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Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
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  • Patience Pays Off For 2 Healthcare Picks

    Last week's gains were impressive and consistent with the strength in the market internals, yet stocks are likely to face quite a few hurdles this week. This is the largest week for earnings with Apple, Inc. (AAPL) reporting after the close today. It was recommended last week and rallied late in the week.

    On Wednesday, we have the advance reading on 1st quarter GDP in the morning and the FOMC announcement in the afternoon. As I discussed in the Friday's Week Ahead column, the positive technical readings still allow for a pullback this week. The futures are higher in early trading as most Asian markets were quite strong on Monday.

    Though the Sector Select Health Care (XLV) was not one of strongest sectors last week, it is up over 9% YTD, well outpacing the 3.4% gain in the Spyder Trust (SPY). Two healthcare picks from February's Buy More Stocks in a Top Sector appear to have now completed their corrections. This illustrates why patience is often needed when buying the dips.

     

     

    Click to Enlarge

    Chart Analysis: Stryker Corp. (SYK) is a $35.8 billion medical technology company that has a yield of 1.50%. They beat on earnings last week while revenues met expectations. The stock is up just over 3% YTD.

    • The weekly chart shows last week's strong close above weekly resistance, line a.
    • SYK has held the quarterly pivot during the 1st quarter.
    • Last week it tested but held the new 2nd quarter pivot at $92.53.
    • The quarterly pivot resistance is at $98.86 with the weekly starc+ band at $100.35.
    • The relative performance broke its downtrend, line b, in early April and then moved strongly above its WMA.
    • The weekly OBV has moved back above its WMA but is still below the early 2015 highs.

    The daily chart of Stryker Corp. (SYK) shows last week's rally above the upper boundary of the continuation pattern at line e.

    • SYK has closed at the daily starc+ band for the past three days so a pullback would not be surprising.
    • The breakout level is at $95 with the rising 20-day EMA at $93.78.
    • The 2015 trading range is $6 wide so the upside target is in the $100-$102 area.
    • The daily relative performance broke through resistance, line f, one day ahead of prices, signaling SYK was a market leader.
    • The daily OBV shows a similar upside breakout and is well above its rising WMA.
    • SYK was recommended on February 17 and hit the second buying level in early March (see circle).

     

     

    Click to Enlarge

    DENTSPLY International (XRAY) has a market cap of $7.46 billion and is a developer and marketer of disposable dental products. They report earnings on May 6 and are currently down 1.5% YTD.

    • The triangle formation on the weekly chart (lines a and b) was completed last week.
    • XRAY dropped to a low of $49.81 three weeks ago as support at line b, was tested.
    • The weekly starc+ band is at $55.27 with quarterly pivot resistance at $55.76.
    • XRAY had a high of $56.10 in December with upside targets from the flag in the $58-$60 area.
    • The weekly RS is just barely below its WMA but has turned up.
    • The OBV has held support and is now back above its WMA.
    • The 20-week EMA and initial weekly support is now at $51.22.

    The daily chart shows that Friday's close in DENTSPLY International (XRAY) was just above the daily downtrend, line d.

    • There is monthly pivot resistance at $52.94 with the late February high at $53.77.
    • A close above this high would be a sign of strength.
    • The quarterly pivot is at $51.34 which is just below the 20-day EMA at $51.47.
    • The daily relative performance formed a negative divergence at the February highs, line f, and this resistance has now been overcome.
    • The daily OBV has also broken its downtrend, line g, which is a positive sign.
    • Both buy levels were hit on the sharp drop in the middle of March and these lows were slightly broken in early April but the stop at $49.22 held.

    What it Means: These two examples demonstrate that-when you are looking to establish a long position on a pullback based on the weekly analysis-it can sometimes take quite a while before the position starts to pan out.

    Both of these stocks need to rally further to confirm a significant new weekly uptrend and to signal significantly higher prices. The next few weeks will tell us more but would take some partial profits at the minimum upside targets.

    Portfolio Update:: For Stryker Corp. (SYK) should be 50% long at $93.88 and 50% at $92.76, raise the stop now from $89.33 to $90.87. Sell 1/3 at $103.77.

    For DENTSPLY International (XRAY) should be 50% long at $51.32 and 50% at $50.46. On a move above $53.80 raise the stop from $49.22 to $50.44. Sell 1/3 at $55.08.

    Tags: XLV, AAPL, SYK, XRAY
    Apr 27 11:58 AM | Link | Comment!
  • A Closer Look At Signals From The Mass Index

    In last Friday's Week Ahead column, I featured a weekly chart of the Dow Industrials with the Mass Index that raised some questions.

