Trading countertrend moves can be profitable but risky, so it pays to line up as many factors as possible in our favor before putting money to work.  When a stock sports a price-to-earnings (P/E) ratio that even a technical analyst such as me thinks is low, it’s worth a look. When it is oversold at support, I’ll get interested. And when the price of its main input commodity starts to fall, I’ll consider a quick snapback trade. This is the case with American Airlines (Nasdaq: AAL). Read More

Trading countertrend moves can be profitable but risky, so it pays to line up as many factors as possible in our favor before putting money to work.  When a stock sports a price-to-earnings (P/E) ratio that even a technical analyst such as me thinks is low, it’s worth a look. When it is oversold at support, I’ll get interested. And when the price of its main input commodity starts to fall, I’ll consider a quick snapback trade. This is the case with American Airlines (Nasdaq: AAL). #-ad_banner-# I will admit that as a chartist, looking at fundamentals gives me the willies, but AAL has a trailing P/E ratio of just 3.1. That’s not only insanely low compared to the S&P 500, which has a P/E ratio of 19.1, but it’s less than half of the industry average of 6.3. Even based on next year’s earnings, AAL trades at just 5.7 times estimates. The stock has fallen more than 20% in the past month and a half, but the recent drop in oil prices following a multimonth rally could result in a… Read More

Anyone following the market via their broker’s recommendations would understandably not think very highly of energy stocks. Fortunately, we have charts to follow what the market, not the analysts, has to say. And right now, the charts of numerous oil refiners look to be on the verge of upside breakouts. Despite a pair of major analyst downgrades this month, my favorite refiner right now is Valero Energy (NYSE: VLO). Admittedly, it took more than a quick glance to conclude this stock was worthy of our trading capital. After all, it is still trading below its key 200-day moving average, which… Read More

Anyone following the market via their broker’s recommendations would understandably not think very highly of energy stocks. Fortunately, we have charts to follow what the market, not the analysts, has to say. And right now, the charts of numerous oil refiners look to be on the verge of upside breakouts. Despite a pair of major analyst downgrades this month, my favorite refiner right now is Valero Energy (NYSE: VLO). Admittedly, it took more than a quick glance to conclude this stock was worthy of our trading capital. After all, it is still trading below its key 200-day moving average, which is a metric that many institutions and trend followers use to distinguish between bullish and bearish trends. #-ad_banner-# But that is just one indicator, and it usually lags the market. The shorter-term 50-day moving average, which lags less, has already turned higher and is closing the gap between itself and the 200-day.  Still, that is not enough to get bullish, even though bull markets do have to start from a low place. What I like even more is how volume has played out… Read More

While following a rising trend is usually the best way to make money in the stock market, chart reading can tell us where that trend is likely to run out of steam. And when we have a big stock like home improvement retailer Lowe’s (NYSE: LOW) soaring more than 20% in two and a half months, we really should see what the chart has to say about selling. Let’s start with the big picture. A weekly chart shows LOW tracing out a pattern that is rather similar to that of the S&P 500 — a big rally after the 2011… Read More

While following a rising trend is usually the best way to make money in the stock market, chart reading can tell us where that trend is likely to run out of steam. And when we have a big stock like home improvement retailer Lowe’s (NYSE: LOW) soaring more than 20% in two and a half months, we really should see what the chart has to say about selling. Let’s start with the big picture. A weekly chart shows LOW tracing out a pattern that is rather similar to that of the S&P 500 — a big rally after the 2011 correction followed by a wide, two-year trading range that is still in place. With trading ranges, I like to apply stochastics as a momentum indicator, and right now it says the stock is overbought. The near-term rally off the February lows was fast and furious, but now the stock looks tired. In fact, according to this indicator, it is more overbought now than it was at any other price peak since it first moved into the range in 2014 following a multimonth rally. Read More

The biotech sector scored a short-term breakout last week, and the bullishness spread to its larger, more established cousins, the big pharmaceutical stocks.  While most of these drugmakers have been strong of late, they have not broken out on their charts. However, one lagging stock in the group, GlaxoSmithKline (NYSE: GSK), has started to make its move. And given how much it lost over the past several months, its potential for gains is rather large. The sector only recently started to outperform, so it’s still early in the market’s possible rotation into this group. However, in absolute terms, the NYSE… Read More

