Shares of Target (TGT) recently reached 5-year highs, but in our opinion shareholders will have a long wait ahead of them before seeing any further advances. To understand why, we need to back up to the beginning of 2011. The highs seen at that time formed the left edge of a cup-and-handle pattern. The right hand side of the cup was formed in March 2012 and the “handle” took prices down to their 20-week moving average. As is often the case with this pattern, the shares went higher before topping out in August.
Of concern to us is the fact that trading volume dried up throughout 2012 even as the shares marched higher.
And now TGT has tagged the lower Bollinger band on the weekly chart for the first time since the beginning of the year. Sometimes, this event can provide support for prices. But, based on the trend of volume during the advance, we suspect the shares will “walk” along that lower band for a while.
Let’s now turn on the xattascope and see if we can find any more information on a daily chart. On this chart, we first see that the shares twice found support this autumn at $61. On Wednesday of last week, TGT closed decisively below that level and now sits at $60.50.
As on the weekly chart, prices are scraping along the lower Bollinger band. We would note also the information provided by the 2-period RSI. Traders sometimes use extremely low values of this indicator to find opportunities for a snap-back rally. In the case of Target, each of the last three rebounds was weaker than the one before it. That is a trend which cannot go on forever but we are not eager to anticipate a stronger rally.
There is a bit of an air pocket between here and the $57-58 range. Our best guess is that the shares continue lower into that range before any tradable rally presents itself.
In recent weeks we have written about Molycorp (MCP) and North American Palladium (PAL), two companies in the business of taking unusual stuff out of the ground. In both cases, we were looking for a well-behaved bottom before seeing the situation as a buying opportunity. And in both cases it did not happen.
Let’s begin with Molycorp. We didn’t like the ebbs and flows of volume after the bottom in August and suggested (Rare Earth, Where Have You Gone) that a re-test of the lows was in order, hopefully with a healthy dose of apathy. Well shares of MCP have been cut in half since September’s brief rally. It’s not what you would call a soft landing. There is, however, an opportunity here for a quick trade in MCP. For the last three days, the shares have been trading below the lower Bollinger band. Stocks can rarely live outside the bands for more than a few days at a time, so we expect a short rebound here.
More recently, we wrote (Playing With Palladium) about North American Palladium (PAL). Based on a weekly chart, we felt that shares of PAL would be interesting if only they could contain the latest bottom within the Bollinger bands. As you can see on the updated weekly chart, prices have once again pierced the lower band. Unlike MCP, the price of PAL shares has recovered to a level above the lower band. Still, we can not recommend the shares just yet. Meanwhile, shares of competitor Stillwater Mining (SWC) continue to hold firm.
The last two years have not been kind to the palladium market, as evidenced by the accompanying chart from Kitco. Many precious metals, including gold, have been in a consolidative mode during this time. But palladium has been particularly weak, and it struggles to avoid making multi-year lows.
We mention all of this as a way of introducing a weekly chart for North American Palladium (PAL). It is one of only two miners whose primary business is palladium. The other is Stillwater Mining (SWC). On the chart of PAL, below, you see the long-term downtrend in the company’s shares. Of particular interest to us, from a technical analysis perspective, is the possible double-bottom on the right hand side of the chart.
The second bottom in a double-bottom can be either above or below the first one. But it almost certainly will occur within the Bollinger bands. If PAL prices should tag that lower band again, then we would expect lower prices to come. So the first thing we would want to see here is for prices to turn up without any further violent downward thrusts. Any possible enthusiasm for PAL, however, is mitigated by the performance of Stillwater’s shares (included as the third panel in the chart below). Unlike its competitor, SWC is not threatening new lows. For the past year, it has performed much better than PAL.
Shares of PAL may in fact be making a low here. Just be aware that you are buying the weaker of the two stocks.
The movers and shakers of the Republican Party are now in Florida, alternating between a love fest and a debate about seeking love or respect. the photo on the right is of Newt gingrich with, curiously, what appears to be a halo overhead.
So with that in mind we decided to take a look at an industry that has been both unloved and unrespected for a while now. The shares of solar energy companies have been living in darkness for a long time and, even after a recent rally, are down 80% from where they were 18 months ago. (We are using the TAN ETF as a proxy for the industry.)
They say it is darkest just before dawn. Looking at the weekly chart of TAN below, we wonder if there might be something just over the horizon. Yes, TAN is still technically in a downtrend as it is still making lower lows and lower highs. But notice that the momentum of the downtrend has weakened, as indicated by %b. The latest leg down failed to tag the lower Bollinger band. The same situation occurred last December and the shares rallied 40% within a couple months. Notice also that trading volume in the ETF has been drying up throughout 2012. Nobody is interested in solar stocks anymore. From a contrarian point of view, maybe we should get interested.
It is too early to go crazy buying TAN or many of the individual stocks, but you should at least keep an eye on them.
Agriculture giant Monsanto might be benefitting from the harsh weather conditions in America this summer, but it does not mean you should buy the company’s shares.
Earlier this summer, MON finally broke through strong resistance at $80 and quickly advanced 10% from that resistance point. Unfortunately, each of the three pushes higher came with less intensity. The first one punctured the upper Bollinger band; the second merely tagged it; the third failed to do that much. On that third push, the shares tried on three different days to go above $89 but they retreated every time.
A fourth attempt to go to new highs probably will not succeed. A rally from here will probably bring many sellers into the market. In our opinion, a consolidation phase most likely is the next step for MON.
It’s been a rough couple of months if you have been holding shares of Zynga (ZNGA). Currently sitting at $8.95, it means the price is down by one-third since early March and is a bit more than 10% below its Zynga’s IPO price.
But cheer up ZNGA fans! This week’s action is providing some evidence that the cascading drop in prices is at an end. Here is what we see:
1) On Tuesday, ZNGA opened with a gap lower but soon reversed with a thrust into the previous day’s range. It is not a “buy” signal by itself. But it is a possible sign of hope.
2) This week’s bottom occurred well within the Bollinger bands, after skidding down the lower band for so many weeks. This indicates to us that selling pressure is subsiding.
3) The reversal came at the same price – $8 – where the shares made a low earlier this year. “Somebody” out there is coming in to the market and buying at that point.
4) We do not use the MACD indicator in our work. But we realize that many other people do. And we noticed that MACD is about to generate a crossover which many will see as a sign to buy.
We think a first attempted rally might get stuck at the 20-day moving average. That average is a little above $10 right now but falling fast. Still, there is maybe a 5-8% move possible in a short time. Those with more patience may recover a good chunk, if not all, of the past two months of losses.