KBH - constructive bull flag

As the S&P rockets back into its bear flag trading range catching me (and possibly many others) off guard and setting up for a continuation to the top of the channel somewhere near 1400+, the bull flag in KBH is looking interesting from a swing long perspective.

The first chart below shows KBH in a long primary bear trend (see big red arrow)...so it is prudent to start off this analysis by saying buyer beware. But if you look at the activity of the stock when it is over its 200day moving average (yellow line) as shown by the small green arrows, then you can see the intermediate and short term bull trend within that primary bear trend provides opportunities to play as a swing long.

The second chart above shows the action over the past year or so. Here it is easier to see how KBH has made higher highs. Most recently the stock has moved over its 200day average and is in the midst of a constructive bull flag. For those of you who like swing trades, this one sets up nicely for a buy in the $9.20 - 9.50 area or depending on your risk tolerance, on a break over the top of the bull flag channel currently near $10. Stops should be below the 200day moving average and the price projection on a break over the bull flag is at a minimum to the top of the flag near 10.80...a nice percentage gain.   

S&P...kinda not looking so great

Well, after some volatility around the 100day moving average and what looked like what was going to be an extension higher with the help of strength in the DAX, the S&P kinda caved in the past 2 days and is now back to its 50day moving average. This volatility is likely chopping around short term traders, but the underlying strength, or lack thereof, remains weak.

Many big name stocks such as IBM MSFT CSCO etc are below their respective 200day moving averages. Definitely not the kinda stuff that sustainable rallies and bull markets are made of. And today small caps, as represented by IWM, also closed below its 200day moving average just as its 50day is getting close to crossing below the 200day. This is not setting up to be a fairytale ending.

So for the bigger picture, the chart below is a daily of the SPY and clearly shows a close below the bear flag that has been forming since the June lows. I was going to put this out yesterday, but after falling outside the channel during the day, SPY closed back in the channel and I didnt want to send any false warning signs before it was necessary. BUT NOW IT IS NECESSARY! Unless AAPL, which reports today, can save the day, I suspect things are going to get much worse before they get better.

A similar channel occurred this spring and you can see what happened as price closed below the channel and below the 50day ma...it wasnt pretty. I suspect something similar will happen this time. Unless of course either AAPL or The Bernake can save the day...and soon!

EURO...

I was going to write about how the S&P futures are getting slammed this morning but it seems more important to write about WHY theyre getting slammed. Just take a look at the EURO. The strong weakness from todays session is taking out all the gains made over the past 5 days in one shot!

Not only is that troubling but the nearest low close in the EURO is 1.2203 and it is currently trading below 1.2200. If it remains down here for the session then this sets up an extension move lower towards the 1.20 area in the near term. This will weigh HEAVILY on stocks and should test the resolve of the equity bulls recent strength.

As I mentioned with this post (EURO uh oh), the weakness in the EURO needs to be followed very, very closely.

Broad market(both S&P large caps and IWM small caps) conditions improving rapidly

Many posts ago on June 17th with this post Broad Market Status Quo, I said that it would take a move up in the broad market on increased volume, coupled with a move higher in the DAX as well as the Shanghai Composite to negate my bearish view. Well the broad market has increased its upside volume on this advance, and the DAX as represented by the chart immediately below recovered not only its 200day moving average below 6400 but above its 100day moving average yesterday above 6600...quite impressive Ms. Merkel!  But the one laggard remains to be China, as shown in the lower chart.

The one improving aspect of the Shanghai Composite is the structure of the recent candles. As you can see in the green circle on the right, yesterdays hammer is very encouraging, especially since it came after a long downtrend and some constructive bottoming action. Actually, the recent action looks very similar to the green circled area on the left from late last year/early this year which saw 2 hammers with the second hammer also being a bullish engulfing. So although China still remains in a downtrend, a risky countertrend trade could be finding some buyers at these levels...so watch Chinese stocks here (names like BIDU, SINA, SOHU, etc). The Shanghai Composite really needs to make a higher high to get out of its funk and reverse the downtrend but risky traders may want to take a shot on the long side here using a tight (new lower low) as a stop.

Anyway, encouraging signs here in the US as well as with the leader in Europe (DAX) are suggesting we may be in the midst of a summer rally. There are many bulls out there hoping this is the case. But with some big name stocks such as IBM, INTC (yes tech has been the laggard sector I know) as well as some other heavy weights below their respective 200day moving averages, I just need one more piece of the puzzle to become a firm believer in a melt-up rally to 1400+ myself. Ni hou Shanghai!

Crude on the move

The price of crude has been on the rise recently after falling off a cliff from its early May highs of $105 and most recent high of $110 in Feb/Mar. But having successfully tested the low area from late 2011 near $78 it has been on the rise and could be in the midst of an inverse head and shoulders.

More interestingly is that the price is now over its 50day moving average of $87.20. The last time this happened, as highlighted by the green circles on the chart below, was late 2011. In the weeks/months following that development the price of crude continued to rise substantially. It may or may not be that crude is setting up for such a large rally, but it should be good for a near term bounce back up towards its 100/200day moving average area near $95. Watch energy stocks (components of the XLE specifically) in the near term to benefit most from this possible development while airlines could be on the other side of that bias.


