Monday, July 9, 2018

Fractal Pattern in SP500 Suggests Strong Upside Potential

The current Weekly chart formation and break higher appears to be a fractal pattern of the post election Monthly chart in 2016.

SPX Weekly



SPX Monthly November 2016

Obviously there are differences in exact pattern but the overall structure is quite similar.

Both consolidation areas are roughly 20 bars, broke out of a flat base resistance, and pulled back to retest the breakout level + 20 SMA before rotating higher.

From this formation we know prices can run significantly as we saw in 2017 following this November breakout. I am not ruling out the possibility of a strong push higher from the current Weekly basis pattern either.

Monthly patterns are more explosive than Weekly patterns, but we could still see significant upside from here provided price holds last week's low and rotation point at 2,690

Sunday, July 1, 2018

Some Miscellaneous Charts at the Close of Q2

Whether you trade long-term charts or not I feel it is very important to keep perspective on the larger timeframe to best understand the market you are trading. We want to be aligned with the dominant trends. Knowing these larger perspectives can also guide us to building a bigger thesis on how we want to position funds or focus on opportunities going forward.

I spend a lot of time looking at and positioning with Monthly charts. Even taking some time to look at Quarterly charts can give us a viewpoint that is simply hidden to most participants. I believe there is great value in looking where others will not. Zooming out to view the forest instead of obsessing over the trees is something I take very seriously.

EEM Quarterly
Emerging Markets have been taking a lot of heat in the media lately, but I think they are the most interesting that they have been in the last decade right here.

After ripping for the last 2-years off the 2016 low, price has now retraced to the downtrend breakout line and approaching the now rising 20 Quarter SMA.

This group has been an absolute mess for a decade and I have had no interest in getting involved. The only opportunities they has offered have come from 2 vertical runs off of price crashes, not exactly ideal for a trend following strategy. In fact the return would be zero had you just held this from early 2007.

However it looks like the character is changing here: momentum is rounding up after a move back to the Zero-line and price is retesting multi-year breakout resistance going back to 2012.

XRT Quarterly
Retail stocks have been the whipping-boy of many trading discussions over the past couple years. The overarching reasoning is that AMZN is simply killing the entire retail industry. For our purposes we should note that AMZN is actually in the XRT, so that helps.

But overall the so called demise of the Retail sector seems greatly exaggerated and concocted by those who can't see further out than 1-year of price history. Certainly they have underperformed during this latest bull run, however the long-term view looks to be setting up after having rested in a very orderly manner.

To me all this looks like is a 3-year consolidation at all-time highs after a 6-year run from $7 up to $50. It looks quite normal to me and I would expect the trend to resume in the prior direction once this rest period comes to an end (which appears to be sooner rather than later).

This is a group I want on my radar going forward and will be open to building positions as opportunities arise.

XLE Quarterly
Energy has the look of a very coiled chart that is trying to break out. After the bear market run through 2015 price is now testing the key $80 level.

I note that momentum has rested back to the Zero-line for the first time in this ETF's existence which is often an indication of a powerful coiled spring.

Should prices clear this $80 resistance I think a test of the prior highs at $100 would be an easy target and would be looking for substantially higher prices from there.

This group is showing very strong EPS projections going forward and I want to be a buyer on new opportunities that arise over the next few quarters.

TLT Quarterly
Treasury Bonds continue to look like a top to me and this long-term perspective shows that structure.

There is a clear Head/Shoulder Top pattern (trust me, when you can see a Head/Shoulder pattern on a quarterly chart, its a BIG pattern). Momentum is dragging downward and looking poor.

This is a big picture thesis I have and will continue to reference this chart to see if it continues to play out.

TNX Quarterly
The 10-Year Treasury Yield appears to have formed a successful Double Bottom pattern. Note the momentum divergence on the recent 2016 low, a very powerful shift in momentum is occurring and price is responding

 Remember this is a big picture view and concerns itself very little with the weekly squabbles on CNBC about any particular level on the 10-Year.

Long-term it is clearly the case that Yields have bottomed and I will stick by that thinking until something changes on this timeframe. I don't give a crap is the 10-year goes to 3% and then back to 2.5%, it matters not to this thesis.

GE Monthly
This is strictly a speculative "value" type play and not my normal strategy, but I can't help notice what has occurred on the Monthly chart to close June.

Price has obviously poured over like a waterfall in the past 18-months; this thing is a total dog, you can't even trust the dividend any more. But what I am seeing here is at the very least interesting.

