When it comes to stock markets, China’s sure marches to the beat of its own drum.  The Shanghai Composite gained 145% in the past year, compared to about 7% for the S&P 500. Now, though, things may be unraveling in China — and given what happened there just a few years ago, it is not likely to be pretty. In the chart below, we can see the recent nearly vertical rise in the Chinese market after a slow, multiyear drift lower.  The same thing happened at the start of this century. It was as if sellers… Read More

When it comes to stock markets, China’s sure marches to the beat of its own drum.  The Shanghai Composite gained 145% in the past year, compared to about 7% for the S&P 500. Now, though, things may be unraveling in China — and given what happened there just a few years ago, it is not likely to be pretty. In the chart below, we can see the recent nearly vertical rise in the Chinese market after a slow, multiyear drift lower.  The same thing happened at the start of this century. It was as if sellers just gave up and buyers pushed valuations to impossible levels. Chinese stocks peaked in 2007 and then fell off a cliff when the magic of the Chinese economy faded, taking commodity markets down with them.  Experience shows that when a market trend continually accelerates, affectionately called “going parabolic,” the gain is often mirrored by the decline on the other side. Most of the time, the accelerated rally is erased completely.  If that happens again now, the resulting decline could be on the order of 55% to 60% from current levels — devastating by any definition.  Domestic investors cannot easily short… Read More

It’s not often that a stock suffers technical destruction and repairs itself in just a few weeks. But that is what seems to be happening to professional social media site LinkedIn (NASDAQ: LNKD). And the way it has performed recently suggests it has plenty of gas in the tank. On April 30, the company issued a warning that Q2 revenue and earnings would fall short of expectations. The next day the stock cratered 19% to smash through its one-year trendline and 200-day moving average on huge volume, which is often the case when a stock purges. The question… Read More

It’s not often that a stock suffers technical destruction and repairs itself in just a few weeks. But that is what seems to be happening to professional social media site LinkedIn (NASDAQ: LNKD). And the way it has performed recently suggests it has plenty of gas in the tank. On April 30, the company issued a warning that Q2 revenue and earnings would fall short of expectations. The next day the stock cratered 19% to smash through its one-year trendline and 200-day moving average on huge volume, which is often the case when a stock purges. The question on many investors’ minds is, “Is LNKD now on sale?” In my experience, a stock that makes such a huge break is damaged goods and not a bargain. It can take weeks, months and in some cases years for the market to forgive the company’s transgressions. And that manifests in the charts as a long trading range with little action and low turnover. #-ad_banner-# Basically, the trading range allows both bulls and bears to rethink their strategies. Many traders move on to other stocks because there is nothing happening in the fallen. But when interest is low… Read More

Despite its blue-chip status, it’s been a long time since International Business Machines (NYSE: IBM) was an elite stock. Since peaking in March 2013, long-term investors saw their holdings shrink 30% into the December 2014 low, highlighted by a massive price collapse in October.  Big Blue was more black and blue. However, the good news is that after months of sideways trading, the stock started to heal. Indeed, the trend has been to the upside all year. Stocks that suffer the damage seen here are rarely instant… Read More

Despite its blue-chip status, it’s been a long time since International Business Machines (NYSE: IBM) was an elite stock. Since peaking in March 2013, long-term investors saw their holdings shrink 30% into the December 2014 low, highlighted by a massive price collapse in October.  Big Blue was more black and blue. However, the good news is that after months of sideways trading, the stock started to heal. Indeed, the trend has been to the upside all year. Stocks that suffer the damage seen here are rarely instant buys. In the stock market, low price does not necessarily mean “on sale.” Indeed, IBM rested for a few weeks before tumbling one more time into its final low. It was so damaged on the charts that traders seemed to stop caring. Never mind that it carried a hefty dividend yield at that point. Even today, it yields 3%, making it of great interest to long-term holders and income seekers. #-ad_banner-# But how will we know whether… Read More

I am a big fan of looking at charts one degree of time further out than I plan to trade. It is the market-ification of the old saying about seeing the forest for the trees. For instance, the short-term chart of programmable circuit and semiconductor maker Xilinx (NASDAQ: XLNX) is a mess. But when we pull back to the weekly chart we can clearly see a breakout with supporting technicals. Considering that the semiconductor sector remains in a long-term uptrend, this is good news for the stock. When a sector is strong, lagging stocks within it can see big gains… Read More

