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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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  • Is April The Month To Buy Social Media Stocks?

    The stock market did what it often does on Monday that is it surprised the majority by posting impressive gains. Over 1% gains in all the major averages and even some of the battered down sectors-like the Philadelphia Semiconductor Index-was up 1.36% on the day.

    After the last week of heavy selling, many feared that the market was going to fall off a cliff in Monday's session. Despite these gains, the market is still not out of the woods yet. The recent new highs in the NYSE, S&P 500, Nasdaq 100, and Russell 200 A/D lines are characteristic of a healthy market. The selling last week did take several of the A/D lines back to important support, which has held so far.

    Further gains are needed to turn the technical studies positive enough to be confident that the correction is over. If, instead, we get another day or more of heavy selling that takes the Spyder Trust (SPY) below the $203 level, then the A/D lines are likely to break support, making a decline to the $200 level more likely.

    Historically, April is one of the stock market's best months as-since 1950-stocks have been up 44 years in April and down just 21 years. Even with Monday's gains, the Spyder Trust (SPY) is up just 1.77% YTD but these three social media stocks have been outperforming the SPY by a wide margin. Is April the time to buy them?

     

     

    Click to Enlarge

    Chart Analysis: The NYSE Composite gapped above its 20-day EMA on Monday and a close back above 11,060 would be positive.

    • The monthly projected pivot resistance for April is currently at 11,337 with the weekly starc+ band at 11,445.
    • There is minor support now at 10,800 with daily chart support at 10,650.
    • The NYSE Advance/Decline line made a new high last Monday.
    • It moved back above its WMA last Friday and has now turned up more sharply.
    • The McClellan oscillator has moved back above the zero line which is an encouraging sign.
    • The oscillator now needs to move through the resistance at line d, to signal that the correction is over.

    Facebook, Inc. (FB) is up 6.63% YTD and it is easily outperforming the S&P 500.

    • The weekly chart shows that the resistance at line e, was overcome two weeks ago.
    • The weekly starc+ band is at $89.02 with the monthly projected pivot resistance at $90.99.
    • The upside target from the trading range (lines a and b) has upside targets in the $90-$92 area.
    • There is initial support on the daily chart at $81.42 and the 20-day EMA.
    • Based on current data, the 2nd quarterly pivot is at $80.91 with the rising 20-day EMA at $79.11.
    • The last swing low on the weekly chart is at $77.26.
    • The weekly relative performance moved above its WMA at the end of February.
    • The RS line is now in a clear uptrend, with important support at line g.
    • The weekly OBV is in a narrow range and is slightly below its WMA.
    • The daily OBV (not shown) did breakout to the upside with prices and continues to look strong.

     

     

    Click to Enlarge

    Twitter, Inc. (TWTR) broke through its weekly downtrend, line a, in the middle of February. It is up 3.76% in just the last month and up 39.09% YTD.

    • The weekly starc+ band and April's monthly pivot resistance are both in the $55.57 area.
    • The upside target from the weekly triangle formation is in the $65-$67 area.
    • The weekly relative performance broke its downtrend, line c, along with prices.
    • The weekly OBV was much stronger than prices when TWTR rallied up to $55.99 in October.
    • The OBV has just slightly moved above the resistance at line d.
    • The OBV tested its rising WMA just four weeks ago, with more important OBV support at line e.
    • The 20-day EMA is now at $48.31 with the weekly starc- band at $46.74.

    LinkedIn Corp. (LNKD) peaked at $276.18 in February and has been declining steadily for the past four weeks. LNKD is still up over 11% YTD, even though it has dropped 7.6% from its 52-week high.

    • The rising 20-week EMA is at $244.83 with the 2nd quarter pivot at $246.99.
    • The weekly starc- band is at $228.21 along with the weekly uptrend, line f.
    • The relative performance broke through resistance, line g, at the beginning of February.
    • The RS line has just been declining to its rising WMA with further support at line h.
    • The weekly OBV has not been able to move through the resistance at line i.
    • The daily OBV suggests the recent reaction is just a normal correction.
    • There is initial resistance at $260 and a close back above $269 would be bullish.

    What it Means: These three companies are clearly market leaders, but are also momentum stocks, which makes the risk control more difficult as their daily average true ranges are often quite large.

    Facebook, Inc. (FB) and Twitter, Inc. (TWTR) look the best technically as I am waiting for the weekly OBV on LinkedIn Corp. (LNKD) to get stronger.

    How to Profit: For Facebook, Inc. (FB) go 50% long at $81.66 or better and 50% long at $80.52 with a stop at $76.73 (risk of approx. 5.3%).

    For Twitter, Inc. (TWTR) go 50% long at $48.52 and 50% long at $46.78 with a stop at $44.88 (risk of approx. 5.8%).

