Why Financials and Google Are Lagging

Well now that we’ve got that out of the way

Get what out of the way you ask?

Breakout into new all time highs in the S&P 500 that is.  We’re not really excited about this breakout errr eek into a new high rather as it took place into a holiday and into quarter end window dressing. But it is what it is.  Don’t forget to be on the lookout for a shake and bake shake out high here folks.  If that’s going to happen, it’s going to happen soon.

 

We’ve spent a lot of time the past few days looking at tons of stocks and you know what? One would think with a breakout into new all time highs in the indexes we’d be seeing a lot of names set up on the long side but we aren’t . What we do see are a lot of charts that look like this:

JNJ

 

 

KR

 

K

GIS

 

This is where the bulk of the gains have came from last quarter.  See the theme here?  Consumer staples.  These are DEFENSIVE ISSUES. Typically when defensive “people still gotta eat” issues start to lead it says something about  what big mutual funds and money managers are thinking down the road.

Now a lot of you when you look at these may say these are great shorts coming soon.  We get that BUT if the market sees bad times ahead the big “long only have to stay invested money” looks for a safe port. They may not be looking for returns out of these going forward, just a safe port. So we wouldn’t think about shorting them anytime soon.  It also may be saying batten down the hatches we might be in for some rough seas soon.

We’ve said it time and time again that we do not chase stocks. If we don’t buy the extended stocks above then when do we buy? We buy stocks that are in uptrends that are pulling back off highs (POH) and you know what? We see very little of that outside of what’s on our watch list for the time being. A healthy pullback though? We’ll then see a lot set up so stay tuned. In the meantime these two are the best looking on our list currently.

GOOG

C

Look at JNJ and KRO etc. then compare those  to GOOG and C . Big difference right?  Call it a tale of two tapes. See any low risk entry points in JNJ, KRO, K  and GIS?  Us neither.  That’s what’s been going on, the extended get more extended — all right into quarter end.

If you subscribe to the theory that money stays in the markets but rotates around then what does that say about JNJ, KRO, K and anything else that’s been on a tear and extended or has gotten marked up into quarter end? At the least it means you are late to the party. While these issues may just track sideways from here as big ocean tankers look for a safe port. Money is still going to rotate and look for a home.

So where is money going to rotate to? It’s going to go somewhere. It always does, maybe the financials that have lagged of late? (Citigroup and the like?) Tech? (GOOG). Honestly? We don’t know and neither does anyone else, all we know is from a technical perspective those two stocks look primed for a move higher.

Let’s not forget about tape painting here either because as we’ve seen the market has a way of gravitating to names that are able to keep the drive alive on the surface, just look at the DOW’s eeking into a new high Thursday. IBM was up 2.40 points which Thursday accounted for about 20 some points of the 52 points — yep, almost half the indexes move came from one heavily weighted stock.

That’s part of why we like GOOG here.  It makes up 8% of NDX 100 index, it’s in a clearly defined uptrend, it’s pulling back off highs to trend channel support and last quarter tech lagged. All of those are good reasons for why we are looking at it especially with it making up 8% of the NDX 100 index. What that part really means is if they want to keep the index afloat or make it move all they have to do is pop that stock, not to mention it has no topping pattern in place either which is another good thing.  That goes for a lot of financials too by the way.

And finally…

There was a lot of talk last week about how Uncle Ben and his wild rice gang have got your back and we’ll never go down again (be careful about forming an opinion on that folks because that’s called complacency).  We’ve touched upon that in the form of the markets can still go into corrections too you know so we’ll spare you the repeat of that conversation. BUT we will say though that even if he does have your back the extended are still extended regardless.  Much like the old adage of last cycles leaders are next cycles laggards the same can be applied to this past quarter — last quarter’s leaders next quarter’s laggards? We’ll find out in the next two weeks.

Let’s also not forget about seasonality with the best time being November through April and the worst time April through October.  So that’s an issue that is going to be coming to the forefront too you know.  No matter though as we are opportunists around here and that means both sides of the market. So you see we actually love corrections because it’s an opportunity.

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How Wall Street Paints The Tape

Yesterday the DOW was up about 83 points at the close.  Care to guess where a big part of that came from?  You got it, a name that makes up 13% of the index — IBM.  IBM was up to 5 points and that one name accounted for the bulk of the gains.

Back out IBM yesterday and the DOW wasn’t up anywhere near 83 points (sorry CNBC to pop your balloon but that is the reality of it).

We’ve talked numerous times how Wall Street uses names that have the biggest percentage impact on the indexes to prop the market to give the impression everything is fine and the drive is alive.  It’s called PAINTING THE TAPE.  Under the surface a lot of growth names were note moving and there was a lot of jello moving on the plate.

We bring this up today because the NASDAQ is down some 12 points as we post.  Not all that big to downside BUT AAPL is up like 9 points and due to it’s heavy weighting (13% of NASDAQ), it’s masking the weakness making it less than what it really is.

Keep in mind on one hand Wall Street has a vested interest in keeping you in the game (it’s called management fees).  On the other hand under the surface it likes to mess with you while you are looking at just the headline numbers.

Sometimes this “painting the tape” (giving the impression everything is fine) is used to allow those with large positions to sell some peanuts without you noticing.

