Lee (SLE) is in the first year of a five year restructuring and reported a 4th Quarter loss last week. However, the stock didn’t seem to mind as its opened weak and closed strong to form a huge outside reversal on high volume (green oval). At the very least, this solidifies support around 19-20. The stock sports a 3.82% dividend and the company just introduced white bread with 30% whole grains. It may take a while to payoff, but it is nice to get 3.82% while you wait.

By Arthur B. Hill - Tue 09-Aug-05 at 09:15AM in Stocks
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Mind the Gap

Mind the Gap Stores (GPS), not the price gap. GPS surged in Nov-Dec 2004 and then worked its way lower the next 7-8 months. The stock found support around 20 with a surge in early July and again in early August. Volume also surged and the stock looks poised to break resistance.

By Arthur B. Hill - Tue 09-Aug-05 at 09:14AM in Stocks
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Monday - August 08, 2005

Rate Breakout

The reason for weakness in banks, utilities, REITS and homebuilders is clear: rising rates. The 30-year T-Bond Yield surged to resistance at 4.5%, consolidated and then broke above resistance with a strong move last week. The pattern in June looks like a double bottom (gray oval) and the break above 4.5 projects further strength to 4.83%. Interest rate sensitive stocks will not appreciate such a move.

By Arthur B. Hill - Mon 08-Aug-05 at 08:26AM in Bonds
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Banks Lead Lower

Smarting from the recent rise in interest rates and visions of economic strength, the Regional Bank HOLDRS (RKH) gapped lower and broke support on high volume. This support break follows a bearish engulfing in mid July and the decline broke the lower trendline of a rising wedge. Note that I drew through the 7-Jul spike low, which occurred with the London bombings. The stock is already short-term oversold and broken support at 137 turns into resistance.

By Arthur B. Hill - Mon 08-Aug-05 at 08:25AM in Industries
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IYK Gap

The Consumer Goods iShares (IYK) did not offer a safe haven on Friday as the stock gapped down and broke support. This gap follows a dark cloud pattern at the end of July and further weakness is expected.

By Arthur B. Hill - Mon 08-Aug-05 at 08:24AM in Sectors
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MidCap Correction

Homebuilders led the S&P MidCap Index (MID) lower on Thursday and Friday. This index recorded a new all time high last week, but became overbought and ripe for a pullback. The trendline break starts the correction and I would look for a move back to 670-685. Broken resistance, a 50% retracement of the prior advance and June lows all converge to mark support in this area.

By Arthur B. Hill - Mon 08-Aug-05 at 08:23AM in Indices
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Dow Flag

I pointed out the flag consolidation last week and the Dow broke flag support with a long black candlestick on Friday. The inability to continue higher is negative and the support break is short-term bearish with an initial downside target around 10350-10400.

By Arthur B. Hill - Mon 08-Aug-05 at 08:23AM in Indices
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Friday - August 05, 2005

Sector Overview

Led by disappointing results from retail, the Consumer Discretionary SPDR (XLY) gapped down and carried the market lower. Should the Finance SPDR (XLF) join in with a minor support break, the S&P 500 is likely to stumble because Finance is the biggest sector and the Consumer Discretionary sector is the most economically sensitive. All nine sector SPDR charts are reviewed below.

Led by a gap down in the Retail HOLDRS (RTH), the Consumer Discretionary SPDR (XLY) also gapped lower and closed near minor support at 34.3. The stock was already overbought and hugging the upper trendline of the rising price channel. This limited upside potential and a move below yesterday’s low would signal the beginning of a correction with a downside target around 33.5 or the lower channel trendline

The Consumer Staples SPDR (XLP) fell back over the last few days and the pattern could evolve into a falling flag (magenta trendlines). The stock broke the gray trendline extending up from early July and this is negative, but minor support at 23.1-23.2 is still holding. A move above 23.5 would revive the bull and a move below 23.1 would favor the bears.

The Energy SPDR (XLE) closed off its intraday high and consolidated yesterday. The uptrend may be slowing, but it is still an uptrend and it would take a move below 47 to start considering a correction.

The Finance SPDR (XLF) gapped down and formed a doji. This sector remains a concern and appears to be weakening from the prospect of rising interest rates. A move below consolidation support at 29.9 would be bearish.

