Intel Corp (INTC) reacts from resistance of a 2-year price channel

Markets settled the day in bearish territory: the S&P500 slid 0.8%, the NASDAQ surrendered 1.2%, and the relatively defensive DJIA outperformed with a decline of only 0.5%.

Intel Corp (INTC) shares merit a closer look.

INTC, 4 y 1d

Intel declined today from a conspicuously overbought point, namely a touch yesterday of two-year price channel resistance on the daily bars chart. Moreover, yesterday’s price action, at which INTC incidentally set an 8-year high, brought the security to over $4.50 above its 200-day moving average. Such an occurrence over the past four years has always marked an unsustainable level of bullish sentiment (at least over the short term; see the oscillator on the lower portion of the above chart). 

INTC, 180 d 1h

The hourly bars chart likewise shows Intel shares at price channel resistance, although the lower line of the channel is admittedly poorly defined. It might be more apt to describe INTC as being at trendline resistance. The price-versus-SMA oscillator does not show the security as being particularly overbought.

In sum, a short position initiated yesterday above $29.25 would have been prescient and, in light of the above evidence, relatively high-probability. But the profitability of holding such a position beyond today’s knee-jerk reaction lower appears less certain.

Bears threaten Automatic Data Processing (ADP) at support

Following yesterday’s morning rally and late-day paring of gains, markets were little changed today (May 2, 2012). The S&P500 and NASDAQ ended with equal and opposite percentage price change, up 0.3% and down 0.3% respectively; the DJIA closed down one tenth of a percent.

Today’s highlighted stock is Automatic Data Processing (ADP), a component of the NASDAQ-100. The company is best known as the generator of weekly payroll statistics, which are released at 8:15a Eastern on every Wednesday. Some view ADP payroll statistics as a leading indicator of government non-farm payrolls (NFP) data, which counts itself among those regular data releases that have the biggest market impact. Since ADP’s payroll number is released weekly while the government NFP is produced monthly, the ADP reading tends to be more volatile.

ADP, 4 y 1d

The daily-bars perspective on ADP, shown above, reveals little. Price action is contained by a remarkably lengthy channel, one stretching back 3.5 years; the flash crash on May 6, 2010 does break through, but only with intra-day data. Reactions against the primary upward trend are relatively subdued.

ADP, 180 d 1h

The hourly-bars chart is more exciting. A well-fitting price channel again cleanly defines peaks and troughs, but unlike the case above, the current price rests right at the support trendline. Moreover, price action tested the support trendline recently, on April 23^rd, and only bounced weakly before reacting down anew. The stock appears poised for a downward break.

ADP, 20 d 5m

Further zooming into the most recent price action, ADP’s behavior is again well-modeled by a price channel, which instills confidence in the price channel -supported frameworks introduced above. The critical nature of the current price (about $54.6) is confirmed – that price marks the support level of price action of the past fortnight – and makes the technical analyst yet more inclined to follow this issue closely.

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 23^rd.

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.

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.

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!)

Apple (AAPL) in a capitulation rally

The S&P 500 index is continuing its low-volatility consolidation just below significant resistance around 1157. Today’s intra-day high of 1154.3 came quite close. But a bigger story in today’s markets concerned one of the index’s banner components: Apple (AAPL).

Today’s price action brought Apple into resistance from well-formed price channels on the daily- and hourly- bars charts. While remarkable in and of itself, the arrival of the bellwether stock at sturdy resistance provides compelling support to the higher-order thesis that the broad market might face an imminent volatility breakout, probably to the downside.


AAPL, 4 y 1d


AAPL, 180 d 1h

The stock’s approach of resistance is additionally notable for occurring on an acceleration of upward momentum, best illustrated in the upward breakout of AAPL from its price channel on the five minute -bars chart. Such price action is the mirror image of a capitulation sell-off, in which price craters amid an onslaught of volatility, and reveals a similarly unsustainable build-up of emotion.


AAPL, 20 d 5m

Further evidence of capitulatory buying is offered by the price oscillator index on the daily- and hourly- bars charts, which is at maxima for the respective charts. The price oscillator index measures the difference between current price and the 200-period simple moving average, and very high values indicate an overbought market.

In short, the combination of Apple’s accelerating appreciation in value and arrival at resistance from long-term price channels suggests a local maximum is imminent.

S&P 500 index approaches resistance at 1157

Volatility and volume on the U.S. markets is depressed, the indices are finishing many days after a marginal grind higher, and negative headlines seem to have lost their bite (increasingly likely Greek default next month, with contagion spreading to Portugal and Italy, anyone?).

My conclusion based on the above premises is thus: markets are setting themselves up for a volatility breakout, in all likelihood to the downside. The tricky matter is predicting where and when.