    I wrote about this technical indicator in Power Your Portfolio with the Mass Index. As I noted then, it "first appeared in the June '92 Technical Analysis of Stocks & Commodities article The Mass Index, by Donald Dorsey." As he said in the article, "Range oscillation, not often covered by students of technical analysis, delves into repetitive market patterns during which the daily trading range narrows and widens. Examining this pattern, Donald Dorsey explains, allows the technician to forecast market reversals that other indicators may miss." Dorsey uses range oscillators in his Mass Index.

    It measures the narrowing and widening of the range between the high and low prices, it does not tell you the direction of the trend change. For the direction of the intermediate trend I use two indicators that I have used since the 1980s, the on-balance-volume and the NYSE A/D Line.

    The long-term chart I shared last week clearly reflected the powerful rally in the Dow Industrials, or SPDR Dow Jones Industrial (DIA), over the past three years. Therefore, some apparently assumed that the trend change was from up to down, but the other intermediate-term indicators do point to the upside as I provided some upside targets for the major market tracking ETFs last week.

    Let's take a closer look at the signals from the Mass Index.

     

     

    Click to Enlarge

    Chart Analysis: The left hand side of the chart covers the period from 2007 through August of 2010.

    • A trend change signal occurs when the Mass Index first moves above the yellow line at 27 and then drops below the green line at 26.5.
    • The Mass Index moved above the yellow line on August 3 and the first trend change signal occurred on October 26, 2007 (line 1) when it dropped back below the green line.
    • This occurred just two weeks after the bull market high on October 12.
    • A second trend change came on February 8, 2008 (line 2) and by then the NYSE A/D line had already topped out.
    • The next signal came on February 20, 2009 (line 3) as the Mass Index moved above the yellow line the previous October. The Dow Industrials made their low on March 6, 2009.
    • The weekly NYSE A/D line completed its bottom formation in April.
    • The Dow Industrials topped out in April 2010 and then on August 20 (line 4) a new trend change signal was generated.

    The Mass Index did not again move above the yellow line again until August 2011 as the stock market was dropping sharply over the debt crisis.

    • It did not generate a trend change signal until January 20, 2012 (line 5).
    • This signal stayed in effect until April 10, 2015.
    • The Mass Index moved above 27 (yellow line) on February 6, 2015 setting the stage for a new trend signal.
    • Given the recent new high in the NYSE A/D line, the most recent trend change signal is likely to mean another move to the upside.
    • This, of course, could change in the next few months as it would take at least that long for the A/D line to complete a top.

    What it Means: It could take until later this year to fully assess the value of this most recent signal from the Mass Index. But if the major averages do stage a more significant upside breakout in the coming weeks, it will clearly favor the bullish scenario.

    The market's strength Thursday-if followed by a strong weekly close-will be positive.

    This indicator does also work on stocks and Apple, Inc. (NASDAQ:AAPL)-which was recently recommended-also generated a Mass Index trend change signal on April 10, 2015.

    How to Profit: No new recommendation.

    Tags: DIA, AAPL
    Apr 26 4:56 PM | Link | Comment!
  • The Week Ahead: Breakout As Expected -- So What's Next?

    In last week's Fakeout or Breakout? I made the case based on the technical evidence that "despite Friday's drop, I expect last week's highs in the major averages to be surpassed in the coming weeks." As you may recall, the S&P 500 was down over 1% on Friday April 17 and the bearish sentiment spiked.

    In last Thursday's trading, the NYSE Composite, Nasdaq 100, Nasadaq Composite, and S&P 500 all broke out to new multi-year highs. The small-cap Russell 2000 had already made new all time highs on April 15. The Dow Industrials are still below the March high of 18,188.

    The Nasdaq Composite got the majority of attention as it ended Thursday above the March 10, 2000 closing high. While some think this is just another reason the market must be making a major top, many experts have concluded that the Composite is a much different market now than it was in 2000.

    The widespread dismal outlook for earnings has kept many investors on the sidelines and a large number of analysts were not expecting anything to happen to stocks in the next few months. The bullish %-according to AAII-had dropped to a low of 27.16% on March 19 and was at 31.47% last Thursday.

    This is not the extremely low level of bullishness that was recorded at the 2010 and 2011 lows when it was close to 20%. Still, I think it is low enough to fuel a substantial stock market rally. In addition, there is quite a bit of evidence that the public is still generally not invested in stocks, despite the incredible bull market since the March 2009 lows.

    Markets probably need to close 0.5% above last week's lows to really convince the skeptics that the breakout is real. But if that occurs, what is next?