This is how negative RS divergence shows up on the charts — move a few key names while under the surface distribution is taking place.

As far as AAPL goes?  Let’s take a look at it from a daily chart perspective and then below that from a weekly chart perspective.

 

  

 

 

As you can clearly see, on the weekly we’ve laid out a few blue lines that could act as support.  For now, we’ll watch this name.  A retest of the blue line lows in the daily chart may spark our interest in going long this name for a trade.

ALWAYS ALLOW STOCKS TO COME TO YOU!

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The Gimme Trade On AAPL

AAPL is pulling back to a support level that may be the “Gimme” zone for a trade on the long side.

See that blue line? It’s a support ZONE and so is the 200-day average. When (And IF) we get there that’s what its going to take to get us to go long this issue. The flip side is? Any rally up to the red downtrend line and we consider short selling it. So there you have it, we just framed it for you — It’s all you need to know from here.

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What Leading Stocks Say About The Market

While the DOW and SPX sit and spin the index that leads the market MAY be talking via AAPL, GOOG and other leading type names.

Which leads us to our AMAZING CHART OF THE DAY in micro time frames

Remember, the NASDAQ tends to lead (both directions). We’ve yet to see a “With Conviction”  break as of yet so the jury is still out. But the pattern sure is developing, we need to take note at the least.  Keep in mind there is an old saying about leadership.

When the leaders start to break the rest of the market isn’t far behind.  Seen AAPL? To say it’s not broken is denial.  GOOG? Well all it’s done is rally up to a resistance zone and is stalling.

Then what about that screamer earlier in the year called ALXN that everyone had to have?  Same deal — bit the dust.

Then look at all the stocks that have recently hit new highs and promptly rolled back over.  This is how the markets talk folks.

Below are the daily charts of the indexes:

 

 

Not surprising the NASQUACK is the weakest here but what do you expect when one name makes up 13% of the index (AAPL)

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Give This Market A High 5

See All The 5′s!

The deeper we look into the market the more we see tons of Elliot Wave 5-waves down patterns out there. We’ve talked about this for weeks with regards to the bear count.

According to Elliott Wave theory after the completion of a 5 waves down sequence it typically leads to a 3 waves up counter trend rally.  Nothing new here for us as we’ve been touching upon that for a few weeks. For us? We’ll use that strength to lighten the load on the long side and start to position ourselves on the short side but not until. The question is how far and how long will it go when it does and if it does?

That’s always the issue with waves and trends, you never know how far they are going to go just that you are in them. The best one can do is to lay out support and resistance zones along with other tools of the technical trade such as moving averages and Fibonacci levels.

Names like LNKD, IBM, GLD, AMZN just to name a few.

Even IBM in a 60-minute time frequency shows this

With GLD, Notice how it did not take off till it completed 5 waves down with a tag of a support level?

The indexes on the other hand are clearer when one looks at the S&P 500 and Dow Industrials. The NASDAQ Comp. compliments of AAPL’s big impact on that index tends to skew it. But AAPL? Its 5 waves down too.

 

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What AMZN’s Chart Is Telling Us To Do

AMZN is our AMAZING Chart Of The Day

Quick!  Off the October highs ask yourself “What is the overall trend of this stock?”

Next question.  We all know in the stock market there are only 3 things one needs to know and they are:

1. Uptrends and how to trade them

2. Downtrends and how to trade them

3. Changes in trends and how to identify them

Changes in trends take place at highs and at lows and are an early warning alert system alarm letting us know that a change in trend MAY be near being at the highs or the lows.

Right now, let’s look at the lows.  See any bottoming pattern in the form of a double bottom or a “Back To The Scene Of The Crime” retest?  Us neither.  All we see is a falling knife, dead cat bounce low.

SHOULD we see a retest of the blue lines that will get us interested in going long.  Should we see a tag of the red lines, that will get us interested in a short sell and perhaps some put options.

In addition to that we have a pink Pullback Off Lows (POL) line which is the opposite of Pullback Off Highs (POH).  A downside break of the pink line triggers a short sell.

And also of worthy mention is LNKD — a classic 2-day pop and drop.

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Let The Charts Tell You When To Buy

Earning consistent profits in the stock market is as simple as understanding basic chart patterns and letting the charts tell you when to buy a leading stock.

Before we look at the charts of stocks, we need to have an understanding of what’s happening in the indexes.

This person has only five words to say:

 

 

Follow The Yellow  Brick Road!

 

 

 

 

 

  

 

As you can see, the indexes are simply trading within a bullish uptrend and channel and earlier this week they bounced at yellow brick road trend channel support.

So what did we do about it?  Simple.  We bought stocks that have also pulled back to areas of support.

On Monday, we bought NOW at $32.98 as it had pulled back from recent highs to test its uptrend support line and was hanging around the 50-day moving average.

How’s it going so far?

So far so good as just 2 days later, we already have a gain of almost 6%!

And today we bought YELP at $25 as it too had pulled back to multiple areas of support.

The 1 minute micro frequency chart of YELP tells us why the $25 mark is so important:

 

It was your trade trigger point and that’s where we nailed it.To learn more and receive our free report — “How To Outperform 90% Of Wall Street With Just $500 A Week” — sign up for our free newsletter.