January 21, 2013 (7:00 pm)
We’ll be watching a few charts as the week kicks off tomorrow. Generally, we remain bearish on the markets. The SPY and QQQ’s leaped above their upper Bollinger Bands and became overbought. Volatility has plummeted. We expect that the most likely outcome is a trend reversal coinciding with earnings. A majority of stocks that we’re watching have a bearish tilt, and have seen significant rallies into earnings. Expectations are high heading into earnings. That is not a bull’s friend.
American International Group: We just caught on to this one. Too late to participate in the first move, but this one likely has more room to run (on the downside). The shares formed a well-defined rising wedge over the last 11 weeks and recently broke down. The shares re-test the lower trend line and failed at that resistance. The target price is around $33. We’ll see if we can get a good bearish entry this week.
Broadcom: We participated in the move down in BRCM before it lept above the upper trend line of its rising wedge. It looks like we saw a false breakout on Friday, and the shares have since fallen back within the pattern. That’s a bearish signal. We’ll keep a close eye on this one.
Berkshire Hathaway: We entered into a bearish put position in BRK.B in early January. It has slowly and steadily moved up on declining volume. The RSI has been overbought. The Chi-Osc is at levels that have tended to precede near-term sell-offs (red vertical lines), and it leaped above its upper Bollinger Band two weeks ago with no retracement. In the past, the shares have sustained these types of rallies for two or three weeks before retracing a significant portion of the move. We’re patiently waiting for a reversal. As always, if we see evidence to the contrary, we will not hesitate to close our position for a loss.
General Electric: We started reviewing GE’s charts over the weekend. It has been forming a very substantial symmetrical triangle and the shares broke out on Thursday (with follow through on Friday). The implied price target of this move is $3, which could bring the shares up to $24.25. We’ll be watching for an entry this week.
Gold ETF: As we tweeted on Saturday, GLD has been forming a picture perfect falling wedge and has since broken out. After re-testing the upper trend line, the shares rallied and have formed a bull flag. We expect it to continue up and are holding our positions.
Netflix: We entered bearish NFLX positions last week. Its rising wedge broke down and failed on a subsequent re-test of the lower trend line. We remain bearish and plan on holding our positions.
Don’t hesitate to reach out with any questions or comments.