The SP500 seems to be simply moving well within its uptrend channel. Since this is such a clean channel, what would get me on my guard would be a dramatic move either through the upper channel resistance or below the trend support. Either of those events would show an imbalance shift of sentiment and emotions. But short of that happening, its business as usual in the uptrend channel. I'm not overthinking things here, I'm taking bullish trade opportunities as long as this trend is intact.
With the new high this week comes a new swing low to anchor against. We now have a confirmed support low from the 1,904 prior breakout level. The uptrend has a new "higher low". We like those. I believe the trend is intact above that 1,904 low.
Entering Hain Celestial (HAIN)
There was a big breakout for shares of HAIN this week. If you recall from our time together, HAIN is a long-time member of our favorite stocks list. As a matter of fact we have not be involved in HAIN for just over 20 weeks now, it seems like forever I know. Well this week's reaction to a strong earnings report put an end to that streak.
Price was able to breakout and hold to set new 100 day highs; HAIN took out the prior lower highs on big volume and was confirmed by Relative Strength showing good money rotation.
A longer look back shows a very interesting pattern for HAIN:
Looking back at the last 10 years there were many dips and rallies, but something really stands out when you take a look at the trend momentum pattern. Using MACD to gage underlying trend support you can see the times when HAIN was in bull mode (MACD above Zero line) and when it slipped below Zero and lead to a large decline.
Every pullback but one showed the exact same pattern before leading to a strong rally. As the stock was pulling back, the MACD would test the Zero line, turn higher and cross above its signal line. Each time that occurred it lead to a rally in prices. Only one time it failed to hold above Zero and it went on to lose more than 60% of its value. Take a look at where we are currently!
I appears to me that to ignore this pattern would be crazy and the potential risk/reward here could be fantastic. 7 out of 7 times that the MACD crossed above Zero after a pullback, the stock rallied significantly. Nah Say at your own risk.
We want to own this stock above the $84.70 support level that contained the year long correction. This is a fairly wide stop, but I think its better to give it some room considering the potential long term implications of the chart above.
Using Multi-Timeframe Analysis at Key Turning Points
I want to share how I use multi-timeframe analysis to observe the likely outcome at an important juncture. When your stop level is being tested, I feel, is one of the most negative emotional times for a trader. I know I feel as down as possible on a stock right as it sits on support. I'm not sure why this is. My best guess is that when you see your stock is down to its last line of defense, you begin to anticipate its inevitable stop out. The potential pain you will suffer taking that loss weighs on your emotions and it can make trading more confusing.
What I do to to make sure I have the clearest picture possible is I make sure all timeframes are or are not in agreement with each other. Take a current holding for the Portfolio, IP for example.
Looking at the Weekly bars you can see that IP has not quite taken out our initial stop level yet. It is however trading below the 20 WMA for two consecutive lower closes. That coupled with the new low in the RS trend, it appears the range breakout has failed.
There is justification to sell this position today based on the weekly view point. But I wanted to dig a little deeper so I zoomed in on the action at the 20 WMA.
While price appears to be failing on the weekly chart, a look at the 30 minute bars gives a better perspective of what is taking place at key support. This weakening action has led to a tight coiling of price in a diamond formation. Typically Diamond patterns are continuation patterns, so this does have a higher than likely outcome of breaking lower from here. But they are mainly seen as "indecision" formations.
I feel that since current prices are still above my initial stop levels and this short-term price action is still very undecided, it would be better to continue to hold the position further and wait for a breakdown of this pattern below the $47 lows. A daily close below $47 and I will step aside.
See VZ for another perfect example of this:
VZ Weekly bars
VZ holding the key $48.50 support level, but trading the last 3 weeks below the 20 WMA...
VZ 30 min bars
Price has found a near perfect supply/demand balance over the past two weeks. While the market has been making new highs VZ has been holding and basing. The way I am treating this currently is, I am in and would consider adding more above the range highs at $49.15. OR it closes below the support lows at $48.50 and I am out.
At this point with the damage done to the Weekly chart, one daily close below this level would see me exit.
Using the shorter timeframes to assess how price is handling key levels can be very helpful for clearing up any conflicting signals on the longer term charts. I like to use these shorter timeframes after stocks pullback as often there are strong tradable opportunities that appear early as the downtrend ends.
Breakouts higher from either of these bases above would likely present solid trading opportunities for more tactical strategies. These are short-term moves though so don't mistake a quick trade for a long-term holding.
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