The health care sector has led the market decline over the past few days, but that’s nothing new. It’s been the worst performer so far in 2016, and it looks like it will continue to move still lower in the coming weeks. The weakness in the sector is pervasive, hitting all subgroups, but drug stocks seem to be technically poised for a serious decline.  #-ad_banner-#I’ve noticed a pattern in some of the biggest drug stocks, specifically Pfizer (NYSE: PFE) and Merck (NYSE: MRK), where they trade near their 52-week highs in a tight range or rectangle pattern, break out on… Read More

The health care sector has led the market decline over the past few days, but that’s nothing new. It’s been the worst performer so far in 2016, and it looks like it will continue to move still lower in the coming weeks. The weakness in the sector is pervasive, hitting all subgroups, but drug stocks seem to be technically poised for a serious decline.  #-ad_banner-#I’ve noticed a pattern in some of the biggest drug stocks, specifically Pfizer (NYSE: PFE) and Merck (NYSE: MRK), where they trade near their 52-week highs in a tight range or rectangle pattern, break out on news and then fail badly. Pfizer did this in July and has been falling ever since. Merck, on the other hand, broke out and failed just this week, so the jury is still out on that one. A lesser-known drug stock is currently exhibiting the same pattern as Pfizer and Merck, which could result in a nice profit for short sellers. Zoetis (NYSE: ZTS), which focuses on drugs and vaccines for pets and livestock, was actually spun off from Pfizer in 2013, so there’s not a lot of history for chartists to ponder. But the short-term pattern of range, breakout… Read More

When a company delivers a positive earnings report and increases its outlook for the full year, it’s usually a good bet that its stock will garner some buyers. But when a stock initially rallies on the news only to spend the rest of the day falling on heavy volume, we can surmise that something is not right.  That’s exactly what happened to Darden Restaurants (NYSE: DRI) on Tuesday. #-ad_banner-# The restaurant operator announced better-than-expected earnings before the bell, increased its outlook and announced a new $500 million buyback plan. The stock instantly jumped more than 4% from Monday’s close. But… Read More

When a company delivers a positive earnings report and increases its outlook for the full year, it’s usually a good bet that its stock will garner some buyers. But when a stock initially rallies on the news only to spend the rest of the day falling on heavy volume, we can surmise that something is not right.  That’s exactly what happened to Darden Restaurants (NYSE: DRI) on Tuesday. #-ad_banner-# The restaurant operator announced better-than-expected earnings before the bell, increased its outlook and announced a new $500 million buyback plan. The stock instantly jumped more than 4% from Monday’s close. But it was all downhill from there. By Tuesday’s close, shares had given up nearly all of those gains, closing up just 0.6%. While the media will report it as a gain on positive earnings news, the charts say otherwise. Bad action on good news is bearish. DRI, as well as a good deal of the restaurant sector, has been in a decline since the summertime. Darden peaked in June and fell through mid-July before settling into a sideways range. But within that range there were clues to suggest there was more pain ahead. First, the… Read More

The banking sector enjoyed a nice run higher as investors saw the reality of rising interest rates getting closer. Banks make money by borrowing it at lower short-term interest rates and lending it at longer-term interest rates. So, the yield curve — the difference between short- and long-term rates — is critical. #-ad_banner-# If the Federal Reserve raises short-term rates, with all else being equal, the yield curve will flatten, making it harder for banks to make money. All things are never equal, though, and the chain of events in the… Read More

The banking sector enjoyed a nice run higher as investors saw the reality of rising interest rates getting closer. Banks make money by borrowing it at lower short-term interest rates and lending it at longer-term interest rates. So, the yield curve — the difference between short- and long-term rates — is critical. #-ad_banner-# If the Federal Reserve raises short-term rates, with all else being equal, the yield curve will flatten, making it harder for banks to make money. All things are never equal, though, and the chain of events in the capital markets is thought to push long-term rates higher, as well. Pundits think long-term rates will rise more than short rates, and that will make the yield curve steeper. However, that does not seem to be happening now. The yield curve remains as flat as it has been since early July, which represented a nine-year low and a level last seen as the financial crisis was still unfolding. While the yield curve spent the first half of September steepening and broke a one-year trendline to the upside, something happened mid-month to abruptly change that. Out of the blue, markets got… Read More

It’s no secret that I don’t think much of the housing and real estate sectors in terms of stock market investments right now. Last week, I panned homebuilder Lennar (NYE: LEN), calling it one of the first stocks you should sell in a market correction. My recommendation to short LEN turned out to be a decent plan. Before the market opened on Tuesday, the company delivered an earnings beat… that was quickly shrugged off as shares closed 3.5% lower on the day. #-ad_banner-# The weakness was blamed on slowing orders for the homebuilder, as well as a report showing lower-than-expected… Read More

