Technicians and chartists believe that it is not the news that is important, but how a stock reacts to the news that is important. Consider this Financial Times headline from yesterday -- "Caterpillar warns lower Chinese demand will limit sales." On the face of it, one might expect shares of Caterpillar (CAT) to trade lower today, but with CAT up 54 cents, or 0.78% in afternoon trading, we will assume that the impact and sting of lower Chinese demand has already been discounted.
This longer-term view of CAT, chart above, shows the major decline for CAT, but note the overall trend of the On-Balance-Volume (OBV) line and the crossover and improvement in the Moving Average Convergence Divergence (MACD) oscillator. The 40-week moving average is still in a downtrend, but it is close to turning flat. Adding this picture to the anecdotal observation of CAT not going down on bearish news gets us closer to a bottom and buy recommendation.
Nov. 16, 2015 | 2:15 PM
No Snake Oil in These 4 Pharmaceutical Picks
- These candidates have what I consider to be the strongest technical profiles.
While sifting through the charts of some 25 top pharmaceutical firms, I culled out four candidates with what I consider to be the strongest technical profiles. Here are our top A to Z picks.
Alkermes (ALKS) has been locked in a $20 sideways trading range, chart above, bounded by $55 and $75. Beneath the surface, the On-Balance-Volume (OBV) line has tracked the price action with an upward bias. The 50-day and 200-day moving averages are in a bullish alignment, as the 50-day average moves above the 200-day while both are rising. An upside breakout is expected soon.
Shares of Bristol-Myers Squibb (BMY), chart above, show a similar bullish setup. Notice the upward movement in the OBV line since early June. Strength above $70 should generate a breakout.
While Mylan (MYL) cannot claim to be on the verge of a breakout from a sideways range, it can boast a nice base pattern in the chart above. Over the past three months, MYL has gone from a downtrend to a sideways trend and now a fledgling uptrend. Prices are above the 50-day moving average. The On-Balance-Volume line has turned up nicely and this is all preceded by a bullish divergence during August, September and October.
Though Zoetis (ZTS) may be at the back of the class, it is a turnaround in progress. Prices of ZTS are above the 50-day average and could rally above the 200-day moving average. The OBV line is improving and there is a bullish divergence in August and September. A better test of the $50 area is probably in the cards.
Nov. 16, 2015 | 12:15 PM
AT&T Buyers Are Becoming More Aggressive, Buy the Pullback
- With demand increasing and supply staying the same, we look for an eventual upside breakout
AT&T (T) is a brand name that needs little or no introduction, and the charts suggest that its recent pullback is a buying opportunity.
This first chart of T, above, shows that the $32 level is key. Notice all the dips to $32 and very briefly below $32 over the past twelve months. The indicators -- moving average, On-Balance-Volume (OBV) line and Moving Average Convergence Divergence (MACD) oscillator -- are basically neutral, but the price action is clear.
In this Point and Figure chart of T, above, we ignore time and volume and focus just on the price action. In the past three years one can see that buyers of T came in at $28, then $29 and then $31. The buyers of T have become more aggressive. Rallies have stalled at $34 with one "print" at $35. With demand increasing and supply staying the same, we look for an eventual upside breakout. We suggest a sell-stop below $31.
Nov. 16, 2015 | 10:55 AM
Pharmaceutical Stocks Have Bottomed, Rally Could Be Imminent
- Here in this longer-term view of DRG we can see that the 510 level is key support
While some health care and biotech names still look vulnerable technically, the pharmaceutical space looks like it has bottomed on the charts.
In this chart, above, of the NYSE ACRA Pharmaceutical Index, (DRG), we can see a highly oversold index overlooking the low readings for the stochastic indicator (middle panel). Extreme oversold readings often accompany market bottoms. This chart also shows a bullish divergence between the lower lows in price in August and September and the higher lows from the momentum study in the lower panel. Bullish momentum divergences tend to precede price bottoms.
Here in this longer-term view of DRG, above, we can see that the 510 level is key support and the Moving Average Convergence Divergence (MACD) oscillator is narrowing, which usually precedes a bullish crossover.
This chart, above, is the S&P Pharmaceuticals Select Index (SPSIPH) with a small, slightly lopsided, double bottom formation with the MACD oscillator crossing the zero line (a positive).
Similar to the second DRG chart above, the S&P Index has support around 5,000 and the MACD oscillator is narrowing.
We would anticipate that these two measures of the pharmaceutical industry point to higher prices ahead for many of the leaders in this field.
Nov. 16, 2015 | 09:39 AM
Positive Momentum Foreshadows Urban Outfitters' Recovery
- URBN is more likely to base and do better in the weeks ahead than continue its decline.
Dow Theory, as it is known today, was the result of a number of editorials and columns written by Charles Henry Dow between 1900 and 1902. It got the name "Dow Theory" from Dow's friend A. C. Nelson who wrote "The ABC of Stock Speculation" in 1902. One of the main tenets of Dow Theory is that the market is a discounting mechanism -- that all the news, fears, hopes, etc. about a security is already discounted in today's price. Markets and investors are forward looking usually by six to nine months. The ticker tape shows the sequence of trades in a security and is forward looking. Thus, the idea of a column called "Ahead of the Tape" in The Wall Street Journal would not have made any sense to Charles Dow.
Today's "Ahead of the Tape" column is titled "Urban Outfitters' Retro Look Isn't Working," but the column is not ahead of the tape and actually very late in the trend of Urban Outfitters (URBN). URBN is more likely to base and do better in the weeks ahead than continue its decline.
This chart of URBN, above, shows the big decline in shares of URBN this year. Notice that the On-Balance-Volume (OBV) line has moved sideways the past three months while the momentum study shows that the rate of decline in prices has slowed. Momentum is a leading indicator that peaks ahead of prices.
In this chart of URBN, above, we can see prices are back down to a significant support area from 2011 to 2012 with the momentum study improving. This tells us that the decline in URBN shares is a mature trend with the rate of change in prices slowing.