The very weak close last Friday has stimulated quite a bit of
debate about the stock market's direction. Many of the major
averages broke through weekly resistance last week, suggesting that
the major uptrends had resumed.
On the other hand, Friday's sharp drop caused the formation of what
appears to be daily top formations. For example, the
PowerShares QQQ Trust
) formed a doji last Thursday, and the weak close on Friday
triggered a LCD sell signal. The relative performance analysis of
the QQQ indicates it is a market leading sector. It has next good
support at $77.60-$78.20.
As I reviewed in depth
, the volume analysis has confirmed the market's action, while many
of the A/D lines, though positive, have made new highs. This makes
the action early this week important. In early trading, the
apparent election victory by Germany's Angela Merkel gives the
market one less thing to worry about, but the futures are a bit
lower in early trading.
The weekly starc band scan of the
(INDEXNASDAQ:NDX) revealed that those stocks that were closest to
their lower or starc- bands.
) is leading the financial headlines, but with last Friday's close,
it is the second most oversold stock on the list. It closed at
$466.98, which is just 7.2% above the weekly starc- band at
$433.20. It is 15.7% below the starc+ band at $540.30.
I use these scans to focus on segments of stocks that are then
examined in more detail by looking at the volume and relative
performance over multiple time frames. Three of these stocks look
attractive at levels not far below last Friday's close.
Click to enlarge
: The weekly chart of Apple shows that it pulled back to its
breakout level, line a, last week.
- The 50% Fibonacci retracement support of the rally from the
June lows to the August highs is at $451.48 and was broken last
- The 61.8% support is at $436.77, with the quarterly pivot at
- The weekly relative performance is trying to bottom, line c,
as it has dropped back to its WMA.
- The RS line needs to move above the resistance, at line b, to
signal it is now a market leading sector.
- The OBV has formed higher lows, line e, and closed just
barely above it WMA.
- The OBV needs to move above the resistance, at line d, to
complete a major bottom.
- There is weekly resistance now in the $483-$493 area.
) is a $10 billion waste management company that broke out through
major resistance in March and hit a high of $119.49.
- On September 3, it hit a low of $111.21, which was a drop of
- Last week's high was $117.58, so it has now retraced more
than 61.8% of the decline.
- The weekly relative performance shows a strong uptrend, line
- The RS line has turned up, but is still below its flat
- The on-balance volume (OBV) is acting stronger, as it has
turned up from its WMA.
- It is very close to breaking out above the several month
resistance, at line h.
Click to enlarge
DENTSPLY International Inc.
- There is minor support now at $115, with stronger at $113.95,
which is the monthly pivot.
) is a $6.27 billion medical instrument and supply company that
focuses on dental products.
- The chart shows that just two weeks ago, it tested the weekly
trend line resistance, line a, that goes back to the 2012
- It also came very close to the weekly starc+ band.
- The relative performance is trying to form a short term
bottom, line c, and has moved above its WMA.
- It is not clear yet that the RS line has formed a new
- The OBV was weak on the rally, as it just retested formed
support, now resistance at line d.
- The daily OBV (not shown) has turned lower, but is still
above its WMA.
Microchip Technology Inc.
- There is initial support at $42.80-$43, with the rising 20-WK
EMA at 442.36.
) is a $7.94 billion specialized semiconductor stock that also
- MCHP broke through major resistance at $39 and reached a high
of $41.78, which was slightly above the 2011 high.
- In early July, MCHP retested the breakout level in late
August with a low of $38.44.
- The relative performance closed just above its slightly
rising WMA, but is still locked in its trading range, lines f and
- The weekly OBV has turned up sharply from its flat WMA with
key resistance at line h.
- The OBV has good long-term support at the uptrend, line
What It Means
- There is initial support at $39.68 and then further at
: The major averages and the
(INDEXSP:.INX) futures could drop back to their rising 20-day EMA,
which is at 1679 for the futures. The next two to three days will
be an important test for the market.
The technical action after last week's close indicated that Apple,
Stericycle, and Microchip Technology should be a bought on a
pullback. However, Apple is up sharply in pre-opening trading, on
the back of very strong phone sales, so a good risk reward entry
looks unlikely right now. The technical outlook for Dentsply
International is more consistent with a false breakout.
How to Profit
- For Stericyle, go 50% long at $115.28 and 50% long at
$113.62, with a stop at $109.77 (risk of 4%).
Editor's Note: This article was written by Tom Aspray of
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Microchip Technology, go 50% long at $39.75 and 50% long at
$39.14, with a stop at $37.64 (risk of 4.5%).