Just one week ago, there was so much talk about a
breakout in the S&P. Surely we were going to surge on
upward and never look back. But that's not what happened.
What happened is that we've milled around.
As you know, earlier this week I drew in the lines that
are slightly upslanting, claiming there was resistance in
this area. Although I thought a pullback would begin
midweek -- and thus have been wrong on that call -- we
have, generally speaking, milled around.
To show you how much this is not an exact science,
suppose instead of the slightly upslanting lines I drew
in a flat line that ignored the minor poke-through that
arrived in late April. When you look at the chart this
way, it says this is simply a consolidation before
heading higher since we have maintained the breakout.
Obviously, when it comes to the charts, the next few days
will be critical because more churning rather than
selling will work off the overbought condition. But a
pullback under 2120 changes that equation and could make
this look like a false breakout on the second chart. On
the first chart, it would make it look like backing off
Ah, so you see how that works? A pullback under 2120,
which is not that far away, finds one chart going from
bullish to bearish, while another chart makes it look
like just another pullback and not much more. So you need
to decide which chart you prefer to use.
Speaking of charts to use, I want to touch on the chart
of the transports one more time (then I promise to be
quiet about them for a few days!). As you know from the
discussion, we had on the utilities earlier in the month,
I am not a huge advocate of the 50- and 200-day moving
average lines crossing. I do, however, pay attention to
them because they are essentially the smoothed trend, so
a falling moving-average line will act as resistance,
where a still-rising one will not give much resistance.
The first thing to notice is that the two moving averages
for the transports are just about ready to kiss and
cross. The spread between the two is now down to 25
points, so it is likely by next week they will cross.
Honestly? No big deal to me on the crossing.
What is a big deal to me is that they have not even
kissed since the fall of 2012. If you want to be bullish,
then note how long it took for them to base after the
crossing: about two or three months (circled on chart,
marked with an A). I would point out that if the trannies
start to give way, that crossing could look more like the
summer of 2011 than the fall of 2012 (B on the chart). My
point is no matter how we look at this, why should we
feel the need to jump right in today? Can't we wait to
see if a base forms, like 2012, or if there is something
more serious, like 2011?
Note: I am taking another day off for the long weekend as
my stepdaughter will graduate with her master's degree.
The next Letter will be Tuesday evening. Wishing everyone
in America a nice, long holiday weekend!
It's time to look at the chart of CurrencyShare Euro
Trust (FXE) again to check in on the dollar vs. the
euro. When we last checked in, I thought this would peak
in the $112 to $113 area due to the previous resistance.
Shockingly, that was exactly what happened. It has since
plunged back to the $109 area. I suspect in the next few
days this will rally again, and maybe even fill that gap
and tag the underside of that broken uptrend line, so
let's call it a rally toward about $111.
A failure there would set up a very small head-and-
shoulders top. But more importantly, the dollar's move is
likely to push the stock market around, so put it on your
screens. Remember, Greece has some payments coming due in
early June, so these currencies could become more watched
as next month nears.
The ISE Equity ratio's 21-day moving average has turned
back down again. Keep in mind, it is not always
coincident but it tends to be "an area."
Helene welcomes your questions about Top Stocks and
her charting strategy and techniques. Please send an
email directly to Helene with your questions. However,
please remember that TheStreet.com Top Stocks is not
intended to provide personalized investment advice. Email
I honestly have no idea what to make of the chart of
ONEOK (OKS). It's got a fabulous yield, which
immediately makes me think that unless that is in
jeopardy of getting cut, the stock is likely a buy more
than a sell. So it obviously needs to clear $43 in order
to convince me it wants to go higher, but with a yield
like that, can it be that vulnerable to more downside? I
We looked at Lannett (LCI) not long ago, when it
was near the highs, and I opted to be sidelined on the
stock and watch it. I suppose that is better than wanting
to be long it, but obviously I should have suggested a
short on it! That small top (flat line) measures to the
$52.50 area where it got to last week. Then there is the
uptrend line that you can see comes in around $50 (it is
rising so next week it ought to be closer to $50).
Therefore, if I were of the mind that I was looking for a
place to start nibbling on it, then somewhere in the $50
to $53 area makes sense price-wise. A stop would be under
the uptrend line.
Keurig Green Mountain (GMCR) has collapsed. Not
only does the coffee maker make crummy coffee, in my
view, but the stock obviously agrees with me! If we do a
rough calculation of the high near $155 and the low near
$115, we get $40. If we subtract $40 from the breakdown
at $125 we get $85. We got pretty close to that target
this week, so at least we can say the stock is getting to
its price target. It ought to bounce now, but as you
know, I prefer to wait for a base to build before jumping
in with both feet for more than a trade. On a trading
basis I suspect $95 is going to be resistance the first
Today shows why they're a problem, as are all transports.
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