Stock Market Rally Attempt Grows Stronger On Pullback

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Since my last post, Time To Short The Market, the stock market rally attempt ran into trouble right around the resistance levels as expected. Distribution increased and large capitalization stocks, especially technology, have been hammered on earning’s reports. But, new leadership from small and mid capitalization stocks has been a major positive signal.

The Nasdaq and SP-500 have registered 8 and 7 distribution or stalling days over the last month, respectively. Not exactly the action traders want to see during a stock market rally attempt. But most of the distribution has been related to large capitalization stocks, heavily weighted in the indices, getting hammered on earning’s reports. Netflix (NFLX), Google (GOOGL), Apple (AAPL), Starbux (SBUX), Microsoft (MSFT).

Stock Market Rally Attempt Grows Stronger On Pullback

Despite this negative action, the indices have managed to close near their intra-day highs on almost every occasion, the DOW and SP-500 are within 2% of all time highs, and the NYSE advance decline line is at all time highs, a leading indicator of strength.

Last night, Facebook (FB) finally reversed the trend of large capitalization getting hammered on earning’s reports. The company delivered a strong earning’s report and gapped out of a cup with handle base in strong volume. Let’s see if Amazon (AMZN) can continue the trend tonight.

Stock Market Rally Attempt - Facebook (FB) - Cup with Handle Breakout

Small and mid capitalization growth stocks have taken over the leadership. New breakouts occur almost daily from first or second stage bases despite the market pullback and high distribution. Exactly the action trader’s want to see in a new stock market rally attempt. These are the stocks that will grow up into tomorrow’s large capitalization stocks that will lead the market even higher.

Weibo (WB), the Chinese (TWTR), broke out from a cup with handle base in volume over 400% above average, and has advanced over 30%.

Weibo (WB) Following Through

New Oriental Education (EDU) gapped up and broke out of a flat base on top of a cup with handle base, in volume over 100% above average, on a strong earning’s report.

Stock Market Rally Attempt - New Oriental Education Breaks Out from Flat Base

Chemical Financial (CHFC) broke out from a cup with handle base two weeks ago in low volume, but volume is starting to build as the stock follows through.

Stock Market Rally Attempt - Chemical Financial

iRobot (IRBT) broke out of a double bottom with handle base in volume over 600% above average.

Stock Market Rally Attempt - IRobot (IRBT)

These and others should be watched for pullbacks during market weakness for additional entry points. The market is not short of setups, but they are starting to dry up. Review the trading ideas page several times a day for new setups and the progress breakouts are making.

This is the most hated stock market rally attempt in recent history. But unless the new leadership starts to breakdown, the stock market rally attempt is in a position to follow through to all time highs and potentially even higher. Stay patient.

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3 Chinese Trading Ideas Breaking Out Today

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While the market has given plenty of reasons to sit on the sidelines, 3 Chinese trading ideas, from our watch list, are breaking out today.

3 Chinese Trading Ideas Breaking Out

Weibo (WB), the Chinese Twitter (TWTR), featured in, 4 Stocks in Early Stage Bullish Bases, is breaking out from a first stage, cup with handle base, in volume 500% above average. The stock already broke out from my initial entry point at $18.18.

Weibo (WB) - 3 Chinese Trading Ideas Breaking Out Today

Weibo (WB) -Breaking Out from Cup w/Handle Base

Tarena (TEDU), a Chinese education company, is attempting to breakout of a first stage, cup with handle base. Volume is running around average, but could pick up as the afternoon progresses or tomorrow.

The company has delivered strong growth rates over the last three years. Growing sales and earnings by over 40%. Sales growth has accelerated from 17% to 50% over the last four quarters, and earnings from 0% to 92%.

The company has beaten earnings expectations over the last two quarter by 18% and 42%, respectively, and analyst continue to expect the company to deliver 30% plus growth over the next three years.

Margins have started to accelerate, quarter over quarter, from 12.3% to 15.2%, and are expected to continue expanding.

Tarena (TEDU) - 3 Chinese Trading Ideas Breaking Out Today

Tarena (TEDU) – Breaking Out from Cup w/Handle Base

Qunar (QUNR), the Priceline (PCLN) of China, is breaking out higher from the bottom of a potential first stage, cup shaped base. Volume is running about average.

The company has been growing sales at over 100% quarterly and annually, but still losing money. Analyst expect the company to start posting profits in 2017. The company has beaten analyst estimates for the past four quarters, and by 55% the last quarter.

Qunar (QUNR) - 3 Chinese Trading Ideas Breaking Out Today

Qunar (QUNR) – Breaking Out Higher

The question now is, can they follow through. Many recent breakout have had trouble making forward progress after break outs. For now, traders should hold these positions.

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Time To Short The Market?

