US markets closed at new all-time highs again this week with the SP500 closing above 1,800 and the DOW above 16,000. This has been one impressive year for stocks and it still seems like more new highs are ahead. The S&P started out this week pulling back slightly, but then rallied on better than expected jobless claims and closed out at the highs. It is clear that traders are still distrusting and afraid of this market as the slightest thing will cause them to duck and cover. As an example of this, the weakness early on in the week was attributed to a tweet from Carl Icahn suggesting he "feels" that the market will be correcting soon. Now Carl is a legend of an investor, but even he cannot see the future. The important take away here is that we need to focus on the trend and our key support levels instead of comments and jittery traders trying to scare you out of your positions. Usually when someone like Carl says he thinks the market is going to come down, all he is hoping for is for traders to do exactly what they did. He wants them to sell their stocks so HE can buy them at a cheaper price. Comments like this really should have nothing to do with your investments as your plan should be able to ignore the noise.
While its fun to be bullish as heck with these continued new highs, it is important to know that the S&P has been up for the past 7 weeks straight. Just be aware that the markets will go in both directions and even a hefty pullback from here (say down to the 20 WMA) is still very constructive for the longer term trend. A 100 point drop would still just barely test the key uptrend support. While it makes sense that we should see a decent pullback, markets can remain extended much longer than seems reasonable, which is why it is so important to continue to stick with the trend until it fails.
SP500 weekly view
Lets first take a look at our 3 newest positions:
Home Depot (HD)
HD attempted to follow through on its breakout this week, but saw selling in the face of the strength after earnings. This is the second earnings report in a row where they easily beat expectations, yet the stock was sold into the news. It will be interesting to see how this breakout progresses. While this week's trading was disappointing, it is still above the prior swing high and breakout area. Let's see if it can bounce back.
Enbridge (ENB)
ENB has been pulling back the last couple weeks and seems to be retesting the breakout level. While the stock closed just below the 20 WMA, it did manage to find buyers at the $41.50-42 support level. There is not much to worry about at the moment, but we will want to see this week's lows hold and especially we would want it to stay above our $40.50 stop. It is still very early in its bounce back and new moves need to be given time and room to settle out. Considering the magnitude of the 5 year uptrend, you have to be a little more patient with this one, and a more willing to stick with the long term trend.
Wells Fargo (WFC)
Wells and the Financials stayed strong through the week and closed out at the highs. This looks like a nice continuation of the prior uptrend.
And here our some notable charts from our watchlist:
Cummins (CMI)
Here is a perfect example of why its good to strip back your charts and just observe price. By taking out my prior bias and trendlines, I was able to much more clearly see the presence of a very large cup/handle pattern formation. Cummins is in a very interesting spot here; the stock has broken out from a large rounding base and has retested the prior highs on this consolidation. The 20 WMA is also just under the closing price of last week. Relative Strength is soon to be testing its uptrend support as well. All of this together will make CMI a very interesting watch over the next couple weeks to see what will happen next. Is the stock going to resume its breakout and rocket to new all time highs? Or is it going to be a false breakout and roll over? I have an overweight positioning on CMI and will depend on this $128 support level as my tight stop. Based on the prior trend and pattern formation, I am very positive on the stock here and think the risk reward based on Friday's close is about as good as they come.
3D Systems (DDD)
You could say that DDD has an interesting week. After reaching a new all-time high early in the week, the stock got slammed Tuesday and Wednesday and then saw further profit taking on Friday after an attempted bounce back. While the move relative to the prior month's rally is still rather insignificant (price closed at the upper bollinger band), the implication for this type of reversal could be problematic in the near term.
Lets take a look at the prior surge in DDD back at the end of last year:
The initial surge and decline look very similar. We saw quick 6 week rally that extended the stock to the upside and then a high volume breakdown week. After one bounce back the following week, it took the stock 6 more weeks to stabilize. While this week's reversal was not as damaging to the big picture, it could just be the start of a healthy consolidation and correction.
A move back into the $55-60 area will offer a solid risk reward opportunity.
Clean Energy (PBW)
PBW is doing its best to hold the breakout and large support area between $6-6.50. So far so good, but going forward I will be treating the massive support band, 20 WMA and uptrend support as my stop level. I want to be aggressively long above this support zone. And I want to be conservative below the zone.
Apple (AAPL) daily chart
I think AAPL looks great right here. This is another one of my largest current positions. The stock has been consolidating its breakout for about a month now and seems ready to pop. When price breaks through a key resistance level and then cools sideways just above the breakout, there is a high probability that it will continue to the upside once the churn resolves itself. There is a lot of demand for shares here. Above about $510, I am very bullish the stock.
Financials (XLF) daily chart
The Financials continued to push to the upside this week, but we still have not seen the price relative to the SP500 breakout of its downtrend. I still need to see that there is a real trend shift under the surface before I get all on board here. The price is the only thing that pays, but the RS non-confirmation of the higher high in price concerns me that the "real" money is not fully convinced yet. By the way, if this does in fact turn out to be a bull trap situation, that would be VERY bad for the near term direction for the market. We want to see the price relative to the market break from its downtrend and make a higher high as well.
I think that about does it for the week. We are holding many positions currently, yet I feel the market has earned a certain benefit of the doubt. Until we see some real breakdowns, we will need to stay involved in this market.
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