    Tags: SPY, FB, TWTR, LNKD
    Apr 01 6:49 AM | Link | Comment!
  • Avoiding These Banks Could Help Your Portfolio

    It was a rough week for stocks as even some potentially calming words from Fed Chair Janet Yellen late Friday could not give the stock market much of a boost. Many pointed to the weak Durable Goods report last Wednesday as the catalyst for the selloff.

    Friday's government report on the 4th quarter GDP did not help either as it indicated the profits fell in the last quarter and posted the first annual decline in profits since 2008. The full economic calendar this week will give the market plenty to digest and the monthly jobs report will be released on Friday, which is a market holiday.

    The selling last week was broad based with the financial and technology stocks leading the market lowering, losing 2.96% and 2.70% respectively. Even the market leading healthcare sector was lower for the week. Most of market leading stocks were also hit with selling last week but they are still positive for the year.

    The Spyder Trust (SPY) is now up 0.54% YTD, while the Sector Select Health Care (XLV) is up 7.11%. Most stock pickers know that the secret to successful stock picking is to pick stocks in market leading sectors.

    In last week's 3 Material Stocks to Avoid, I took a look at three stocks that were looking weaker than the overall market. In 2015, the Sector Select Financial (XLF) is down 2.88%, so it is currently not a market leading sector. The relative performance of these three bank stocks suggests they could continue to be a drag on your portfolio.

     

     

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    Chart Analysis: Bank of America (BAC) has already had a rough year as it is down over 14% YTD. They report earnings on April 15.

    • The weekly chart shows that last week's close was just above key support in the $14.92-$15 area, line b.
    • A break of this level should signal a drop to the weekly starc- band at $14.10.
    • There is further support from last October in the $13.95 area.
    • The tentative quarterly projected pivot support is at $13.02.
    • The weekly relative performance broke its support, line d, in early January, consistent with a week performer.
    • The RS line closed last week at another new low.
    • The weekly on-balance volume (OBV) has broken support, line e, that goes back to early 2014.
    • The OBV rallied back to its declining WMA before the recent drop.
    • The declining 20-week EMA is now at $16.23.

    The daily chart of Bank of America (BAC) shows that it is now close to the lows from January with the daily starc- band at $15.02.

    • The monthly projected pivot support is at $14.19.
    • The daily RS line broke support and its WMA (see arrow) in early January when BAC was trading at $17.33.
    • The RS line has formed lower highs in February and March, line g.
    • The recent decline was signaled by a drop in the RS line below its WMA two weeks ago.
    • The daily OBV broke its support, line i, on March 18, and has dropped over 4% since.
    • The OBV is currently in a steep downtrend.
    • The 20-day EMA is now at $15.80 with the daily starc+ band and further resistance at $16.08.

     

    Click to Enlarge

    Comerica Inc. (CMA) is an $8.0 billion financial services company that has both a business and retail bank division. It is currently down 4.08% YTD. It is scheduled to report earnings on April 17.

    • The close last week was below the prior five week lows.
    • The next good support (line a) and the weekly starc- band are in the $40.82 area.
    • The tentative 2nd quarter projected pivot support is at $36.30.
    • The weekly relative performance shows a clear pattern of lower highs, line b.
    • The RS line broke support last October and has since formed lower lows.
    • The weekly OBV has also formed lower highs, line c.
    • The OBV briefly broke major support, line d, early in the year and has stayed below its WMA.
    • The 20-week EMA is now at $45.65.
    • There is further weekly resistance now in the $46.83-$47.73 area.

    Regions Financial (RF) is a $12.4 billion multi-dimensional regional banking company that reports its earnings on April 21.

    • The weekly chart shows that RF formed lower highs and lower lows in 2014.
    • The stock dropped to a low of $8.45 in early January before rebounding back to the $10 area.
    • A break of long-term support at line e, would project a decline to the $7.20-$7.50 area.
    • The relative performance violated its support, line f, in May 2014.
    • This signaled that is was going to be weaker than the S&P 500.
    • Since then, the RS line has formed lower highs, line g, and lower lows.
    • The OBV broke support going back to 2013, line h, in early 2015.
    • The OBV tested its declining WMA two weeks ago, before turning lower.
    • The 20-day EMA is now at $9.65 with further resistance in the $10 area.

    What it Means: The weak relative performance and volume analysis of these three banking and financial companies suggests that they could decline another 8-10% below current levels.

    Bank of America (BAC) is the most oversold on a short-term basis and could see a rebound before its earnings are released.

    How to Profit: No new recommendation.

     

    Tags: SPY, XLF, BAC, CMA, RF
    Mar 31 1:43 PM | Link | Comment!
  • Biotech Crash -- How Long Will It Last?

    The market croaked Wednesday as the very weak Durable Goods report gave investors more reasons to sell. The biotech and semiconductors bore the brunt of the selling as both were down over 4% on the day. The market internals were 3-1 negative but not bad enough to suggest that the selling is over.

