Friday, December 28, 2012

Russell 2000 futures (TF) tightly bound by a price channel

DEC28 1122EST. Markets have been buffeted over the past several trading sessions by news concerning the US fiscal cliff. Yet despite the market turbulence, including the dramatic Dec 20th after-hours sell-off in index futures, recent price action in the Russell 2000 futures contract (TF) has conformed robustly to a simple price channel model.

TF (Mini-size Russell 2000 Index Futures). Dec 18 to Dec 28, 2012. 15-minute candles.
As can be seen in the above screenshot, price action between Wednesday, Dec 19 and today fits entirely within a single price channel, shown in dashed red. The channel is robustly defined, with 5 touches of the lower support line -- one of these being the nadir of the Dec 20th after-hours capitulation -- and 3 touches of the upper resistance line.

A break of the upper resistance line would be bullish. Nonetheless, the news-driven (re: the fiscal cliff) nature of today's markets, with the same expected for Monday, Dec 31, means that technical trading signals are riskier than normal.

Monday, December 24, 2012

Lam Research (LRCX) consolidates under long-term channel resistance

DEC24 1424EST. Lam Research Corporation (LRCX) has been consolidating for the past fortnight underneath the resistance trendline of a well-defined, two-year price channel, shown below in dashed red. Such consolidation is sometimes the precursor of a bullish advance.

Lam Research (LRCX). Sept 2010 to Dec 2012. Daily candles.

The upper line of the two-year channel happens to currently coincide with the 200-day simple moving average (SMA), shown above in dashed light-blue. Below the price graph in the above screenshot is an oscillator that measures the difference between price and the 200-day SMA. As the viewer can see, the oscillator is currently hugging the zero level, after having recently bounced lower from that level. Such reaction away from a resistance level followed by consolidation is sometimes a precursor to to a bullish break above resistance.

In other words, the behavior of the oscillator (which in turn measures the relationship between price and the 200-day SMA) confirms the expectation that LRCX *may* be poised for a bullish advance. Caveat emptor: until Lam Research breaks decisively above the resistance trendline / 200-day SMA on relatively high volume and holds at those elevated prices, the bullish trader might be advised to wait.

Lam Research, a NASDAQ-100 component, is a supplier to the semiconductor industry.

Herbalife (HLF) continues extremely steep sell-off

DEC24 1357EST. Herbalife (HLF) shares have been in the press recently, and not in a flattering way. Late last week, the front page of the FT's Companies and Markets section carried the news that Bill Ackman, the hedge fund manager, had begun a public campaign of labeling the company as a "pyramid scheme". Ackman was also reported as having a large short position in the shares. The result of all this attention: HLF is in a monstrous free fall, down from an intraday high on Wednesday, Dec 19 of $43.2 to an intraday low today, a mere four trading days later, of $24.24. That's a loss of over 43 percent.

The four-day chart of HLF, produced below, shows a pretty price channel (admittedly in a Shadenfreude sense) encapsulating all price action (except for bits of two candle tails on Friday midday). As the careful viewer might notice, an analyst armed with only Wednesday-Friday price action would be able to correctly forecast today's intraday low quite accurately.

Herbalife (HLF). Wed, Dec 19 through Mon, Dec 24. 5-minute candles.

Herbalife cannot keep falling at this rate forever. The first milestone for the bulls would be a break above the 4-day channel's upper resistance trendline, followed by a fresh intraday high on relatively strong volume. Of course, HLF might keep descending further, within a new, less-steeply sloped channel.

Friday, December 21, 2012

S&P 500 futures (ES) collapse over 2 percent in a single minute

DEC21 0032EST. This evening brought high drama to the financial futures market. Within the narrow scope of a single minute, the benchmark financial futures contract -- the E-mini S&P 500 (ES) -- collapsed over 2 percent, falling from a reading of 1424.5 at 19:17:59 CST to only 1401 at 19:18:59 CST, and diving as low as 1391.25 within that fateful minute. The contract recovered most of that drop in the subsequent minute.

The impetus, of course, was Capitol Hill drama concerning the fiscal cliff.

The chart of the whole convulsion, shown below, is eerily reminiscent of the May 2010 flash crash.

ES (E-mini S&P 500 futures contract). Dec 20, 2012, 18:00 CST to 20:00 CST. 1-minute candles.

Teva Pharmaceutical (TEVA) threatens to pierce 7-month channel support

DEC21 0013EST. Teva Pharmaceutical Industries (TEVA) has today withdrawn to within a dime of 7-month price channel support, shown in the screenshot below as a dashed red line. This is the NAZDAQ-100 component's second recent visit to this support line -- the last occurred with Monday's (12/17) intraday low of $37.83. As such, penetration of the trendline is somewhat more likely, in which case TEVA might be a sound candidate for a short position.

TEVA. Apr 24, 2012 to present. Hourly candles.