The biotech sector scored a short-term breakout last week, and the bullishness spread to its larger, more established cousins, the big pharmaceutical stocks.  While most of these drugmakers have been strong of late, they have not broken out on their charts. However, one lagging stock in the group, GlaxoSmithKline (NYSE: GSK), has started to make its move. And given how much it lost over the past several months, its potential for gains is rather large. The sector only recently started to outperform, so it’s still early in the market’s possible rotation into this group. However, in absolute terms, the NYSE Arca Pharmaceutical Index, known by its option root DRG, is on the verge of a long-term breakout best seen on the weekly charts. Since peaking in August, the index lost more than 20% through its February low. In the process, it formed a nice declining trend channel, but on the chart shown, it also looks very much like a bullish flag. #-ad_banner-# DRG has traded at the upper border of this pattern for the past week, and any further strength will… Read More

Sector work is a big part of the stock selection process. Right now, financial stocks from banks to specialty finance are lagging the major indices. However, property and casualty insurer and member of the blue-chip Dow 30, Travelers Companies (NYSE: TRV), has been bucking that trend… until now. After gaining almost 17% from its January low through this week’s high, the stock ran into stiff resistance set by last year’s highs. Now, TRV slightly overshot that level, but don’t let that fool you. The stock was never able to put any space between itself and the resistance line,… Read More

Sector work is a big part of the stock selection process. Right now, financial stocks from banks to specialty finance are lagging the major indices. However, property and casualty insurer and member of the blue-chip Dow 30, Travelers Companies (NYSE: TRV), has been bucking that trend… until now. After gaining almost 17% from its January low through this week’s high, the stock ran into stiff resistance set by last year’s highs. Now, TRV slightly overshot that level, but don’t let that fool you. The stock was never able to put any space between itself and the resistance line, and numerous technical indicators signal trouble. In short, it looks like it’s time for Travelers to succumb to the pressures dragging down its peers. #-ad_banner-# Aside from simple waning momentum, as indicated by a flat to lower trend in indicators such as the Relative Strength Index (RSI), there is now a fairly reliable “end-of-rally” signal appearing in the Bollinger Bands.  Bollinger Bands are modified versions of trading envelopes. The difference is that instead of the trader setting the width as a fixed percentage of price, the market sets it as a function of volatility. In this way, volatile… Read More

With interest rates still in decline, the stodgy, old utilities sector is leading the pack.  Of course, with a more than 20% gain under its belt since early December, it’s unlikely the Dow Jones Utility Average can sustain its recent pace. After all, utilities are not likely to explode higher as an Internet or biotech stock could. The industry is too mature for that. #-ad_banner-#In an age when investors are starved for yield, though, utilities still have appeal, even if only for their dividends. But there are some that offer income and the potential for gains. We have… Read More

With interest rates still in decline, the stodgy, old utilities sector is leading the pack.  Of course, with a more than 20% gain under its belt since early December, it’s unlikely the Dow Jones Utility Average can sustain its recent pace. After all, utilities are not likely to explode higher as an Internet or biotech stock could. The industry is too mature for that. #-ad_banner-#In an age when investors are starved for yield, though, utilities still have appeal, even if only for their dividends. But there are some that offer income and the potential for gains. We have all heard the investment mantra of buying the strongest stocks in the strongest sectors, which is sound advice. However, my favorite strategy is to buy previously lagging stocks in strong sectors when they are just emerging from technical patterns. OGE Energy (NYSE: OGE) is one such stock. There have been numerous studies that show sector performance to be a large component of individual stock performance.  That makes sense from a fundamental perspective. If there is business for the sector, chances are there is enough business for most member companies. But the word “most” is key, because an out-of-favor company can… Read More

Pundits fall all over themselves trying to pick stocks that will beat the market. However, in the current market environment it seems traditional filters are not working the way we would normally expect. Success today requires thinking outside the box and a different type of strategy — one that does not correlate with the broader market. #-ad_banner-# I call it “swinging for the fences” because if I am right, I could hit a home run. However, striking out is a distinct possibility. While that means potentially losing money — and possibly quickly — we can manage that risk… Read More

Pundits fall all over themselves trying to pick stocks that will beat the market. However, in the current market environment it seems traditional filters are not working the way we would normally expect. Success today requires thinking outside the box and a different type of strategy — one that does not correlate with the broader market. #-ad_banner-# I call it “swinging for the fences” because if I am right, I could hit a home run. However, striking out is a distinct possibility. While that means potentially losing money — and possibly quickly — we can manage that risk with a stop-loss. Avon Products (NYSE: AVP) looks to have turned a corner from a technical point of view.  To be sure, the fundamentals still look lousy. The company has a history of earnings misses and slashed its dividend a few years ago. Even after that, the dividend yield still stands at a very rich 5.3%, a result of the bearish price activity. But the market often sniffs out a turnaround in a stock long before the fundamentals show any improvement. It is in this spirit that I think Avon would be a good speculative bet. Prior to the 2008… Read More