The HealthCare SPDR (XLV) pulled back yesterday and there is no change in the overall picture. The uptrend remains in place and it would take a move below minor support at 31 to start thinking otherwise.

The Industrials SPDR (XLI) pulled back from resistance over the last 5-6 days and the decline looks like a falling flag (magenta trendlines). A move above 30.5 would signal a continuation of the July advance. Further weakness below 30 would be deemed excessive and turn my bias bearish.

The Materials SPDR (XLB) made a breakout bid yesterday, but closed weak to form a big bad bearish engulfing near resistance. This is clearly negative, but not bearish just yet. A move below Monday’s low (28.4) would start filling the gap and a decline below 27.7 would turn my stance bearish.

Now it’s broken, now it’s not. The Information Technology SPDR (XLK) broke flat flag resistance on Wednesday, but fell back on Thursday. This is a minor negative, but not enough to turn short-term bearish. For that, I would like to see a break below flag support at 20.8 because there is a lot of support around 21 from the middle of the flag consolidation.

The Utility SPDR (XLU) formed a spinning top on Wednesday and a black candlestick on Thursday. I am seeing signs of selling pressure, but no breakdown just yet. This is an interest rate sensitive group that could come under pressure with another jump in rates. Watch minor support at 31 for the first signs of material weakness.

By Arthur B. Hill - Fri 05-Aug-05 at 05:36AM in Sectors
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Thursday - August 04, 2005

Dow Deja Vu

The current pattern in the Dow looks similar to that seen from mid May to early June. The Average surged in mid May and then consolidated. After a failed breakout at 10600, the Dow fell back quite hard with a decline to 10300.

Currently, the Dow surged in early July and consolidated the last three weeks. There was a brief break above 10700, but this failed to hold and the consolidation persists. A move below the consolidation lows would be short-term bearish (as it was in late June). A move above last week’s high would keep the bull alive.

The Stochastic Oscillator is overbought and staying overbought (>80). This also happened from mid May to mid June when the indicator remained overbought 22 of 23 days. The Stochastic Oscillator is overbought AND bullish as long as it remains above 80. A move back below 80 would be negative and could be used to confirm a support break at 10570.

By Arthur B. Hill - Thu 04-Aug-05 at 09:01AM in Indices
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Russell Divergence

The Russell 2000 ($RUT) and small-caps have been the top performers over the last few months. What else is new? While the Dow remains below its March high and the Nasdaq is trading near its 2005 high, the Russell 2000 recorded an ALL TIME high this week. The trend is clearly up, but the index is overbought and ripe for a pullback.

RSI confirms the overbought condition and a recent trendline break argues for further weakness. Even though RSI is an oscillator, it does trend and I use trendlines to identify these trends. The red trendline shows the downtrend from December to April and the green trendline shows the uptrend from April to July. The indicator just broke below the green trendline. This is the early bear signal and further weakness below 50 would confirm. Also notice that a small negative divergence formed in Jul-Aug (blue line).

Weakness from current levels would be viewed as a correction. With a new all time high this week, the long-term trend is up by definition. This means that declines will be viewed as corrections. The December and February highs established a resistance zone (638-658) and this area becomes support. After a breakout, it is common for a return to the breakout and I would expect support in this area.

By Arthur B. Hill - Thu 04-Aug-05 at 09:01AM in Indices
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Wednesday - August 03, 2005

Notable Stocks

BNN - Brascan had a blistering 2004 with an advance to 40 and then consolidated with a large triangle. Upside volume remains strong and a move above 39.2 would signal a continuation higher..

CPN - Calpine gapped higher in May and surged to resistance around 3.5. After a six week conoslidation, the stock broke resistance on expanding volume. Higher prices are in store as long as key support at 3 holds.

CTL - CenturyTel has two bullish patterns working. First, a large inverse head-and-shoulders with a neckline breakout at 35. Second, a falling flag with a breakout at 35. Upside volume expanded and a move below 33 would be bearish.

NEM - Newmont is coming back to life with a falling flag and break above the upper trendline. Also notice that the stock gapped higher on 20-Jul and this gap is holding. A break above 39 would seal the bullish deal.