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The rally attempt over the last two months has been impressive. All three major indices have rallied over 14%. Unfortunately, that’s about all the good news traders can squeeze out of the rally attempt. So I ask myself, after today’s action, at a major inflection point, is it time to short the market?

Time To Short The Market?

First, why is today an inflection point? All three major indices have finally tested the two hundred day and ten month moving averages. While the DOW and SP 500 traded over these levels about two weeks ago, the Nasdaq only managed to reach these levels today.

These are important levels for two reasons:

  1. This is right around the area the market consolidated above and broke down at in August 2015, the mini crash, and January of this year. Turning this area into a major resistance level.
  2. In 2008, the indices rallied twice to the two hundred day and 10 month moving averages, over eleven months, before entering a major leg down of that bear market. The current rally attempt is the second attempt in nine months off the July 2015 highs.
Nasdaq Double Top - Time to Short The Market

Nasdaq Double Top

The important levels alone do not make it time to short the market. But there are plenty of other reasons, combined with the levels, that might make it time to short the market:

  1. Even though the Nasdaq has registered three strong accumulations days during the rally attempt, volume has diminished with each one. While it is okay for volume to start off slowly, you do expect it to build up as the rally progresses. Unfortunately, overall volume has been diminishing as the rally has progressed.
  2. The Nasdaq distribution count is starting to approach dangerous levels at five. The SP 500 and DOW are still mild at three.
  3. Leading growth stocks are non existent. The few breakouts that have occurred, Maxwell (MXL), Ollie’s Bargain Outlet (OLLI), US Concrete (USCR), and  Paypal (PYPL), are on the verge of failing, or have failed to follow through in any meaningful way. Despite a fourteen percent market rally, a strong rally day yesterday, and a strong open today. If this sounds familiar, it should. This is exactly the type of action that plagued the market at every rally attempt, last year. In each case, it was better to grab profits while traders had them before the market sold off.
  4. The FANG stocks, Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOG) have acted poorly during the rally attempt. FB and GOOG have attempted to reach fifty two week highs, but their stocks have significantly lagged the broader market, and volume has been well below average. NFLX and AMZN finally managed to get over their respective fifty day moving averages, but volume is anemic.
  5. Short trading ideas have not fallen apart. They have continued to develop and grow in number, despite the market rally attempt. The medical sector and related groups continue to consolidate right around their respective fifty day moving averages. Unless they start to breakout over the fifty day moving average soon, in heavy volume, they are set to lead the market lower over the next few week and months. Read, How To Play The Biotech Bust and visit the Short Category for recent short ideas.

So, is time to short the market? Yes, traders should now be considering short positions in the weakest sector and groups…Medical. Review all three sections on the Trading Ideas Page, Current Watch List, Current Breakouts And Breakdowns, and Old Trading Ideas, for stocks that are near entry points. There are plenty of them. Good luck!!

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Amerisource Bergen Bearish Pullback to Fifty Day Moving Average $ABC $MCK $IBB

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Amerisource Bergen (ABC) advanced over 300% since breaking out of a cup and handle base at the end of 2012, and has formed to double tops since topping in 2015.

Amerisource Bergen undercut the first neckline during the summer of 2015, only to squeeze back twice, in lower volume, back to the two hundred day moving average, forming a second double top and reversing lower in heavy volume.

The stock attempted to breakdown below the second double top neckline at the beginning of the year, only to spend the last eight week pulling back to the fifty day moving average in lower volume.

The stock can be shorted as it begins to break down, in heavy volume, off the fifty day moving average.

Amerisource Bergen Bearish Pullback to Fifty Day Moving Average

Amerisource Bergen (ABC) Bearish Pullback to Fifty Day Moving Average

Amerisource Bergen (ABC) Bearish Pullback to Fifty Day Moving Average

Review our trading ideas for additional stocks on the watch list and breakdown/breakout list near entry points. Plenty of medical and biotech (IBB) stocks and Mckesson (MCK) are near entry points.

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Illumina Bearish Pullback to Fifty Day Moving Average $ILMN $IBB

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Illumina (ILMN) advanced over 400% from its’ 2013 cup and handle breakout before forming a bearish head and shoulder top in 2015.

Illumina broke down below the head and shoulder neckline, in heavy volume, in September 2015, and dropped approximately 30%, and has spent the last six months consolidating that drop, and shaking out the early bears.

Over the last seven weeks Illumina has pulled back to the fifty day moving average, in light volume, as the market attempts to rally. This is the third time the stock has attempted to rally over the fifty day moving average. Each attempt has been met with heavy volume selling back down through the fifty day moving average.

Illumina can be shorted here as it stalls at the fifty day moving for the third time and breaks below it in heavier volume.