     

     

    Click to Enlarge

    The % Change chart of the Spyder Trust (SPY) reviews what happened after some of the recent breakouts. In 2012, once the March highs were overcome (Area 1), the SPY rallied 8% before dropping 17% into the 2011 low (point 1).

    The breakout above the September 2012 high came in early 2013 as SPY rallied 27.3% into the May 2013 high. The SPY corrected for nine weeks before a brief push of 5% above the May high (Area 2). The following correction took SPY back into good support (point b) before the rally resumed.

    By March 2014, the SPY had gained 30.9% before if corrected just over 10%. The next breakout (Area 3) took the SPY 17.9% higher by September 2014. The October correction (point c) took away a good part of these gains. By the end of October, the SPY had again broken out to new highs and it is currently up over 14% from the breakout level.

    So, what does this mean for the market now? On a percentage basis just a 2% rally would not be surprising after this breakout. This could take the SPY up to the $216 area which would mean a 10% gain for the year. On the other hand, a 5% gain could take the SPY as high as the $221-$222 area.

    It should also be noted that a breakout and sharp rally are often followed by rather significant corrections back to good support. The analysis of the A/D line as the rally progresses should help us determine the most likely rally scenario and allow us to sidestep future corrections as it has in the past.

     

     

    Click to Enlarge

    The global markets have outpaced the US markets so far this year, but since the market lows in 2009, the disparity has not been as great. The German Dax Index is up 221.3%, which is only 15% more than the 206.4% gain in the SPY.

    Japan's NK225 has surged recently and is trying to catch up as it is now up just over 157%. It did very little for the first four years of the bull market as it broke through resistance, line a, in early 213 (see arrow).

    The Vanguard FTSE Emerging Markets (VWO) has done well in 2015 but is still the laggard as it is up just over 121%. It is still below the peak from last September when it was up over 131%.

     

     

    Click to EnlargeOf course, this week, the focus will again be on what the Fed will or will not do on rates. The consensus now is for a rate hike in September but that could easily shift to December if some of the economic data remains soft. As I have mentioned many times in the past, the FOMC meeting is no reason to change your investment plan.

    The yield on the 10- Year T-Note is trying to turn higher, line b. The long-term downtrend, line a, is now in the 2.26% area, which also corresponds to the March high in yields. The starc+ band is a bit higher at 2.282%. The MACD also now shows a potential bottom formation (see circle), but a further rise in yields is needed to complete the bottom formation.

     

     

    Click to EnlargeLast week's data on the housing market did not help clear up any confusion over the economy. The Existing Home Sales surged over 6% in March which was the highest reading since September 2013. This increased the positive expectations for the March New Home Sales the following day. Instead, they dropped 11.4% as the biggest decline came in the South. Next week's S&P Case Shiller HPI and Pending Home Sales should shed further light on the housing market.

    The economic calendar is full this week with Monday's Dallas Fed Manufacturing Survey as well as flash reading on the PMI Services Index. On Tuesday, we get the S&P Case-Shiller HPI, Consumer Confidence, and the start of the FOMC meeting.

    Wednesday will likely get the most attention as we have the advance reading on 1st quarter GDP, the Pending Home Sales Index, and then the afternoon FOMC announcement.

    On Thursday, in addition to the jobless claims, we get the Employment Cost Index and the Chicago PMI. The PMI Manufacturing Index is out on Friday along with the ISM Manufacturing Index, Consumer Sentiment, and Construction Spending.

    What to Watch

    Over the last nine weeks, the bulls and bears have been fighting a seesaw battle.

    The new weekly highs in the NSYE A/D line on March 20 have continued to favor an upward resolution of the trading range.

    It has been clear that the volume has been low all year and the on-balance volume (OBV) has continued to lag prices. Both the daily and weekly OBVs are positive (above their WMAs) but most are still well below there previous peaks.

    It is fairly uncommon for the A/D lines and OBV to diverge like they are now. There are many stocks where the weekly and daily OBV analysis is confirming the price action, unlike some of the widely traded ETFs. I have always relied on the A/D line analysis even when the OBV does not confirm.

    Apple, Inc. (AAPL) closed the week higher and it is helping push both the PowerShares QQQ Trust (QQQ) and Sector Select SPDR Technology (XLK) higher. The stock was recommended last week (Time to Buy Apple Again?) as it appeared the correction was over. They report earnings after the close on Monday.

    There are quite a few stocks with positive intermediate-term outlooks but many need to correct in order to provide good entry points The biotechnology stocks also appear to have turned completed their corrections (Has Biotech Turned the Corner?) but need a further rally to confirm.

