The Market
With a gun pointed to my head, I am not sure I would know which way the market will go on tomorrow's employment number. And quite frankly, I am not sure if a good number or a bad number moves us in one direction or the other.
What I do know is that the bonds are critical. We have spent a great deal of time discussing them in the last week, but I want to review them in a different way this evening. Let's use the utilities. Only this time let's look at the longer-term view.
On the chart below, you will see two uptrend lines drawn, both from the same starting point. The first one broke back in February, when it coincidentally broke out of a head-and-shoulders top.
The second one is still holding for now. But that's the one we need to be concerned with.
When it comes to trendlines drawn from the same starting point, we use the first one as a yellow flag of sorts. It is possible it indicates a change in trend, but we know it indicates a change in magnitude of the ascent. If the second fan line is broken, it essentially confirms the first line's break. In other words, it typically means the move to the downside is not just a correction, but it is now likely the highs have been seen.
Yet there is more. A break of the second trend line will often hold at support; in this case that would be around 550-560. It should then spend some time shuffling back and forth, just as we have seen in March and April with the utes. That would then allow us to draw in a third trend line. It is when -- if -- that third trendline breaks that we can consider this a real trend change.
Of course, you don't need to break a third trend line to know once an index is down 15% or 20% that there has been a trend change, but in the case of the utes, we know they are market leaders (with no timing) and thus a break of the third trend line would be a warning for the longer- term market. That's why a break of this second line is what I will be focused on: Does it break or does it hold? It's not going to tell us anything about the next week or two of trading, but it will tell us about the overall health of the market.
One final word on this index: The 50-day moving average line ticked under the 200-day moving average line just today. I am not one who thinks death crosses are a signal, because I have seen them cross and recross. However, should we break under that second fan line and we have the 50- and 200-day moving average lines crossing, I would look for the same type of move discussed above, but if rallies back to the 200-day moving average line fail, I think it would signal the Fed intends to hike rates in 2015. That's usually why the utes act like this.
As for the stock market, we got the oversold rally, skimpy as it was. We are still oversold. Perhaps a decline on Friday would bring about some panic to go with the oversold reading.
Note: I will be interviewed on fxstreet.com Friday morning at 10:15 a.m. ET. You can either go to the website to register (it's free) or they will post a podcast of it later on if you want to listen.
New Ideas
Pandora (P) is a chart we have looked at before with a positive bias. Once again, it has caught my eye since a move up and over $19 would be a breakout from a six-month base. The target would be back near that spike high around $22 to $24.
L Brands (LB) is a chart we have looked at on the short side recently. It reported earnings today and, despite upward guidance, the stock sold off. A break here looks to me like it is heading toward that gap fill near $85.
Today's Indicator
The ISE 21-day moving average has just rolled over. You can see this generally occurs near market highs, not lows.
Q&A
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GoPro (GPRO) actually has a small base developing in the past four months. It filled the gap and this could be the right shoulder of a head-and-shoulders bottom. It's a volatile stock, so I'd be inclined to give it some room, down to $45 if you really want to give it some room, or to yesterday's low if not. The shoulder might take a while to develop, but if it gets up and over $55, we get a measured target near $70. Wow.
Splunk (SPLK) is once again on the request list and once again I like it! I think as long as it stays over $64, this chart has a good chance of getting over $70 and trying for that spike high from late February. Under $64, and it will look like a failure.
As you know by now, I am not a fan (nor am I good at picking them) of high bases, yet if Papa John's (PZZA) breaks out here, it can run to the low $70s. As an aside, I always find it interesting to watch this stock because I remember buying it on the IPO 20-plus years ago. While I did not flip it, I did not hang on as long as I should have!