Illumina Bearish Pullback to Fifty Day Moving Average

Illumina (ILMN) Bearish Pullback to Fifty Day Moving Average

Illumina (ILMN) Bearish Pullback to Fifty Day Moving Average

 

Review our trading ideas for additional stocks on the watch list and breakdown/breakout list near entry points. Plenty of medical and biotech (IBB) stock near entry points.

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How To Play The Biotech Bust $IBB $BIS $ZBIO

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Biotech stocks had tremendous runs over the last few years. Many advancing several hundred percent. But all good things in the stock market come to end, and the biotech group is no exception.

The advance over the last four to five years clearly reflected the improved growth rates that we saw biotech companies deliver over those years, and current fundamentals remain strong. Unfortunately, analysts have been revising their estimates downward, and now expect a major deceleration in growth over the next three years.

From a technical stand point, biotech stocks are clearly the weakest group in the medical sector and stock market. They are ranked at the bottom of the Investor’s Business Daily’s Industry Groups.

The group, as reflected by the Ishares Biotech ETF (IBB), has dropped over 40% since the market topped in July 2015, after advancing over 400% since 2011. On average, former leading stocks and groups, drop over 60% after topping.

How To Play The Biotech Bust

There are several options traders have to capitalize on the bust. They can short individual biotech stocks, or they can buy and/or short biotech ETFs. There are three ETFs that can be traded to take advantage of any biotech sell off.

The Ishares Biotech ETF (IBB) has pulled back to its fifty day moving average in low volume, after breaking down from a bearish head and shoulder base, in heavy volume, at the beginning of the year.

The ETF can be shorted right around the fifty day moving average as volume continues to dry up, or breaks down, in heavy volume, below $242.

Ishares Biotech ETF IBB

Ishares Biotech ETF (IBB) Pullback To 50 DMA in Low Volume

Aggressive traders can consider going long two biotech leveraged ETFs. The ProShares Ultra Short Nasdaq Biotechnology ETF (BIS), 2x leverage, or the Proshares Ultra Pro Short Nasdaq Biotechnology ETF (ZBIO), 3x leverage.

The entry point would be at the same time as the Ishares Biotech ETF (IBB) either stalls or rallies to the fifty day moving average in low volume, or starts to break down in heavy volume.

ULTRASHORT NASDAQ BIOTECHNOLOGY (BIS)

ULTRA SHORT NASDAQ BIOTECHNOLOGY (BIS)

ULTRAPRO SHORT NASDAQ BIOTECHNOLOGY (ZBIO)

ULTRA PRO SHORT NASDAQ BIOTECHNOLOGY (ZBIO)

Whichever route you choose, the market will have to trend lower. As much as the group has wanted to break down over the last few weeks, it has been held up by the market’s rally attempt. But based on the poor relative strength of the stocks and ETFs that represent the group, it is clear, at least for now, the group wants to go lower.

Review our trading ideas page for stocks that have already exhibited break down action and stocks that are still working on bearish patterns. Always do your own due diligence before entering any trade.

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2 Social Media Stocks on Verge of Breaking Down $LNKD $TWTR

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While I have mainly discussed weak medical stocks over the last few weeks, there are 2 social media stocks on the verge of breaking down.

2 Social Media Stocks on Verge of Breaking Down

Twitter (TWTR) had many of the characteristics of being a potential big winner. But as is the case in the market so often, what is obvious to the masses, is not what ends up happening in the end.

After its initial public offering in 2013, the stock setup an IPO base and advanced approximately 100% from the breakout. But that is as far as the stock would run. The stock would almost immediately drop 60% over the next five months in heavier volume.

The stock attempted to rally back at least two time over the following year, only to stall and sell off in heavier volume, forming a double top bearish base. The stock broke the neckline in July 2015, only to rally back and stall at the double top neckline in October 2015 and rollover.

As the market has attempted to rally over the six weeks, the stock has pulled back to the fifty day moving average in low volume. Lagging the market significantly.

A breakdown from these levels, in heavy volume, would signal more downside. Seeing that the stock is significantly below its IPO price and approaching the $15 institutional threshold for holding a position, the downside could be significant. The risk is incessant take over talk that swirls around the stock.

2 Social Media Stocks on Verge of Breaking Down - Twitter

2 Social Media Stocks on Verge of Breaking Down – Twitter (TWTR)

LinkedIn (LNKD) was another promising social media stock. The stock broke out from a cup and handle base in 2013 and advanced approximately 100% over the next seven months. Only to drop 47% over the next nine months.

Since then, the stock worked on a three year head and shoulder top. The stock attempted to break down in August 2015, but that was a bit too early and obvious, and shook out the early shorts. The stock finally managed to break down four weeks before earnings, and accelerated to the down side on a poor earning’s report.

The stock has barely budged over the last six weeks as the market attempted to rally. It has only managed to pull back to the twenty day moving average in lower volume. A breakdown from these levels, in heavy volume, can be shorted.

