#$dd

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers:

Biogen, Ticker: $BIIB

Biogen, $BIIB, stalled just short of 300 in March and moved lower to support. It gapped up again in late April but could not hold and moved lower quickly. The eventual low in May fell below the January low. A lower high and then a lower low is a definition of a downtrend. Two weeks ago the stock printed a Hammer candle and it confirmed as a reversal the next day. After a small pullback in a bull flag it started higher again Friday. The RSI is building and on the edge of a move into the bullish zone while the MACD is crossed up and rising. Look for continuation to participate higher.....

Cummins, Ticker: $CMI

Cummins, $CMI, has been trending higher since the February 2016 low. Recently it has consolidated in a symmetrical triangle since the beginning of May, ending Friday at the top of the triangle. The RSI is holding in the bullish zone and the MACD is crossing back higher and positive. Look for a break of the triangle to participate higher.....

E. I. duPont de Nemours, Ticker: $DD

E. I. duPont de Nemours, $DD, started higher in February 2016 as well, pausing in the fall of 2016. It then continued higher to a peak in March. Since then it has pulled back twice, to a lower low, and then bounced back to resistance. Friday broke that resistance to the upside. The RSI is strong in the bullish zone and the MACD is bullish and rising. Look for continuation to participate in a move higher.....

Fifth Third Bancorp, Ticker: $FITB

Fifth Third Bancorp, $FITB, moved high in October, and then accelerated following the election. It made a top on a spike higher at the start of March and immediately fell back, starting a long move lower. That move slowed in late March into a falling channel that held until Friday. That is when it broke to the upside.The RSI also broke higher to the edge of the bullish zone and the MACD is now crossed up and rising. Look for continuation to participate higher.....

Rockwell Automation, Ticker: $ROK

Rockwell Automation, $ROK, moved higher out of consolidation in November, steeply at first and then more slowly since January. Recently it has met resistance and pulled back to a series of higher lows. Friday saw it back at resistance with the RSI rising and the MACD turning back up. Look for a push through resistance to participate higher.....

After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which showed equities mixed heading into the June Options Expiration Week, with the IWM and SPY looking strong but the QQQ weak as there was rotation out of the QQQ and into IWM.

Elsewhere look for Gold to continue lower while Crude Oil also looks better to the downside. The US Dollar Index continues to be biased lower while US Treasuries pullback in the uptrend. The Shanghai Composite is back to its upward drift and Emerging Markets are biased to continue higher.

The stock of DuPont may be putting the finishing touches on a multi-decade cup-and-handle formation.

In yesterday’s post on the not-quite-new high in the NYSE Composite, we suggested the possible interpretation of a “cup-&-handle” formation on its chart. As we discussed in the post as well as others in the past, a cup-&-handle is considered to be a bullish pattern suggestive of an eventual breakout. To reiterate our description of the pattern from yesterday:

The Cup: This phase includes an initial high on the left side of a chart followed by a relatively long, often-rounded retrenchment before a return to the initial high.

The Handle: This phase involves a shorter, shallower dip in the security and subsequent recovery to the prior highs.

The bullish theory is predicated on the idea that after taking a long time for a stock to return to its initial high during the “cup” phase, the “handle” phase is much briefer and shallower. This theoretically indicates an increased eagerness on the part of investors to buy since they did not allow it to pull back nearly as long or as deep as occurred in the cup phase. Regardless of the theory, the chart pattern has often been effective in forecasting an eventual breakout and advance above the former highs.

We bring up the pattern again as it applies to today’s Chart Of The Day on the stock of DuPont (DD). That’s because a long-term look at the conglomerate’s price chart reveals a potential super-sized cup-&-handle.

In yesterday’s post on the NYSE, some technicians took exception to the fact that the “handle” was too short and/or too shallow in proportion to the cup. As we mentioned, that is a reasonable protestation. In the case of DuPont, the handle is more proportionate based on a traditional interpretation of the pattern.

Specifically, the “cup” portion of the pattern spans from DD’s 1998 high in the upper 70′s, through its 18-year trough which bottomed at 15 in 2009, and to its eventual March 2015 return to the upper 70′s level. The “handle” portion covers the dip

from March 2015 down to 47 and its recovery back to the highs in December 2016. At just shy of 50% of the cup depth, the handle characteristics aligns better with a textbook cup-and-handle.

At this point, all that is left is for the stock to break out to new highs finally. It it does, and if the cup-and-handle interpretation is correct, the resulting rally could be tremendous

(up to 100-140?)

based on the magnitude and duration of the cup-&-handle pattern.

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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers

Bank of America, Ticker: $BAC

Bank of America, $BAC, made a low in February and then started higher. It found resistance in April and pulled back over the next 2 months to a higher low. Now it is back at the April high and consolidating. The RSI is bullish and rising and the MACD is flat, but positive, with the Bollinger Bands® shifting higher. Look for a break above resistance to participate to the upside…..