I am a big fan of looking at charts one degree of time further out than I plan to trade. It is the market-ification of the old saying about seeing the forest for the trees. For instance, the short-term chart of programmable circuit and semiconductor maker Xilinx (NASDAQ: XLNX) is a mess. But when we pull back to the weekly chart we can clearly see a breakout with supporting technicals. Considering that the semiconductor sector remains in a long-term uptrend, this is good news for the stock. When a sector is strong, lagging stocks within it can see big gains as they catch up with their peers. The trick is that they have to exhibit technical strength before we can safely buy them.  XLNX now shows that strength. Last week, powered by buyout talk in rival Altera (NASDAQ: ALTR), Xilinx jumped higher from a four-week trading range.  In the short term, the ensuing rally ran into resistance from the December high after becoming technically overbought. By itself, an overbought condition is not enough to shun a stock. Overbought stocks can become more overbought before the trend ends. The daily chart seems to be all over the place with… Read More

Although it may sound cliche, the trend truly is your friend. Throughout this bull market, stocks in rising trends have continued to rise and stocks in falling trends continued to fall. We can see this stark contrast in two coffee stocks.  Last month, Starbucks (NASDAQ: SBUX) gapped up 4% the morning after its strong fiscal second-quarter earnings. Keurig Green Mountain (NASDAQ: GMCR) missed estimates Thursday and gapped down nearly 12% on the day’s open. #-ad_banner-#The difference was the prevailing trend for each stock. Starbucks was rising nicely while Green Mountain was in a bear market. Before I get… Read More

Although it may sound cliche, the trend truly is your friend. Throughout this bull market, stocks in rising trends have continued to rise and stocks in falling trends continued to fall. We can see this stark contrast in two coffee stocks.  Last month, Starbucks (NASDAQ: SBUX) gapped up 4% the morning after its strong fiscal second-quarter earnings. Keurig Green Mountain (NASDAQ: GMCR) missed estimates Thursday and gapped down nearly 12% on the day’s open. #-ad_banner-#The difference was the prevailing trend for each stock. Starbucks was rising nicely while Green Mountain was in a bear market. Before I get to today’s trade, I want to call out a great trade made by my colleague, Jared Levy. Earlier this year, he capitalized on GMCR’s downtrend with a put option trade that only cost $2,390 and returned 34% in just 56 days on an 11% drop in the stock. That’s a 221% annualized return. Options are the best way to amplify your returns on any stock move — up or down. And at the end of this article, Jared will provide you with an option trade that could turn an 11% move up in SBUX into 150% profits in just over… Read More

It has been a long time since banks were among the market’s leading groups. And while the broad market is trading near all-time highs, the SPDR S&P Bank ETF (NYSE: KBE), which tracks regional banks, has barely recovered half of what it lost during the financial crisis. It is truly a forsaken group. Or at least it was.  For the first time in a year, the relative performance of banks versus the S&P 500 has turned positive. And on an absolute basis, KBE is on the verge of a major upside breakout from a sideways pattern that has… Read More

It has been a long time since banks were among the market’s leading groups. And while the broad market is trading near all-time highs, the SPDR S&P Bank ETF (NYSE: KBE), which tracks regional banks, has barely recovered half of what it lost during the financial crisis. It is truly a forsaken group. Or at least it was.  For the first time in a year, the relative performance of banks versus the S&P 500 has turned positive. And on an absolute basis, KBE is on the verge of a major upside breakout from a sideways pattern that has trapped it since late 2013. Breakouts in both relative and absolute terms signify a positive shift for any sector and tell us that the group is now one of the strongest in a rising market. Most investment pros would tell us that finding the strongest sectors is the best starting point for selecting the best stocks to buy.  To be sure, the market as a whole is still working out some issues and has yet to make a clean break to the next level. But the bias in the overall market is still to the upside, and so is the… Read More

Four years after it topped at $1,900 per ounce, gold has been languishing in a range closer to $1,200. With interest rates low and most measures registering no inflation, gold seemed to be a dead asset. Its role as a hedge was dismissed by almost everyone except for the gold sellers on TV. Sentiment naturally turned very bearish, and that is when contrarian ears perk up. #-ad_banner-# Monday and Tuesday were unusually bullish days for… Read More

Four years after it topped at $1,900 per ounce, gold has been languishing in a range closer to $1,200. With interest rates low and most measures registering no inflation, gold seemed to be a dead asset. Its role as a hedge was dismissed by almost everyone except for the gold sellers on TV. Sentiment naturally turned very bearish, and that is when contrarian ears perk up. #-ad_banner-# Monday and Tuesday were unusually bullish days for the metal. However, the patterns on gold charts remain choppy-but-flat trading ranges. When viewed with a long-term eye, the trend is officially still to the downside.  That is why it seems people have gotten blindsided by recent strength in select gold mining stocks, especially since it is not sector-wide. Only the largest by market capitalization are racking up big gains, far outstripping the performance of popular gold mining indices and exchange-traded funds.  My favorite right now is Barrick Gold (NYSE: ABX). This Toronto-based, international miner looks ready to break out from a double-bottom pattern that has been… Read More