The level of 1157 on the S&P 500 index (SPX) is a worthy candidate for such a turning point. Across long-, medium- and near-term perspectives – i.e. on the daily-, hourly- and five minute- bars charts – this point coincides with resistance from well-defined price channels.

In addition, 1156.48 is the 8.5-month high for the SPX, set on July 7, 2011, and may be reasonably expected to act as a horizontal resistance level.

Charts of the S&P 500 index follow below. Worth noting is that charts of the other principal indices (the DJIA, NASDAQ Composite, and Russell 2000) also show resistance about 0.5 percent above today’s closing levels, points that might be reached simultaneously with an SPX print at 1157.


SPX, 4 y 1d


SPX, 180 d 1h


SPX, 20 d 5m

Bank of America (BAC) reaches 200-day moving average

Bank of America finds itself susceptible to a short-term bearish move, already begun today, having come within $.14 of its 200-day simple moving average. The four-year chart below (4 y 1d) demonstrates that the security has, over the short term, consistently reacted away from its 200d-SMA.


BAC, 4 y 1d

Today’s high of $7.99 has other characteristics of a short-term maximum. Not only is it a horizontal resistance point by virtue of being a full integer on a low-value security, but $8 was also an important reversal point in early 2009 and in August 2011.

Switching to the hourly-bars chart (50 d 1h), the past three days’ price action has brought BAC into the resistance side of two steeply-sloping price channels – further evidence of $8 being a local maximum. These price channels are marked below in green and purple.


BAC, 50 d 1h

Fedex Corp (FDX), a component of the S&P-100 index, is likewise at a resistance point on its daily chart. Yesterday’s intra-day high of $95.6 brought the security squarely into the resistance of a well-defined price channel extending to September 2009. Additionally, price is about $10 over the 200-day SMA, a level of bullish sentiment unsurpassed in the last 20 months and a contrarian indicator of a possible bearish reversal.


FDX, 4 y 1d

Moving away from blue-chips – perhaps a laughable designation for BAC which, despite being a DJIA component, is trading at a price/book of 0.38 (per Yahoo Finance) – let’s look at Coinstar Inc (CSTR), a favourite of one of my readers.

The stock exploded today on favourable earnings, but the slightly longer-term, 20-day picture (20 d 5m) is more interesting still. Price halted with today’s closing bell right at support from a modestly-defined price channel.

Moreover, eventual continuation of the rally appears relatively probable due to an abnormally elevated level of short interest in CSTR. Per the most recent available data on Yahoo Finance (from Jan. 13, 2012, so admittedly quite dated), Coinstar has a short ratio – defined as short interest divided by average daily trading volume – of 14. In comparison, other recently-maligned stocks register much lower levels in their short ratio: Netflix, Research in Motion, Green Mountain Coffee Roasters, and Sears Holding Corp. stand, respectively, at 1.3, 1.4, 4.6, and 6.2. Of course, an elevated short ratio can subsequently fuel a parabolic, short-covering-driven advance.


CSTR, 20 d 5m

The elegant beauty of price channels

If it's not utterly obvious, I do hereby make an admission: I don't believe in the efficient market hypothesis (EMH), at least with regard to its ability to explain market behaviour outside the long-term. Were the EMH binding, the market price of securities would not trend; instead, they would move in a random walk. With EMH a reality, models exclusively analyzing past price behaviour of a security would struggle -- indeed, fail -- to predict future movement.

And so, it is always a revelation when I stumble upon a chart whose depicted price behaviour so cleanly conforms to the simple model of a line or a set of parallel lines (a price channel).

This evening's charts of continuous front-month silver futures (/SI) and light sweet crude oil futures (/CL), the former with hourly bars (180 d 1h) and the latter with 20-minute bars (20 d 20m), exhibit particularly striking adherence to the simple model of a price channel.

Take a look:


Front-month silver futures (/SI), 180 d 1h


Front-month light sweet crude oil futures (/CL), 20 d 20m

The elegant beauty of the price channels on these charts rests with their striking explanatory power with regard to support and resistance.

On the silver chart, the red dashed price channel neatly contains the extrema of bullish and bearish movements over the entirety of 12/29/11 to the present (2/6/12).

How could a trader use this simple model to make money? The price channel was already defined by the time price reached a local maximum of ~$34.5 on 2/2/12; thus, when price subsequently (and, incidentally, in today's trade) touched a local minimum of $33.0, a trader acting on this price channel model could have opened a profitable long position at the exact price nadir, which matched the price channel's lower support line.

It's a similar story with regard to the chart of crude oil. A trader following that chart's price channel model would also have realized a profitable long trade, entered exactly at the one-month price action low of $95.44.

Indeed, the price channel models in these charts are not only elegant in their simplicity and striking explanatory power, but downright beautiful in how cleanly and boldly they take a stand against the ivory towers' EMH.