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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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  • Don't Hang Your Hopes On OPEC

    The upward revision in the GDP caught some by surprise on Tuesday as stocks managed slight gains, even though the report on Consumer Confidence was disappointing. The slightly positive market internals resulted in a mixed close with the Dow Jones Transports and Nasdaq 100 managing slight gains.

    The Dow Industrials and S&P 500-along with the Russell 2000-closed slightly lower. There is more data out today on consumer sentiment and the housing market. Given the weather forecast and shortened trading day on Friday, the volume is expected to be light the rest of the week.

    As most investors get ready for Thanksgiving, those whose focus is on the energy markets are waiting for Thursday's OPEC meeting. The most recent rumors ahead of the meeting suggest that production will not be cut despite the plunging crude oil prices.

    The technical outlook for crude has been negative for several months as I reviewed again in early October's How Low Will Oil Stocks and Crude Oil Go? The technical outlook is always more important than crude oil's seasonal tendency for crude to bottom in the next three months.

    The energy stocks have bounced nicely from the October lows and this has encouraged some energy bulls, but is there any technical reason to suggest crude oil or the energy stocks have made their lows?

     

     

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    Chart Analysis: The monthly chart of January crude oil shows that it is ready to close below the monthly starc- band for the second month in a row.

    • This is an indication that crude oil is in a high risk selling zone.
    • The break of monthly support that goes back to 2010, line a, creates major resistance now in the 83 area.
    • The monthly on-balance volume (OBV) failed to make a new highs with prices in June (point 1).
    • The negative divergence was followed by a drop below its WMA two months later in August.
    • The OBV support at line b, was also violated.
    • The OBV is now well below its declining WMA.
    • There is first monthly resistance at $80.87, which was the November high.

    The weekly chart of January crude oil shows that it tested the weekly starc+ band for three weeks in June (point 2) before prices reversed.

    • Crude oil bounced from its monthly projected pivot support in August and September (points 2 and 3).
    • Prices have stabilized over the past three weeks but volume has declined.
    • The weekly OBV dropped below year long support, line d, in early September, which was a strong warning of lower prices.
    • The OBV then rallied back to its declining WMA, generating an AOT sell signal (see circle).
    • Since then, the OBV has been leading prices lower and it is well below its WMA.
    • Therefore, it would take quite a while before the OBV could move back above its WMA.
    • There is initial resistance in the $79-$80 area.
    • The declining 20-week EMA is now at $85.23.

     

     

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    The Sector Select SPDR Energy (XLE) is down 0.98% YTD as it has lost 11.28% in the past three months.

    • This is despite the fact that XLE has rallied over 12% from the October low of $77.51.
    • The rebound is now close to its 20-week EMA at $89.83.
    • The quarterly pivot is at $93.71 as XLE dropped below its quarterly pivot on September 12, generating a sell signal that is still in force.
    • The relative performance warned of a top in early August when it dropped below its WMA.
    • This was the week a LCD sell signal was triggered.
    • The RS line continues to make new lows consistent with a sector that is weaker than the overall market.
    • The weekly OBV broke its support, line b, at the end of September when January crude closed at $91.98.
    • The OBV has rebounded back to its WMA, which is still declining.
    • There is initial weekly support at $85 with the monthly projected pivot support at $80.70.

    The SPDR Oil & Gas Exploration (XOP) has been weaker than the XLE as it is down 11.71% YTD as it has lost 22.45% in just the past three months.

    • XOP has been in a trading range, lines c and d, since the middle of October.
    • This looks like a continuation pattern, which favors a drop back to or below the October low of $52.15.
    • The weekly starc- band is at $50.81.
    • XOP is now testing its 20-day EMA with a zone of support in the $55.73-$57.73 area.
    • A drop below this support zone is likely to trigger heavier selling.
    • The daily RS line has formed lower highs, line e, and has just dropped below its WMA.
    • The daily OBV shows a similar trading range as prices closed Tuesday below its WMA.
    • There is initial resistance now in the $62.95-$63.89 area with the daily starc+ band at $64.50.

    What it Means: The monthly, weekly, and daily analysis of crude oil, as well as the energy sector ETFs, suggest that another decline is likely before a bottom could be completed.

    In October's The Week Ahead: This Market Could Hurt Stocks, I was concerned that the energy sector could drag the entire market lower. This is now a real possibility again as another wave of selling in the energy stocks could help precipitate a deeper market correction.

