Arguably the hottest media stock of the past year, Netflix (Nasdaq: NFLX), has been in serious decline for the past five weeks. And by serious I mean it has shed nearly a quarter of its market capitalization since peaking in early August.  This has bargain hunters chomping at the bit. But a look at the chart tells us at its current “sale” price it is not cheap and could drop another 20% from here in a hurry.  In short, this is a stock for short-term bears that may present a good buying opportunity for long-term bulls… Read More

Arguably the hottest media stock of the past year, Netflix (Nasdaq: NFLX), has been in serious decline for the past five weeks. And by serious I mean it has shed nearly a quarter of its market capitalization since peaking in early August.  This has bargain hunters chomping at the bit. But a look at the chart tells us at its current “sale” price it is not cheap and could drop another 20% from here in a hurry.  In short, this is a stock for short-term bears that may present a good buying opportunity for long-term bulls in a few weeks. Since this column focuses on trading, not long-term investing, let’s take a look at the reasons why Netflix has a fork stuck in it.  The rather obvious technical pattern on the chart is the ubiquitous head-and-shoulders with its central high (head) flanked by two lower highs (shoulders) on each side. The bottom of the pattern is bound by the neckline, which connects the troughs between the peaks. Whether it is drawn flat or with a slight downward slope from left to right is not important. #-ad_banner-# What is important… Read More

Trading when the market goes haywire is always difficult because volatility can easily crush a trade before it even gets going. But when setups look great sometimes we just have to take them. #-ad_banner-#Right now, retail giant Target (NYSE: TGT) is presenting a classic short setup, starting with its membership in the weak retail sector.  It is clearly the technicals that are driving this stock’s fortunes, not the fundamentals.  When the company issued its latest earnings report on Aug. 19 before the market opened, the numbers looked rather good. In fact, Target beat analysts’ revenue and earnings expectations… Read More

Trading when the market goes haywire is always difficult because volatility can easily crush a trade before it even gets going. But when setups look great sometimes we just have to take them. #-ad_banner-#Right now, retail giant Target (NYSE: TGT) is presenting a classic short setup, starting with its membership in the weak retail sector.  It is clearly the technicals that are driving this stock’s fortunes, not the fundamentals.  When the company issued its latest earnings report on Aug. 19 before the market opened, the numbers looked rather good. In fact, Target beat analysts’ revenue and earnings expectations and even raised its full-year outlook.  But on the chart, TGT’s pattern is similar to the broader market with a sharp breakdown from a multimonth sideways pattern.  On Aug. 24, as the Dow Jones Industrial Average plunged more than 1,000 points, TGT fell all the way from support in the $78.25 area to the next level of support at $72. In doing so, it cracked through the 200-day moving average for the first time since October, when the market was in panic mode over the Ebola virus. There is nothing advanced about this pattern. A support breakdown with… Read More

As I surveyed the carnage of the recent market smash, I noticed that one leading sector cracked in a big way, making one of its members especially ripe for a huge fall. The popular Select Sector SPDR Health Care ETF (NYSE: XLV) was absolutely destroyed on the open Monday. At one point, it was down over 21%, albeit for only a short time. That is what I call a stampede for the exits in a sector that had been a leader until the past month. In other words, the desire to sell was so great that people were dumping shares… Read More

As I surveyed the carnage of the recent market smash, I noticed that one leading sector cracked in a big way, making one of its members especially ripe for a huge fall. The popular Select Sector SPDR Health Care ETF (NYSE: XLV) was absolutely destroyed on the open Monday. At one point, it was down over 21%, albeit for only a short time. That is what I call a stampede for the exits in a sector that had been a leader until the past month. In other words, the desire to sell was so great that people were dumping shares “at any price.” #-ad_banner-# The ETF closed down “only” 4.3% that day as the market’s panic subsided. However, the damage was done. The market rout resulted in prices slicing through the 200-day moving average like a hot knife through butter. Support levels going back to March were also penetrated.  Game over. The health care bull is dead. Ireland-based health care and life sciences company Allergan (NYSE: AGN) is a member of XLV with products ranging from contact lens solution to Botox. The stock has been rallying steadily since 2008, moving from roughly $20 to over $300 earlier… Read More

I have not been a fan of the technology sector for the past month and even penned a missive calling “tech leadership an illusion.” While superstars such as Google (Nasdaq: GOOGL) were soaring, the rank-and-file tech stocks were actually lagging the market.  #-ad_banner-# Semiconductors have been some of the worst offenders. The benchmark PHLX Semiconductor (SOX) index actually started to fall in late May and has already sunk back to levels last seen in October. There is an old bit of Wall Street wisdom that says to buy the strongest stocks in the strongest groups. Read More

