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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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  • Will These Shorts Get Squeezed?

    Stocks continued to edge higher Wednesday as pre-holiday volume remains low. The volume in the S&P futures was the lowest since just before the Memorial Day holiday. The futures are lower in early trading and are close to breaking below the lows of the past three days.

    The analysis of the most recent Commitments of Traders (NYSE:COT) data from John Person reveals that the small speculators are heavily on the long side of the futures. They historically are wrong on the markets so this is used as a contrary indicator.

    The individual investors, according to the AAII, became even more bullish last week as 51.92% are now bullish, up from 46.11% last week. This is well above the long-term average of 39%.

    The McClellan oscillator-which warned of the top in early August (The "Real Reason" for the Market's Plunge)-has formed a short-term negative divergence. This formation is consistent with a tired market while the positive intermediate-term signals suggest a correction will be a buying opportunity.

    The latest short interest data was released on Tuesday and-as always-it's quite interesting. I have found that the Wall Street Journal presents the data in one of the most easy to use formats.

    I look at not only the changes in short interest but also the days to cover or the short interest ratio. It is calculated by dividing the short interest by the average daily volume. In the latest data, four stocks stood out and looking at the charts can help one decide whether the short positions will be rewarded by lower prices.

     

     

    Click to Enlarge

    Chart Analysis: Rogers Communications (RCI) is a $21.08 billion Canadian wireless company that closed up 1.76% on Wednesday. The current yield for RCI is 4.3% but the lower current ratio of 0.45 suggests this large dividend may not be too safe.

    • The short interest declined 1.9% as of August 15 but is still 9.97 million shares.
    • Given the daily volume of 231K, it would take 43 days to cover the short position.
    • RCI dropped down to test the support in the $38 area (line b) before starting an impressive rally.
    • The 7.2% gain from the lows has taken RCI back to the daily starc+ band.
    • The next resistance is at the May high of $41.99 and RCI looks ready to close the week back above the quarterly pivot at $40.50.
    • The relative performance is still in a downward sloping channel, lines a and b, but is now back above its WMA.
    • The daily OBV has been above its WMA since August 8.
    • The OBV has key resistance at line e while the weekly OBV is close to moving above its WMA.
    • The rising 20-day EMA and first support are now in the $39.77 area.

    Canadian Imperial Bank (CM) has a market capitalization of $38.56 billion with a yield of 4%. It just reported earnings this morning. Unlike RCI, CM has a very large amount of cash on its books and is up 15.75% YTD. It has a short interest ratio of 41.

    • The strong close Wednesday has taken CM well above the quarterly projected pivot resistance at $95.82.
    • The daily starc+ band is at $98.03 while the weekly is not far above current levels at $97.86.
    • The stock has made a new all time highs this week, so one wonders what kind of stop the short sellers are using.
    • The daily chart shows the breakout above resistance at $95, line f, last week.
    • The daily relative performance has confirmed the price action by also moving through important resistance at line h.
    • The RS line has been in a solid uptrend, line i, since June.
    • The weekly RS analysis (not shown) has bottomed signaling that CM is clearly a market leader.
    • The daily OBV shows a pattern of higher lows (line k) and higher highs, line j.
    • The weekly OBV (not shown) will make a new all time high this week.

     

     

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    PHH Corporation (PHH) is a $1.37 billion provider of outsourced mortgage and fleet management services. It has no yield with a short interest ratio of 33 as the number of shares short increased by 41.9% since the end of June.

    • The weekly chart shows that PHH peaked in early March at $27.13.
    • PHH is just over 12% below its 52 week high.
    • It has since formed lower highs, line a, and has traded in a tight range for the past three weeks.
    • It may form another weekly doji this week with the quarterly pivot at $23.33.
    • There is longer-term support in the $21.20 area (line b) and the weekly starc- band.
    • The weekly RS line has formed lower highs in 2014, line c, and is below its WMA.
    • The weekly on-balance volume (OBV) has been acting stronger than prices as it is well above its rising WMA.
    • The OBV has stronger support at the uptrend, line e.
    • The daily technical studies (not shown) do look weaker.

