The number 7 is widely associated with good luck. It might not seem that way for Isle Of Capri (ISLE) shareholders, however. Three times in the last year, shares of ISLE have rallied to and, briefly, through $7 only to get knocked back down. Certainly, if you were a buyer at that level, you would not consider the purchase to have been fortuitous.
The first two failed rallies were characterized by long upper shadows on the weekly candlestick chart below. In this circumstance, those shadows are a symptom of a tired rally. The bulls had run out of energy, or there were many sellers eager to get a price above $7 for their shares, or both. The latest rally failed to even produce those short-lived upward spikes. The shares briefly edged above $7 and immediately turned back. It is interesting to note also that back in 2011 a bit of an air pocked developed between $7.00 and $7.75. It is not a surprise that the market would run into trouble in that region.
So far, prices have not completely collapsed, as they did after the first two pushes to $7 (though there is still plenty of time for that). And, generally, we are seeing high trading volume where we would want to see it. Maybe the third time’s a charm? If you don’t want to gamble, then wait for two consecutive weekly closes above $7 before taking a long position here.
Unless you bought shares of Netflix (NFLX) during August or September of this year, you probably consider watching the stock price as something like a horror movie. Will you dare to look at the weekly chart below?
The shares are down by two-thirds since last summer. A trendline had formed, repelling prices twice previously. But on Monday of this week, NFLX jumped above that long term trendline dating back to those highs of a year ago. Conventional wisdom says that breaking a trendline in this manner should lead to a powerful move in the opposite direction. Finally, it seemed that the long nightmare was over.
Oh, but in films of this genre, there is usually a time when the protagonist feels safe only to be attacked anew. Was the price action in NFLX on Monday only a trick to lure investors out into the open? Looking at a daily chart, it is clear that the shares formed an “abandoned baby top” pattern. Monday’s range of prices was completely severed from those the day before and day after. Very bearish. And evil. This chart pattern is also known as an “island reversal”. Not surprisingly, the attempted rally yesterday morning was eliminated by the afternoon. In fact, we should expect more lower prices to come.
Remembering that the downtrend line is now providing support can provide some comfort. However, when comparing a trendline with what the daily candlestick pattern is telling us about the condition of the market, we put more importance on the abandoned baby. Expect the near-term direction to be down.
The last three days of trading activity in shares of Alcoa (AA) have formed what is known as an evening star in candlestick terminology. This happens when you first have a long white bar, followed by a smallish one where the “body” is completely above the first. And the third candle represents a down day with an open below the previous day’s close. In western terms, it is an island reversal. whatever you call it, the interpretation is bearish. Think of it as a mini-bubble which has popped.
How bad will it get for Alcoa? This particular evening star pattern is not so terrible. Yesterday’s trading, which created the third candle, did not dig too far into the first candle. And volume was lighter going down than going up. So AA is probably in store for a mild correction here.
Apple made headlines earlier this week for becoming America’s “most valuable” company. Ever. And now today we read this Bloomberg article which, quite hilariously, tells us that AAPL is undervalued because the stock’s P/E ratio is below that of the NASDAQ as a whole. Yes, everybody loves Apple. And guess what? It is underpriced. Buy more!
Ah, but the chart suggests otherwise. Yesterday market action completed a “dark cloud cover” pattern for AAPL shares. It is as ominous as it sounds, especially when coupled with the unusually high volume of shares traded yesterday. The latest rally is finished.
Meanwhile, at the other end of the alphabet we have Zynga. Everybody hates ZNGA. It seems whenever we hear the company’s name come up it is never, ever in a positive way. Maybe it is due to their connection to Facebook. Maybe there are good reasons to hate Zynga. But one thing is clear: everybody hates ZNGA.
Glancing quickly at ZNGA’s chart, it is easy to see why shareholders would be in a bad mood. However, we noticed that during the past month the share price has stopped going down. That things have stopped getting worse is hardly a bullish endorsement. But perhaps it is an early indication that a turnaround is in store for this unloved stock.
Yesterday’s market action generated a variety of candlesticks, depending on which index you prefer. The S&P 500 created a spinning top. The Russell 2000 generated a hammer. But in candlestick terms there are few things more important than a doji candle after a trend of reasonable length, and the NASDAQ gave us one yesterday.
A doji is classified as a “reversal” pattern, but that doesn’t mean that prices should reverse. It is more correctly viewed as simply the end of a trend. The market has been going in some direction, in this case down, and then one day prices finish roughly where they started. It is an indication that the bears might be losing control after knocking the index down 4% since last week. It does not necessarily mean we can expect a bullish upswing. Maybe there will be a brief stalemate before the bears reassert themselves. Still, it does suggest that QLD is a better bet than QID until the market tells us otherwise.
Our blog entry today will be a review of recent candlestick patterns on Monsanto’s (MON) chart. We rarely rely only on candles for decision making, but when a group of negative patterns appear in a short time then we pay attention.
A – First there was a potential dumpling top around $80. The market was running out of energy here and a gap lower would have confirmed this bearish pattern.
B – Instead of gapping lower, however, MON went to new highs in this “rising three methods” pattern, which is bullish. This particular instance of the pattern is not ideal, but, eh, its close enough.
C - The string of new highs ended with a bearish engulfing pattern.
D – Then we have a falling window, or gap, at around $82. Another bearish development.
E – Finally, there was an “in-neck” pattern. Just the name of it should tell you this is a bearish, and painful, pattern. After a big fall the previous day, the bulls could not muster much of a counter attack and hung around the previous close.
So, all in all, the candlesticks are telling us MON should go lower. How low? Going strictly by the candles themselves, there is support in the $73-$74 range.