In a previous update on Caterpillar (CAT), we noticed a directional change was under way.
CAT is now on surer technical footing as prices have traded sideways for three months and the 50-day and 200-day moving averages have flattened out (see the chart below).
In the chart of CAT above, we can see a flat On-Balance-Volume (OBV) line, suggesting that the selling pressure has dried up. We can also see a bullish divergence now with the momentum indicator making a higher low.
The chart above shows a rising OBV line in this time frame and the 40-week moving average beginning to flatten out with momentum improving. If the DJIA has a year-end Santa Claus rally that propels it above 18,000 in the next few weeks, we could see CAT rally toward $80 in sympathy.
Nov. 23, 2015 | 12:15 PM
Kellogg Would Be a Nutritious Addition to Your Portfolio
- Prices are now poised to break above the 50-day moving average.
Kellogg (K) has survived several tests of the $66 level the past four months, and might be ready to resume its long-term advance.
Shares of K did decline in the 2008 to 2009 bear market (chart above), but the decline was nothing like the losses in the financial sector or the housing industry. It only took K about a year to recoup the bulk of its bear-market losses.
This one year chart of K, above, shows a mixed, but improving picture. K is above the rising 200-day Simple Moving Average after at least four tests to break below it in recent months. Prices are now poised to break above the 50-day moving average. The volume and momentum studies have not lent much support on this time frame.
In this longer-term view of K, above, we can see that it has, for the most part, traded between $60 and $70, until recently. K may now be in a new and higher trading range, with $65 the new lower band and the low $70s as a new upper band.
Nov. 23, 2015 | 10:50 AM
Watch for Bearish Divergence as Dow and S&P 500 Make New Highs
- A bearish divergence is likely to be a wake-up call to cull out weaker stocks in your portfolio.
Chartists who do their homework will keep track of the market's internals. By internals I mean what is happening beneath the surface.
How many stocks are advancing and how many are declining each day? How many stocks are making new 52-week highs or lows? How many stocks are trading above their 50-day or 200-day moving averages? All of these metrics, and others, are ways to judge the health of an advance.
High priced stocks and highly capitalized stocks influence the senior averages (DJIA and S&P 500), but an advance or decline or breadth line includes all stocks regardless of capitalization. Often near the end of a bull market one can see the large well-known stocks continue to rise while smaller names fall by the wayside. At a market top, technicians are on alert for a bearish divergence when the movement of the averages is not matched by the cumulative advance-decline line.
As of Friday's close, the DJIA was only 527 points from a new all-time high, chart above.
As of Friday's close, the S&P 500 was only 46 points from a new high, chart above.
This is a cumulative Advance-Decline (AD) line, above, for the stocks on the New York Stock Exchange, and not just 30 stocks or 500 stocks. This chart shows that the AD line has peaked, breaking two uptrend lines with a weakening momentum picture (lower panel). It is possible that in the next few weeks that the major averages make new price highs while the AD line does not. This bearish divergence is likely to be a wake-up call to cull out weaker stocks in your portfolio and get more defensive by year-end.
Nov. 23, 2015 | 09:50 AM
Chipotle Shares Could Find Support at $500
- A longer repair process will be needed when CMG stops declining.
In our last update on Chipotle Mexican Grill (CMG), we were encouraged that CMG had reached a tradeable low.
In this chart of CMG, above, we can see the decline to the $600 to $575 area, with the higher low on the momentum study in the lower panel. Prices had a good upside bounce on Thursday, but slumped sharply on Friday. Traders should have exited when the prior low was broken.
This longer-term chart of CMG, above, shows that the next chart support for CMG should be found in the $500 area, which acted as support on dips in late 2013 and early 2014. A longer repair process will be needed when CMG stops declining.