(Adding this after the initial post - see that volatility has declined in crude options with this story from Bloomberg. With lower vol, this could be one getting-more-inexpensive way to play a 5-10% move from here).

S&P - The quick, and dirty

Im sure there are many scenarios out there for higher/lower broad market prices, with one strong argument being that the last 6 months of an election year tend to be very bullish. But looking strictly at the technicals it paints a different picture.

For those fans of fibonacci, using the March 2009 lows as a base, the peak into April 2010 was corrected to 38% (to 1000), then again the peak into the summer of 2011 was corrected to 38% (to 1100). If, and thats a big IF, the current peak from this spring was the end of the bullish 5 wave sequence from the March 2009 lows and the S&P was to correct to 38% Fibonacci retracement then we are looking at an ultimate target around 1130.

Important levels to consider on the way down in case something of that magnitude does unfold over the coming months...the 200day moving average currently near 1300, 1250/60 which represents the launch area in December 2011 as well as the retest in early June 2012, and 1200 which is a big psychological area and that would likely have QE3 talk furiously buzzing. The only thing that would negate my negative bias for the broad market in the coming months as described above is a close over the recent highs of 1368.

Just something to think about after the fireworks of the past 2 summers. After all, isnt the definition of insanity doing the same thing and expecting a different result?

PVH...standing on the precipice

As the broad market continues to act shaky there will be an increase in the number of stocks that break technical support...some well defined areas like major moving averages (as in this post from IBM yesterday) while others may be less textbook.

One such example that jumped onto my radar today was PVH. The stock has been flirting with its 200day moving average since May and continues to be in a bear flag. Although the 200day has been successfully defended so far with breaches below not lasting for more than 2 days, this type of activity needs to be monitored closely - especially since this is in a discretionary sector. A high volume close below, especially if sustained for more than 2 days, will likely lead to much lower prices. Look for first support to be ~$70 with much stronger support ~$65.

IBM below its 200day...

With IBM below its 200day moving average watch out. Although this stock has been below its 200day recently, as well as las summer (yes both were headfakes) this time looks different as the stock has been in a strong downtrend since its April peak.

Watch previous support around $180 as its first real test.

IWM outperforming S&P on relative basis

Although I am not a big fan of the overall market at this juncture the chart below is impressive. Its is a relative performance chart of small caps (IWM) vs the broad market (SPY). As you can see IWM has outperformed SPY by over 4% since mid June. Despite deteriorating conditions in Europe and China, this is encouraging for the bulls.

Will be interesting to see if this continues in teh near future or if its just a short term blip.

Bad jobs number...S&P heading lower

Not a very friendly employment number. The S&P futures reacted strongly to that disappointment and today could turn into a trend down day, especially with the futures back below the 100day moving average of 1357. Watch that level as an inflection point.

Also, dont forget the EURO...its on the slippery slope to 1.20. As a reference, the last time it was there was June 2010 when the S&P was trading near 1,000...Food for thought!

Enjoy your weekend.

EURO - uh oh.....

This is not a pretty picture. The EURO is now under 1.25 and not looking at support until the 1.20 area.

This is important.

This is meaningful.

This needs to be given your full attention.

AAPL...making higher highs

A few posts ago (actually here: APPL's curves don't look so great) I wrote about how the rounding top in AAPL is looking quite daunting and a fall below the 100day moving average will lead to much lower prices. I also mentioned that the only thing that would change my mind about that technical drop would be for the stock to make a higher high over its June highs.

Well yesterday AAPL did just that...made a higher high over $591.

This should lead to an extension to the upside - but watch for this price to act as an important pivot point in the next few days if the stock happens to not explode higher from here. Although the stock did make a higher high, its real test will come if price can hold over that important mark in the next few days. If so, then the AAPL gravy train should make many holders very very happy in the weeks and months ahead...but if not, and the stock were to fall back below $591 on heavy volume and more importantly below its 100day moving average, then the fall to previously mentioned levels will likely be near.

HOG - This Harley is starting to sputter

It was with this post on May 20th that I mentioned the long term bullish trendline in HOG as a very good place to step in on HOG in case the stock collapsed. That line is represented below by the green dashed line. But since then, there has been a large Head & Shoulders that is well defined with an imminent break of the neckline coming (even though this chart is from a few days ago it is still valid).


So what happens on a high volume neckline break down? A measured move below the neckline equal to the distance of the red arrow. There will be pauses along the way down like the 200day moving average and below that at the long term bullish trend line where bulls may defend vehemently - after all the stock is in a primary long term bull trend. But if it collapses, a completion of the measured move could take the stock all the way down towards the $35 area if shorts pile on and longs really get nervous about HOGs prospects in a slowing economy.

Something to consider if you are long or looking for a high probability technical setup for short exposure. Any other traders who are looking at this same setup and are playing it will use stops according to their risk tolerance...likely somewhere a little above the neckline.