Bristol-Myers Squibb, Ticker: $BMY

Bristol-Myers Squibb, $BMY, had been trending higher from a low in February until it got bad news in early August. The price dropped over 16% in one day and it has drifted lower since. Last week saw a possible bottom as the price rose Friday for a second up day. The RSI is oversold but not falling anymore while the MACD is leveling. Look for a continued move higher Monday to participate in the reversal…..

DuPont, Ticker: $DD

DuPont, $DD, was trending higher all Spring before a set back at the end of June. After building a ‘W’ recovery it has moved sideways in consolidation. Last week saw a push to the top of consolidation, ending the week at resistance. The RSI is bullish and rising now while the MACD is about to cross up. Look for a break of resistance to participate to the upside…..

Halliburton, Ticker: $HAL

Halliburton, $HAL, rose from a low in February in a few steps up to a plateau in June. It knocked against that resistance again in July. Then last week it ran up to it again and peeked over the top Friday. The RSI is bullish and rising with the MACD rising too. Look for continued upside Monday to participate…..

Mylan, Ticker: $MYL

Mylan, $MYL, shot lower in February and then slowly recovered to fill the gap in late April. But it could not hold there and started another fast move lower to a bottom in May, near the October bottom. The bounce from there initially made for a lower high with a shallow pullback but the second leg is now back at the April high. As it sits there the RSI is bullish but stalling while the MACD stalls. Look for a push through resistance to participate to the upside…..

After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which with August Options Expiration in the rear view mirror, sees the equity markets are looking settled and stable, digesting their moves higher.

Elsewhere look for Gold to consolidate with an upward bias in its uptrend while Crude Oil continues to pump higher. The US Dollar Index looks to continue lower in its broad consolidation while US Treasuries are biased lower in their short term consolidation. The Shanghai Composite looks to continue higher but Emerging Markets look ready to consolidate or pullback short term in their uptrend.

Volatility looks to remain at abnormally low levels keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts suggest more sideways motion in the short term with the possible exception of the IWM which is drifting higher. Longer term, the topping candles suggest a pause or pullback may be in order soon. Use this information as you prepare for the coming week and trad’em well.

DuPont, $DD, has been making chemicals for a long time.  The sign above gives you a bit of perspective into this.  Chemistry in the 1920's.  But the company was supplying the US Government with gun powder during the War of 1812, over 100 years before that.  The stock has been a staple of income portfolios as well with a steady solid 2.2% dividend yield.  

The chart below shows that it has had some good and bad points over the last 7 months.  After making a higher over 75 in December it sold off nearly 33% to a low near 50 in January.  That is a big fast move for a $57 billion company.  Since that low the stock has made steady progress higher.  After a quick first month pop, it has settled into a steady move higher against trend resistance and, but for a couple of days, trend support.  

It was moving higher towards that resistance when the Brexit decision brought the market down and DuPont with it.    The drop brought the price back to that trend support.  It also brought the momentum indicators to important levels.  The RSI broke down though the mid line and the MACD crossed down.  Both are still in the bullish zone, but near the edge.  An inflection zone.

A break of the channel to the downside sees possible support lower at 62.85 and 60.50 followed by 57.50 and 56.  A bounce off of support might find resistance above at 67.50 and 69 before 70.40 and 75.72.  Short interest is low under 1% and the company is expected to report earnings next July 26th.

The options chain for this week shows not much open interest, but what there is focused lower from 64 to 65.  For the July monthly options it is spread pretty evenly with size at 65 and 62.5 on the Put side ad 67.5, 70 and 72.5 on the Call side.  The July 29 Expiry options, the first beyond the earnings report show the at-the-money straddle pricing a $4.50 move, and most notable very large open interest at the 72.5 Strike.

DuPont, Ticker: $DD

Trade Idea 1:  Buy the stock on a move higher with a stop at 65.50.

Trade Idea 2:  Buy the stock on a move higher and add a July 29 Expiry 66/62 Put Spread ($1.84) and sell the August 70 Covered Calls (85 cent credit).

Trade Idea 3:  Buy the July 62.5/67.5 Bullish Risk Reversal (63 cents).

Trade Idea 4:  Sell the stock short on a move under 65.50 with a stop at 66.50.

Trade Idea 5:  By the July 66/64 1x2 Put Spread (free).

Trade 1 is a straight buy off of support.  Trade 2 adds protection through earnings for the size of the move priced into the options, but allowing for more upside.  Trade 3 gives the upside into earnings with leverage.  Trade 4 gives the downside on a break of the channel and Trade 5 does that with a possible entry under 64 with a basis at 62.

