UTILITIES SECTOR RETURNS TO THE LEADERBOARD -- APPLE, AT&T AND VERIZON HOLD STRONG -- SCANNING FOR RELATIVE STRENGTH -- BOEING, BERRY, CALLIDUS AND VEECO MAKE THE CUT -- WHEN TO SELL OR EXIT A POSITION

UTILITIES SECTOR RETURNS TO THE LEADERBOARD... Link for today's video. The Utilities SPDR (XLU) is leading the market over the last two days and its StockCharts Technical Rank (SCTR) is improving. Chart 1 shows XLU trading flat since April as it oscillated around the 42 level for several months. The ETF pulled back with the market in September as a falling wedge took shape. This is typical for a corrective pattern after a sharp advance. XLU broke wedge resistance with a surge and could be poised to challenge the summer highs. The indicator window shows the SCTR with shading in the 40-60 area. A break above 60 shows relative strength and remains valid until a break below 40, which occurred in late July. I am using these bullish and bearish thresholds to reduce whipsaws. XLU shows relative weakness in August, and then returned to relative strength as the SCTR broke above 60 again. Chart 2 shows the Equal-weight Utilities ETF (RYU) with a falling flag in September and an inverse head-and-shoulders working since July.

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Chart 1

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Chart 2

APPLE, AT&T AND VERIZON HOLD STRONG... Apple was hit by some negative news last week, but the stock ultimately held support and remained in its triangle consolidation. Chart 3 shows AAPL hitting a new high in early September and then consolidating with a triangle the last five weeks. The stock held up pretty well considering the news and this triangle looks like a bullish continuation pattern. A breakout would signal a continuation higher and open the door to new highs. The indicator window shows Aroon Up and Aroon Down falling and parallel. Both are below 30 and this confirms the consolidation. The first to break above 50 will trigger the next signal. Apple is 13.3% of QQQ.

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Chart 3

I do not know if this has anything to do with the iPhone 6 release, but AT&T (T) and Verizon (VZ) are performing quite well in September (21 trading days). The S&P 500 SPDR is down a fraction this month, but T and VZ show a positive rate-of-change over the last 21 days. Chart 4 shows T moving to new high in March-Aril and then embarking on a choppy advance the last five months. The stock broke a resistance level in early September, broke pennant resistance in mid September and formed a small flag the last six days. Chart 5 shows VZ bouncing off support and challenging the flag trend line today.

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Chart 4

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Chart 5

SCANNING FOR RELATIVE STRENGTH... Chartists can scan for relative strength by using the value of the Stochastic Oscillator for their benchmark. When using indicators, it is important to understand exactly what they are measuring. The Stochastic Oscillator tells is the location of the close relative to the high-low range over a given period. High values (>75) indicate that prices are in the top quarter of the period's high-low range. Low values (<25) indicate that prices in the bottom quarter of the period's high-low range. Chart 6 shows the S&P Total Market iShares (ITOT) with the 20-day Fast Stochastic Oscillator (20,3). The second parameter is for %D, which is a moving average of the Fast Stochastic Oscillator (%K).

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Chart 6

The yellow area highlights the last 20 trading days with the highest high and lowest low marked. I added the Fibonacci Retracements Tool to get an idea of the range. The 50% line marks the middle of the range (90.75). If ITOT closed at 90.75, the Fast Stochastic Oscillator (20,1) would equal 50 because the close would be in the middle of the range. ITOT closed at 89.99, which is just above the 23.60% line. Notice that the Fast Stochastic Oscillator is at 24.02, which puts it in the bottom quarter of the 20-day range. Using ITOT as the benchmark, we can now scan for stocks or ETFs that have a higher value for the indicator. If the value is above 75, then current price is in the top quarter of its 20-day range. Such a value would indicate relative strength because it is holding up better than the bench mark. Chart 7 shows a screen shot for this scan.

Chart 7

BOEING, BERRY, CALLIDUS AND VECO MAKE THE CUT... The next four charts show some of the stocks that made the scan. Note that scanning for one factor will often return hundreds of results. Chartists need to further refine this scan to filter the results. Also note that the stock market is still in corrective mode and downward pressure could still weigh on stocks that show relative strength. Chart 8 shows Boeing (BA) trying to hold the triangle breakout above 128. Chart 9 shows Berry Plastics (BERY) with a hammer, gap and breakout in mid September.

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Chart 8

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Chart 9

Chart 10 shows Veeco Instruments (VECO) attempting a breakout with good volume over the prior two days. Chart 11 shows Callidus Software (CALD), which I had never heard of until today, breaking wedge resistance over the last two weeks. Careful, this is a low priced stock that is relatively thinly traded.

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Chart 10

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Chart 11

WHEN TO SELL OR EXIT A POSITION... ...is indeed the million Dollar question and there is more than one answer. Here are three ideas that may help. First and foremost, I find it extremely helpful to set my stop-loss BEFORE I enter a trade. It is important to plan your trade and trade your plan. Chartists should have a target in mind and a stop-loss before entering a trade. This exercise will give you an idea of the reward-to-risk ratio, which should be at least 2 to 1, if not higher.

Second, chartists should consider the overall market environment because the majority of stocks move with the market. Is the market overextended, in the middle of an upswing, in correction mode or just coming out of correction? I put forth some charts on September 16th (GE, COL, ATK and MMM). At the time, SPY looked poised to break flag resistance and IWM was firming in the 50-62% retracement zone. It looked like the market was coming out of a corrective period. SPY did indeed break to new highs, but this surge and breakout did not hold. As chart 12 shows, GE, ATK and MMM failed to hold their breakouts and fell back below the breakout levels. These failed breakouts provided the first sign of trouble. GE and MMM went one to break their mid September lows. COL broke out and the breakout is holding so far. One out of four is not a good batting average, but the market went back into corrective mode and this weighed on stocks in general.

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Chart 12

Four more charts were put fourth on September 23rd (BIIB, CVRR, MON and QLYS). Instead of breakout plays, these stocks were bouncing off support levels. BIIB subsequently surged above 340 and fell back. The overall uptrend remains, but chartists should watch 320 for sings of a break down. CVRR did not breakout. MON fell back to support and further weakness below 112 would be negative. QLYS just broke out and this idea is still working.

Third, it is sometimes a good idea to book partial profits when possible. This is what I call free riding. If a stock surges for a quick profit, I sometimes close half of the position and let the rest ride with a trailing stop-loss. This insures a positive outcome because partial profits have already been booked.