September 12th, 2004
Written by Matthew Frailey - matt@breakpointtrades.net
Table of Contents:
(click on the numbered sections below and you will be taken to that corresponding section)
It was a short week, but it was a good week for the Market; the major indices rallied last week on good volume and the Market internals continue to improve. All one has to do is look at the Sectors Page
page to see that there are only a few weak sectors noted in read. The Nasdaq rallied strongly last week and was helped by the Semiconductors, but is still the weakest of the three major indices. The DOW and S&P are both at significant downtrend resistance lines or breakpoints. The majority of individual stocks I've looked at are bullish and I found only a few short candidates.
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Long Term Investment Ideas:
One of my other favorite long term investment ideas is the Rising Rates Fund, RRPIX. Long term Interest rates are definitely going up in the long term and likely bottomed last week.
RRPIX moves about 125% of the inverse of the 30 year long bond.
Notice how this fund bounced exactly off an uptrend line. I think this is a great place to accumulate this fund. This fund moves about 25% for each 1 point change in long term interest rates. You won't get rich off this fund, but it seems like a sure bet to me over the long term.
For the past month I have been looking to short the Long Bond as I think long term rates will begin to rise again. The 30 year yield rallied strongly on Thursday and Friday and seems to have hit a bottom. Notice how the 30 year yield rallied exactly off the uptrend line. Resistance exists at the downtrend line, however this looks like a logical bottom to me and probably the start of higher long term interest rates.
On Thursday I shorted the 30 Year Bond (which moves opposite of Yield) and I plan to hold this position for as long as I can and possible to add to it.
I am looking to short the 30 year yield futures, ZB is the symbol.
Here's another reason to believe long term rates are going up is the next chart below: This chart is the ratio between the 30 year long term yield and 3 month yield.
My favorite indicator, positive divergence, indicates this indicator will soon turn up. For this to occur, long term rates have to rise since they are the numerator.
3. Market Indicators:
First, let's see what the market indicators are telling us:
The NASI has done a very good job thus far at predicting market tops and bottoms.
Really, there are three signals that work together to either give buy or sell signals on the NASI chart. Ideally you want to see all three signals confirm one another, however I think having at least two concurrent buy or sell signals is good enough:
There are three indicators than can buy or sell signals on this the NASI:
#1. Whenever the 5 day MA crosses the NASI line, it produces a buy/sell signal.
#2. Whenever the MACD crosses, produces a buy or sell signal.
#3. When ever the Stochastics cross 20 or below 80.
All three buy signals were triggered in mid August.
The NASI gave a buy signal for the Nasdaq, and the general Market, about 4 weeks ago, and the general Market has bounced nicely since then. The NASI is still in an uptrend, therefore we have to assume the Market will continue to rally. Only when the NASI gives a sell signal, should we assume the Market will enter an extended downtrend.
Synopsis: This indicator is bullish as long as it remains in an uptrend:
The percentage of stocks above the 200 MA is directly correlated with the Nasdaq. The percentage of Nasdaq stocks above the 200 MA has risen strongly since early August and not surprising due to positive divergence in the MACD.
However, last week a bullish event occurred as this indicator broke a downtrend line. This sets the stage for a test of the next resistance near 38 and is very positive for the market.
Synopsis: This indicator turned bullish and will remain so as long as the uptrend continues. Take note that the broken downtrend line could be retested.
The BPCOMPQ has rallied since mid August, not surprising given the Positive Divergence.
The BPCOMPQ could potentially rally to the resistance at about 43, which was the previous low set in March.
It's also possible that the NASI and the BPCOMPQ will coincide in the future and confirm one another, i.e. once the NASI gives a sell signal, the BPCOMPQ could be at resistance.
Currently, in the long term, the bearish event of the 50 MA crossing under the 200 MA for the most indices has me worried.
Synopsis: This indicator is bullish as long as it remains in an uptrend:
The Bullish Percent index is has rallied a bit since mid August, which is logical given the positive divergence in the MACD. Hard to say how long the BPSPX could rally, but it may have trouble in the high 50's, which was the previous low in March.
Currently, in the long term, the bearish event of the 50 MA crossing under the 200 MA for the most indices has me worried.
Synopsis: This indicator is bullish as long as it remains in an uptrend:
In order for the Nasdaq to sustain a healthy uptrend, the Semiconductors need to participate and out perform. The Semiconductors have been very weak and is one of the reasons that the Nasdaq is also the weakest of the three major indices.
Last week, the Semiconductors finally rallied which is a positive sign, however the rally in the Semiconductors needs to continue to support the strengthening Nasdaq.
Synopsis: This indicator is bearish, but is starting to turn up, resistance is at the horizontal line:
Last week, the Semiconductors rallied on good volume and subsequently helped the Nasdaq to rally. The rally in the Semiconductors was not unexpected due to the positive divergence in the MACD.
