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Chris Weale
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I am a CFA level 2 candidate with a degree in business administration, finance specialty. My passion is trading which I practice independently with my own funds. I utilize both fundamental and technical analysis. I am contrarian at heart, but I like momentum strategies and easy money. That is... More
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  • Catamaran: A Bullish Analysis From A Technical Perspective

    Introduction:

    In this article I will be analyzing Catamaran Corporation (CTRX) from a technical perspective. Here is a brief overview of the company VIA Yahoo! Finance.

    "Catamaran Corporation provides pharmacy benefit management PBM services and healthcare information technology HCIT solutions to the healthcare benefits management industry in North America. Catamaran Corporation was founded in 1993 and is headquartered in Lisle, Illinois." finance.yahoo.com/q/pr

    I will not go into the fundamentals here, but I will mention the next earnings announcement will be on July 29th. Here is the chart.

    (click to enlarge)

    (Above is 1 day chart dating back to October 2011, courtesy of freestockcharts.com)

    Chart Characteristics:

    Trend-lines & Moving Averages

    CTRX has been trading within an upward-sloping trend channel since summer of 2012. The lower trend-line, currently at about $49.90, has been tested 3 times before, and was tested again today as it provided some support for the price. The upper trend-line has been tested twice and is currently around $60.

    The 200 day moving average is currently at about $49 and may also provide some support for the price.

    Volume & OBV

    Volume has been relatively stable for most of the uptrend since the spike in April 2012. Since this says very little about future price movement I use the OBV to dig deeper.

    Since January of 2013 the OBV has found support at the same level, and each time it has been tested it has given a profitable buy signal, each time the price reaching the top of the channel shortly after. The OBV gave another buy signal today when it touched its support level, and should be profitable if the trend stays intact.

    RSI & ROC

    RSI and ROC are both momentum indicators that can provide buy signals during uptrends. Momentum indicators work best when the security is trading within a trend, and when the trend is up they often find support at the same level. When this support level is tested is often a great entry point assuming the trend stays intact.

    The support for the RSI is around 40, and each time the RSI value dropped below about 42 the price went up, almost always reaching the upper trend-line before coming back down to test the lower one. The RSI gave a buy signal on Friday May 17th as the RSI dropped below 42, and is still giving a buy signal today at a closing value of 36.41.

    The ROC has found support at the same level as well, and each time this support has been tested the price changed directions. The ROC support was also tested on Friday the 17th and continues to give a buy signal today.

    Analysis:

    The trend-lines are the backbone of this trade, but the volume and momentum indicators confirming the signal is very encouraging. The trend appears very credible and likely to continue, so a trade based on the continuation of this trend is logical. As all the indicators are currently giving buy signals, and the stock is trading at the lower trend-line, now is a good time to place a bet that the trend will continue.

    An entry point is only half of the trade, however, and an exit strategy is always needed. Since CTRX is trading near all-time highs, there are no historical support/resistance points to look to for exit points. Thus we must rely on the trend and the indicators to determine that instead. The most appropriate short term price target exists at the top of the channel, currently around $60, but if the RSI is not yet above 70 and volume starts to increase, it may pay off to hold on for longer.

    Trade Setup:

    Place a buy limit around the current price $49.93. A stop loss can be placed below the 200 day moving average at around $48.80, which is also below the lower trend-line. Of course a lower stop can be placed to decrease the chances of getting stopped out, but the increased capital at risk usually isn't worth the slightly improved chance of success.

    A short term price target at exists at the upper trend-line, currently about $60. This moves up over time, however, and is a fairly conservative exit point. Although the RSI can help determine an exit point when it exceeds 70, it is a riskier exit strategy because you may decide against selling at the top of the channel and be punished by watching it fail to break resistance. Another reason to sell at the top of the channel regardless of the RSI value is because we are betting on the continuation of the trend, not an upwards breakout. Therefore an exit point consistent with the trade setup exists at the top of the trend channel, and should be adjusted higher as time goes on. This provides an attractive risk/reward setup and prevents you from holding a stock that's moving sideways for a long period of time.

    Thanks for reading and good luck improving your alphas!

    Disclosure: I am long CTRX.

    May 20 6:47 PM | Link | Comment!
  • Reed Elsevier: A Bullish Analysis From A Technical Perspective
    Introduction

    In this article I will be analyzing Reed Elsevier PLC (RUK) from a technical perspective. Before I show the charts and begin the analysis, here is a brief summary of the company.