After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which saw the week marked by the Cavaliers winning the NBA title, and the Summer solstice ushering in the new season, with all well early in the week, then the Brexit vote changed all that as the equity markets, and all other markets dumped Friday. Leave it to the Brits to screw up a great week (just kidding). With a one day turn now equities look weak.

Elsewhere look for Gold to continue higher while Crude Oil consolidates with a pullback in the uptrend. The US Dollar Index remains stuck in a sideways consolidation while US Treasuries are moving back higher. The Shanghai Composite and Emerging Markets are stuck in consolidative ranges with the Chinese market biased to break the range to the upside while Emerging Markets are biased to break theirs lower.

Volatility looks to remain elevated in the coming week keeping the bias lower for the equity index ETF’s SPY, IWM and QQQ. Their charts all look better to the downside in the short term, with the QQQ at intermediate support and the SPY breaking its intermediate support. All 3 printed possible reversal candles though so stay nimble. Use this information as you prepare for the coming week and trad’em well.

Yesterday I was trading a stock with a negative news catalyst that was below an important longer term technical support level and intraday VWAP, got short, and took a loss.  I would make the trade again.

After taking a loss consider whether you would take the trade again.  Here are the questions I asked myself:

1) Did I have an edge with this trade?

2) Was the trade in my PlayBook?

3) Was my stop too tight?

4) Was my stop too loose?

6) Should I have lightened up in the position since it was not working right away?

6) Was I too big in the trade?

7) Should I have been bigger?

8) Why didn’t this trade work?

9) Was there something from the tape that foreshadowed this trade would not work?

10) Should I have re-entered after getting stopped out?

11) Would I make this trade again?

About Buying Positive Divergences..Or Not

On July 31, we posted a piece suggesting that the basic materials sector was threatening a material breakdown. Our rationale was the proximity of the Dow Jones U.S. Basic Materials Index to a confluence of key Fibonacci Retracement levels. As we have mentioned before these levels reflect the market’s tendency to “retrace” market moves in similar increments. We have also mentioned before that, in our view, the strongest Fibonacci signals come when there is a confluence of various such levels in the same vicinity. This was, and is, the case on the chart of the materials index. Oh, and that “material” breakdown did come to pass.

That breakdown on the Dow Jones U.S. Basic Materials Index occurred at around the 300 level. Note how the following 4 Fibonacci Retracements drawn from key lows in 2009, 2011, 2012 and 2013 to the 2014 highs, aligned almost perfectly with each other in that level:

23.6% Fibonacci Retracement of the 2009-2014 Rally  ~301

38.2% Fibonacci Retracement of the 2011-2014 Rally  ~302

50% Fibonacci Retracement of the 2012-2014 Rally  ~300

61.8% Fibonacci Retracement of the 2013-2014 Rally  ~302

Additionally, the 1000-Day (or 200-Week) Simple Moving Average is right in the vicinity as well.

We noted in that July post that:

Should the Fibonacci Retracement cluster around 300 fail to hold the index up, here is the next set of Fibonacci levels that the index would be likely to test (near 266, or 11% lower):

In the August mini-crash, the Dow Jones U.S. Basic Materials Index hit a closing low of...266. After bouncing for a few weeks, the index is once again testing that level.

Here’s a close-up look at the recent action.

That set of Fibonacci and other significant levels around the 266 area are the following:

38.2% Fibonacci Retracement of the 2009-2014 Rally  ~265

61.8% Fibonacci Retracement of the 2011-2014 Rally  ~266

2013 Lows ~266

Additionally, the 500-Week Simple Moving Average is right in that vicinity as well.

Should the Dow Jones U.S. Basic Materials Index bounce off the 266 area, its first big challenge may come at the post-crash bounce highs near 286. After that, it would be the 300 area. The problem for this index is, every potential line or indicator of support on the way down is now going to act as resistance on the way up. So even if the 266 level holds for now, the index would still have its work cut out for the foreseeable future.

Should this 266 level give way, there is really no noticeable, solid support until the 2011 lows which would correspond with the 61.8% Fibonacci Retracement of the 2009-2014 bull market. That level is around 210, which would signify a loss of over 20% from current prices. That’s on an index that is already off 25% from its highs. Not good.

We ended the July post by saying:

...if the (300) level fails, the Dow Jones U.S. Basic Materials Index is likely to visit the next cluster of Fibonacci Retracement levels near 266. Would such a move be a byproduct of an acceleration of the global deflationary trend currently in place? Or would it be a catalyst for a broader market decline? That is yet to be determined. However, such a breakdown would not be welcomed news for a stock market that has already seen its share of bricks removed from the wall.

Well, that dire scenario played out, in the basic materials sector and in the broader market. A failure of the current key support area would signify a deepening of these problematic trends that have unfolded over the past month. And as bad as things have been this past month, a further acceleration could be devastating.

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