Tom Anderson, chief investment officer at Boston Private, was interviewed by our own Gregg Greenberg on Wednesday, and Anderson highlighted four large-cap stocks that looked like they could rebound -- Home Depot (HD) , Celgene (CELG) , Charles Schwab (SCHW) and Allergan (AGN) .
While I believe the broad stock market will make an important low sometime between now and Thanksgiving, that does not mean that these names are at a low, and whether they can in fact bounce back ... Let's look at them one by one.
In the 12-month daily bar chart of HD above, we can see a stock chart that has rolled over this year. We had a rally from a February low that rolled over in April/May followed by another push up that stalled out in July/August. Prices have declined to break the June lows and establish a downtrend from August. The slope is negative for both the 50-day and the 200-day moving averages. The daily on-balance volume line has marched lower all year and tells us that sellers of shares of HD have been more aggressive than buyers, with the volume of shares traded on down days often being heavier than the volume on up days. One bright spot on the chart is a September/November bullish divergence between lower lows in price and a higher low (so far) from the 12-day momentum study in the bottom panel.
In the three-year weekly chart of HD above, we can see both a big rally in 2014 and 2015 and a rounded top formation since the fourth quarter of 2015. HD has closed below and is trading below the now-declining 40-week moving average line. The weekly OBV line has been inching lower since late 2015, and the moving average convergence/divergence oscillator is below the zero line for an outright sell signal.
The company is attractive from a fundamental perspective, but where should we look to buy it? Measuring the height of the rounded top formation and projecting it lower, we have a tentative price target for HD of $114. Not all that far away and into the top part of some support from the February low. HD could stop short of this target or even overshoot it. The reality is we don't know what the future really holds. Let's monitor the price action closely along with the volume pattern. Our quickest turning tools are Japanese Candlestick charts, so we will be looking for something like a hammer pattern perhaps.
The one-year daily chart of CELG, above, has a much different pattern than what we saw on HD. CELG has largely been in a sideways or neutral range since February. Several dips to around $95 look like they have been bought. Notice how the OBV line makes lows with the price action and then improves. It looks like buyers are paying up for CELG but then they back away before pushing the stock up too far. Yes CELG is trading below the declining 50-day and 200-day moving averages, but that may not last too long. The OBV line has been flat since August. While a flat OBV line doesn't indicate aggressive buying, it does show that sellers are not being aggressive in recent months. During a $15 to $20 decline, CELG fell more from its own weight than from volume expanding on the decline. This is a subtle positive. Another subtle positive, in my opinion, is that this most recent decline did not go as deep as the ones in February, March or June. Last, we have small bullish divergence in September and October as prices made lower lows but the momentum study made a higher low. The rate or speed of the decline slowed, which can foreshadow a turn higher.
In the weekly chart of CELG above, we can see that CELG has traded above and below the declining 40-week moving average line. The OBV line on this weekly time frame is fairly flat, and the MACD oscillator, while it is below zero, shows two lines narrowing toward a possible cover shorts buy signal.
In short, if you are comfortable risking a close below $95, then I would begin to buy some CELG on available weakness. CELG should gain strength on a close back above $110, and this is where I would become more aggressive in buying CELG.
In the daily chart of SCHW above, we can see that prices are just now rolling over and under the 50-day moving average line. SCHW is still above the now rising 200-day moving average. The OBV line looks like it, too, is rolling over. Upside momentum seems to fading. Without signs of aggressive liquidation, I would believe that SCHW makes a shallow pullback toward $29. Maybe it doesn't reach $29, but some further near-term weakness is in order with the broader market being on the defensive lately. I am looking to be a buyer of SCHW.
The weekly chart of SCHW above has a number of positives to point out. Prices are above the now rising 40-week moving average line. The OBV line is pointed upward, and the MACD oscillator is above the zero line. The MACD lines have begun to narrow, but it is not a given that they will cross to a liquidate longs sell signal.
Finally, the chart of AGN, above, may well be the hardest one to work with of the four highlighted. AGN has broken below its May lows, making new lows for the year and the move down. The selloff has gained speed over the past three months, and our momentum study is not diverging. Prices are below the declining 50-day and 200-day moving averages. The OBV line suggests aggressive selling with its downtrend. Let's check the longer-term chart.
The weekly chart of AGN above is negative. AGN looks like it is in its third leg lower. Prices are below the declining 40-week moving average line. The weekly OBV line is pointed lower, and the MACD oscillator just crossed to a new sell signal. We see some chart support on the left side of the chart around $165, and this could be a level that attracts buyers to AGN again, but the farther back in time you go to find support, the less reliable it is.
If you are looking to buy AGN, I think it could make a V-bottom, so the price action will need to be monitored day by day, in my opinion.
(Allergan is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Cramer and Jack Mohr, research director of the portfolio, on Thursday called Allergan a victim of "decline by association.")