I notice how price clipped the lows from March and April and then recovered swiftly to close well back above that level. I'm not trying to call THE bottom in GE but the risk/reward is appealing for at least a mean reversion trade.

Prices don't trade in straight lines forever, they always revert to the larger trend average eventually. Currently price is 66% below the 20 Month SMA. For a lumbering mega-cap like GE that is an unsustainable discrepancy. So either this thing is going absolutely to zero or will recover at some point soon.

The way I see GE is this: We have a confirmed Monthly reversal of the prior lows, I will place a stop at the June low and see if this can retrace to the 20 Month SMA. If assuming it takes about a year for this to play out I would expect the 20 Month line to come down a couple dollars from its current levels and be around $20ish. That gives at least a 6-1 reward to risk.

I like to take long-term speculative trades when the opportunity is right and I think there is opportunity here.

OSTK Monthly
OSTK is a very wild trader, so this is a highly speculative trade idea as well. The price structure is interesting here. For a decade this stock has built out a large Inverse Head/Shoulder base pattern. Over the past year we have seen price explode higher out of that pattern to new all-time highs on monster trading volume.

Since that breakout price has retraced back to test the rising 20 Month SMA and prior highs of the range. Also note that in June the stock broke below the prior 2 monthly lows and the 20 Month SMA only to recover those levels prior to the close of the month. This looks like a decent shakeout and the stock could be ready to resume higher.

If this is a Bull Flag pattern (which I think it is) then we would expect prices to retest the prior highs near $90 (nearly 200% from current levels) and then eventually resume to new highs and extend much further.

I want to be looking for opportunities in this name as long as price is above the June lows. This thesis will gain much more momentum if price can clear the 3 monthly highs sitting near $41.50.


Monday, June 25, 2018

BABA at Key Support

BABA Weekly

 There have been a whole lot of eyes on BABA lately and on the move to new all-time highs in early-June. I've been hearing many bullish calls for higher prices, breakouts, etc. I don't disagree with this thinking but just likely on a different path than most who were making those calls. 

BABA has gone on a beautiful run over the last 2-months, rallying 8 straight weeks from the range lows to new highs. These kind of strong and persistent moves tend to attract a lot of attention, especially near the end of the near-term run. 

There will no doubt be talk today of a "failed breakout" due to the drop it made off the highs. However I feel this is EXACTLY what is needed before prices can resume higher in any meaningful way. The market loves to fool the majority and will most often shake out the bullish excess of a recent rally before resuming back higher. 

What I have had in mind for a more preferable setup vs just buying into the extended run was for a pullback to occur on the weekly chart that breaks back below the prior highs. Today we are getting exactly that. 

The Weekly chart above is now showing a textbook pullback or Bull Flag to the rising 20 Week SMA as well as filling the open gap from 5/4; this is my bread-and-butter setup. 

The confluence of support on the larger timeframe in my view overrides any "false breakout" on the Daily chart. I always yield to the higher timeframe structure and in this case the difference between the shorter-term and longer-term bias is quite pronounced. 

The fact that most short-term traders are now bearish is a good sign for the longevity of the larger timeframe trade. 

As of now this is just the initial pullback or the setup; the price action has not confirmed a verified pivot yet. For me that means buying only a partial position here on the support and then waiting for a rotation up on the Weekly chart. This will likely take a week or two to develop further.  


Saturday, June 9, 2018

Trannies Ready to Show Their Stuff

The Transportation stocks are lining up on multiple timeframes to make a new leg higher it would appear. As market participants we know that a strong economy and by extension, a strong stock market should see shippers and carriers performing well. 

If Train and Freight companies are delivering products in high quantity, it means companies that sell those products are seeing high demand from consumers spending discretionary income. All combine to suggest a strong underlying demand for goods and services we need or want for our daily lives.  

It is my view that the Transport stocks are on the cusp of extending their rally significantly in the near future.  

Monthly
The long-term view of IYT has the look of an orderly consolidation after strong 2016 and 2017 rallies. Price extended up to the 161.8% Fibonacci level of the 2015 bear market decline and has since moved sideways to let the 20 Month SMA catch up to price.

Should we see a resumption of trend above the $200 level, the next extension area sits near $250+.

Weekly
The Weekly chart shows price holding firm in a range just above a multi-month resistance area. This is setting up a 3x Weekly High breakout potential should we see price move through the $198 level.

A breakout here brings the prior highs into play quickly

Daily
The Daily chart zooms in on the 4-month trading range. Note the gap resistance from late-February right near $198. This resistance has contained prices the entire time, but the behavior of the near-term action is changing.