    M&T Bank Corporation (MTB) has a yield of 2.26% with a short interest ratio of 29. The stock is up 7.52% YTD and is very close to strong resistance, line f, in the $125.80 area.

    • The daily chart shows that MTB has been in a broad trading range, lines f and g, for the past six months.
    • The weekly starc+ band is at $128.26 with the quarterly projected pivot resistance at $132.26.
    • Though MTB is up 4.4% from the August low, line g, the relative performance is still in a downtrend, line h.
    • The RS line made a new low last week and is still in a clear downtrend.
    • The daily OBV has also had a weak rally as it dropped to new lows on August 15.
    • The OBV had dropped through the support from early March, line i, in early July.
    • This now becomes strong resistance and the weekly OBV is still above its WMA.
    • There is short-term support now at $121.80 and the rising 20-day EMA.

    What it Means: The short interest of a stock can often provide additional information when you are deciding whether to buy or sell a stock. Sometimes no information is provided. For example, Bitauto Holdings Ltd. (BITA) has a current ratio of 1.0 while it is just 1.11 for Facebook, Inc. (FB).

    Trinity Industries, Inc. (TRN) was the only one of the four stocks discussed in Are IBD's Top Four Looking Toppy? that has a double-digit short interest ratio of 10.93.

    It is important no matter whether you are trading a stock from the long or short side that you have a stop. Shorting a stock at all time highs, even if you are using options, can quickly destroy your portfolio.

    Of the four stocks, PHH Corporation (PHH) appears to be the most vulnerable while Canadian Imperial Bank (CM) looks the strongest.

    How to Profit: No new recommendation.

    To learn more about the markets, you might enjoy Tom's Latest Trading Lessons.

    A Top-Notch Tool for Market Timing

    Three Reasons to Sell

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: RCI, CM, FB, MTB, PHH
    Aug 29 6:03 AM | Link | Comment!
  • Energy Stock Update And A Material Pick

    The global markets are focusing on the S&P 500's close above 2000 on Tuesday even though the close was near to the day's lows. Given the 22% jump in Durable Good orders-which was consistent with the strong manufacturing data from the Chicago Fed National Activity Index and the Richmond Fed-the Dallas Fed Manufacturing Survey did come in weaker than expected.

    The monthly Consumer Confidence reading from the Conference Board hit its highest level since October 2007. Students of the market will recall that the 2007 bull market highs were made on October 11, 2007. Of course, the technical situation now is much different as then the NYSE Advance/Decline Line had been diverging from prices for many months.

    The fact that the new highs have been confirmed by the market internals suggests that a pullback as we head into September should create a buying opportunity. Certainly now is not a time to be chasing the major averages or some of the high flying momentum stocks.

    Bitauto Holdings ADR (BITA) along with Facebook, Inc. (FB) were reviewed on October 6 as two of IBD's top stocks that looked the best. BITA is up over 57% in the past fourteen days, which is quite amazing.

    A short-term reason for caution now is that the Spyder Trust (SPY) closed Tuesday 1.6% above its 20-day EMA. It has also formed two consecutive dojis, which is often a sign of a tired market (Three Reasons to Sell).

    Though crude oil prices are currently down over $4 per barrel in August, many of the energy stocks have recorded nice gains. A look at the daily charts of some of the recent energy picks is the basis for a change in strategy and a new material stock looks to be a low risk buy.

     

     

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    Chart Analysis: The SPDR S&P Oil & Gas Exploration & Production (XOP) has broken its daily downtrend, line a.

    • The quarterly pivot at $78.97 is now being approached as XOP formed a doji Tuesday.
    • There is further resistance at $80.36 and XOP made its high for the year in June at $83.27.
    • The 20-day EMA is now at $76.38 with additional support in the $75 area.
    • The longer-term support and the quarterly projected pivot support were tested last month.
    • The daily relative performance has broken its downtrend, line c, and moved above its WMA.
    • Further strength is needed to confirm that it has started a new uptrend.
    • The daily OBV held long-term support, line e, as expected in early August.
    • The OBV is now well above its WMA and it is acting stronger than prices.
    • The weekly OBV (not shown) is close to making new highs.

