Posted by barkand on June 30, 2011 under Bollinger bands | 
Black Box (BBOX) has been in a downtrend since last winter, but the long slide may be over.
After reaching a high at $40 last winter, the shares dropped to $34 and moved sideways for a couple months. The second leg down began in April and the price eventually fell below $30. Throughout that second downturn, prices skidded along the lower Bollinger band. Except for two days in May, the price has been below its 20-day moving average since mid-April. And even on those two days, the long upper shadows show us that prices were hammered back down. The location of prices within the bands, %b, is plotted below the price chart.
But more recently prices made a low without reaching that lower band – a sign that selling pressure is easing. BBOX is now sitting just under the 20-day moving average. We are cautiously optimistic now and a couple healthy closes above that moving average would give us cause to become more bullish.
Posted by barkand on June 27, 2011 under Candlestick charts, xattascope |
Shares of Express-1 Expedited Solutions (XPO) absolutely exploded higher after an announcement that a private investor would be making a substantial investment in the company. In a little more than a week the shares moved from $2.19 up to $3.48 (that’s 59%). The price now sits at $3.13.
A look at the charts is telling us that the first burst of enthusiasm is now finished. Here’s why:
- Last week there was not one, but two, cases of the bearish “dark cloud cover” candlestick formation.
- Volume is drying up. It is especially noticeable last Thursday (the second-to-last candle on the chart below) when prices covered a huge range but on little volume.
- Prices had been at or above the upper Bollinger band, but the current price of $3.13 is now quite far from the still-rising upper band.
If the rally is over, what happens next? We expect prices to stop and rest in the $2.90 to $3.00 range. That would be 5-8% lower from here. It is the same range where it got stuck last winter. And if we turn on the xattascope and look more closely at the latest two weeks of hourly data, we see that this is a region where prices spent a considerable amount of time.
Posted by barkand on June 17, 2011 under Market sentiment |
At the beginning of this week, we noted how the CBOE equity put-call ratio was indicating a high amount of bearishness in the stock market. There was a daily reading above 1 – meaning more puts than calls – for the first time in nearly two and a half years. Usually this ratio works well as a contrary indicator.
And now, the ratio has gone above 1 two more times this week. These three readings above 1, plus another recent near-miss at 0.99, mark the only four times the ratio has exceeded 0.82 in the past year. The chart below contains the past two months of data, plus a 200-day moving average currently at 0.60.
In our previous post on this subject, we explained that crossing above 1 just once is usually good for at least a modest short-term bounce in the market and a cluster of high readings within a week or so can magnify the effect. At this point we are expecting a good rebound in the market. It might not last very long, so enjoy it while it lasts.
Posted by barkand on June 13, 2011 under Market sentiment |
Last Friday, the CBOE put-call ratio on equities reached a value of 1.02. This is the 25th time since October 21, 2003 (the earliest available data) that the ratio has gone above one, and the first time since January 2009. Nearly half the occurances were in 2008.
If the market is being relatively pessimistic about stocks, should we be a contrarian and buy stocks here? We looked at changes in the S&P 500 over three different time periods – one week, one month, and one quarter. The results are in the table below. In 20 of the previous 24 cases, the market was up one week later. We like those odds. But if we look over a longer period of time the performance is more mixed. You might notice also that the most extreme of the extreme values (i.e. the highest ratios) do not necessarily produce bigger rebounds in the market.
The best performances in the stock market come after the put-call ratio has exceeded 1 more than once within a period of a few days. The ratio did reach .99 a couple days before going to 1.02 last Friday. Is that close enough? We will see. If we get another reading above 1 this week, it would certainly make us more comfortable in expecting a bullish bounce in the market.
Posted by barkand on June 6, 2011 under Classic chart patterns |
The last two days of trading in Brocade Communications (BRCD) has given us an unusual chart. The shares opened and closed at virtually the same places both days. This “railroad track” effect is usually a continuation pattern. Prices should travel in the direction of the close. And these two trading sessions were actually a gap up after completing a cup-and-handle pattern, so we expect prices to go higher. It is impressive, considering the weakness in the market overall. However, one negative would be the rather long upper shadows, if we were looking at a candlestick chart.
If we take a step back and look at a long-term chart, we see that the recent cup-and-handle is really part of a larger cupping pattern which started in the autumn of 2009. On this chart, we might expect BRCD to meet with some resistance between $8 and $9. Still, the shares are in the clear for a 15-20% gain from here over the next several months.
Posted by barkand on June 2, 2011 under Candlestick charts, Price trends |
As a reminder for those who slept through physics class, magnets both attract and repel other magnets. And Intuit (INTU) can not decide if it wants to be attracted to, or repelled by, the $54 level. Starting in February, the share prices have done both quite a few times. And this week once again prices went right to $54 and were again repelled.
The most interesting instance of this was the relatively rare ”separating lines” on May 20 & 23 (a Friday and Monday). Separating lines occur when the price opens at nearly the same place on two consecutive days, but then travel in opposite directions. On the 20th, INTU opened near $54 and then ran toward $55. On the following trading day, they once again opened at $54 but then closed below $53. Usually, this pattern would indicate the continuation of a trend. But in this case what is the trend? At the time of the separating lines, ADX was well below 20 and confirms what we see with our eyes: there is no established uptrend or downtrend.