    When you get a price breakout, I look at the % of stocks above their 50-day WMA for all the major averages. It is one way to determine how much upside the market has. If the % is generally around the mean, then it can generally move to one standard deviation, or more, above the mean.

     

     

    Click to EnlargeThis week, I will look at the % of NYSE Composite stocks above their 50-day MAs. As of Thursday, the 5-day MA was flat at 53.1 just above the mean at 50.9%. The WMA is still in a short-term uptrend and could easily move up to the 70% level on a further rally.

    By comparison, the 5-day MA is at 53.4% for the S&P 500, which is below the mean at 63.2%. A move to the 77-82% level would not be surprising.

    The daily chart of the NYSE Composite shows the multiple closes above the resistance at line a. The width of the trading range (lines a and b) ranges from 400 to 1100 points depending on where you measure. This means measured targets from 11,500 to 12,200.

     

     

    Click to EnlargeThe daily starc+ band is at 11,527 with the quarterly projected pivot resistance at 11,527.

    The rising 20-day EMA is now at 11,079 with the starc- band at 10,965. The quarterly pivot is at 10,828.

    The daily NYSE Advance/Decline line made a convincing new high on April 15, which kept me in the bullish camp. Another new high was made last week after the A/D line tested its rising WMA.

    S&P 500
    The Spyder Trust (SPY) looks ready to close the week well above the key resistance, at line a. In my analysis from the April 15 column, I concluded that:

    1. On an upside breakout, the 127.2% Fibonacci target is at $213.27.
    2. The monthly pivot resistance is at $214.64.
    3. The upside target from the trading range is in the $218-$220 area.

     

     

    Click to Enlarge

    The daily starc- band is now at $213.79 while the 20-day EMA is now rising more sharply and is at $209.58. The daily starc- band is at $207.74 with additional support at $207 which was the April 17 low.

    The S&P 500 A/D line made a new high on April 10, once Friday's numbers are in, another new high is likely. The A/D line has initial support at its WMA with further at line d.

    The daily OBV continues to lag the price action as it is below the long-term downtrend, line e. The weekly OBV (not shown) should close the week above its WMA.

    Dow Industrials
    The SPDR Dow Industrials (DIA) continues to lag the other major averages as it is up 2% versus a 5.9% gain in the PowerShares QQQ Trust (QQQ). The panic low of $177.16 on April 17 came quite close to the quarterly pivot at $176.58.

    The short-term downtrend, line f, is still limiting the upside with further resistance at the last swing high of $181.63. The DIA needs a strong close above the March 2 high of $182.24 to make a new all time high.

    The daily starc+ band is at $183.30 with monthly pivot resistance at $185.24.

    The daily Dow Industrials A/D line is still holding above its downtrend, line g, but has not yet moved above the early April highs. The large-cap Dow stocks are bearing the brunt of the strong dollar’s drag on earnings.

    The daily OBV broke through its downtrend, line h, on April 14 and has continued to make higher highs. Its WMA is rising more sharply, which is a positive sign. The weekly OBV (not shown) is above its WMA.

    Nasdaq 100
    The PowerShares QQQ Trust (QQQ) gapped to the upside on Friday closing near its daily starc+ band as positive earnings Thursday propelled many of the big tech names higher.

    The breakout on the daily charts has been decisive with the quarterly projected pivot resistance at $114.67, a reasonable upside target. The weekly starc- band is just a bit lower at $114.16.

     

     

    Click to Enlarge

    The 20-day EMA is at $107.61 and it has now turned up more sharply.

    The daily Nasdaq 100 A/D dropped below its WMA a week ago and tested the uptrend, line c, before turning higher this week. It is above the early April highs but is still below the March highs. The A/D line has been forming higher highs, line b, for some time.

    The OBV has just broken out above major resistance at line d. A further rally will confirm the breakout.

    Russell 2000
    The iShares Russell 2000 (IWM) has just been edging higher for the past few weeks and does not show the burst of upside momentum evident in the QQQs. Still the overall pattern is positive as the close above the resistance at line e, in February supported the bullish case.

    The weekly starc- band is at $131.57 with the quarterly projected pivot resistance at $133.48.

    There is initial weekly support in the $12.90 to $123.77 area with the rising 20-week EMA at $121.20.

    The weekly Russell 2000 A/D looks ready to close the week at another new high. It continues to show a steep uptrend, line g, which is a sign of strength.

    The weekly OBV made a new rally high two weeks ago and is now close to the high from the middle of 2014. The OBV is above its rising WMA.

    NEXT PAGE: Sector Focus, Commodities, and Tom's Outlook

    Tags: SPY, QQQ, IWM, DIA, IYT
    Apr 26 8:20 AM | Link | Comment!
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