Thursday, December 20, 2012

Sturm Ruger (RGR) breaks above a steeply declining two-week channel

DEC20 0020EST. Firearms manufacturer Sturm Ruger (RGR), notorious in the wake of the recent tragic school shooting in Newtown, CT, has today rallied through the resistance line of a steeply declining two-week price channel.

This blog notes the price action in Sturm Ruger while maintaining a respectful non-engagement regarding the political debate about the role of guns in society.

RGR has declined aggressively over the past two weeks, losing about a third of its value from the Dec 4th high of $59.82 to the Dec 18th low of $40.00. Most of the decline occurred before the Newtown tragedy of Dec 14.

As already mentioned, today's price action broke through the resistance trendline of the fortnight-long channel, shown below in dashed red. Such a break sometimes brings further price appreciation; bullish sentiment would be strengthened if price action proceeds above today's intraday high of about $44.3.

RGR. Dec 4 to present. 5-minute candles.

Intuitive Surgical (ISRG) sells off to 5-month channel support

DEC19 2356EST. Intuitive Surgical (ISRG) experienced a pronounced sell-off today, declining 7 percent intraday before rebounding somewhat to close down 5.7 percent. Volume in the NASDAQ-100 component was a full 6 times greater than its average daily turnover.

Remarkably, today's intraday low of approximately $508 coincided quite precisely with the support trendline of a 5-month price channel, shown below in dashed red. 

ISRG. July 10, 2012 to present. Hourly candles.

Tuesday, December 18, 2012

KLA-Tencor (KLAC) rallies through 5-month channel resistance

DEC18 2128EST. NAZDAQ-100 component KLA-Tencor Corporation (KLAC) has today rallied through the resistance trendline of a 5-month price channel, shown below in dashed red. The price action is suspect, however, as it occurred on anemic volume.

KLAC. July 16, 2012 to present. Hourly candles.
Shares closed just below $47.90, which is a horizontal resistance level corresponding to intraday highs on Nov 12 and Dec 11. A rally beyond $47.90 and into the $48s might signal that the break above KLAC's 5-month price channel has at least some staying power.

C. H. Robinson (CHRW) pierces 2-year channel resistance

DEC18 2053EST. Shares of C.H. Robinson Worldwide (CHRW), the logistics firm and NAZDAQ-100 component, have today pierced through the resistance trendline of a 2-year price channel. The break occurred on somewhat higher volume than average (1.4M shares vs. a 3-month average of 1.2M). In the screenshot below, the channel is shown in dashed yellow, and it stretches back to October 2010. C.H. Robinson also reached and closed at a 6-month high.

CHRW. Sept 2010 to present. Daily candles.
Zooming into the hourly candles chart, CHRW appears to present two potential buy points. One would be at fresh highs (just above $63.85), especially if reached within a bullish overall market environment. Another would be on a retracement to a 2-month trendline, shown below in dashed grey, which would coincide with a price of around $62.85 or just below. A sound stop-loss point might be underneath the 5-month price channel, shown below in dashed red.

CHRW. July 16, 2012 to present. Hourly candles.

Monday, December 3, 2012

S&P 500 futures (ES) near support from their 2-week price channel

DEC03 1453EST. The e-mini S&P 500 index futures contract (ES), a proxy for the S&P 500 index, is approaching support from a two-week price channel, shown below in dashed red. This fortnight-old channel represents equities' collective recovery from their post-election sell-off. Today's intraday market action has been negative, with the ES declining from a pre-market high of 1424, and the current price level of about 1410 is only some 5-8 points above the two-week channel support level.

ES. Nov 9, 2012 to present. 15-minute candles.
Looking again at the above screenshot, it's worth noting the behavior of the oscillator that is located below the price graph. This oscillator measures the difference between price and the 200-period simple moving average (in this case each "period" is a 15-minute increment). Price is currently some 5 points below the 200-period SMA, but if price action was to decline some 5-10 points further in the next several hours (before the value of the SMA can significantly change), the reading on the oscillator would be in the vicinity of negative 10 to negative 15. Such a value would match the lows of the oscillator from Wednesday, November 28 (circled in yellow above), which was the most significant market pullback over the last two weeks.

Glancing again at the price graph, a further argument for 1405 support is provided by today's pivot points. Pivot points are the five colored horizontal lines overlaid on today's price action, and they represent estimated horizontal support / resistance levels that are calculated on the basis of the prior day's high, low and close. According to Technical Analysis by Kirkpatrick and Dahlquist (2011; pg 261), floor traders often incorporate pivot points into their trading strategies, which in turn contributes to the probability that the formulas' predictions are fulfilled.

Soybeans (ZS futures and SOYB) approach channel resistance

DEC03 1159EST. Soybean futures (ZS) and their corresponding exchange traded fund, the Teucrium Soybean Fund ETF (SOYB), are approaching resistance from well-defined three-month price channels, shown below in dashed red for both securities.

ZS. Aug 31, 2012 to present. Hourly candles.
SOYB. Aug 13, 2012 to present. Hourly candles.
NB: Ad Astra Hoya identified the November 16th low in both ZS futures and the SOYB ETF using these same price channels.