Sometimes all we really need is a trendline to identify what to do with a stock.  One look at the chart of digital telecommunications product maker Qualcomm (Nasdaq: QCOM) tells us that the company has had a rough go for quite some time. And since trends tend to persist, this suggests continuing problems ahead. Recent challenges include the still relatively strong U.S. dollar, issues with several licensees in China “improperly withholding” royalties on Qualcomm’s patents, and bribery charges brought by the SEC. But that has not discouraged fundamental analysts who point to the company’s supposedly healthy free cash… Read More

Sometimes all we really need is a trendline to identify what to do with a stock.  One look at the chart of digital telecommunications product maker Qualcomm (Nasdaq: QCOM) tells us that the company has had a rough go for quite some time. And since trends tend to persist, this suggests continuing problems ahead. Recent challenges include the still relatively strong U.S. dollar, issues with several licensees in China “improperly withholding” royalties on Qualcomm’s patents, and bribery charges brought by the SEC. But that has not discouraged fundamental analysts who point to the company’s supposedly healthy free cash flow and its track record of raising dividends, with the most recent hike — a 10% increase — coming earlier this month. #-ad_banner-# I might add that the company’s recent addition to a fledgling wearable technology index, WEARXT, is another good sign. But then why is the trend still so doggone negative?  In the battle between analyst and the market, I’ll take the market every time. Note: Right now, there are thousands of deposits being put down on QCOM by bullish speculators, hedge funds and even some average investors, all of whom are waiting for their orders to be filled. Read More

From 2008 to 2013, organic and natural foods retailer Whole Foods Market (NYSE: WFM) was a superstar. But backlash over its high prices and a reduced outlook ended the rally and sent the stock into a death spiral.  WFM was one of 2014’s worst performers on the S&P 500. But after the decline culminated in a nearly 20% single-day loss in May 2014, the stock consolidated in a low range for six months — healing before finally waking up again. #-ad_banner-# Fast forward to today and WFM is again healing in a low range following a disastrous 2015. Read More

From 2008 to 2013, organic and natural foods retailer Whole Foods Market (NYSE: WFM) was a superstar. But backlash over its high prices and a reduced outlook ended the rally and sent the stock into a death spiral.  WFM was one of 2014’s worst performers on the S&P 500. But after the decline culminated in a nearly 20% single-day loss in May 2014, the stock consolidated in a low range for six months — healing before finally waking up again. #-ad_banner-# Fast forward to today and WFM is again healing in a low range following a disastrous 2015. But it’s also showing signs of life, so this could be deja vu all over again. Whole Foods Setting Up For A Strong 2016?  Whole Foods is in the consumer staples group, which is one of the only sectors showing strength year to date, although one could argue that organic quinoa and wild goji berries are not exactly items consumers can’t live without. However, we are seeing a strong trend toward natural and organic foods, with the global organic food market estimated to grow at a double-digit compound annual rate through 2020.  As we can see on the chart below, Whole… Read More

Shares of Walt Disney (NYSE: DIS) went on a roller-coaster ride in 2015 worthy of one of its theme parks. They rallied from $90 to over $120, not once but twice, and by early 2016, they had fallen back to $90 again.  Investors may still be gun-shy when it comes to this blue chip, but the technicals have once again turned in its favor, and the stock may be ready to deliver gains — at least in the short term. #-ad_banner-# After the… Read More

Shares of Walt Disney (NYSE: DIS) went on a roller-coaster ride in 2015 worthy of one of its theme parks. They rallied from $90 to over $120, not once but twice, and by early 2016, they had fallen back to $90 again.  Investors may still be gun-shy when it comes to this blue chip, but the technicals have once again turned in its favor, and the stock may be ready to deliver gains — at least in the short term. #-ad_banner-# After the close on Feb. 9, Disney reported better-than-expected earnings thanks to the release of the latest edition of “Star Wars.” But modest subscriber losses at ESPN spooked analysts and investors, who are concerned about declines in traditional cable subscriptions. The stock, which had already been in a decline since November, dropped sharply in after-hours trading, gapping down on the Feb. 10 open with selling continuing in the morning. But volume swelled that day, and DIS actually closed above its opening price. The following day, the bulls took over and prices moved higher, albeit at the same pace as the broader market. Read More