Even though the Semiconductors had an impressive week, they need to continue to rally in order to support the Nasdaq and general market rally. There is resistance just overhead at about $31 to contend with.
Small caps usually lead when the market does well, which is currently happening and shows the current market rally in the S&P is healthy.
The indicator below is a ratio of the Small Caps to Large Caps. The direction of this indicator is what's important, when the trend is up, it means that small caps are outperforming large caps, and thus suggests that the Market can support a continued rally. However when the indicator is down, it indicates small caps are under performing large caps and indicates that the market will not support an extended rally.
For example, if the S&P is rallying, but the small caps are under performing large caps, then the rally in the S&P would be suspect and likely end.
Synopsis: This indicator is bullish as long as it remains in an uptrend:
The NAUD is in a downtrend channel with resistance at the downtrend line.
Synopsis: This indicator is bearish to neutral, but will turn positive if the downtrend line is broken to the upside:
The NYAD is making new highs in a strong uptrend.
Synopsis: This indicator is bearish to bullish:
Dow Theory states that the Dow Jones and the Transportation index are directly correlated. Divergence between the two suggests a change in trend will soon occur.
The chart below is the ratio of the Transports to the Dow Jones.
Synopsis: This indicator is bullish and shows that the Transports are currently out performing the Dow Jones. This divergence signals that the DOW may soon rally and play catch up with the Transports.
It is the direction, not the level, that is important on the VIX. Below is an inverted chart of the VIX, which means it moves directly proportional to the General Market.
Synopsis: The inverted VIX is at a 'breakpoint' which means that it will either breakout and cause a market rally, or pullback and cause the market to fall. This is one to watch.
4. Major Indices, Nasdaq, DOW, S&P, other:
Nasdaq:
60 min chart
The Nasdaq rallied strongly last week and stopped right near resistance at about 1900.
Daily Chart:
The Nasdaq rallied strongly last week on great volume which is bullish. Each week the technical condition of the Nasdaq continues to improve, bit is still the weakest of the three major indices. I would like to see resistance at 1900 taken out and then confirmed as support on a pullback. However, the really significant resistance is the downtrend line.
Long Term:
On a long term basis, the Nasdaq bounced off a multi-year uptrend line and is consolidating into a triangle pattern. Significant resistance is at the downtrend line.
The Nasdaq 100 is rallying strongly on great volume and former resistance is now support. The next resistance levels are the 200 MA and the downtrend line.
The Semiconductors rallied strongly last week on great volume and is one of the main reasons why the Nasdaq rallied. Resistance is at about $34, and if can be taken out, it would be bullish for the Nasdaq.
60 min:
The 60 min chart shows us that the DOW is forming an ascending triangle with support at the uptrend line and resistance at about 10365.
Daily Chart:
The 1 year chart of the DOW shows that it is near a major downtrend resistance line and an important breakpoint. If this downtrend line can be broken on good volume, it may set the stage for a long term rally.
Long term view: Is this a bullish flag pattern?
The S&P has support at the uptrend line and resistance at the horizontal line. This chart resembles the DOW 60 min chart and resembles a bullish ascending triangle.
Daily Chart:
The 1 year chart of the S&P shows that it is near a major downtrend resistance line and an important breakpoint. If this downtrend line can be broken on good volume, it may set the stage for a long term rally.
The NYSE has broken the downtrend resistance line on good volume which is possibly very bullish.
The Russel 1000 also resembles the DOW Jones and S&P 500: It's near a downtrend resistance line and a breakpoint.
5. Market Sector Breakdown Along With Various Stock Picks From These Sectors:
The market internals continue to improve and many sectors are now bullish. In fact, there are only a few bearish sectors, such as AutoParts and Airlines, but the majority are bullish. This is positive for the market. The last few weeks, I have presented a few stock picks from strong sectors, however there are simply too many to list this week!.
Take a look at the Sectors page to see what I mean:
One sector that's interesting is Telecommunications which is forming a large ascending triangle with resistance at about 130 with a price target of about 175. Comment stocks are listed on the chart:
6. Insider Buying / Technical Supported - Stock Picks:
The Insider Longs section continues to get larger each week. In my opinion, this list is a preferred list of long candidates for those of you who work, travel, and thus don't have the time to trade all day.
Comments:
This list is doing so well, I hope some of you are playing these, very rewarding.
This week, I only added one new pick, ASPM
What's very impressive to me is that 77% of the insider longs profiled have triggered long and are profitable. This means that one could have simply bought each one of the insider picks, rather than picking and choosing, and would have done very well.