    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: XLE, XOP
    Nov 26 12:39 PM | Link | Comment!
  • Three Most Vulnerable Dow Stocks

    More records for the market to start off the holiday shortened week as the market internals were positive in line with the market's gains. The small-caps once again led the way as the S&P 600 and Russell 2000 were both up over 1%.

    The Dow Utilities and the Philadelphia Oil Service Index led on the downside losing over 0.80% on the day. The market seemed to shrug off the disappointing economic data and the market gets a series of new economic reports before Thanksgiving.

    Today we get the second reading on the 3rd quarter GDP, the S&P Case-Shiller Housing Price Index, and Consumer Confidence. On Wednesday, we get the University of Michigan's month end reading on Consumer Sentiment, Durable Goods, New Home Sales, and the Pending Home Sales Index.

    In spite of the gains in the major averages, not all stocks are making new highs with the averages. Those stocks that are currently looking toppy and are underperforming the S&P 500 may bear the brunt of the selling if the market turns low. These three Dow stocks look especially vulnerable.

     

     

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    Chart Analysis: The Goldman Sachs Group (GS) has been trading in a narrow range for the past three weeks as dojis have formed.

    • Last week's low at $187.55 is the key level to watch on a weekly closing basis.
    • If Friday's close is below this level then a low close doji sell signal will be triggered.
    • The rising 20-week EMA is at $181.73 with the quarterly pivot at $177.73.
    • The weekly uptrend, line a, and the starc- band are at $174.50.
    • The weekly relative performance peaked in early October and has been diverging from prices, line b.
    • The decline in the RS line below its WMA is a sign of weakness.
    • The weekly OBV peaked in early October and failed to make new highs in the past few weeks.
    • This bearish divergence, line d, would be confirmed by a drop below the October lows.
    • There is weekly resistance now in the $191.65-$192.68 area.

    The daily chart of Goldman Sachs (GS) shows that it failed to make a new high last Friday as it failed well below the daily doji high that was formed on November 11.

    • The flat 20-day EMA is at $188.67 with the daily swing low at $187.55.
    • The daily starc- band is at $184.44 with further support in the $180 area, line f.
    • The daily uptrend, line g, is in the $175 area.
    • The daily relative performance has been diverging from prices since early October, line h.
    • The RS line subsequently dropped below its uptrend, line i.
    • The negative divergence in the OBV, line j, is even more pronounced as it peaked in September.
    • The OBV is now below its flattening WMA.

     

     

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    Pfizer, Inc. (PFE) has made little upside in the past three weeks as it has stalled below the daily chart resistance at $30.78, line a. PFE has not yet closed below the weekly doji low of $29.76 from three weeks ago.

    • The quarterly projected pivot resistance at $31.12 has also limited the upside.
    • The quarterly pivot and daily starc- band are not far below current levels at $29.49.
    • There is more important weekly support now in the $27.50 area.
    • The daily relative performance has been diverging sharply since early October, line b.
    • The RS line dropped below support, line c, on Monday.
    • The weekly RS analysis (not shown) is also clearly in a downtrend.
    • The daily on-balance volume (OBV) has also formed a negative divergence, line d, and volume increased Monday.

    Microsoft, Inc. (MSFT) peaked on November 4 at $50.04, which was just below the October monthly projected pivot resistance at $50.90.

    • It is already 4.9% below its high but is still up 30.2% YTD.
    • The daily chart shows next support, line e, in the $47 area.
    • The quarterly pivot support is still well below current levels at $44.91.
    • The daily RS line dropped below its WMA two days after the high.
    • The stronger RS support, line f, has now been broken.
    • The daily OBV formed a minor negative divergence at the highs before dropping below its WMA.
    • The OBV has more important support at line g.
    • There is initial daily resistance now at $48.25-$49.

    What it Means: The stock market remains resilient but-as I suggested in the Week Ahead column-those who have been long throughout the year should consider taking some profits on those stocks that have started to lag the market.

    Light hedges would also not be a bad idea now since many who have been hedging all year have given up on this strategy.

    These three Dow stocks are looking vulnerable to a further decline, though Microsoft, Inc. (MSFT), which is already well below its highs, may see a bounce from slightly lower levels.

    How to Profit: No new recommendation.

    Here are some of my recent articles that you might enjoy:

    Four IBD Top 50 Stocks on the Way Up

    Demand Success from Your Portfolio

    Best Charts from Successful Investing's Top 14 Picks

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

    Tags: GS, PFE, MSFT
    Nov 25 11:17 AM | Link | Comment!
  • What's Next For The Nasdaq 100 Most Overbought Stocks?