    "Reed Elsevier provides professional information solutions worldwide. The company offers information and workflow tools that enables researchers to generate insights in the advancement of scientific discovery; publishes science and technology research articles and book titles; and provides abstract and citation databases. Reed Elsevier PLC was founded in 1894 and is based in London, the United Kingdom." (finance.yahoo.com/q/pr)

    Although I won't go into fundamentals here, there is one more thing worth noting about this company. The stock RUK is one of two subsidiaries that together own the Reed Elsevier PLC Group parent company. There is a great article on SeekingAlpha by author "Dividends Boom" (seekingalpha.com/article/1349931-investigating-reed-elsevier-s-dual-listing-structure) that can explain the details of this structure and its implications for your portfolio if you would like to know more.

    Here are the charts:

    (4 day chart dating back to 2007)

    (1 day chart dating back to May 2012)

    Chart Characteristics: Support and Resistance

    Resistance at $45 on February 1st became support twice, once in early April and again in early May, and is thus a pivot point. This price level also acted as support two times back in 2007 in March and October, and a third time in January 2008, giving it some historical credibility.

    There isn't significant resistance until around $54, and the next support doesn't come in until $38. The $54 would be my longest term price target, and the top of the channel would be the shortest term target. This can all be seen on the 3-day chart that goes back to 2007.

    Trend Channel

    A trend channel exists that started in June of 2012. The lower trend-line has been tested 3 times and it looks like it's about to be tested again in the next few days. The upper trend-line has been tested 2 times and will likely test it again, although over time it gets higher. The lower trend-line is currently at about $45.40 and the upper is at about $50.

    Volume and OBV

    In early April for 3 days the volume spiked, reaching approximately 20x average daily volume on 2 of those days, which were all up-days as the price closed higher each day. Since then, the price has trended slightly downwards and volume has reverted back to slightly above its 50 day average.

    On Balance Volume, or OBV essentially compares volume on up-days to volume on down-days to see whether a stock is being accumulated or sold off. The OBV goes up when volume on an up-day is higher than volume on a down-day, and is used by comparing it to the price to spot reversals and confirm trends. If the OBV is rising and the stock price falling or stagnant expect the price to move upwards, and if the OBV is falling while the stock price is rising or stagnant, expect the price to fall. The OBV can be used as a leading indicator to predict reversals in this way, but can also be used as a lagging indicator to confirm breakouts.

    The spike in daily volume in early April shot the OBV value way up, but it's the OBV trend relative to price, not the absolute value, that matters. The OBV since the volume spike in early April has been trending sideways within a range while price has been trending slightly downwards. This is a slightly bullish signal. A breakout to the upside in the OBV range would suggest the trend is still very much intact.

    RSI

    The RSI is most commonly used to gauge whether a stock or index is overbought or oversold in order to predict trend reversals. The RSI can also be used during an uptrend to give buy signals at pullbacks. Often the RSI will find support at the same level during pullbacks in an uptrend, and when RSI reaches that level it is a buy signal, and when it breaks below it that is a bearish signal.

    Support for the RSI is at about 38, and has been tested November 16th, February 25th, and most recently May 1st. Each of these times the price has was also at either a lower trend-line or support level, giving credibility to the RSI support at 38. There is a good chance this level is tested again before the uptrend resumes, and would likely be at the lower trend-line or at the support price at $45.

    Analysis:

    Where a lower trend-line meets a significant support level is a great entry point for a trend trading strategy. The strength of the support level for RUK is very encouraging, and the fact that there have been no lower lows during this retracement further suggests the trend is still intact.

    The volume remaining higher than average (50 day) since the April high while the stock trended slightly downwards is a bit concerning. Retracements against the trend typically have below average volume, as high volume is characteristic of a trend reversal.

    The OBV, however, is encouraging. The OBV has been trending sideways since the April high while the stock price has trended slightly downwards. This is a weak bullish signal as I would like to see a rising OBV with stagnant or falling prices. Although it is weak, it is still a signal worth considering.

    The RSI is the final bullish signal from the charts. The support at 38 has consistently given valid buy signals, and recently gave another buy signal on May 1st.

    Combining all these signals together gives a clear view of a good trade. The strength of the support level and credibility of the trend are the primary reasons for the trade, and are further complimented by the other buy signals given by the RSI and OBV.

    Trade Setup:

    Place a buy-limit at the lower trend-line, which is currently about $45.40, with a stop just below the support at $45. A short term price target exists at the top of the channel which is currently about $50, which will increase as time passes. Stops should be adjusted to below the channel as the price increases in order to lock-in profits as you go. A longer term price target exists at $54 and would be a wise exit point assuming the trend stays intact and you don't get stopped out below the lower trend-line first.

    Thanks for reading. I appreciate any and all feedback.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RUK over the next 72 hours.