There have been multiple tests of the higher end of the range. Those rally attempts were all rejected sharply and prices moved back to the support lows. Since the end of May sellers have not been able to reject prices as they did previously, this to me shows a strength.

It appears the sellers are wearing out and an upside resolution is imminent.   

A couple names we hold in our Model Portfolios at zentrendstrading.com are UNP and ODFL.

Note that these leading names in the Transport group have already broken through their resistance and retested the area as support. Prices are now responding higher off of that retest.

UNP

ODFL

We must always remember that a Sector or Index is not an entity on its own, but rather a group of individual underlying stocks. If these stocks are breaking out and leading the group higher, the odds increase that the Sector or Index will follow closely behind.

If you have interest in learning how to identify and manage this kind of multi-timeframe investing, please visit us as zentrendstrading.com.

We provide detailed Notes, Videos, and ongoing dialogue for our positions allowing members to follow along with our trades. Our process is designed to take advantage of large swings that occur in the market without having to sit in front of your computer all day long. 

For questions or comments please contact me at cody@zentrendstrading.com or on Stocktwits/Twitter @ZenTrends

Friday, June 1, 2018

Biotech Perking up on Multiple Timeframes

IBB Monthly
IBB has rotated up on the Monthly chart for May. We saw price come down and test key support but then managed to recover and close above the April high. This sets up an easy risk/reward using the key support at May's low as a stop

Weekly
To follow up the Monthly Bull signal, the Weekly chart confirmed an Outside/Up rotation. This also managed to move to new 10-week highs, which is a significant short-term momentum signal. This can be a more tactical trade using this week's low as the risk reference point. Substantial upside exists from these two combined timeframes.

Daily
Zooming in on the Daily chart we can see these recent tests of the $100 level and then the clean breakout over the last 2-months highs.

XBI looks even stronger but the patterns in IBB are a little cleaner in my view.

XBI finished May at the highest Monthly close ever


Our portfolios are currently long ILMN, RGEN, JAZZ

ILMN

RGEN

JAZZ

Friday, May 25, 2018

NVDA in 4 Charts

Monthly Bull Flag > 239.25
The monthly trend has been just massive in NVDA, but that doesn't mean its over yet. Price has digested for multiple months at the highs and is now rotating higher. Its possible we could see a similar reaction to the pattern in mid-2017.

Weekly breakout + 3 week digestion
The stock made new all-time highs recently, in anticipation of its earnings it ran $50 off its low in 3-weeks time. Once the earnings came out (they crushed every metric) the stock just sorta hung out and has been coiling orderly since.

Daily ABC/Bull Flag + Outside/Up day then a 2-day grind higher
Zooming in on the recent consolidation, it looks very normal after the large ramp. It filled the 5/4 gap for all intents and purposes after making an ABC pullback type pattern, and has now rotated off the low with a bullish Outside bar. 

Also note the last two days into the holiday weekend the broad market faded lower, while NVDA closed higher both days. Showing some added Relative Strength there.

Hourly Downtrend breakout + Divergence on Double Bottom, then follow-through
Looking to the Hourly view we see the downtrend breakout which came off of a lower low/Double Bottom pattern with a positively diverging momentum reading. Price has since worked its way higher showing follow-through instead of a quick fail.

As long as prices hold the low from 5/23 I will be very long and looking for an upward expansion back to new all-time highs.

Friday, December 1, 2017

Banks Rip, But Weekly Charts Still Say Buy

We saw a huge move across the Financial sector this week and I don't believe what we are seeing is a top. On the contrary, I think this week's signal represents a brand new opportunity to add to or establish new positions in Banks. I am still adding to positions right here and expect much more upside in the future. We could certainly see consolidation short-term, but long-term this remains an emerging trend.

Regional Banks KRE
This is exactly what I look for in an ideal long entry. We are seeing volume expand on a move to new weekly closing highs after a 12-month sideways consolidation. In fact this was the largest weekly volume in the history of the KRE. The second highest volume came on the post-election breakout move which continued for another 14% over the next 4+ weeks. Momentum also is emerging from a highly coiled pattern which is indicative of significant intermediate upside potential.

Regional Banks tend to be the most sensitive of the Financial stocks and when they are in position, good things tend to follow. Check out some of the other moves that occurred this week.

JPM new all-time highs

GS Cup/Handle suggests a move to the $280's to start

BAC Breakout/Retest/Resume

WAL

Members of zentrendstrading.com have been long in the Regional Bank space for some time based on larger timeframe patterns. If you would like assistance catching big moves, learning to identify strong setups, and managing positions from entry to exit, please inquire about our offerings.