    The stock market has not yet had its normal November market correction, and this week, the typical seasonal pattern starts to improve. Though Friday's close below the day's highs dampened some of the bullish enthusiasm, the market tone last week was clearly positive.

    The EuroZone markets are higher again early Monday and the US futures are also well in positive territory ahead of the opening. As reviewed in the Week Ahead column, there are still a number of signs that the market averages are still in a high risk zone.

    This is especially true of the market tracking ETFs like the PowerShares QQQ Trust (QQQ), which is my favorite from a relative performance and volume perspective. The failure to pay attention to risk can be the difference between a winning and losing portfolio.

     

     

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    If you wanted to buy the QQQ on Friday's close at $103.87, the safest place to put your stop would be under $99, which is risk of 4.6%. Now that may not seem too bad, unless you understand that the QQQ closed the week just 1.6% below its starc+ band and is 8.5% above the strac- band.

    The starc band analysis easily allows for a drop in the QQQ back to the $100-101 area without changing its positive trend. The weekly starc band scan of the Nasdaq 100 revealed seven stocks that closed the week above their weekly starc+ band. Does that mean they can still be market leaders as we head into 2015?

     

     

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    Chart Analysis: Whole Foods Market (WFM) was hit hard early in the year as its earnings were much weaker than expected.

    • WFM is up over 27% in the past three months, but is still down 15.5% YTD.
    • The weekly chart shows next strong resistance in the $50 area, line a.
    • WFM closed 2.2% above its weekly starc+ band (see table) on Friday for the third week in a row.
    • The relative performance broke its downtrend, line b, in early October, two weeks before it surged to the upside.
    • The weekly OBV moved back above its WMA in August and continued to rise as prices moved higher.
    • This was consistent with accumulation as the OBV is now reaching strong resistance at line c.
    • The 20-day EMA is now at $45.11 with the December pivot a bit higher.

    Ross Stores Inc. (ROST) was up 7.3% in Friday's session as it posted a 16% in year over year earnings. Their earnings report beat expectations on many fronts.

    • The stock is up over 29% in the past three months and closed last week 1.4% above its weekly starc+ band.
    • The weekly trend line resistance (line d) is now in the $90.60 area.
    • The weekly RS line has broken its long-term downtrend, line e, confirming it is a market leader.
    • It moved above the early 2014 highs in August completing the bottom formation.
    • The weekly on-balance volume (OBV) has been very strong since it moved above resistance at line f, in mid-September.
    • The daily OBV is also up sharply and confirming the price action.
    • The tentative monthly pivot for December is at $86.11 with the 20-day EMA at $81.81.

     

     

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    Cisco Systems (CSCO) closed last week above the highs from August 2013, line a. It closed right on the quarterly projected pivot resistance at $26.84.

    • The completion of the continuation pattern, lines a and b, has upside targets in the $31-$33 area.
    • The relative performance is still locked in its trading range, lines c and d.
    • Therefore, CSCO is not yet confirmed as a market leading stock.
    • The weekly OBV does look better as it has moved above the resistance from 2011, line e.
    • The daily RS and OBV analysis are positive with both now confirming the price action.
    • There is minor support now in the $25.50-$26 area, which included the early October highs.
    • The rising 20-week EMA is at $24.76.

    Mondelez International (MDLZ) is a manufacturer of confectionary products that were formerly the snack and food brands of Kraft.

    • The strong support in the $32 area, line f, was tested at the October lows.
    • MDLZ has now rallied back to the July high of $39.37.
    • The quarterly projected pivot resistance is at $41.29.
    • The weekly RS line has moved back above its WMA but has just reached the former support, now resistance, at line g.
    • The daily relative performance (not shown) does look more positive.
    • The weekly OBV has bounced from support at line h and has moved back above its WMA.
    • It is still well below the highs from early in the year.
    • There is first good support is in the $35.50-$36.90 area.

    What it Means: The weekly technical picture for all of the stocks, except Mondelez International (MDLZ), does indicate that they can continue to be market leaders as we head into 2015.

    All will require a pullback of 5-10% from their recent highs to allow a good risk reward entry point.

    Whole Foods Market (WFM) and Ross Stores Inc. (ROST) are the most overextended currently but also look the most positive.

    How to Profit: No new recommendation.

    Here are some of my recent articles that you might enjoy:

    Four IBD Top 50 Stocks on the Way Up
    Demand Success from Your Portfolio
    Best Charts from Successful Investing's Top 14 Picks

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

    Tags: QQQ, WFM, ROST, CSCO, MDLZ
    Nov 24 11:15 AM | Link | Comment!
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