An interesting contrarian indicator inadvertently signaled Apple's top last year, and it could be flashing similar signals for other highly regarded companies. As part of his weekly roundup of recommendations and warnings, MoneyShow's Tom Aspray looks at these two stocks to see if one could be near a cliff.
It was another great week for the stock market, which left investors either euphoric or nervous. The ten-day winning streak for the Dow hadn't been equaled since 1996, but ended Friday. The gain in 1996 was a bit better, as the Dow was up 4.8%, versus a 3.4% gain through last Thursday's close.
In 1991, there were 11 consecutive higher Dow closes, as it gained over 9% to finish the year strong. The Dow continued higher for the first month of 1992 before it topped out.
My detailed technical review of the stock market on Friday revealed that there were no signs yet that a top was in place. Friday's performance did not change this view-but as I emphasized then, it is important to have a clear exit strategy, whether you are trading long or short.
I recently read a very interesting survey from Harris Interactive , which each year rates the reputations of the most visible US companies using its trademarked Harris Poll Reputation Quotient (RQ). I had been reminded of the survey by a recent article in The Wall Street Journal by Mark Hulbert.
As part of Mark's article, he reviewed this year's most loved companies: Amazon.com (AMZN), Apple (AAPL), The Walt Disney Company (DIS), and Google (GOOG). However, I wanted to look at some longer-term data from their yearly review of most liked and most disliked companies since 2004.
The stocks that were the most disliked (lowest RQ <50) from 2004 to 2006 were led by Enron. In fact, none are in business any longer.
From 2006 through 2011, Johnson and Johnson (JNJ) was one of the most highly thought of or loved companies. During that period, JNJ's stock price was up only 9%, or 1.2% not including dividends.
Apple appeared on the list in 2011, and in 2012 it was at the top of the list. Many will recall that AAPL started off 2012 well, and by September it was up 74% for the year. By the end of the year, its gains had dwindled to just over 24%.
This year, Amazon tops the list after being fourth in 2012. Google has been in the top four since 2008, and most recently led the list in 2011. GOOG has started the year off well, currently up 15.4%, while AMZN has been lagging the S&P 500, having risen just 4.9%.
So do either look ready for a slide like Apple's in 2012? Last week, Google came close to its weekly Starc+ band (see arrow), and looks ready to close the week lower.
This shows a similar pattern to last September, when it corrected for six weeks, losing 15%. The good news is that the weekly studies show no signs of a major top, so if there is a correction, it should be a buying opportunity.
The relative performance also make a new high with prices, and is well above support, signaling that it is a market leader. The weekly OBV also confirmed the highs while the daily OBV has just dropped below its WMA.
Meanwhile, Amazon tested its weekly Starc+ band on January 19, and is down 7% from that high. A drop below the November 2012 low at $218 would be negative, with the two-year uptrend (line d) at $217.
The relative performance broke its uptrend (line e) in early 2012, and has now formed a long-term negative divergence (line f). The RS line is now below its flat WMA.
The OBV has not rallied with prices, as it is still well below its long-term downtrend (line g). It has also failed to surpass the 2012 highs, even though its stock price is higher.
This analysis suggests that AMZN is the more vulnerable of the two stocks, and it could complete a weekly top this year. (The full Harris report can be found online in PDF format; it is 29 pages long and contains quite a bit of very interesting data.)
The Eurozone markets had a good week, as the German Dax index completed its correction ahead of the US markets, as was expected in February's Will Overseas Markets Lead the Way? The Dax is up about 0.5% more than the Spyder Trust (SPY) so far in March, and is still acting quite positive.
The EU summit has generated little news so far, but there still seems to be an impasse between those favoring austerity and those favoring growth. This has been the main topic since the Italian elections a few weeks ago. Still, I would be surprised if there wasn't news out of the Eurozone sometime this month that rattled the stock market.
Last week's news on the economy ended on a sour note. The preliminary reading on consumer sentiment from the University of Michigan plunged to 71.8, down sharply from the final February reading of 77.6. Economists had been looking for a slight increase to 78.
This took away much of the bullishness from Wednesday's 1.1% gain in retail sales. The chart shows a very strong uptrend, which favors continued improvement despite the apparent short-term fears over the budget cuts.
Friday's Empire Manufacturing Survey was generally positive, and industrial production also beat the consensus estimates. This week we have the FOMC meeting on Tuesday and Wednesday, with the announcement and Chairman's press conference Wednesday afternoon.
There is also a fresh look at the housing market, with the Housing Market Index on Monday, housing starts on Tuesday and existing home sales on Thursday. Also on Thursday, we get the flash report on the PMI Manufacturing Index, along with the Philadelphia Fed Survey.
What to Watch
For the second straight week, the Dow Industrials got most of the attention, though at the end of the week everyone was wondering if the S&P 500 would also make a new all-time high on Friday.
However, the market opened weak Friday, and the sentiment data pushed stocks even lower. The market breadth (advances versus declines) was just slightly negative for most of the day, and volume was heavy.
A few weeks ago I was advocating buying, not selling, and while a few stocks were recommended and bought last week, good buy candidates are getting more difficult to find. There are several stocks in strong sectors that have dropped to good support levels, but their short-term momentum is still negative.
As I noted last week, there are also a few stocks in the market-leading transportation sector that I am watching for signs of a bottom. I have continued to take some profits on existing positions in the Charts in Play portfolio, and will be taking another close look at them again this week.
There was a big change in sentiment for individual investors last week. The bullish percentage jumped from just over 31% to 45.4%. The financial newsletter writers also became more bullish, up to 50% from 44.2%.
Even more interesting-and potentially a concern for the market-is that the number of bears dropped to 18.2%, so the spread has widened significantly.
The weekly chart of the NYSE Composite continues to look strong after the prior week's breakout from the five-week trading range. The weekly Starc+ band is just 2% above Friday's close.
The weekly NYSE Advance/Decline broke through its resistance (line c) at the start of the year, and made further new highs last week. It is still well above its rising WMA. For a look at the daily A/D line analysis, including the NYSE New High and New Low data, refer to 'Fridays column .
There is first weekly support in the 8,930 to 9,000 area, with the rising 20-week EMA at 8,684.
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The Spyder Trust (SPY ) shows that the ranges were tight last week. It hit a high of $156.80 Friday before closing a bit lower. The all-time high stands at $157.52, and the Starc+ band this week stands at $157.90.
The weekly on-balance volume (OBV) moved above last fall's highs (line c) in early January, which confirmed the price action. It is well above its sharply rising WMA, and a pullback to the WMA could be a good buying opportunity.
The first weekly support is at $151.50, which was the recent low, and then $148.73. The rising 20-day EMA is at $148.33.
The SPDR Diamond Trust (DIA) closed not far below its weekly Starc+ band at $147.11, as it closed higher four out of five days last week.
The weekly relative performance improved further last week, consistent with its bottom formation (line f). The WMA of the RS line is now also starting to rise; its downtrend (line e) was broken three weeks ago.
The weekly OBV surged through resistance (line h) last month, which was a significant breakout that should have intermediate-term significance. It is also important to look at different time frames and the daily OBV (not shown), which turned lower Friday but did confirm the recent highs.
The Dow Industrials A/D line also confirmed Thursday's high, but turned lower Friday.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.