January 31, 2013 (4:15 pm)
Here are a variety of charts we’re watching right now. We’re working on a new format to make it easier to follow specific stocks and compare our current views vs. our previous expectations. But for the meantime, see our latest ‘Stocks to Watch’ below.
NASDAQ ETF. Let’s start with a review of the broader markets. The QQQ’s have been consolidating in a fairly tight $0.75 range since the start of the year, except for a brief (and still only potential) island top reversal. A 61.8% Fibonacci retracement would place the shares precisely where the gap began. It would make sense for multiple reasons for the QQQ’s to at least re-test this level in the coming weeks.
NASDAQ Head & Shoulders. As we’ve discussed previously, the potential island top reversal has significant implications for the market. It may form the apex of the right shoulder of a very significant head and shoulders pattern that has been forming for the better part of a year. Further, each move up was accompanied by lower RSI levels, indicating that momentum to the upside is declining.
S&P 500. The SPY has been in a clear uptrend for ten weeks now, except for a four day sell-off during the fiscal cliff negotiations. We outline potential levels of support if the SPY does, as we expect, begin to retrace a portion of the recent rally.
S&P 500 Weekly Doji. Significantly, the SPY has formed an enormous rising wedge that is four years in the making. Currently, the shares are sitting at what could be the apex of a peak. Interestingly, if the SPY closes tomorrow near the $150 level, it will form a red “doji”. A doji is formed when shares open and close the week (since we’re looking at the weekly chart here) at the same level. It looks like a cross or plus sign. If you look at the two previous peaks, a red doji signified the top of each move up.
AIG. On the individual stock front, AIG is forming a very tight rising wedge here. We saw a breakdown earlier in the year, but the shares re-took, and have been consolidating within, the wedge. A breakdown has a target move of nearly $4.00.
Amazon. Oh, AMZN. Simply put, this stock is mind boggling (or maybe mind numbing is a more accurate phrase). The valuation investors allow here is astonishing. But back to the technicals. The shares have been in a very well-defined uptrend for over ten weeks. After earnings, the shares popped back up to the highs (potentially forming a double top with a $235 price target) on a sharply lower RSI, forming negative divergence. If the shares drop below the $260 level, it would confirm the double top as well as a breakdown from the rising channel.
Boeing. BA has become increasingly chaotic. But this afternoon we realize that it could simply be forming a descending triangle. We’re waiting to see how this plays out before jumping back in.
Broadcom. We took a bearish position in BRCM on a breakdown from the large rising wedge, and covered our position as it reached oversold conditions. It will likely consolidate before continuing down in a meaningful way.
Gold ETF. We took a bullish GLD position as it broke out of its long-term falling wedge. It has since been bouncing off the upper trend line. We’re OK holding here for the time being.
Google. Google has been forming a rising wedge (inside another rising wedge), which has been accompanied by a decline in buying momentum. We took a bearish position and expect to hold it for up to three weeks to allow the pattern to play out.
IBM. IBM has formed a well-defined descending triangle since its earnings announcement. We expect a breakdown to “fill the gap,” as they say. We took a bearish position at the bottom trend line and have placed a stop at $204 (just above the upper trend line).
Morgan Stanley. MS has formed an ascending triangle on the 60 minute chart. We’re watching this for a potential breakout.