Monday, April 30, 2012

Morgan Stanley (MS) treads water, may drown

Equity markets closed with slight losses today (April 30, 2012). The S&P500 settled down 0.4 percent, the NASDAQ declined 0.7% and the DJIA edged down a marginal 0.1%.

Morgan Stanley (MS) shares have recently displayed interesting price action, with price compressing in a support zone and setting up for increased volatility. Compression at notable support is in evidence on charts with daily bars, hourly bars, and five-minute bars.

MS, 4 y 1d

On the four year chart above, daily bars representing the last several days all appear supported by a nine-month price channel. Ordinarily, a bounce from a price channel would portend further bullish price action; however, Morgan Stanley’s consolidation just above support increases the probability of a bearish pierce.

MS, 180 d 1h

The same nine-month price channel described above is rendered in greater detail on the hourly bars chart of MS. This vantage point confirms that price action is receiving little boost from the support line of the price channel. The hourly chart also shows that the last week of price action has MS bumping against horizontal resistance at $17.3, a price level that had been a support level from mid-January through April 23rd.

MS, 20 d 5m

On the five-minute bars chart, MS remains somewhat defined by a modestly downward-sloping, 2-week price channel – hardly the bullish behaviour that one might expect for a stock at the support level of a 9-month price channel.  Horizontal support at $16.77 has held for the past 6 sessions.

In sum, Morgan Stanley has consolidated at support from a 9-month price channel. A volatility contraction, particularly at such an important support level, often begets pronounced volatility expansion. A bearish move would not be unexpected given the past week’s weakness, but a delayed rally may be in the cards instead.

Friday, April 27, 2012

Broad-market financial index futures (/ES, /YM, /NQ) are short-term bullish

The markets advanced during trade today (April 26, 2012), particularly in the afternoon hours. By the close, the S&P500 and the NASDAQ each advanced 0.7%, while the DJIA was a relative outperformer with a 0.9 percent rise.

/ES, 20 d 15m

E-mini S&P500 Index Futures (/ES) have a somewhat interesting 15-minute bars chart over the past fortnight. Through the end of yesterday’s session, the contract’s behaviour was strongly influenced by two horizontal price channels: 1389 as resistance and 1354 as support.

Today’s rally over the 1389 resistance point confirmed an upward-sloping price channel that had been forming since Monday (4/23).

/YM, 20 d 15m

Price action of the past fortnight in E-mini Dow Jones Industrial Average Futures (/YM) has likewise been neatly contained by a price channel. The channel is moderately upward-sloping, and current price behaviour may threaten an upward break.

/NQ, 20 d 15m
The E-mini Nasdaq 100 Index Futures contract (/NQ) appears somewhat weaker than its brethren. Only this week has it broken from a downward-sloping price channel, and today’s rally was contained by a two-week old horizontal resistance line. The /ES contract, in contrast, broke through a horizontal resistance line of similar age during today’s trade.

The sum of these short-term perspectives, nonetheless, shows that the principal index futures are bullish relative to their past two weeks of price action.

Wednesday, April 25, 2012

Conoco Phillips (COP) finds price channel support

Markets traded within a relatively narrow band today (April 25, 2012), but prices were far from unchanged; indeed, the major indices held firm to significant but variable pre-market gains.

The S&P500 rose 1.4%, the NASDAQ jumped 2.3%, and the DJIA bumped up 0.7%. Headlines attribute today’s tech-led advance to a very positive Apple earnings report that was released after yesterday’s market close. Indeed, Apple (AAPL) rose 8.9 percent today.

Interesting price action occurred today in Conoco Phillips (COP) shares. The stock has been sliding over the past fortnight, and selling pressure was particularly intense during today’s morning trade before the stock pared losses in the afternoon to close down 1.2%.

Of note is that today’s intraday low in COP occurred at significant price channel support on charts of the security across various time frames, including representations with daily (1d), hourly (1h), and five-minute (5m) bars.

COP, 4 y 1d

On the daily bars chart, COP pierced and then closed exactly at price channel support that extends back to February 2011. This price channel support, which approximately coincides with today’s close of $71.02, is also the 200-day simple moving average (SMA) price.

Given that the 200 SMA is a default indicator of many market technicians, its significance is more likely to be self-fulfilling. Looking at previous encounters of COP with the 200 SMA reveals that the line does not have much explanatory power, however; price has often sliced through easily.

COP, 180 d 1h

The hourly bars chart shows that today’s intra-day low was quite near significant price channel support. While this channel is not ideally defined – some waves of market action overtake the price channel or fail to reach it – the lower line of the channel does nonetheless connect the two principal local minima since October 2011. That carries significant weight.

The oscillator between the 200-period SMA and price, which is graphed at the bottom of the above (180 d 1h) screenshot, also suggests that the current price level might provide support.

This indicator shows that the current price of $71.02 is more than $4.00 below the current 200-period simple moving average. The graph of the oscillator shows that such a bearish occurrence has only happened thrice since late August 2011, and that after each such instance, price promptly rallied hard.

COP, 20 d 5m
Conoco Phillips’ five-minute bars chart shows that today’s intra-day low coincided perfectly with a remarkably clean price channel that stretches back to April 2, 2012.

The sum of these charts is that, when COP shares traded near $70.53 around 11:25a CST today, there was a preponderance of evidence across various time horizons that the stock would find support. (It’s a pity that the security was not then in this trader’s sights!)