It’s no secret that I don’t think much of the housing and real estate sectors in terms of stock market investments right now. Last week, I panned homebuilder Lennar (NYE: LEN), calling it one of the first stocks you should sell in a market correction. My recommendation to short LEN turned out to be a decent plan. Before the market opened on Tuesday, the company delivered an earnings beat… that was quickly shrugged off as shares closed 3.5% lower on the day. #-ad_banner-# The weakness was blamed on slowing orders for the homebuilder, as well as a report showing lower-than-expected August housing starts that was also released on Tuesday. Related sectors such as home furnishings look rather weak, too, with the Dow Jones U.S. Home Furnishings index breaking down below support and its 50-day moving average.  The break was led by office furnishings stocks, but right on their heels is La-Z-Boy (NYSE: LZB), maker of the iconic reclining chair of the same name. This stock is one bad day away from a fresh breakdown of its own. La-Z-Boy had a very strong run from February to August, culminating in a breakout of a short-term range on Aug. 23, with shares… Read More

Contrarians love a good scandal. When a stock drops hard for no other reason, it often presents the chance to play the rebound for a quick profit. That seems to be the case with banking giant Wells Fargo (NYSE: WFC). #-ad_banner-#On Sept. 9, news came to light that employees had been opening illegal accounts in an effort to meet sales targets and earn bonuses, and the stock got slammed. Of course, it didn’t help that the market tanked that day on rather hawkish comments by the Federal Reserve. Interestingly, though, while the stock was severely punished for its foibles, falling… Read More

Contrarians love a good scandal. When a stock drops hard for no other reason, it often presents the chance to play the rebound for a quick profit. That seems to be the case with banking giant Wells Fargo (NYSE: WFC). #-ad_banner-#On Sept. 9, news came to light that employees had been opening illegal accounts in an effort to meet sales targets and earn bonuses, and the stock got slammed. Of course, it didn’t help that the market tanked that day on rather hawkish comments by the Federal Reserve. Interestingly, though, while the stock was severely punished for its foibles, falling 9% in just over a week’s time, analysts have not lowered their ratings on the stock, with the majority still considering WFC a “buy.” And with interest rates likely to start moving higher, the entire banking sector stands to benefit from a friendlier lending environment. A look at the KBW Nasdaq Bank Index (BKX) shows the sector setting a new high for the year early this month and finally outperforming the broader market. Wells Fargo, on the other hand, stalled last month right at resistance from earlier peaks in 2016. This set up a sizeable trading range for the year. Read More

Last week’s hawkish chatter from the Federal Reserve put the kibosh on the market’s advance. And although more soothing rhetoric doled out Monday sparked a rebound, the market could not sustain it, and stocks fell on Tuesday. What was once a calm, serene market has turned stormy, and one of the hardest hit sectors, at least from a technical perspective, is the homebuilders. #-ad_banner-# It’s easy for bears to look at the year’s biggest winners and think that’s where the easy money is in a market correction. However,… Read More

Last week’s hawkish chatter from the Federal Reserve put the kibosh on the market’s advance. And although more soothing rhetoric doled out Monday sparked a rebound, the market could not sustain it, and stocks fell on Tuesday. What was once a calm, serene market has turned stormy, and one of the hardest hit sectors, at least from a technical perspective, is the homebuilders. #-ad_banner-# It’s easy for bears to look at the year’s biggest winners and think that’s where the easy money is in a market correction. However, it’s rarely a good idea to bet against winning stocks such as Facebook (NASDAQ: FB), as they tend to remain in strong rising trends. It’s far better to look for sectors and individual stocks that have not fared as well. Within the homebuilding group, I like Lennar (NYSE: LEN) for a bearish play, as the charts show the stock is poised for a double-digit drop. Lennar has been floundering since March, and unlike the broader market S&P 500, it never eclipsed its 2015 highs. As you can see in the chart below, the trading range formed over the past few… Read More

With the Federal Reserve seemingly conflicted about when to raise short-term interest rates, it is no wonder the market has been chopping sideways for weeks, unsure of which direction to break out. Some interest-rate sensitive sectors have fared worse, but this now sets up a buying opportunity.  Looking at the Treasury bond market, long-term interest rates have not budged since July. Currently, the benchmark 10-year rate appears ready to break down, which will send note and bond prices higher, as well as boost prices of interest-rate sensitive stocks. Read More

