September 19th, 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)
The Market had another decent week and only the DOW closed slightly negative. Both the DOW and S&P are at major breakpoint downtrend resistance lines and could break any day. The Nasdaq is the weakest of the three major indexes but its technical picture continues to improve. The technical indicators are also still positive and continue to signal the uptrend from early August is intact. However a minor pullback could occur at any time, I thin the Market is setting up for a nice end of year election rally.
Tuesday is of course the meeting when the FED meets to discuss interest rates. It is widely assumed that short term rates will be raised by 0.25%. However, as is usually the case, the other comments Allen Greenspan makes are usually the big market movers.
The three month T Bill Yield is closely correlated with the short term Feds rate. The chart below suggests 0.25% is already priced in.
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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. Long term rates are likely near a bottom.
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.
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 at least two concurrent buy or sell signals
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.
or
#1. Whenever the Parabolic SAR gives 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 5 weeks ago in early to mid August. This indicator has proven very useful.
As noted above, the 5 MA can give whipsaw signals: I've found that the Parabolic SAR gives buy/sell signals without as much noise:
Compare the three charts below:
Synopsis: This indicator is bullish as long as it remains in an uptrend:
Using the Parabolic SAR, notice that fewer whipsaw buy/sell signals were given, but all the major moves were caught.
The chart below is the Parabolic SAR with even less noise. Notice that the fewest whipsaws were given using this Parabolic SAR. The major moves were also caught.
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.
The BPCOMPQ has rallied since mid August, not surprising given the Positive Divergence.
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.
Synopsis: This indicator is bullish as long as it remains in an uptrend:
On the long term basis, the Parabolic SAR has given a buy signal on the weekly chart:
Synopsis: Just turned bullish with Parabolic SAR:
The BPSPX just turned bullish last week as the Parabolic SAR gave a buy signal.
Synopsis: Just turned bullish with Parabolic SAR:
So far looking good:
Synopsis: This indicator is bullish as long as it remains in an uptrend:
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.
4. Major Indices, Nasdaq, DOW, S&P, other:
Nasdaq:
10 min chart
The Nasdaq is consolidating with an obvious downtrend resistance line just overhead. Look for this downtrend line to possibly be broken next week.
The 60 min chart of the Nasdaq shows there is support at the uptrend line.
Daily Chart:
The Nasdaq is still the weakest of the three major indexes (Nasdaq, DOW, S&P) however it continues to strengthen each week. The significant resistance areas are the downtrend line and possibly the 200 MA. 1875 might now act as support on a pullback.
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 may in the midst of an Elliot 5 wave pattern: If this is the case, the Nasdaq may be on the verge of entering wave 5 of the pattern which would be good news for the Bulls. Wave 5 would cause the Nasdaq to finish the year strong with an election rally and 2200 would not be out of the question.
The Semiconductors are beginning to look better all the time and a nice basing pattern is emerging. 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 a small flag with support at about 10200.
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. This chart resembles a bullish flag on the long term chart.
Notice the pickup in volume on Friday which is nice to see. If the downtrend line can be broken, the dotted lines are the first price targets.
Long term view: Is this a bullish flag pattern? However, the major resistance would seem to be the long term downtrend line.
The S&P has support at the uptrend line and resistance at the horizontal line. This chart resembles a bullish ascending triangle.
Daily Chart:
The 1 year chart of the S&Pshows 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. This chart resembles a bullish flag on the long term chart.
Notice the pickup in volume on Friday which is nice to see. If the downtrend line can be broken, the dotted lines are the first price targets.
Long Term Chart:
The S&P 500 resembles a bullish flag and has found support on the 62% retracement.
The NYSE has broken the downtrend resistance line on good volume which is possibly very bullish. The first targets are the dotted lines.
The S&P 100 is in a perfect downtrend line and also resembles a bullish flag.
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!.
One sector group that is starting to look interesting is Telecom:
Another note: The World markets look good with many countries rallying along with the US:
Many foreign markets looks strong and have bullish patterns developing such as bullish flags or wedges on the longerm term charts: However, my favorite foreign investment is currently Japan. EWJ, JOF, are ways to take advantage of the Japanese market, however UJPIX Ultra Japan Fund offers the most reward: Currently, UJPIX is in the low 30's, but I have a price target of about $75. Time frame for this to come to fruition is about 9 months to 1.5 years.
