Posted by barkand on January 29, 2012 under Market sentiment | 
Sadly, too much of a good thing almost always ends up being bad for us.
The stock market is no exception, as we will show on the following chart. It is generally considered a positive when a large number of stocks are participating in a rally. In other situations, where the market averages are going up but with relatively few individual stocks going up, it is a stern warning of things to come. So we like to see, in a healthy market, many stocks heading higher with the overall market. The problem is it is possible to have “too much”.
We calculate an index of advances and declines which is a cousin of the McClellan Oscillator. We prefer to apply it to the NASDAQ because that market tends to more clearly display the “animal spirits” that we want to measure. A number below minus 400 usually occurs at short-term bottoms. On the other hand, when the indicator reaches above 300 or so it often coincides with a short-term top. There is nothing magic about those specific numbers. It just happens to be what works.
The indicator broke above 300 on Wednesday and now sits at 307. It means there has been alot of “advancing” lately and in fact one more solidly positive day on Monday will push our index well above 300. As you see on the chart, the other two breaches of 300 in the past year were soon followed by sharp downturns. It doesn’t have to happen this time. There are cases in the past where the market started to head lower, then turned around and went to new highs. Still, we expect the market to be weak over the next week or so, with something more substantial looming.
Posted by barkand on January 25, 2012 under Classic chart patterns, xattascope |
Harman International (HAR) is now in a classic technical setup.
On the daily chart below, we see Harman hitting lows along with the rest of the market in early October. Then prices shot up to a high of $44. Since then, it has spent three months forming a base. Some would call it a “coiled spring”. Others might see a “lumpy” cup-and-handle pattern. In either case, it is a bullish development for HAR. And now the shares are once again at $44 and drifting sideways to down on diminishing volume over the past three days. This is exactly the behavior we want to see if prices are to continue higher.
Let’s take a closer look at this base through the xattascope, to be sure the market is not tricking us.
On this hourly chart, we see that the leveling off of prices has been accompanied by quiet accumulation. Once it reached the $44 level every burst of volume pushed HAR higher, as noted on the chart. The bulls are clearly interested in snapping up more shares any time the price drifts a little bit lower.
We expect HAR shares will resume their uptrend before the week is over – possibly as early as today.
Posted by barkand on January 24, 2012 under Commodities |
Coal miner Cloud Peak Energy (CLD) presents us with a glass-half-full or glass-half-empty situation. Some optimists out there might feel that CLD is in the process of basing, as price volatility quiets down. But we do not see it that way.
We see a stock where the bulls have been steadily losing their enthusiasm. Starting with the lows formed along with the overall market in early October, there have been four attempts at rallying the troops. And each one ends with less progress made in terms of prices. To take a more bullish view, we would want to at least see better volume on the up thrusts. But in fact volume picked up only after the fourth and most feeble rally attempt.
In each of the last two trading days, prices reached $19.75 early in the day. But the bulls quickly retreated. Clearly, they are not in control here. Indeed, CLD has been underperforming the Market Vectors coal ETF (KOL) for the last month and we expect that trend to continue.
Posted by barkand on January 20, 2012 under Classic chart patterns |
So at this time yesterday, JA Solar (JASO) shares were sitting at $2.11 and it seemed to us there was some constructive price action. We thought JASO would continue up to the $2.30 – $2.40 area.
Well that didn’t take long. Within 30 minutes of the market open, JASO ran up to a high of $2.34. And then….
And then the shares crashed 25% over the next three hours – as did many others in the solar energy sector. After that, JASO limped sideways into the close. But the internal dynamics in the market suggest it was saved by the bell. Prices appeared to be carving out a bear flag (really more of a pennant) as seen below on the 5-minute chart of the past two days. It sold off a bit into the close and we expect more of the same at the open today.
We are going to relax, make some microwave popcorn, and watch this one from the sidelines.
Posted by barkand on January 19, 2012 under Classic chart patterns, Volume, xattascope |
Traders and investors rediscovered the solar energy industry last week, after shunning anything solar in 2011. The charts look similar for almost any stock in this industry, or even ETFs like KWH or TAN. But here we will look at JA Solar (JASO) as one which is representative of the group.
The most prominent feature on the weekly chart below is the cascading bear market covering all of last year. It got so bad that JASO took out its March 2009 low. But if you look more closely you notice that, late last year, the stock began making lows well within the Bollinger bands instead of sliding down the lower band. You rarely see a stock spend an extended time hugging the lower band and then launch into a bull market. This intermediate step of a low within the bands is usually necessary.
Another thing to consider here is that while JASO made a big move in percentage terms in the past week, it has barely made a dent in recovering territory lost last year.
Now let’s look at JASO a bit more closely and see whether this was a healthy breakout or not. With our xattascope, we will examine a 15-minute chart stretching back five days.
What we want to see is heavy volume on the original breakout followed by steadily decreasing volume as the base is formed, And that is exactly what happened. Even in yesterday’s push above $2 you can see that the move was accompanied by a good amount of volume. And, more generally, the fact that JASO broke out of this new base so quickly tells us that the market is eager to buy more.
Where does it go from here? One popular – if arbitrary – method of making price projections on bull flags would say the next stop should be in the $2.30 – $2.40 area. That also happens to be where some minor congestion appeared during a failed rally in late October.
Posted by barkand on January 18, 2012 under Commodities, Correlation |
We last wrote about Molycorp (MCP) just before it reported earnings in November (see Dirty Harry And Molycorp). We visit again today after spotting both bullish and bearish fundamental analysis recently on the Seeking Alpha website. And, besides, MCP is an interesting stock to trade.
We noticed that for the last 5 months the direction of MCP shares has closely tracked the direction of gold. Maybe the market does not care about Molycorp’s individual fundamentals.
We noticed also that Molycorp is not a gold miner. We even reviewed the company’s most recent earnings conference call and the word “gold” never came up. They do extract many rare and sometimes unpronouncable things from the Earth. You might think that cerium, neodymium, and dysprosium would be somewhat uncorrelated with gold. Molycorp’s rare minerals have purely industrial uses, while gold’s value is influenced by industrial, monetary, and some would say religious aspects. Nevertheless, the market is moving both of them together.