I have not been a fan of the technology sector for the past month and even penned a missive calling “tech leadership an illusion.” While superstars such as Google (Nasdaq: GOOGL) were soaring, the rank-and-file tech stocks were actually lagging the market.  #-ad_banner-# Semiconductors have been some of the worst offenders. The benchmark PHLX Semiconductor (SOX) index actually started to fall in late May and has already sunk back to levels last seen in October. There is an old bit of Wall Street wisdom that says to buy the strongest stocks in the strongest groups. This is based on the concept of relative strength. Research has shown that outperforming stocks tend to continue doing so. Conversely, the weakest stocks in the weakest sectors are likely to keep falling. One especially weak stock I have identified in the weak semiconductor sector is Linear Technology (Nasdaq: LLTC), a designer and manufacturer of analog integrated circuits used in power management and signal conditioning.  An earnings miss in July sparked a high-volume gap down, with shares opening 7.2% lower the next day.  Considering the stock was already down 10% from its June high, that drop was a… Read More

Although you could not tell from looking at the Dow Jones U.S. Restaurants & Bars Index, the group has had a rough time lately. From earnings bombs to reduced outlooks, there is something ugly happening beneath the surface. And that means the restaurant sector is a prime place to look for stocks about to crack. To be sure, the index and some of the heavyweights in the group are still in rising trends, trading above their 50-day moving averages. But we do not have to look too hard to find stocks that are not quite as healthy. … Read More

Although you could not tell from looking at the Dow Jones U.S. Restaurants & Bars Index, the group has had a rough time lately. From earnings bombs to reduced outlooks, there is something ugly happening beneath the surface. And that means the restaurant sector is a prime place to look for stocks about to crack. To be sure, the index and some of the heavyweights in the group are still in rising trends, trading above their 50-day moving averages. But we do not have to look too hard to find stocks that are not quite as healthy.  #-ad_banner-# For instance, Chipotle Mexican Grill (NYSE: CMG), a market favorite for the past few years, looks ready to tumble. From a fundamental perspective, we have to wonder why restaurant fortunes in general have not improved in recent months. Over the winter, the unusually cold weather was blamed. But as the days got warmer, sales did not heat up. And even as gasoline prices plummeted diners did not open their wallets any wider.  On the sentiment front, poor action on good news is bearish. When things go wrong when there is every reason for them to go right… Read More

Studies have shown that a large portion of a stock’s gain can be attributed to the sector it is in. With that in mind, the food products group is now outperforming the market, and the Dow Jones U.S. Food Products Index recently broke out to a 52-week high. #-ad_banner-# Within that group is Hershey (NYSE: HSY), which I highlighted last week. Also represented are cereal makers Kellogg (NYSE: K) and General Mills (NYSE: GIS). Both of these brand-name stocks have already scored technical breakouts of their own. Today, I want to highlight a little-known food company that… Read More

Studies have shown that a large portion of a stock’s gain can be attributed to the sector it is in. With that in mind, the food products group is now outperforming the market, and the Dow Jones U.S. Food Products Index recently broke out to a 52-week high. #-ad_banner-# Within that group is Hershey (NYSE: HSY), which I highlighted last week. Also represented are cereal makers Kellogg (NYSE: K) and General Mills (NYSE: GIS). Both of these brand-name stocks have already scored technical breakouts of their own. Today, I want to highlight a little-known food company that is just starting to make a move higher — Flowers Foods (NYSE: FLO). The company makes and markets bakery products, including the Nature’s Own, Wonder and Tastykake brands. What initially put Flowers Foods on my radar screen was the failed rebound attempt in wheat prices. The commodity is now back down near 52-week lows. Beyond the fundamentals of falling input prices, FLO sports a chart with a fledgling technical breakout and is supported by strong sector performance even as the broader market struggles. The technicals are not fancy. On-balance volume during the May-to-July decline was flat instead of… Read More

As the stock market spews volatility in the face of a Chinese rout, continued Greek uncertainty and economic reports that may change the Federal Reserve’s plans, it is getting difficult to sleep at night.  However, as per their unofficial mandate, consumer staples stocks are acting like a welcome island of calm in the storm. This sector has been outperforming the broader market all summer and has even made an arguable technical breakout. #-ad_banner-# As commodities in general remain weak, it was interesting to find cocoa of all things ending a rebound with a downside trend break. While I… Read More

