As leadership continues to get thinner and fewer and fewer stocks are trading above their respective long-term moving averages, stocks displaying outright bearish patterns are starting to catch my eyes. As strong stocks can rocket higher with the overall market going higher they can also do very well during sideways movements of the market. The opposite is true for weak stocks. Even if the market does not turn down but instead simply decides to go sideways for a while they can still fall hard. My point is, they don’t need an extremely weak market in order to continue to move lower.
KORS – Michael Kors Holdings is such a weak stock. The chart has put in a head and shoulders top. The way I drew the neckline implies we already saw a retest of the neckline from the downside. Even if one were to draw the neckline in a slightly different way it wouldn’t change the overall bearish outlook of the chart. The head and shoulders pattern implies a price target around the 50$ level. If the target isn’t reached the other blue lines I drew into the chart would offer potential downside targets. The lines are simple to draw, you simply pick former highs in the chart and go from there. I opened an initial short position. Keep in mind stocks tend to fall much faster than it takes them to move higher. Hence the expression:
‘They take the stairs up but the elevator down.’
Click on the KORS chart to enlarge:
To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come. – Gerald Loeb
This is a short sell trading idea that was influenced by reading Louise Yamada’s recent oil price analysis and Peter Brandt’s subsequent chart analysis of COG – Cabot Oil & Gas. Here are Louise Yamada’s latest thoughts:
Here’s Peter Brandt’s recent tweet with his weekly COG chart analysis:
I do come to exactly the same conclusion but I am presenting a daily chart of COG because it offers additional insight. I am talking about a gap that is much easier to see on the daily chart. It is located exactly at the mid point of the projected head and shoulders price target at 23$. That’s another bearish point to consider as it might act as an additional price magnet. Interestingly, if the stock starts to move down it might offer an opportunity to cover and reload. It will most likely also offer additional clues with regards to weakness and strength of COG once it reaches that level. No matter how many people see the same thing, it is just an analysis of a high odds proposition. A more aggressive stop buy above the MA 50 or a more conservative stop buy above 34 to protect your position both make sense as violating those price levels to the upside would invalidate the analysis.
Click on daily COG chart to enlarge:
I sold short an initial position in COG. If the stock keeps moving down without a retest, fine with me. If it retests the neckline, it will offer a pullback entry opportunity to add to an existing short position. Keep in mind Technical Analysis doesn’t offer guarantees. It is merely a useful tool to gauge things. The following three things TA helps with are important ones:
- Are buyers or sellers in control?
- Which kind of move is a high odds proposition?
- Identifying and outlining various scenarios, then managing risk accordingly.
Experienced traders control risk, inexperienced traders chase gains. – Alan Farley
The chart of TSLA – Tesla Motors is starting to look worrisome. I see a lot of red flags and the potential for a climax run that has recently been completed with an Island Reversal Top pattern. Prior to leaving the island reversal we can see three pushes higher that often end climax runs. this pattern is called ‘Three Little Indians’ a term coined by Market Wizard Linda Bradford Raschke.
I highly recommend reviewing Linda Bradford Raschke’s Trading Rules. The run higher was accomplished on ever decreasing volume creating a negative divergence. Negative divergences in and of themselves are not a sell signal. But they raise a red flag. The last price high shows bearish topping tails and two gaps ‘separating’ them from the rest of the chart thus creating an ‘Island Reversal’. The gaps are simply indicating traders within the island are completely trapped. In this case the Island Reversal duration was very short, trapping only relatively few traders, still the bearish implications are the same.
Another very bearish ‘indicator’, which I believe I haven’t talked about on my website so far, is something I have noticed over the past 16 years I have been trading. Often times a huge run ends more or less exactly when a stock has increased ten-fold. It is uncanny how often that happens. Now don’t get me wrong, you do not short something simply because it has gone up 10-fold. But if you have serious evidence a top might be in place this is simply another tool in the box you can use. It is something I always keep in mind when I analyze charts displaying parabolic moves. With TSLA the mid-price of the range prior to the run-up is roughly 30$. The recent all time high was very close to 300$ so that qualifies for a ten-fold increase. This is simply an observation. Ultimately my stop buy will take care of everything in case my assumptions are wrong. I am currently short TSLA.
Click on weekly TSLA chart to enlarge:
When the ship starts to sink, don’t pray – jump! – Linda Bradford Raschke
Image source: http://lindaraschke.net/
Already thinly veiled bottom calls are popping up. Extremely oversold levels and excessive fear are cited as reasons as to why this must be the bottom. Objective analysis says otherwise. During bear markets oversold means nothing. Oversold gets more oversold. It’s really as simple as that. As far as volume is concerned the corresponding volume bar isn’t anywhere close to panic selling levels. Compare the two volume bars I highlighted in my chart analysis. They tell the story.
Click on SLV chart to enlarge:
Always up-to-date SLV – Silver ETF chart on my public list.
From a purely technical perspective odds are the worst is yet to come. That’s what the charts say. You can believe otherwise. It is entirely up to you. After all it is your money. Simply remember the following:
‘Great traders offer no excuses.’
Make sure to re-read the following article for more insight into that subject:
Zurich Axioms – Forecasts, Predictions and Prophets
It’s easy to be a prophet. You make twenty-five predictions and the ones that come true are the ones you talk about. – Dr. Theodore Levitt
Image source: http://www.schluechtern.de/schluechtern-unsere-stadt/schluechterner-persoenlichkeiten/theodore-levitt-1925-2006.html
The brokers as group have recently started to assume leadership. IBKR – Interactive Brokers looks interesting here and if the group keeps leading this should be a decent pullback buying opportunity. Initial positions are worth a try here. If the move fails you let yourself stop out. If the stocks build bullish flags and subsequently break to the upside you increase exposure as price would then confirm the bullish analysis.
Click on daily IBKR chart to enlarge:
Click on Weekly IBKR chart to enlarge:
Click on Chart to enlarge:
Always up-to-date Brokers – Sector Overview Chart on my public list.
Chart contains: $XBD – Broker Dealer Index, SCHW – Charles Schwab, AMTD -TD Ameritrade, ETFC – E*Trade Financial Corp., FXCM – FXCM Inc., IBKR – Interactive Brokers.
To anticipate the market is to gamble. To be patient and react only when the market gives the signal is to speculate. – Jesse Livermore