Other foreign markets that look good are Australia, Chile, England, France, Germany, Indonesia, Mexico, Netherlands, Russia, Spain, Sweden, ,Switzerland.
Foreign Page
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:
New format, trigger date now has it's own column:
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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9/19
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N/A
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23.50
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Beneficial owner buys about $35 million worth of stock on 9/10 or an average price of $26.22 |
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9/19
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N/A
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see chart
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Beneficial owner buys 200k shares on 9/14 for average price of $13 |
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9/19
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N/A
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3.40
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5 company insiders buy about $5.3 million worth of stock on 9/16 for an average price of $3.0 |
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9/19
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N/A
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13.50
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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 |
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9/13
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9/14
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see chart
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Place initial stops at about $3.40 and sell 1/2 shares
A company insider bought about $3 million worth of stock on 9/1/04 for an average price of $2.86
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9/12
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N/A
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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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9/17
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8.20
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Place initial stops under about $7.89
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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9/7
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see chart
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Place initial stops at about $13.51 and sell 1/2 original shares
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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9/1
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see chart
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Place stops at about $5.15 and sell 1/2 shares
One of the beneficial owners bought 147,000 shares on 8/24/04 for an average price of $4.88.
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8/29
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9/1
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5.25
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Nice bounce on great volume
Two company insiders bought a total of 300,000 shares on 8/24/04 for an average price of $5
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8/29
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9/16
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see chart
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Sell 1/2 shares and place stop at buy in price to insure a profit.
One of the beneficial owners purchased 500,000 shares for an average price of $16.05 on 8/20/04.
price target is $19
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8/29
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9/16
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see chart
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place initial stops at about $25
Tons and tons of insider buying by one of the Beneficial Owners.
Long term price target is the high at $29
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8/29
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9/1
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see chart
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Move up stops to buy in price and sell 1/2 shares to insure a profit.
LET THE REST RIDE AND KEEP MOVE STOPS UP ACCORDINGLY.....
One of the beneficial owners bought 54,000 shares between 8/19 and 8/24/04 for an average price of $23.42.
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8/21
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8/30
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$21.30
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To insure a profit, sell 1/2 of your shares and reset your stop to about $22.
LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY.....
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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8/27
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$19.75
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STOPPED OUT!!!
Reset stops to about $19
Insider buying on 8/18, at 19.08
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8/21
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8/27
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$21.70
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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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8/22
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$50
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Reset stops to buy in price and sell 1/2 shares to insure profit
LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY.....
Director buys 14519 shares on 8/18 for an average price of 47.66.
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8/21
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9/9
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$11
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Stopped out!!!
Sell 1/2 shares and reset stops to original buy in price which will insure a nice profit.
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8/21
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8/31
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see chart
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Took out resistance on good volume. Reset stops to buy in price to $14.50 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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8/10
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N/A
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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.
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8/8
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8/16
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$14.35
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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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8/31
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See Chart
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Sell 1/2 and place stops just under $4.55
2 company insiders bought about $10 million worth of stock on 8/2 for an average price of $14.75.
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8/8
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8/16
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See Chart
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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
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8/1
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8/30
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See Chart
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1/2 should be sold and stops moved up to $4.20
5 beneficial owners bought about $5.5 million worth of stock on 7/23 for an average price of $3.54.
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7/25
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8/16
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See Chart
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Nice run so far, sell 1/2 shares and reset stop to 37.5 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!!!
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7/17
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8/28
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See Chart
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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
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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 still 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. Therefore, the direction the Dollar breaks may be explosive and sustained for months. Of course, the same will happen to gold and corresponding stocks as well.
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. If the Dollar breaks to the upside, the 1st target is about 92.5
The inverted Dollar chart is simply another way to look at the Dollar. Remember, this chart is inverted, therefore the directions are reversed, down is up and up is down.
Gold metal, like the Dollar, is still confined within a triangle and waiting to see what the Dollar does. Obvioulsy, if the Dollar breaks to the upside, then the gold triangle will break to the downside and vice versa.
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.
Silver Metal:
Silver has technical broken down and now appears to be forming a bearish flag. There may be some support at about $6, but strong support is at $5.5. I would avoid silver stocks at this point.
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.
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