    A weaker than expected final reading on 4th quarter GDP Friday could give investors more reason to sell. This week will add a few more bricks to the wall of worry that I discussed in Friday's Why Building the Wall of Worry Is Bullish. Wide swings in the Durable Goods are common as it was down 3.7% in December but up 2.8% in January, so the 1.4% drop in January is not a reason to turn negative on the economy.

    So, what's next? The S&P futures are down again in early trading as they are getting closer to next support in the 2020 area. Many are watching the March lows so they may need to be broken before the pullback is over. The new weekly highs in the NYSE A/D line do not yet warn of a major correction as I noted in Tell Tale Signs of a Correction. The daily A/D lines are at or below their WMAs with key support at the February lows.

    The biotech stocks are now getting much of the attention as some are wondering if the multi-year run in this market leading group is over. In 2014, the biotech stocks topped in February and the ensuing decline shook many out of this volatile sector before a 70% rally.

    So, what about this year? How far will a leading biotech ETF drop and how long will the decline last? Let's take a look.

     

     

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    Chart Analysis: The monthly chart of iShares Nasdaq Biotechnology (IBB) shows a potential reversal in March after it reached a high of $374.97, which was just below the starc+ band at $381.58.

    • The monthly support from February is now at $305.
    • The uptrend that goes back to the early 2014 lows, line a, is now at $279.
    • The rising 20-month EMA is at $266.05.
    • Based on current data, the 2nd quarter pivot will be $338.
    • The monthly relative performance looks ready to make a new high again in March.
    • The RS line has been in a strong uptrend since early 2013 and is well above its rising WMA.
    • The monthly OBV dropped below its WMA in December before surging to the upside.
    • The OBV will make a new high with a higher close in March.
    • The OBV has good support now at line c.

    On the weekly chart of iShares Nasdaq Biotechnology (IBB) I have highlighted the correction that occurred in 2014.

    • This correction lasted eight weeks as it dropped IBB 24.6% from its high.
    • The correction low in 2015 occurred on April15.
    • IBB came close to its weekly starc- band on several occasions.
    • The seasonal tendency is for biotech to top out in January and then bottom on June 20.
    • The rising 20-week EMA is at $322.18 with the weekly starc- band at $310.99.
    • This zone is a likely downside target with more important support in the $290-$300 area.
    • The upper trading channel (line d) and starc+ band were tested two weeks ago.
    • The weekly RS line has turned lower but did make a new high with prices.
    • The RS line has good support at the uptrend, line f, and its WMA.
    • The weekly OBV broke through resistance, line g, at the end of February.
    • There is resistance now in the $355-$360 area.

     

     

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    Regeneron Pharmaceuticals (REGN) moved above its WMA two weeks ago before reversing this week.

    • There is next support in the $437 area with the rising 20-week EMA at $417.19.
    • The uptrend from the 2014 lows, line a, is in the $390 area.
    • The weekly starc- band is now at $380.51.
    • The weekly relative performance did confirm the recent highs and is well above support at line b.
    • The RS analysis of REGN was featured in last week's trading lesson.
    • The weekly OBV broke its downtrend, line c, three weeks ago, but it did not confirm the recent highs.
    • There is initial resistance now in the $470-$475 area.

    Gilead Sciences (GILD) held up better than most biotech stocks on Wednesday as it was down just 1.55%.

    • The weekly chart shows a narrow range recently as the quarterly pivot at $99.01 is being tested.
    • A weekly close under $95.81 is likely to trigger heavier selling.
    • The weekly starc- band is at $87.70 with the uptrend just below $85.
    • The weekly RS line has formed lower highs, line f, as it has been diverging from prices.
    • The RS line has important support now at line g, which, if broken, would be negative.
    • The weekly on-balance volume (OBV) formed a negative divergence, line h, at the October high.
    • It shows a pattern of lower highs as it has stayed below its WMA.
    • There is long-term OBV support at line 1.
    • There is first resistance now at $105.71 and a close above $108 would be positive.

    What it Means: I would look for the correction in iShares Nasdaq Biotechnology (IBB) to be shorter than it was in 2014, maybe only six weeks.
    Would look for signs of a panic low in the $318-$322 area but it could get down to $310.

    For Regeneron Pharmaceuticals (REGN), the support in the $420-$425 area is likely to hold, which is over 6% below current levels. I would not want to see a close below $383.

    I expect the selling to increase in Gilead Sciences (GILD) before the correction in the biotech sector is over. This is because of the weak readings of the technical studies as it has not been a market leader since December. Celgene Corp (CELG) and Illumina, Inc. (ILMN) also look vulnerable.

    How to Profit: No new recommendation.

    Due to unforeseen circumstances, there will not be a Week Ahead column on Friday, March 27, but publication will resume on April 3.

    Here are some of Tom's most popular recent articles:

    The Best of Barron's New Year Picks

    The Nasdaq 100's Most Overbought

    Leaders and Laggards on IBD's Top 50 List

    Tags: IBB, REGN, GILD, CELG, ILMN
    Mar 27 8:06 AM | Link | 1 Comment
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