Health care stocks rank among the biggest winners of the current bull market, and one subsector that has shown significant outperformance in the past six months is medical equipment makers. Since many of the stocks in this group have already made big runs, I am on the lookout for fresh chart pattern breakouts. Aesthetic and medical device maker Cynosure (NASDAQ: CYNO) fits that bill. The company makes devices to treat various skin and vascular conditions, including tattoo removal and cellulite treatments. On the charts, Cynosure has been trading in a very wide long-term trading range between $21… Read More

Health care stocks rank among the biggest winners of the current bull market, and one subsector that has shown significant outperformance in the past six months is medical equipment makers. Since many of the stocks in this group have already made big runs, I am on the lookout for fresh chart pattern breakouts. Aesthetic and medical device maker Cynosure (NASDAQ: CYNO) fits that bill. The company makes devices to treat various skin and vascular conditions, including tattoo removal and cellulite treatments. On the charts, Cynosure has been trading in a very wide long-term trading range between $21 and $31.50, in round numbers.  On the last short-term leg up within the pattern, shares stalled at the upper border, but unlike previous attempts, they only pulled back by a small margin. This behavior leans bullish as it shows the bears could not drive the stock back down as they had done before. #-ad_banner-#​Earlier this month, CYNO poked its head above the upper border of the range and spent a few more days rallying, but then once again pulled back. It found support at the old range top.  What was once considered to be expensive was… Read More

There are always themes underlying the stock market. Earlier in the year, it was biotechnology. Then oil services offered nice gains.  When we can combine two themes, we can often multiply their benefits, and right now that is what I see with consumer staples stocks and Latin America. At first glance, the consumer staples sector appears flat and is slightly lagging the broader market so far in 2015. But beneath the surface, the Consumer Staples Select Sector SPDR ETF (NYSE: XLP) is enjoying solid demand. #-ad_banner-#The on-balance volume study, which keeps a running tally of volume traded… Read More

There are always themes underlying the stock market. Earlier in the year, it was biotechnology. Then oil services offered nice gains.  When we can combine two themes, we can often multiply their benefits, and right now that is what I see with consumer staples stocks and Latin America. At first glance, the consumer staples sector appears flat and is slightly lagging the broader market so far in 2015. But beneath the surface, the Consumer Staples Select Sector SPDR ETF (NYSE: XLP) is enjoying solid demand. #-ad_banner-#The on-balance volume study, which keeps a running tally of volume traded on up days minus volume on down days, is rising. This is a proxy for money flow and is also an indication of supply and demand. When it is rising, we surmise bulls are more aggressive than bears and demand is beating supply. Latin American stocks, as represented by the iShares Latin America 40 (NYSE: ILF), are also enjoying rising on-balance volume. Many emerging markets struggled last year as commodities tumbled, led lower by the precipitous decline in crude oil. However, ILF stabilized in December and has been moving sideways in a range since then.  This month,… Read More

The great thing about the stock market is that it provides many ways for traders to express their opinions. And for all traders believing, as I do, that energy stocks are in the midst of a rebound, there are ways to participate that suit everyone’s convictions and risk tolerance. For those looking for total return — capital gains and dividends — a more stable big-cap name would be the right choice. #-ad_banner-#And for those who are a bit more contrarian and able to handle higher levels of risk, what could be better than a smaller stock in an extremely out-of-favor… Read More

The great thing about the stock market is that it provides many ways for traders to express their opinions. And for all traders believing, as I do, that energy stocks are in the midst of a rebound, there are ways to participate that suit everyone’s convictions and risk tolerance. For those looking for total return — capital gains and dividends — a more stable big-cap name would be the right choice. #-ad_banner-#And for those who are a bit more contrarian and able to handle higher levels of risk, what could be better than a smaller stock in an extremely out-of-favor subsector? Let’s dig in. The first stock is integrated international oil giant BP (NYSE: BP). The former British Petroleum is still feeling the stain on its reputation from the 2010 Deepwater Horizon disaster in the Gulf of Mexico, and its stock price reflects it. In fact, it trades well below where it was before the accident.  But there is good news in that the technicals now point to a short-term rally. I am not suggesting BP will head back to pre-incident highs, but it is poised to make up some ground relative to its sector and the market as… Read More