Posted by barkand on October 21, 2010 under Uncategorized | 
Yum! Brands has had a nice run for the last 7 weeks, after forming a base at $42. But I can see three reasons why the shares won’t get much higher than the current price of $48.44.
- Volume, while always higher on up days than down days, has dried up as the uptrend continued.
- RSI recently reached a quite extreme reading of 80. Often times, these “oversold” signals can indicate the continuation of a strong trend. But I don’t think that is the case this time, because…
- At the same time that RSI was living above 70, Welles Wilder’s ADX indicator had started falling from a high level. This usually coincides with the end of a trend.
This doesn’t mean the uptrend must reverse. It is possible that prices could form a plateau here until the market generates enough energy to go higher again. Either way, it is best not to feast on YUM shares at this time.
Posted by barkand on October 16, 2010 under Uncategorized |
Even as the S&P500 was reaching 5-month highs this week, shares of Wal-Mart experienced a selloff. The “divergence” enthusiasts out there would note that some popular measures of internal strength, RSI and MACD (shown below the price chart), have failed to make new highs along with the share price.
Those two things are certainly important to note. I prefer to give a higher priority to volume. And in this case there was no evidence of enthusiastic buyers coming in to the market in the latest rally. Volume didn’t show up until the 3-day selloff this past week.
When a rising 50-day moving average crosses above a rising 200-day moving average, it tends to suggest higher prices ahead. Ironically, this happened during this week’s selloff. But, overall, WMT is looking technically weak. How low can it go? A first stopping point could be the 200-day average around $52.25. This coincides somewhat with an apparent resistance point during the rally at $52, as well as the first Fibonacci retracement point for the 3+ month uptrend beginning in early July.
Posted by barkand on October 10, 2010 under Uncategorized |
To borrow a concept from Investors Business Daily, today we will play “Would You Buy This?”. Today’s contestant has had two rallies in the past four months. Each met its demise shortly after the appearance of a shooting star. After the peak in late August around $19, this particular security lost a quarter of its value over the next month. It made a new low on Friday, though the rate of decline is much, much less than it had been. And while this security made a new low, its RSI did not. So there’s that. Otherwise, there isn’t much reason to like this particular security. Best case is it forms a base here before eventually moving higher. Or the past two weeks were simply a pause in a larger downtrend.
In fact, this is QID, the popular NASDAQ double-short ETF. It is true that tops do not behave exactly the opposite of bottoms. But sometimes it is useful to turn the charts upside down and take a look at things from a different perspective.
Posted by barkand on October 5, 2010 under Bollinger bands |
In the past two trading days, C has given us a long white candle which broke through the upper Bollinger band followed by a pullback. We saw the same thing in mid-July, with the added bonus of a gap or “window” if you want to use the candlestick terminology. As you can see from the chart, that apparent breakout didn’t turn out so well for traders.
Will it be different this time? I am optimistic that it can be. First let’s look at volume. The volume on the recent breakout day was a bit better than the false breakout in July. Not alot more volume, but it was better. Also, the entire rally in early July from the $3.80 range up to $4.30 came on uninspiring volume.
The second clue that it could be different this time is that the more recent pullback covered only about half of the previous candle’s real body. Conversely, in July we saw prices retrace almost all of the previous day’s activity.
And our third clue comes from comparing C to the S&P bank index ($BIX). In the chart below, I have plotted the relative strength of Citigroup shares to the BIX and highlighted the two time periods in question. During the July breakout, C struggled to make a relative high, never leaving the comfort of the Bollinger bands. However, during the recent attempt it has surged to a new relative high and has even pierced through the upper Bollinger band.
None of these three clues individually will knock your socks off. But together they suggest a successful breakout for Citi shares.