    May 13 3:51 AM | Link | Comment!
  • Facebook: A Bullish Technical Perspective
    Introduction:

    In this article I will be analyzing Facebook Inc. (FB) from a technical perspective. I will use charting patterns and indicators to justify a long position, and then explain how I would use them to set up a trade. I will not go into the fundamentals here as there are many articles that cover them in detail, but I will mention that they have an earnings announcement on July 22nd which may impact a trade based purely on technical analysis.

    Here is the chart:

    (above is 1 day chart dating back to May 2012 courtesy of freestockcharts.com)

    Chart Characteristics: Support & Resistance

    FB price has found support at $25 four different times. In June after the abysmal IPO, in late December of 2012, and more recently in late March and mid April. This is clearly an area of strong buying interest.

    Resistance at $32 has been tested 4 times. Twice shortly after the IPO, and twice during January of 2013 at it's most recent highs. Clearly, this is an area of strong selling interest.

    Trend-lines

    There was an incredible 2 month bull run that began mid November and wasn't broken until January 31st. After a lower trendline is breached the price often tests the next support level, which for FB was at $25. Since the January highs the price has been trending downwards, but this short term downtrend was breached in early May, indicating the minor downtrend is over.

    Cup and Handle

    There is a cup and handle pattern that starts at the July 2012 high and ended with the early May breakout of the minor downtrend. The cup part of the pattern starts in July 2012 and the handle starts in late January. The handle ended in early May when the upside breakout occurred.

    The credibility of a cup and handle pattern is determined by the smoothness, symmetry, and depth of the cup, and the shape, depth, length, and volume behavior of the handle relative to the cup. Another important part of the cup and handle pattern is the price action before the pattern starts. Cup and handles are usually formed after a recent rally in the stock as the pattern represents a consolidation period. With FB, the opposite of a rally happened, removing credibility from the pattern. One benefit to this is that the upside is potentially much higher than a typical cup and handle, as the upside potential is usually reduced in proportion to the size of the rally before the pattern begins. Furthermore, a cup with no handle is a bullish pattern that occurs after a long downtrend, which in this case is a bullish, although weak, signal.

    The main strengths of the cup and handle pattern are that the cup is fairly smooth, symmetrical, and reaches the same highs at the beginning and end of the cup, and the handle is a short term downtrend that goes approximately half the depth of the cup. The weaknesses of the cup and handle are that there was no rally before the pattern began, the handle is longer than I would like, and the handle exhibits higher volume than the cup.

    RSI

    RSI can be used in many different ways and is most commonly used to predict reversals and retracements. During an established trend the RSI usually finds support/resistance at the same level. A breakthrough this level indicates a reversal is coming, and "bouncing off" this level indicates the end of a retracement.

    During the rally from November to February the RSI found support at 45, and during the downtrend afterwards found resistance at about 51. Once the resistance at 51 was breached on the RSI, the upper trendline was breached shortly after. The RSI support at 45 should once again become support for the RSI should an uptrend commence. It should be noted that the support at 45 is being tested right now.

    Analysis:

    The cup and handle, despite its weaknesses, is very encouraging. The support at $25 is also very strong, and the recent RSI breakout above 51 combined with the upper trend breakout shortly after add further justification to a long position. These factors combine to give a pretty strong buy signal.

    Because the breakouts of the upper trend-line and the RSI already occurred, the price is less likely to touch the support at $25 again before it goes up. This is reinforced further by the RSI as the RSI support at 45 is being tested while the price remains clearly above the $25 support. According to the RSI, if the uptrend has already begun, the price won't reach $25 because the buy signal has already been given and the retracement is over.

    RSI, however, is more of a secondary indicator and should not be relied on by itself to make trading decisions. Instead I will consider the RSI breakout a general bullish signal, and use other means to determine an entry point.

    That's where the cup and handle and the support come in. The support at $25 compliments the cup and handle pattern very nicely as both the cup and the handle use it for support. Although the RSI suggests this support won't be tested again, the low volume on the handle breakout suggests otherwise. Combining this information suggests that the support at $25 may be touched again and would make a low risk entry point.

    Trade Setup:

    Buy the stock with a limit order at $25 with an initial stop just below it at your desired max loss. The lower the stop the higher chance of success, but the more capital is at risk. The shorter the desired time frame, the tighter the stop should be.

    A price target of $32 is a valid target as resistance around this level has been fierce. The cup and handle suggests a price target around $40 (adding the height of the cup to the breakout price), but a $32 target is more conservative and still presents a very attractive risk/reward opportunity. An alternative option is to sell a portion of the position at $32 and adjust the stop to recent lows as new highs are made afterwards.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FB over the next 72 hours.

    May 13 3:04 AM | Link | Comment!
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