    Phillips 66 (PSX) is up just over 10% from the doji low on August 1 as a high close doji buy signal was triggered on August 4. It was recommended two days later (see arrow).

    • The daily starc+ band was tested last week and is now at $88.90 along with the trend line resistance, line f.
    • The quarterly projected pivot resistance is at $91.83.
    • There is minor support now at $85.47 with the 20-day EMA in the $84 area.
    • The relative performance bottomed in July and has formed a series of higher highs.
    • There is a slight divergence (see arrow), which could be signaling a short-term pullback.
    • The daily on-balance volume (OBV) broke its downtrend on August 15.
    • The June highs were tested last week with good OBV support at its rising WMA.
    • The weekly OBV (not shown) has broken out to new all time highs.

     

     

    Click to Enlarge

    Atwood Oceanics (ATW) was also recommended in Digging for Bargains but has failed to rally with the market as it has drifted lower.

    • The daily chart support, line a, is now being tested with next support at $47.38, line a.
    • The daily starc- band is at $46.71 with the preliminary September pivot support at $46.13.
    • Soon after ATW was recommended, the RS line dropped back below its WMA.
    • Last Thursday, the RS line closed below support and in Monday's Tweet I recommended closing out the position.
    • The daily OBV has also dropped below its WMA as it failed to move above its WMA or its downtrend, line f.
    • The weekly OBV (not shown) does look better but is also below its WMA.
    • There is strong resistance now in the $49.50-$50 area.

    International Paper (IP) is a $20.4 billion paper and chemical company that has a current yield of 2.93%.

    • IP was up 1.27% Tuesday but is still 8.02% below its 52-week high.
    • It is up just over 1% YTD as it has been testing the 50% and 61.8% Fibonacci support levels.
    • The quarterly pivot is at $47.99 with stronger resistance in the $49-$49.50 area.
    • The daily RS line did form lower lows but has turned up.
    • The daily OBV closed Tuesday above its WMA and has held above support at line i.
    • The weekly OBV (not shown) did confirm the July highs and is holding well above its rising WMA.
    • The quarterly S1 support is at $46.65.

    What it Means: The action in Phillips 66 (PSX) as well as the overall market favors reducing the size of the position to lower the overall risk.

    The failure of Atwood Oceanics (ATW) to rally with the market and the technical deterioration was my reason to close out the position for a small loss.

    International Paper (IP) appears to be bottoming and a weekly close above the quarterly pivot will further improve the outlook.

    How to Profit: For International Paper (IP) go 50% long at $47.72 and 50% long at $7.33 with a stop at $46.44 (Approx. risk of 2.3%).

    Portfolio Update: Should be 100% long Phillips 66 (PSX) at $82.66. Sell 1/3 on the opening and use a stop at $79.79 on the remaining position.

    Should be 100% long SPDR S&P Oil & Gas Exploration & Production (XOP) at $74.50 with a stop at $72.31.

    For Atwood Oceanics (ATW) was 50% long at $48.44 sold at $48 for a 1% loss.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: XOP, PSX, SPY, ATW, IP
    Aug 28 11:29 AM | Link | Comment!
  • More Pain Or Gain For The Miners?

    As mutual fund and other stock holders cheered the intra-day move above the 2000 level in the S&P 500 not all stock holders were happy. The weak data on New Home Sales hit the homebuilders and the Semiconductor Holders ETF (SMH) declined 0.37%, triggering a daily low close doji sell signal.

    The dollar has continued to move higher overnight with the euro making fresh new lows. This has been another positive for the Euro zone markets as the German Dax has reached the 50% retracement resistance from the June highs. The weaker euro should help their sagging exports.

    The bottoming signals from August 7 (Get Ready for a Rally) have produced a much stronger rally than I expected at the time. Though the daily and weekly trends are positive, I would not chase the long side as the bullish sentiment is too high.

    The stronger dollar has not helped the precious metals as there is often an inverse relationship between the two. The Philadelphia Gold/Silver Index lost 1.38% on the day though an Oppenheimer analyst predicted a 40% upside for the gold miners just two weeks ago.

