July 01, 2016

PRO 11 Charts Report

Market Analysis and Summary

The S&P 500 suffered distribution on Wednesday, only a day after it followed through. As we discussed in the last report, when distribution occurs on either of the first two days, immediately proceeding a follow-through day, it often ends the rally. Yesterday, the major averages gapped up at the open and then went on to trade back and forth for the rest for the session, as their ranges narrowed into the close. The Russell 2000 continued to lag, closing near its lows for day and barely above the flat line. The other three indexes had no problem, finishing up on the day and near their highs for the session. Volume expanded on the NASDAQ, while it declined on the NYSE. This action was by no means negative, although, it did little to inspire confidence.

The scant list of high quality leaders we’ve been discussing is barely hanging in there. Some have exhibited strength and rallied, while others have broken lower and violated important areas of support. Signs of healthy rotation remain elusive and we are not seeing much that’s new, with regard to constructive longs setups. Not to mention, there are more than a few late-stage base failures in the works. We will cover them in detail, as their bases become actionable.

In our view, Tuesday’s follow-through day (FTD) on the S&P 500 was pretty pathetic. However, the rules have changed. FTD’s no longer must be accompanied by “overwhelming volume,” or show “overwhelming power,” like they used to. Now, the NASDAQ or the S&P 500, must rally a minimum of 1.25% to meet the FTD requirement and volume merely needs to expand.

We continue to keep a close eye on the stocks that are displaying the most strength, although, we haven’t lost sight of the broken prior leaders, that are setting up on the short-side. We have been adding names to the Short Watch List, including AAPL, NFLX, NXPI, SWKS and TSLA, which were added tonight. Technically, the market has followed through. However, given the immediate distribution and the fact that leadership is so thin, we haven’t purchased a share. Besides which, there hasn’t been anything worthy of buying in the first place. To be clear, the market looks very unhealthy to us. Unless short-term trading is your forte, cash is still a great place to be, especially for traders in the business of building concentrated positions.

Remember, using cash as a position is part and parcel to our discipline, especially during times like these. It’s no different than when card counters sit back and bet the minimum, when the deck goes cold. This tactic has served extremely successful traders, like Jesse Livermore and Bill O’Neil rather well. It is also the ideal time to go back and review old trades. Review your successful trades, as well as your mistakes and then create rules, so that you don’t repeat the same mistake twice. This is by far and away, one of the most valuable and enlightening parts of the learning process. Never forget, it’s not our job predict the direction of the market and its leading stocks, but to analyze the clues they provide us and act accordingly.

The Indices

The NASDAQ rallied 0.87% as volume expanded. Regardless, it is still trading near 52-week lows and it couldn’t muster enough strength to close back above its 10-DMA.

$COMPQ Nasdaq Composite Index
Nasdaq Composite Index Chart

The Russell 2000 gapped up at the open, although, it closed near its lows for the day, as volume expanded, which is considered distributive action.

$RUT Russell 2000
Russell 2000 Chart

The S&P 500 rallied 0.54% as volume on the NYSE expanded yesterday. However, its overall action since it followed through, has been pretty weak.

$SPX S&P 500
S&P500 Index Chart

The DOW rallied 0.78%, although, volume declined and it continues to struggle near 52-week lows.

$INDU Dow Jones Industrial Average
Dow Jones Industrial Average Chart

The Stocks

FB gapped up at the open, in reaction to a solid earnings report and then continued to rally into the close. It finished just a fraction off of its all-time highs on massive volume. This action qualified as a buyable gap up. However, the market’s follow-through day is in jeopardy and unless FB undergoes a serious personality change and reverts back to the sort of action it displayed over the Summer of 2013, it will likely pull back and give us another chance to buy it at these levels again in the future. For this same reason, we are in no rush to buy a breakout through $110.65 either.

FB Facebook, Inc.
Facebook, Inc. Chart

AMZN exploded through its declining tops line (DTL) on huge volume and triggered a pocket pivot yesterday. Unfortunately, their earnings disappointed the street after the close and AMZN tumbled, erasing almost all of its recent gains in the after-hours session.

AMZN Amazon.com, Inc.
Amazon.com, Inc. Chart

GOOGL has been carving out a similar looking base to AMZN’s, although, its pattern is much more wide and loose. Nevertheless, both names are within striking distance of their 50-DMA’s and IBD’s relative strength (RS) line for GOOGL is making new all-time highs ahead of its price. Earnings are due February 1st after the close. Hopefully, they are better than AMZN’s.