Stock picks presented here are supported by recent, and or, long term insider buying, and are further confirmed by technical analysis. Each week, I receive a list of stocks with recent insider buying from another service I subscribe to. I receive about 50 new picks a week. I look at each of the picks, and only select the ones that also have decent chart patterns. It is my belief that stocks with strong technicals, along with insider buying, can be held for much longer periods of time (good swing trade candidates) rather then simple day trades.
Subscribers who work and or travel extensively, might find this section useful as these stocks can generally be held for longer periods of time, with confidence, knowing insiders are buying along with strong technicals.
Triggered Insider Picks are Highlighted in Grey
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Symbol
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BP Price
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Comments
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9/12
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19.70
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A beneficial owner buys 65,834 shares for an average price of $17.37 betweem 9/2 and 9/8/04 |
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9/4
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8.20
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9/11 - nice pickup in volume
Two insiders bought over 7.5 million dollars worth of stock between 8/20 and 8/26/04 form an average price of $7.
Very thinly traded stock, so be careful with this one. Resistance is about $8.20 with a target to fill the gap at about $10.5
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9/4
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see chart
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Triggered long on 9/7
place stops below the broken downtrend line.
8 company insider buy about 114k shares on 9/1 for an average price of $10.79
careful, thinly traded stock
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8/29
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see chart
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Triggered long on 9/1, but has fallen back below the downtrend line.
Place stops just under the uptrend line at about $4.60
One of the beneficial owners bought 147,000 shares on 8/24/04 for an average price of $4.88.
Buy if the downtrend line is broken to the upside
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8/29
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5.25
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Triggered Long on 9/1 but pulled back and I was stopped out. May still run, but I will soon remove this one.
Two company insiders bought a total of 300,000 shares on 8/24/04 for an average price of $5
Buy if resistance at $5.25 is taken out.
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8/29
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see chart
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One of the beneficial owners purchased 500,000 shares for an average price of $16.05 on 8/20/04.
AN looks like a buy if the downtrend line is broken to the upside and the price target is $19
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8/29
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see chart
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New insider buying on between 8/30 and 9/2, may trigger soon
One of the beneficial owners bought 117,950 shares between 8/20 and 8/24/04 for an average price of $24.42.
HTV is a buy if the uptrend line is broken on good volume. Long term price target is the high at $29
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8/29
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see chart
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Triggered Long on 9/1
Move up stops to buy in price and sell 1/2 shares to insure a profit.
One of the beneficial owners bought 54,000 shares between 8/19 and 8/24/04 for an average price of $23.42.
Buy near the uptrend line and place stops just below it.
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8/29
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see chart
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One of the beneficial owners bought 500,000 shares on 8/24/04 for an average price of $9.75.
The volume can be light on this one, but is a buy if the downtrend line is broken to the upside. place stops under the uptrend line.
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8/21
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$21.30
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Triggered Long on 8/30 ong very strong volume.
To insure a profit, sell 1/2 of your shares and reset your stop to your buy in price to insure a profit. Let the rest run.
Insider buying of 150,000 shares on 8/16 for an average price of 20.08
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8/21
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$19.75
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Triggered long on 8/27 on strong volume. Reset stops to about $19
LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY.....
Insider buying on 8/18, at 19.08
Resistance at 19.75 and support at uptrend line
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8/21
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$21.70
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Triggered long on 8/27 on huge volume.
Sell 1/2 shares and reset stops to original buy in price which will insure a nice profit.
LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY.....
Insider buying of about 1/2 million dollars by one of the benefical owners on 8/13 for an average price of 19.95.
Resistance = 21.70, support at uptrend line
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8/21
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$50
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Triggered long on 8/22, took out resistance on good volume.
Reset stops to buy in price.
LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY.....
Director buys 14519 shares on 8/18 for an average price of 47.66.
Resistance at 50
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8/21
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$11
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Insider buying of 62,000 shares on 8/17 for an average price of 9.31.
Sell 1/2 shares and reset stops to original buy in price which will insure a nice profit.
Triggered long on 9/9 on good volume.
Resistance at 11, support at 9
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8/21
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see chart
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Triggered long on 8/31
Took out resistance on good volume. Reset stops to buy in price to insure a profit.
3 directors bought about 2 million worth of stock between 8/13 and 8/18 for an average price of 11.08.
Nice pick up in volume, but I would wait for a pullback before buying STMP.
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8/21
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see chart
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Insider bought 150000 shares on 8/20 for an average price of 8.25.
Resistance at downtrend line, targets 10 and 12
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8/10
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$2.70
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Looking good here, nice pickup in volume, may soon trigger
One of the board of directors bought 776,475 shares for an average price of $2.45 on 8/3.
Looks like a good buy if $2.70 resistance taken out.
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8/8
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$14.35
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Triggered long on 8/16, took out resistance. Reset stops original buy in price and sell 1/2 to insure a profit.
LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY.....
nsider buying on 7/30 for an average price of $12.50
Resistance at $14.35, and first target at $15.70
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8/8
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See Chart
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Triggered long on 8/31, however volume was light. Place stops just under $4
2 company insiders bought about $10 million worth of stock on 8/2 for an average price of $14.75.
Support at the uptrend line, and a low risk place to buy
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8/8
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See Chart
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Triggered long on 8/16, took out short term resistance. Keep moving stops up. Next resistance is the next downtrend line.
5 corporate insiders bought over 35 million worth of stock between 8/4 and 8/5 for an average price of $20.20
No pattern here and the chart doesn't look that good, however with the insider buying, might want to keep this one on the radar. Support is at $20
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8/1
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See Chart
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8/16 Triggered long, by breaking symmetrical triangle to the upside. - new insiders keep buying each week
Tons of insiders have been buying MWY shares over the past 8 months. The most recent insider purchased shares in late July for an average price of $11.21
Strong uptrend line, nice symmetrical triangle
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8/1
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See Chart
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Triggered long on 8/30 by breaking downtrend line. Volume is real light on this one, so becareful. Set stops a few % below the downtrend line.
5 beneficial owners bought about $5.5 million worth of stock on 7/23 for an average price of $3.54.
Represents a buy if the downtrend line is broken.
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7/25
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See Chart
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Triggered long by breaking flag on 8/16. Nice run so far, sell 1/2 shares and reset stop to original buy in price to insure a profit. Next breakpoint is just overhead.
LET THE REST RIDE AND MOVE STOPS ACCORDINGLY....
Very large insider buying: Beneficial owner buys a total of $173 million worth of stock for an average price of $33.33 on 7/16/04!!!
Could be bought if the downtrend line is broken to the downside.
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7/17
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See Chart
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Finally Triggered long on 8/28, let's see where it takes us. Stops in just under $10
16 company insiders recently purchased shares for an average price of $10. 1st price target = $10.75, 2nd price target = $12.50
Huge pick up in volume, as well as positive divergence to boot.
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7. US Dollar, Gold, Precious Metal Stocks:
US Dollar
When discussing gold and precious metals, the US Dollar is paramount and holds nearly all the power over the direction of gold, thus it should be discussed first and foremost. Eventually, the gold will move up regardless of what the Dollar does, but at this point in time, the two are still linked closely together in an inverse correlation.
The Dollar is stuck between support and resistance; support is at the uptrend line, while resistance is at the downtrend line. The Dollar is essentially consolidating into a large symmetrical triangle pattern that will soon breakout either to the upside or the downside with explosive force. Remember, triangles often produce large and sustained price movements.
Expanding the Dollar chart further confirms the important symmetrical triangle pattern. This chart is very important and the direction this triangle breaks will set the next trend for gold, precious metals, and corresponding stocks for the rest of the year and likely early next year.
For example, if the triangle breaks to the upside, then gold will likely enter an extended downtrend.
If you follow gold and precious metal stocks, you need to follow this chart closely. The good thing is that we should get confirmation within the next couple of weeks.
Gold metal pulled back to retest the broken downtrend line and the uptrend line where it found support. Gold chart still looks bullish, but it all depend on what the US Dollar does.
Gold metal has support at the broken downtrend line near $400, and the uptrend line in the mid $390s. Resistance is at the downtrend line near $415.
Longer term view: Gold has support at the broken downtrend line and the uptrend line and resistance at the downtrend line which forms a nice symmetrical triangle.
Notice how both the US Dollar and Gold metal have formed symmetrical triangles together? Obviously a big move is upon us, whether it be up or down, we should get confirmation in the next few weeks.
The Big Picture: Gold metal has significant resistance overhead and this are could be broken if the Dollar breaks its triangle to the downside. If not, then a strong pullback in gold will occur.
With the Dollar and Gold metal near significant breakpoints inside symmetrical triangles, it's logical that gold stocks have also consolidated near breakpoints.
For example, the XAU is near downtrend resistance of a triangle pattern.
The HUI Gold Bugs Index has formed a bullish flag on the long term weekly chart and is near a breakpoint.
Palladium Update:
A few of you have recently asked me about Palladium, which was a major performer early this year.
Palladium metal is trying to find support near $200 and is also at a breakpoint. If support fails to hold it would be bearish, but if the downtrend line can be broken to the upside, it would be bullish.
Likewise, Palladium stocks look interesting and are at breakpoints:
SWC looks great on a long term basis if it can break the symmetrical triangle to the upside.
Short term basis clearly shows the downtrend resistance line, which would trigger a buy if broken.
Same deal for PAL, the downtrend line is resistance and a breakpoint for a long or short entry
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