    Does this mean you should be buying the miners at current levels or adding to your position if you are already long?

     

     

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    Chart Analysis: The Market Vectors Gold Miners (GDX) has 39 holdings with an expense ratio of 0.53%.

    • On the weekly chart, a flag formation, lines a and b, has been forming since late 2013.
    • For the past six weeks, GDX has traded between $27.78 and $25.59.
    • GDX closed on the lows Monday, which was just above the August 5 low and the 20-week EMA.
    • The failure of GDX to rally in impulsive fashion suggests that the trading in 2014 is just a pause in the downtrend or a continuation pattern.
    • The quarterly pivot is at $24.97 with the weekly starc- band at $23.76.
    • Though prices have been moving sideways, the OBV has formed sharply lower highs, line c.
    • A drop in the on-balance volume (OBV) below its WMA and the recent lows would be negative.
    • The OBV has next major support at line d.

    The daily chart shows that the key chart support, line e, is now being tested.

    • GDX is still up 21.25% YTD but down 4.47% in the last month.
    • The daily starc- band is at $25.24 with the minor 50% Fibonacci retracement support at $24.80.
    • The daily OBV has formed lower highs, line f, since the early July highs.
    • The OBV is now very close to breaking the support, at line g, and it needs a high volume rally to turn it around.
    • There is minor resistance now at $26.50 and the 20-day EMA.
    • There is further resistance at $27 and a close back above this level would improve the outlook.
    • Based on current data, the monthly pivot for September will be at $26.38.

     

     

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    The Market Vectors Junior Gold Miners (GDXJ) has an expense ratio of 0.57% with 61 stocks in the portfolio.

    • GDXJ is up 29.63% YTD but has lost 6.16% in the past month.
    • The early July high of $46.50 tested the weekly starc+ band and the weekly resistance at line a.
    • The monthly pivot at $42.84 has been tested several times in August but GDXJ has failed to close above it.
    • The 20-week EMA is now being tested with next key support at $39.40 and the quarterly pivot.
    • The weekly starc- band is at $35.63 with the weekly uptrend, line b, in the $33.65 area.
    • A completion of the flag formation has initial downside targets in the $28 area.
    • The weekly OBV broke through resistance, line c, in June and surged to the upside in July.
    • The OBV has since reversed sharply as the late May lows, line d, have been broken.
    • The weekly OBV is now acting weaker than prices.
    • The daily OBV (not shown) is below its WMA but is still above the July lows.

    Barrick Gold Corporation (ABX) is a $21 billion producer of gold and copper and has a current yield of 1.7%. It is trading 16.04% below its 52-week high as it is up just 2.72% YTD.

    • The sideways pattern, lines e and f, goes back to May 2013 when the high was $21.64.
    • In February, ABX had a high of $21.45 but on Monday it dropped below its 20-week EMA.
    • The early August low is at $17.75 with the quarterly pivot at $17.64.
    • Using the width of the trading range, a weekly close below $15.47 will project a decline to the $9-$11 area.
    • The weekly OBV also failed to move above the 2013 highs early this year, line g.
    • The OBV has since formed lower highs, line h, and could drop below its WMA this week.
    • Volume has increased over the past two days but the daily OBV (not shown) is acting better.
    • It is still above the important support from the July lows.
    • There is initial resistance at $18.56 and the 20-day EMA.
    • More important resistance in the $19-$19.36 area with the quarterly projected pivot resistance at $19.82.

    What it Means: The technical picture for the gold mining ETFs and Barrick Gold Corporation (ABX) has deteriorated even though this is typically a strong seasonal time period. The close this week will tell us more but the apparent weekly continuation patterns do make me nervous.

    It is possible that we will just see a test of the June lows, which could set up another trading opportunity. Traders who are long should consider using tight stops or looking for a bounce to reduce your position.

    I see no technical reason to buy the miners now and would not add to long positions.

    How to Profit: No new recommendation.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: GDX, GDXJ, ABX
    Aug 26 2:53 PM | Link | Comment!
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