With the Federal Reserve seemingly conflicted about when to raise short-term interest rates, it is no wonder the market has been chopping sideways for weeks, unsure of which direction to break out. Some interest-rate sensitive sectors have fared worse, but this now sets up a buying opportunity.  Looking at the Treasury bond market, long-term interest rates have not budged since July. Currently, the benchmark 10-year rate appears ready to break down, which will send note and bond prices higher, as well as boost prices of interest-rate sensitive stocks. #-ad_banner-# Aside from all these intermarket machinations, the chart of the Dow Jones Utility Average looks ready to break out to the upside.  Traders can buy a utilities ETF to participate in the potential upside, but digging a little deeper into component stocks reveals some even better bets. Top on my list is Southern Company (NYSE: SO), which operates power-generating and transmission facilities throughout the southeastern states. The stock offers a 4.2% dividend yield and a bullish setup on the charts. SO fell from its 52-week high of $54.64, made on July 22, to an intraday low of $50 on… Read More

You don’t need me to tell you that there are two parts to any trade. First, for long trades, we have to buy something. Then, to actually turn paper profits into real money, we have to sell it.  To me, biotech giant Amgen (Nasdaq: AMGN) is at that latter point. After a nearly 20% run since its late-June lows, it looks like it’s time to cash in or flip it around to an outright short. #-ad_banner-# Some may argue that the fundamentals still look decent and that AMGN is trading… Read More

You don’t need me to tell you that there are two parts to any trade. First, for long trades, we have to buy something. Then, to actually turn paper profits into real money, we have to sell it.  To me, biotech giant Amgen (Nasdaq: AMGN) is at that latter point. After a nearly 20% run since its late-June lows, it looks like it’s time to cash in or flip it around to an outright short. #-ad_banner-# Some may argue that the fundamentals still look decent and that AMGN is trading near its all-time high. However, the entire health care sector is in a precarious situation with drug and service providers at the greatest risk as politicians take a stand against their high prices. These groups are underperforming the market and some already display technical breakdowns on the charts.  The first item to take note of on Amgen’s chart is a small double-top formed by the July and August highs. Some may say that the pattern is not valid due to the fact that, after an initial breakdown, the stock moved back above the pattern’s lower border. But I say the… Read More

A recent breakout sets shares up for a rally to last year’s highs and possibly beyond. As the broader market moves sideways in a fairly tight range, we must dig a little deeper for opportunities. After all, quiet markets let the underlying conditions develop away from prying eyes. #-ad_banner-#And as the market awaits Friday’s speech by Federal Reserve Chief Janet Yellen — where everyone hopes to get a clue as to when interest rates will finally be raised — the auto sector is showing some quiet strength. We are seeing short-term rallies in automakers, parts suppliers and tire makers.  Today’s… Read More

A recent breakout sets shares up for a rally to last year’s highs and possibly beyond. As the broader market moves sideways in a fairly tight range, we must dig a little deeper for opportunities. After all, quiet markets let the underlying conditions develop away from prying eyes. #-ad_banner-#And as the market awaits Friday’s speech by Federal Reserve Chief Janet Yellen — where everyone hopes to get a clue as to when interest rates will finally be raised — the auto sector is showing some quiet strength. We are seeing short-term rallies in automakers, parts suppliers and tire makers.  Today’s trade, Lear Corp. (NYSE: LEA), a manufacturer of automotive seat systems and electronic modules, has been trading mostly sideways but with a rather dramatic inflow of money for the past two months.   The majority of fundamental analysts following Lear rate it a buy or strong buy, with none rating it a sell. And even a chart watcher can appreciate a forward price-to-earnings (P/E) ratio below 9. However, it is the chart itself that offers the most compelling reason to buy LEA. In June, the stock took a big hit along with many of its peers, dropping 15% in two… Read More

The commodities frenzy in 2007-2008 drove energy and mining stocks up to astronomical heights before the ensuing bear market erased all of those gains. While energy stocks and precious metals miners were able to rally back, miners of industrial metals stalled. The Dow Jones U.S. Industrial Metals & Mining Index still trades more than 65% below its 2008 peak even after nearly doubling from its worst levels this year. In short, industrial miners have been portfolio killers for years, and sentiment is predictably rather dour. However, the short-term condition is much improved and the index is on the verge of… Read More

The commodities frenzy in 2007-2008 drove energy and mining stocks up to astronomical heights before the ensuing bear market erased all of those gains. While energy stocks and precious metals miners were able to rally back, miners of industrial metals stalled. The Dow Jones U.S. Industrial Metals & Mining Index still trades more than 65% below its 2008 peak even after nearly doubling from its worst levels this year. In short, industrial miners have been portfolio killers for years, and sentiment is predictably rather dour. However, the short-term condition is much improved and the index is on the verge of a long-term breakout. One of its larger component stocks, Australia-based Rio Tinto (NYSE: RIO), echoes these improvements and is also on the verge of a major breakout. At first glance, it is easy to see that the stock now trades above its key 50-day and 200-day moving averages, and the 50-day recently crossed above the 200-day in what some might label a “golden cross.” While this signal is really meant to apply to the broader market, it still tells us that the major trend has likely changed to the upside. Read More