GOOGL Alphabet Inc.
Alphabet Inc. Chart

CRAY closed slightly lower yesterday, although, it finished in the upper 1/3 of its range for the day and made a new 52-week high, on above average volume, which is constructive.

CRAY Cray Inc.
Cray Inc. Chart

Active, aggressive traders can purchase KANG on a big volume move through its declining tops line (DTL), using tight sells tops accordingly.

KANG iKang Healthcare Group, Inc.
iKang Healthcare Group, Inc. Chart

ALRM can be purchased on a big volume move through its declining tops line (DTL) and 50-DMA, using tight sell stops accordingly.

ALRM Alarm.Com Holdings, Inc.
Alarm.Com Holdings, Inc. Chart

MXL can be purchased on a big volume move through its DTL and 50-DMA, using tight sell stops accordingly. Earnings are due February 8th after the close.

MXL MaxLinear, Inc.
MaxLinear, Inc. Chart

SEDG can be purchased on a big volume move through $30.06, using a sell stop of 5%, plus or minus. An earlier entry point may still develop, so stay tuned. Earnings are due February 3rd after the close.

SEDG SolarEdge Technologies, Inc.
SolarEdge Technologies, Inc. Chart

FSLR continues to hold up extremely well, although, a well defined entry point has yet to develop. Earnings are due February 23rd after the close.

FSLR First Solar, Inc.
First Solar, Inc. Chart

XRS reported a solid quarter and blasted off from its 50-DMA, immediately after the open yesterday. It would have been very difficult to purchase anywhere near its 50-DMA yesterday, unless you bought it right after the opening bell. IBD’s relative strength (RS) line, not shown on the chart below, is making new all-time highs ahead of its price.

XRS TAL Education Group
TAL Education Group Chart

IBD’s proprietary RS line for ICE started making new all-time highs ahead of its price on January 6th and continues to hold up there. Yesterday, ICE closed up through its 50-DMA and DTL, on 21% more volume than average, as we discussed in the last report. However, its action was not nearly powerful enough to interest us in the current environment.

ICE Intercontinental Exchange, Inc.
Intercontinental Exchange, Inc. Chart

Due the market’s extreme volatility and the whippy nature of CHUY’s stock, we would shy away from buying it on a breakout through $35.76, as we discussed in the last report. Earnings are due February 29th after the close.

CHUY Chuy’s Holdings, Inc.
Chuy's Holdings, Inc. Chart

OLLI is moving powerfully up the right side of a potential IPO U-Turn base, from which breakouts have the highest success rate, of all of the base types. Also, IBD’s proprietary RS line is making new all-time highs, well ahead of its price. Ideally, we will see some sort of consolidation before it attempts to break out to new all-time highs. For now, OLLI can be purchased on a big volume move through $22.99, using a sell stop of 5-7%. An earlier entry point may still develop, so stay tuned.

OLLI Ollie’s Bargain Outlet Holdings, Inc.
Ollie's Bargain Outlet Holdings, Inc. Chart

IBD’s proprietary RS line for SBUX, is still holding up in new high ground, despite its price lagging below its 50-DMA. SBUX can be purchased on a big volume move through its DTL and 50-DMA, using tight sell stops accordingly.

SBUX Starbucks Corporation
Starbucks Corporation Chart

SPWH is low priced, volatile and thin, therefore, we are no longer interested in buying this stock through $13.78, as we discussed in the last report.

SPWH Sportsman’s Warehouse Holdings, Inc.
Sportsman's Warehouse Holdings, Inc. Chart

Traders that played CBPO off of its 50-DMA as we discussed in the last report, were stopped out before the end of the day on Wednesday, based on its close.

CBPO China Biologic Products, Inc.
China Biologic Products, Inc. Chart

Traders playing PRAH off of its $44.39 pivot point and 50-DMA as we discussed in the last report, were stopped out yesterday, as it melted below its 50-DMA on expanding volume.

PRAH PRA Health Sciences, Inc.
PRA Health Sciences, Inc. Chart

SKX can be sold short, using its 50-DMA as a guide for entry, with tight sell stops accordingly. Earnings are due February 10th after the close.

SKX Skechers U.S.A., Inc.
Skechers U.S.A., Inc. Chart

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