NOVN - Noven Pharma is coming to life with a falling wedge breakout on good volume.

ULBI - Ultralife Batteries could not hold its early July gap and filled it almost immediately. This shows weakness. The stock gapped down on Tuesday with high volume and this stock appears headed lower.

By Arthur B. Hill - Wed 03-Aug-05 at 08:46AM in Stocks
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Tuesday - August 02, 2005

Retail Madness

The Retail HOLDRS (RTH) has been a top performer over the last three months. A rising price channel took shape and the trend is firmly bullish as long as the lower trendline holds.

The trend may be bullish, but the stock is up almost 20% without a correction and overbought by many metrics. There was a gap up on Thursday and the stock stalled the last two days. A spinning top formed on Monday and this shows indecision. A move below the lower trendline and support at 100 would break the uptrend and call for a retracement of the advance.

By Arthur B. Hill - Tue 02-Aug-05 at 08:21AM in Industries
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Banks Underperform

The Regional Bank HOLDRS (RKH) remains below its December high and is underperforming the broader market. The Nasdaq, S&P 500, S&P SmallCap Index and S&P MidCap Index (MID) have all moved to new highs for the year. Not so for RKH. The relative weakness in this group reflects interest rate tensions and a rising wedge has taken shape over the last few months.

The rising wedge is a bearish consolidation. However, the bulls have the upper hand as long as the wedge rises. Turning bearish at this stage would have a good risk-reward ratio, but also be a top picking exercise. A consolidation formed over the last two weeks and traders should watch 136.8 for the first signs of trouble. This could be confirmed with a support break in the Dow. A move below 136.8 would be negative and further weakness below 133 would be outright bearish.

By Arthur B. Hill - Tue 02-Aug-05 at 08:20AM in Industries
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Utilities Darken

The Utility SPDR (XLU) is surrounded by long black candlesticks that show selling pressure around 32-32.5. This is an interest rate sensitive sector and weakness here jibes with weakness in bonds.

XLU formed a big bad bearish engulfing on 14-July (red oval) and another long black candlestick on 21-July. After high volume advance back to 32.5 at the end of July, another long black candlestick formed to reinforce resistance at 32.5. The uptrend has yet to be broken, but it looks as if this sector may be in for some choppy times and flat trading.

By Arthur B. Hill - Tue 02-Aug-05 at 08:18AM in Sectors
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Monday - August 01, 2005

OEX Breakout

Even though the S&P 100 is underperforming the S&P SmallCap Index (SML), it remains in an uptrend and the recent breakout points to higher prices.

The overall pattern looks like a rising wedge, which is a bearish consolidation. However, this pattern requires confirmation with at least a break below the lower trendline. As long as the lower trendline holds, the wedge is rising and the bulls have the upper hand.

After moving to the upper trendline, the index formed a flat flag over the last two weeks. The break above the 577 signals a continuation of the early July advance and upside target is around 590. Watch flag support at 570 for a failure and short-term trend reversal.

By Arthur B. Hill - Mon 01-Aug-05 at 07:24AM in Indices
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DIA Holds Gap

Even though the Dow Diamonds (DIA) stalled over the last two weeks, the 14-Jul gap held and the stock closed at its highest level of the month on Friday. As long as the gap holds, it should be considered a continuation gap and bullish. A move below key support at 105.5 will fill the gap and turn the short-term situation bearish. Right now the gap is holding and the outlook is bullish until proven otherwise.

By Arthur B. Hill - Mon 01-Aug-05 at 07:24AM in Indices
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Rates Rising

The 30-year T-Bond Yield (TYX) surged in July, consolidated and looks poised to continue higher. TYX established support at 4.15% in June and surged above trendline resistance in July. A two week consolidation ensued (flag) and a break above 4.5% would be bullish for rates (bearish for bonds). Notice that TYX formed an outside reversal on Friday and this establishes support at 4.35%. Watch this support level for signs of bond strength and rate weakness. Otherwise, I expect rates to rise and bonds to fall. This will also impact interest rate sensitive sectors and groups.

By Arthur B. Hill - Mon 01-Aug-05 at 07:23AM in Bonds
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