2 Social Media Stocks on Verge of Breaking Down - LinkedIn

2 Social Media Stocks on Verge of Breaking Down – LinkedIn (LNKD)

There you have it, 2 social media stocks on the verge of breaking down.

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MaxLinear Breaking Out in Heavy Volume $MXL

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MaxLinear Breaking out in heavy volume, 191% above average, from a cup w/handle base. Read today’s post, 4 Stocks In Early Stage Bullish Bases, for detailed analysis.

MaxLinear Breaking Out in Heavy Volume

MaxLinear Breaking Out in Heavy Volume MXL

MaxLinear Breaking Out in Heavy Volume MXL – Click to Expand Chart

Review watch list and portfolio for additional trading ideas.

Drone Maker AeroVironment forming Cup w/Handle Base $AVAV

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Drone maker AeroVironment (AVAV) has been forming a cup shaped base over the last four months. Volume dried up as the stock sold off and formed the bottom of the cup, and soared as the stock worked up the right side. The stock is attempting to form a handle in light volume. Overall volume is thin, which makes for volatile trade. I would not be surprised if the stock ran to around $30 and formed a better, stronger, handle.

Analyst expect drone maker AeroVironment to accelerate earnings and sales growth from 23% to 280% and 3% to 15% over the next three years respectively. The company has beaten earnings by 300% – 400% over the past two quarters, but has struggled to keep earnings growth consistent. The three year expected growth rates for earnings and sales are 94% and 8%. Margins have risen for three consecutive quarters and are approaching multi year highs. Better then expected sales growth, along with rising margins, is a formula for further earning’s surprises.

Review the watch list for updated entry points.

Drone Maker AeroVironment forming Cup w/Handle Base

Drone Maker AeroVironment Cup w/Handle Base

Drone Maker AeroVironment Cup w/Handle Base – Click to Expand Chart

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4 Stocks In Early Stage Bullish Bases

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Not all is bad in the market. There are 4 stocks in early stage bullish bases with strong sales and earning’s growth. All four will need a strong market tail wind to make any progress post breakout. Review the watch list for entry points.

4 Stocks In Early Stage Bullish Bases

MaxLinear (MXL) has been a strong performer. The stock is currently forming a second stage cup with handle base. Volume was strong up the right side of the cup and is now weakening in the handle. The stock also had a strong, reversing churning week, the week of February 12, 2016.

MaxLinear has guided and beat rising analyst estimates for two consecutive quarters. Sales and earnings have grown, and accelerated, by triple digits over the last two quarters, and are expected to continue to grow by triple digits over at least the next two quarters.

MaxLinear MXL Cup w/Handle Base - 4 Stocks In Early Stage Bullish Bases

MaxLinear MXL Cup w/Handle Base – Click to Expand Chart

Wayfair (W) has formed a second stage double bottom with handle base. Volume spiked up the right side of the cup and is drying up in the handle. The stock had a bullish reversal support week the week of February 12, 2016.

While Wayfair is not expected to post positive earnings for at least another two years, it has beaten analyst estimates by 40% or more over the last three quarters, and sales growth has accelerated over the past four quarters from 39% to 81%.

Wayfair W Double Bottom w/Handle Base - 4 Stocks In Early Stage Bullish Bases

Wayfair W Double Bottom w/Handle Base – Click to Expand Chart

Weibo (WB), considered the Twitter (TWTR) of China, is in the process of forming a first stage cup with handle base. Volume has been well above average up the right side of the cup, and is drying up as the handle forms.

Weibo has been posting impressive sales and earnings growth. Sales have grown over 40% in the past two years, and earnings have accelerated over the last three quarter from 150% to 350%. The company has handily beaten analyst estimates by 10% and 60% over the last three quarters, and analyst expect the company to continue to grow sales and earnings by at least 30% and 80% over the next three years respectively.

Weibo WB Cup w/Handle Base - 4 Stocks In Early Stage Bullish Bases

Weibo WB Cup w/Handle Base – Click to Expand Chart

Chemical Financial (CHFC) has formed a cup and handle base. Volume dried up as the stock sold off, spiked well above average up the right side, and has started to dry up in the handle area.

Chemical Financial is expected to accelerate sales growth over the next two years from 28% to 50%, and grow earnings at a modest 13%. Margins are at their highest level in over three years. The company has a dividend yield of 2.90%.

Chemical Financial CHFC Cup w/Handle Base - 4 Stocks In Early Stage Bullish Bases

Chemical Financial CHFC Cup w/Handle Base – Click to Expand Chart

Due your own due diligence on these 4 Stocks In Early Stage Bullish Bases. These 4 Stocks In Early Stage Bullish Bases will need a strong market tailwind to make strong forward progress, but they could be a sign of better things to come for the market.

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