As the stock market spews volatility in the face of a Chinese rout, continued Greek uncertainty and economic reports that may change the Federal Reserve’s plans, it is getting difficult to sleep at night.  However, as per their unofficial mandate, consumer staples stocks are acting like a welcome island of calm in the storm. This sector has been outperforming the broader market all summer and has even made an arguable technical breakout. #-ad_banner-# As commodities in general remain weak, it was interesting to find cocoa of all things ending a rebound with a downside trend break. While I cannot offer statistically sound proof that companies using cocoa as an input, namely chocolate makers, perform better as the commodity falls it certainly could not hurt. What I see now in Hershey (NYSE: HSY) is an upside trend break that occurred three days after the breakdown in cocoa. And I see a chance for traders to pick up a double-digit profit over the next few weeks. Hershey is indeed a member of the consumer staples group, where companies’ fortunes are not closely tied to the ups and downs of the economy. People will continue to buy products such as soap,… Read More

Last week, I suggested trading against the trend in an oversold stock. For this week’s trade, though, the trend has returned to being my friend — and for Johnson Controls (NYSE: JCI), that trend is to the downside. This maker of automobile interior systems and building heating, cooling and management systems broke down last month through its intermediate-term trendline, as seen in the chart below. That came on the heels of the June 10 breakout failure, also seen below, sparked by news the company was considering spinning off its automotive businesses. Initially the market viewed… Read More

Last week, I suggested trading against the trend in an oversold stock. For this week’s trade, though, the trend has returned to being my friend — and for Johnson Controls (NYSE: JCI), that trend is to the downside. This maker of automobile interior systems and building heating, cooling and management systems broke down last month through its intermediate-term trendline, as seen in the chart below. That came on the heels of the June 10 breakout failure, also seen below, sparked by news the company was considering spinning off its automotive businesses. Initially the market viewed the spin-off as a positive for the company, but it was a one-day wonder rally. The next day, the stock started to fall, and it has not looked back since. In the face of a series of lower highs and lower lows, the downside trend break and a drop back below the 200-day moving average, we can safely assume the bears are in charge here.  That suggests there is more downside ahead. For some additional background, Johnson Controls is in the consumer discretionary sector and its representative exchange-traded fund, the Consumer Discretionary Select SPDR (NYSE: XLY), appears to… Read More

Health care is one investment theme that’s certainly in vogue right now. While traditionally considered a defensive sector, I’ve heard numerous pundits declare its classification has changed from defensive to growth.  I always find it interesting when people change their long-held assumptions about the market. Think about what happened when traders began to substitute “eyeballs” for “earnings” in the P/E ratio during the dot-com bubble, for example. Eventually, the market usually reminds them who’s boss.  Health care has been leading the market for many months, with the Health Care Select Sector SPDR ETF (NYSE: XLV) posting an 8% gain year… Read More

Health care is one investment theme that’s certainly in vogue right now. While traditionally considered a defensive sector, I’ve heard numerous pundits declare its classification has changed from defensive to growth.  I always find it interesting when people change their long-held assumptions about the market. Think about what happened when traders began to substitute “eyeballs” for “earnings” in the P/E ratio during the dot-com bubble, for example. Eventually, the market usually reminds them who’s boss.  Health care has been leading the market for many months, with the Health Care Select Sector SPDR ETF (NYSE: XLV) posting an 8% gain year to date as the broader market has moved sideways. Plus, the relative performance charts of most health care indexes versus the S&P 500 continue to point higher.  So, at first glance, it seems like there is not much to dislike. But the sector is overbought, and one event that can act as a double-edged sword in any sector is merger activity. #-ad_banner-# Mergers can boost share prices thanks to operating synergies between the companies involved. They can also signal that executives feel their stock is so valuable — perhaps overvalued — that they use it as a currency… Read More

WARNING: A Major Correction Could Begin This Week A trading prodigy is predicting the biggest stock market correction since 2008.  In short, an important market event will take place on Wednesday that could trigger a freefall in stocks.  He’s been tracking this situation for months. I urge you to take a few seconds to listen to what he has to say. If he’s right, the information he’s going to share could help you save your portfolio and even make money in the coming correction. Click here to find out how to prepare yourself… Read More

WARNING: A Major Correction Could Begin This Week A trading prodigy is predicting the biggest stock market correction since 2008.  In short, an important market event will take place on Wednesday that could trigger a freefall in stocks.  He’s been tracking this situation for months. I urge you to take a few seconds to listen to what he has to say. If he’s right, the information he’s going to share could help you save your portfolio and even make money in the coming correction. Click here to find out how to prepare yourself now.  Sincerely,  Frank Bermea Publisher, Profitable Trading  It takes a lot to turn a bear market around, but for oil services stocks it seemed that the requirements for such a move were starting to gel in May.  The PHLX Oil Service Sector Index (OSX) had just made a tentative breakout from a bottoming pattern that was a cross between a double-bottom and an inverted head-and-shoulders. It even moved above its 50-day moving average, which itself was rising. #-ad_banner-# Paradoxically, OSX ran out of… Read More