SCANNING FOR PULLBACKS WITHIN AN UPTREND (LIVE DEMO) -- BIOGEN IDEC BOUNCES OFF SUPPORT -- CVR REFINING FIRMS IN FIBONACCI CLUSTER ZONE -- QLYS AND MON ALSO MAKE THE SCAN CUT -- FRENCH, GERMAN AND UK STOCKS MOVE SHARPLY LOWER
SCANNING FOR PULLBACKS WITHIN AN UPTREND... Link for today's video. As noted on Monday, stocks have weakened this month with small-caps leading the way lower. However, with most of the major indices hitting new highs recently, I still classify these declines as corrections within a bigger uptrend. I am, therefore, looking for stocks and ETFs that held up well during the pullback and may be poised to bounce.
My presentation at ChartCon this year featured a scan that traders can use to find stocks or ETFs that have corrected within an uptrend. I have modified this scan a little since the presentation, but the three key ingredients remain the same: uptrend, correction and trigger. After setting volume and price requirements, I am first looking for a stock or ETF that is in an uptrend using the Percentage Price Oscillator (30,150,1). The trend is deemed up when the PPO is positive, which means the 30-day EMA is above the 15-day EMA.
Chart 1
Once these criteria are met, I then filter for a correction and a small up thrust. A correction is underway when 10-period RSI dips below 40. The correction is deemed ongoing until RSI moves below 60. Hence, the next to the last line insures that RSI remains below 60. Once the correction is identified, I then look for an upside catalyst using a very sensitive momentum oscillator. StochRSI is the Stochastic Oscillator applied to RSI. A surge above .90 means RSI has broke out and a short-term momentum shift may be underway. Link for today's video features a live demo of this scan.
BIOGEN IDEC BOUNCES OFF SUPPORT... Chart 2 shows Biogen Idec (BIIB) with the scan indicators. First, notice that the big trend is up because PPO(30,150,1) is above the zero line. I also put the 30-day EMA and 150-day EMA on the price chart for reference. Second, 10-day RSI dipped below 40 twice last week and remains below 60. This confirms that a correction unfolded. Third, 10-day StochRSI surged above .90 last week. This tells us that there was some sort of up thrust in momentum, which is the bullish trigger. It is also worth noting that BIIB is part of a strong industry group (biotechs) and held up quite well over the last six days.
(click to view a live version of this chart)
Chart 2
CVRR FIRMS IN FIBONACCI CLUSTER ZONE... The next three charts show stocks that also made the scan recently. Keep in mind that the scan is the first cut and simply filters out stocks for further analysis. Chart 3 shows CVR Refining (CRVV) surging from mid February to early May and then correcting over the last few months. The stock firmed in the 22.50 area over the last two weeks, but remains in an immediate downtrend. A break above last week's high would provide the first evidence of buying pressure. Notice also that the stock is firming in a Fibonacci cluster zone. The yellow highlight marks a 50% retracement of the April-May advance and a 62% retracement of the February-May advance.
(click to view a live version of this chart)
Chart 3
QLYS AND MON ALSO MAKE THE SCAN CUT... Chart 4 shows Monsanto (MON) gapping up last week and stalling the last three days. Chart 5 shows Qualys (QLYS)** stalling just above a big support zone.
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
FRENCH, GERMAN AND UK STOCKS MOVE SHARPLY LOWER... European stocks weakened as the French CAC Index ($CAC), German DAX Index ($DAX) and the FTSE Index ($FTSE) moved sharply lower on Monday and Tuesday. Today's weakness was attributed to disappointment with the Eurozone PMIs, which were reported today. As with US small-caps, European stocks are underperforming the S&P 500 in general because these three indices did not clear their summer highs, whereas the S&P 500 hit a new high this month. Also note that Bloomberg reported that all 19 industry groups in the EuroStoxx 600 Index were down today, which means this decline was broad-based.
Chart 6 shows the German DAX Index ($DAX) surging back to the 9800-9900 area, but falling short of its summer highs and moving lower the last two days. The green lines show a Raff Regression Channel to define this steep advance. The lower line and mid September low mark support in the 9600 area. A break below this zone would reverse the seven week upswing.
(click to view a live version of this chart)
Chart 6
Chart 7 shows the French CAC Index peaking below the summer highs and breaking support with a sharp decline below 4400 today.
(click to view a live version of this chart)
Chart 7
Chart 8 shows the FTSE Index failing at resistance in the 6900 area and breaking support with a very sharp decline today. Resistance in the 6900 area held since late February and today's break down targets a move to the next support zone in the 6500 area.
(click to view a live version of this chart)
Chart 8
EUROPEAN AND JAPANESE EQUITY ETFS HURT BY CURRENCIES... I used the main country indices for the analysis above because these indices reflect what is happening to the stocks in their respective countries and in their respective currencies. ETFs that are priced in Dollars and hold foreign equities are affected by exchange rates. This means chartists should consider the "currency" component when investing or trading ETFs that are based on foreign stocks. ETFs traded in the US are priced in Dollars, but their holdings are often priced in the local currency. This means changes in the exchange rate will often affect performance. Chart 9 shows the German DAX Index in the main window with the Germany iShares (EWG), the Euro ETF (FXE) and the FXE:EWG ratio in the indicator windows. Notice how the $DAX surged around 9% and reached its June low, but the Germany iShares only advanced 5.4% and fell well short of hits June low.
(click to view a live version of this chart)
Chart 9
EWG seriously underperformed the DAX over the last few weeks because the Euro fell sharply. The middle indicator window shows the Euro ETF falling over 4% from early August to mid September. Weakness in the Euro affected the performance of EWG because the individual stock holdings are priced in Euros and EWG is price in Dollars. Even though the stock prices move higher in Euro terms, the decline in the Euro/Dollar exchange rate weighed on the ETF. The lower indicator window shows the Germany iShares adjusted for the Euro using a ration plot (EWG:FXE). Notice how this currently adjusted version performs in line with the DAX.
Chart 10 shows the Nikkei 225 ($NIKK) along with the Japan iShares (EWJ), Yen ETF (FXY) and the EWJ:FXY ratio. The Nikkei 225 surged over 10%, but the Yen weakness affected the ETF because its components are price in Yen. John Murphy noted last week that the Wisdom Tree Japan Hedged Equity ETF (DXJ) is the best way to play strength in Japanese equities and weakness in the currency.
