Ford (F) looking into the abyss

After its incredible run from the March 2009 lows to its high in early 2011 near $19, Ford is in a very precarious technical position.  The stock has made a series of lower lows with psychological support in the $10 area that was broken recently. Now it is trying to hold treneline/neckline support currently near the $8.80 area.

There are 2 ways to view at the technical weakness.  Either 1) as a large head and shoulders as outlined by the red arcs. This is the worst of the 2 views as a measured move from a break below the neckline would take the stock to near 0. Not highly likely. Another way to view the technical weakness is 2) a somewhat descending triangle (not textbook because the base is declining and not horizontal). This view would have a minimum measured move of approximately $4 lower to $5 on a definitive break of trendline support near $8.80.

The only thing that would negate the negative look in F is if the stock can regain the $10 area and much more importantly the descending trendline currently near its 200day moving average near $11. That would likely get the stock moving back up nicely. But if that does not happen, and the stock does break below $8.80 on a pickup in volume, then look for a move to much lower levels.

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?