Monday, January 19, 2015

Jan 19. SLCA: Short-Term Reversal.

Following two rounds of heavy selling from an all-time high US Silica Holdings, Inc. (SLCA) has been trying to find at least an interim bottom over the last month.
On the intermediate-time horizon PnF chart SLCA has formed a double bottom (blue arrows) combined with a reversal pattern – a bearish pattern reversed (orange lines). An upward breakout from this pattern triggered a buy signal (lime box). Should SLCA manage to clear the overhead resistance (red rectangle) and rise to 29 and higher, a fulcrum bottom would be formed and a vertical count with the potential upside target of 39.5 would be activated. Weakening down volume and rising up volume favor this possibility. The recent insider buying in the range of 24-27 is also an encouraging sign.
Let’s zoom in to the short-time horizon chart. Followers of the classical technical analysis can recognize a skewed inverse head and shoulders pattern. Though it may be just random price fluctuations, a breakout on high volume above the falling trendline increases chances of the short-term reversal. Two vertical counts point to potential upside targets of 29.50 and 33. A measured move from the inverse head and shoulders pattern (light blue) projects the target at 32.50.
Since SLCA is still in a downtrend, long positions are at greater risk. If prices fall to 25 and lower, the short-term reversal scenario should be reconsidered.
Disclosure: Long March 24 Calls.

Saturday, September 20, 2014

Sep 20. Starbucks Corp. (SBUX).

In December 2013 SBUX entered a long term correction after one year long uptrend. Apparently, SBUX started its next down-leg within this correction a week ago breaking down through the neckline of a small two-month long head-and-shoulders pattern. The breakdown was confirmed by the PPO (momentum indicator) decline below -0.25, a level with proven significance during this correction. Price is testing the broken support right now and has a price objective at 71.5-72.5 according to my PnF charts. The PnF price target coincides with a head-and shoulders measured move target. Should price rise to 79 this scenario would be reconsidered.

Wednesday, September 17, 2014

Sep 17. Western Digital Corp. (WDC).

WDC, weekly chart.
WDC has started its next correction within a long term uptrend. Two previous corrections found support at the rising trendline (pink). The weakening momentum suggests the trendline may not hold this time and price may test the lower boundary of Raff regression channel.
WDC, daily chart.
WDC has broken down a medium uptrend and a tight consolidation on the daily chart and closed below 98. This price action triggered a sell signal on my intermediate horizon PnF chart with a price objective at 88-92. A rise to 103 will negate this scenario.

Monday, June 2, 2014

Jun 02. Dow Jones Transportation Is Extremely Overbought.

Today the Bullish Percent Index of the Dow Jones Transportation Average (TRAN) has reached the maximum reading of 100. It means that all constituents of the index are on a buy signal on their Point & Figure charts. Though this reading speaks about strength in the TRAN, it also indicates the extremely overbought conditions. It is a rare event which is happening the third time over the last ten years. In two previous cases it put a lid on the TRAN and the index retraced to its monthly EMA (20). Note that the index can continue to rise for a while before giving ground.

Monday, May 12, 2014

May 12. SPX: Bullish Breakout.

I wrote in my last post that a consolidation in the SPX within a bigger uptrend has rather bullish implications than bearish until the major trendline is broken. Today’s market action apparently supports this statement.
Let’s look at the short horizon 2-box reversal P&F chart (box size is volatility adjusted). The SPX has broken out from the last three week consolidation which looks like an upside triangle (lime) and issued a triple top buy signal. What more important is the index closed above two previous highs. The breakout from the consolidation and a new 52 week high close imply higher prices ahead in the short term. The horizontal count from the triangle consolidation projects the 1936 target. Now, let me be clear, nobody has a crystal ball and is able to forecast the future. Analysing charts we assess probabilities. Today’s market action has shifted probabilities to the bullish side in the short term. A decline below the bullish support line (blue) will negate the breakout.

Friday, May 2, 2014

May 02. SPX: Once More About A Top Formation.

I am writing this post after reading Michael Harris’ article “A Top Formation in S&P 500 Index”. Michael has touched a subject of rigid, straightforward interpretations of consolidation patterns leading to mistaken conclusions of possible outcomes. I couldn’t agree with him more. The human brain is hardwired to look for and find repetitive patterns even in an environment where they don’t exist. Rather than trying to fit the chaotic price movement of a loose consolidation into one of the preconceived patterns let’s look at the ongoing consolidation in the S&P 500 within a broader price action context.
Here is the 2 box reversal P&F SPX chart with a box size equals the ATR (250). The 16 point box size filters daily average (over the last year) noise. Objective trendlines give a good visualization of the trend. We see that since the beginning in the second half of 2012 the current uptrend accelerated two times breaking out of the blue channel and forming two new channels - grey and purple. The upper trendline of the purple channel lies within the grey channel and indicates that the second acceleration was less powerful than the one which had formed the grey channel. However, this fact can hardly prove the trend reversal claim. The price isn’t even close to the lower trendlines. Moreover, it has not violated the interim bullish support line (light blue) yet. A consolidation within an uptrend is considered to be bullish first. Only when the price starts breaking down through the support lines, a possibility of reversal will come into play. Until then let the price dictate trades, not a preconceived opinion.