February 10, 2015
Want to quickly run through some charts we’re watching, many of which are actionable. In no particular order…
SPY (S&P500). After six weeks of consolidation between $199-$206, it is beginning to feel like the bulls are taking control. In this market, we often see an initial false move (either a false breakdown or breakout). But two false moves is less rationale. That’s because a false move is essentially an accumulation strategy by large investors. It allows them to sweep the stops that are in place. For instance, if they want to accumulate longs, they shake out traders who have sell stops in below the current range (i.e. the $198 level on Feb 1). What we labeled as “False Breakout” on February 6 was, instead, more likely an indication of the true move. We’re seeing follow through now.
SPY (S&P500 #2). Additionally, if you look at the daily SPY chart below, it’s clear that the bulls have actually been in control during this entire consolidation. It hasn’t felt like it… but price has remained above the 38.2% Fibonacci retacement level from the October lows to the December highs. That retracement level also happened to rest at the rising channel support level (funny how technicals tend to converge at certain support/resistance levels). Further, price finally broke above – and re-tested – the January downtrend line. Things seem to be turning around.
AAPL (Apple). As we detailed in our AAPL post yesterday, shares formed a relatively well-defined cup and handle pattern. Today, shares broke through and powered higher. Remember that shares may always re-test a significant support/resistance level. We wouldn’t be surprised to see shares revisit the $120 level and bounce higher. But we do expect that shares will be significantly higher in the coming weeks and 2-3 months.
IWC (Microcaps). The microcap index has formed a very nice inverted head and shoulders pattern. After an initial breakout that found resistance exactly at the 38.2% Fibonacci extension level, the IWC re-tested its breakout level and has largely held the $74-75 support. We do expect higher prices in the weeks and months ahead.
QQQ (Nasdaq). The QQQ’s have formed a ten week triangle consolidation pattern with very well-defined support at $99.50 and resistance found at the descending trend line. For the first time during those ten weeks, the index has peaked its head above the downtrend line. With the broader markets (SPY, IWC above) showing a bullish turn, we expect the QQQ to do the same.
TSLA (Tesla). We’ve written detailed posts explaining our bearish sentiments on TSLA. We went short at 220 in early January and covered in the low 190’s. Instead of short and hold, we’ve been opportunistically entering quick short trades. As shares re-tested the 200MA this past week, we re-entered that position with a stop above the MA.
TSLA (Tesla #2). Additional support for our bearish thesis is illustrated with the 40MA on the weekly chart. It’s clear that this is a significant moving average to watch – it defined the exact lows through 2013 and 2014; it also defined the exact resistance in December and again this last week. A close above this would negate our bearish thesis.
TWTR (Twitter). We took a small long position as shares reclaimed the 200MA the day of earnings. That was a signal that investors were showing their hand early. During the post-earnings rally, shares found resistance at the 61.8% Fibonacci retracement of the October high – December low. Today, TWTR found support at the 50% Fib level. We continue to hold our long position and will exit with a close below today’s low.
YHOO (Yahoo). Shares of Yahoo have gotten crushed since earnings. We had expected that the 38.2% Fib level would hold, but clearly it did not. Instead, the 61.8% Fib level was tested after earnings (and has since held). Depending on your view here, it might be a decent risk/reward. With the 200MA less than 2 points below current prices, there’s a lot of support in this zone. Just remember to have stops set.
FAS (Financial 3x Index). During the recent spike in volatility, financials were hit hard. The 3x financial bull index formed a double bottom with a neckline that sat directly at the 50MA. We love when these support/resistance levels converge, because it makes a breakout that much more meaningful. The target on this breakout just happens to coincide with the recent all-time highs at $132.50.
GM (General Motors). As we explained in a post before earnings, we entered bullish positions as shares broke above the $33.50 level. At that level, the 10, 50 and 200MA’s all converged. Clearly, a break above that level is a very meaningful. Funny how technicals often lead fundamentals. The earnings report was solid and shares spiked. We exited our position as it nears its $39 target. Might be time for a breather, but definitely not a short here.
GS (Goldman Sachs). Just like the financial index above, GS formed a double bottom at $172.50 and just broke above the neckline at $182.50. However, the 50MA sits 2 points above current prices, which may be resistance. If shares do break through the 50MA, we will likely enter intermediate-term positions. But the risk/reward is simply too high until it re-takes that resistance level.
GOOGL (Google). We wrote a detailed post on GOOGL and explained why shares were likely to find resistance at the $490 level. We exited two weeks later at $530 (50MA at the time). While shares did continue to the upside, we have to remember that we don’t need to catch the entire move. In fact, we should NOT try to catch the entire move. That level of greed leads to bad decisions. Know at what level it will be “enough”, that you’ll be proven right and that you’ll have a profit that you are happy with. Back to the charts… GOOGL has formed an inverted head and shoulders pattern. However, the 200MA sits just 10 points above the neckline, which makes for a tough decision. We’ll wait for the 200MA to be retaken before entering any other long positions.
GOOGL (Google #2). We posted the chart below as one piece of our bullish thesis on GOOGL while shares were sitting at the $490 level. It bounced off that level again. This is one to watch…
NFLX (Netflix). Shares of Netflix are forming a bull pennant after skyrocketing on a nice earnings report. This one could be headed to all-time highs. RSI has backed off overbought levels, leaving additional room to the upside.