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.
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.
There is no law of technical analysis which says that charts must be full of wiggly lines. Often times simpler is better. Today we have two simple charts of Johnson & Johnson (JNJ). First up is a daily chart of nothing but prices. Yesterday marked the stock’s third attempt at definitively pushing through the $69 mark. In our view, this will not turn into a “triple top”. In those situations you are likely to see deeper, more jagged, corrections between tops. But here we are coming out of an orderly basing pattern. The smiley face usually results in higher prices.
Next, we will put the xattascope into reverse mode and zoom out to look at three years of prices. It is clear that long-term investors have been happy with JNJ. It is also clear that there is strong resistance coming from an uptrend line overhead. We are only $1 away from it now. It is not likely that we will see JNJ break above that trendline but it is possible that the shares could walk along it for a while. we see any rally from here as being muted and/or slow to develop.
It was a miserable year for XOMA shareholders in 2011. The share price started the year above $5 but by December it was barely above $1. Markets rarely flip immediately from bearish to bullish, and XOMA’s situation was no different. The shares thrashed around for most of the winter, oscillating above and below $1.50, before decisively starting a new uptrend in March. Since then XOMA has been living above its 20-period moving average. Although prices have stagnated this summer, we would still consider the uptrend to be intact unless or until it closes below that 20 week moving average for two weeks in a row.
Dusting off our xattascope, let’s take a closer look at what has been happening this summer. On the daily chart below, notice how prices stopped going higher at two times their 200-day moving average. This is a frequent occurrence and coincided with some natural resistance at a “round” number (yes, technical analysts sometimes consider a 4 to be round). At that point the shares began drifting lower. So far this month, XOMA shares have come dangerously close to the $3 mark, but buyers quickly come into the market and bid the prices back up. We tend to think that XOMA is merely going through a consolidation phase now and will eventually resume its uptrend.
Those of you who entered Hologic (HOLX) in the mid-teens last autumn may be puzzled by our assessment that the shares are about to begin a move. The 30-40% gains in that time are certainly not insignificant.
You probably also are aware that HOLX has been in a consolidation phase for the past month. Even today the shares made a brief run towards $21.75 only to be quickly turned away again. So we decided to put the xattascope in reverse mode and get a long-term view of what is happening here.
Looking at weekly data going back 5 years, the situation becomes more clear. It took nearly a year to do it, but a well defined cup-and-handle pattern has been formed. The shares are now well into the “handle” part of the pattern. Maybe it will not break out today but if or – more likely – when it happens, where will it go? Our best guess, based on the size of the cup and a congestion area dating back to 2008, is that the next stopping point woould be in the $28-29 area. Just remember that this is a long-term chart – don’t expect HOLX to get there in a matter of days.
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.