Yum!my
Yum! Brands (YUM), purveyor of the Taco Bell, Pizza Hut and KFC brands went vertical on Tuesday, spiking into the top of its 9-month rectangle pattern. The stock finally looks ready to break out and test the all-time high in the 40s.
Other sector leaders (using my proprietary scans):
* Dominos (DPZ)
* Ruby Tuesdays (RT)
* Cheesecake Factory (CAKE)
* PF Chang (PFCB)
* Chipotle (CMG)
* Darden (DRI)
Politically-Correct Short Sale
Research in Motion (RIMM): All Pain, No Gain
Research in Motion (RIMM) is getting “rejected” for the third time at the huge gap it popped back in September. Note how On Balance Volume (OBV) has deteriorated in each test, flagging the subsequent reversals.
It sure looks like institutions are still closing out their positions on this former market leader.
Fibonacci Retracements and Convergence-Divergence
It’s natural to measure the “quality” of a bounce by the percentage of the rally off the low but, ironically, this often yields false conclusions. A better way is to measure the percentage of the retracement into the prior downswing, using the Fibonacci tool.
Here’s an example:
The above chart shows the Russell-2000 Index Trust (IWM). Its bounced about 7.6% off its low and tagged the 62% Fibonacci retracement.
Now look at the next chart…..
This chart shows the Oil Services HOLDRs Trust (OIH). It’s also rallied 7.6% off its low BUT has retraced just 38% of the prior downswing. This tells us that oil services are LAGGING small caps in this bounce attempt, although both instruments have rallied the -exact- same price percentage.
This type of information is especially useful when examining leader-laggard relationships between the SP-500 and Nasdaq-100 index futures because Nasdaq-100 leadership points to speculation and trending markets, while SP-500 leadership points to safety and trading ranges.
Apple: Holding Up Like A Champion
I’m more than happy with Apple’s price action since the correction began a few weeks ago. It’s holding 190 like a champion, showing that institutional buyers are making a noble stand at that level. However, the chart still looks moderately “broken”, raising the odds for a downswing that fills the gap at 175. That’s also the price level of the 200-day EMA.
Canadian Solar (CSIQ) Dip Trip
Canadian Solar (CSIQ) sold off from 52 to 3 and bottomed out last March. Its been moving higher since that time in a strong recovery that got even stronger, starting in November. The move topped out at 33.68 on January 6th and gave way to a steady pullback that accelerated to the downside on Thursday. The stock dropped within 30-cents of its 50-day EMA last Friday and closed near its low.
The selloff has crossed the 50% retracement of the 5-wave rally between 19 and 33. This suggests more downside before a decent bounce gets started. The 62% retracement at 24.71 should be watched closely because the selloff could easily undercut the 50-day EMA intraday, tag that level and close out with a bull hammer that might offer a good dip trade entry. If taking a position, keep stops tight and consider that reward is limited to the 38% retracement over 28.
January Momo
My January momentum lists keep on growing each day, with new plays hitting the market. I suspect the momo will die as quickly as it began so let’s make hay while the sun shines.
My strategy with these plays is simple enough: I don’t chase them, no matter how strong they are during the intraday. Instead, I wait for the daily/120 min patterns to set up better entries, like Smartheat’s (HEAT) small cup and handle pattern on Monday.
My current momo list:
- A-Power Energy Generation Sys,APWR,19.11
- China Automotive Systems Inc,CAAS,26.35
- China Agritech Inc,CAGC,38.43
- China Green Agriculture Incorporated,CGA,17.74
- Canadian Solar Inc,CSIQ,32.56
- China Securties & Surveillance,CSR,8.95
- Smartheat Inc,HEAT,18.03
- Incyte Corp,INCY,11.09
- Ion Geophysical Corp,IO,6.73
- China Finance Online Co Ltd,JRJC,9.01
- Kandi Tech Corp,KNDI,6.49
- Origin Agritech Ltd,SEED,14.50
- Solarfun Power Holdings Co Ltd,SOLF,10.42
- Trina Solar Ltd.,TSL,61.55
- Telestone Technologies Corp,TSTC,23.47
- Yingli Green Energy Hlds Co,YGE,18.84
Wynn Resports (WYNN) Getting Heavier By The Day
Wynn Resorts (WYNN) might be setting up an end of year short sale. The stock bounced higher in three waves after bottoming out at 14.50 in March. The 3rd wave topped in September 75 and gave way to a selloff that found support at the 200-day EMA at 51.The subsequent bounce printed a lower high, followed by 2 downswings to the 50-day EMA.
The stock broke that level on Thursday and has dropped into the 60 strike. This could mark the next downswing in decline that eventually tests the low at 51. Short sales are tough strategies in 2009 so its best to wait and see if we get a failed test near the gap top at 62. A rollover at that level could trigger enough momentum to drop price into the low 50s in a hurry.
Alcoa: Not Ready to Lead the Dow
Alcoa (AA) has been a top Dow performer for the last few weeks. The aluminum giant bottomed out near 5 in March and entered a steady recovery that reached the 200-day EMA in August. Price action has been choppy since that time, with a series of highs above the average, undermined by a steep October selloff. The current uptick has returned the stock to the October high near 15.
The weekly chart shows two main obstacles. First, the current positioning isn’t favorable for a quick breakout so another downswing appears likely. Second, the April into October rally printed higher highs that now mark resistance around 17. So, the best scenario for the bulls will be a shallow pullback that sets up a better breakout pattern, with aggressive profits taken at the rising highs trendline.
Boeing (BA): Caution Now, Buy Later
Boeing Co (BA) sold off from 108 to 29 and bounced in March. It’s lagged the Dow Industrials since that time but has perked up in recent weeks. Notice how the stock has stalled at resistance in the mid 50s several times and is now trading near that level once again, after a month long bounce. Accumulation has declined significantly this year, although price has risen to a breakout level.
This raises a bearish divergence because the pattern has evolved into a decent looking cup and handle base. You can find another trade setup similar to this one in John Deere (DE). That stock broke out and eased its bearish divergence during the initial phase of the new uptrend. That’s possible here but I prefer long-side exposure when the technicals are firing on all cylinders.