Note that I am travelling this week and there is no video.
Videos will resume in December.
Report Headlines
- QQQ Leads with New High, but Remains Overbought (plus SPY)
- Small-caps Stall Just below Falling 200-day SMAs (IWM, IJR)
- Oil and Related ETFs Firm at Reversal Zones (USO, XLE, XES)
- FANG Forms Corrective Pattern after big Surge
- Packaging Corp Breaks Out of Consolidation
- Amgen Forms Bull Flag After Surge
- Regeneron Turns Up within Triangle
The next Chart Trader will be posted on Tuesday morning, December 5th.
There is no change in the broad market situation. QQQ is leading because it recorded a 52-week high in November. SPY is not far behind, but it has yet to exceed its July highs. Both are short-term overbought after sharp advances from late October to late November.
Being short-term overbought does not guarantee a pullback, but it increases the odds for a short correction or a consolidation of sorts. We are also at the turn of the month, which covers the last four trading days of the current month and the first four trading days of the next month. This is when new money comes into the market
Overall, SPY and QQQ are strong and over-extended after big advances since October 27th. This puts them in no-man’s land: they are too strong to consider shorts and too overbought for new longs. As far as pullback targets, the blue shadings mark the retracement zones to watch on both charts (33-50 percent). These zones are reinforced by broken resistance levels, which turn into first supports (blue shading).
Small-caps Stall Just below Falling 200-day SMAs
The Russell 2000 ETF (IWM) and S&P SmallCap 600 SPDR (IJR) surged with the rest of the market from late October to mid November, and then stalled. Both formed pennants below their falling 200-day SMAs. Small-caps advanced on Wednesday and made break out attempts. However, we can also see that intraday gains did not hold as shooting star patterns formed for the second time in two weeks. Shooting star candlesticks have long upper shadows, which mark the intraday high and a failed rally attempt.
The inability to hold the breakout is negative, but we still have pennants in play. Pennants are short-term continuation patterns dependent on the direction of the prior move for their bias. Pennant breakouts would be bullish and argue for a continuation of the early November surge. The green lines mark short-term support. Failure to hold the breakout and a close below these supports would be negative.
Chart Analysis, Setups and Trading Ideas
Oil and Related ETFs Firm at Reversal Zones
The US Oil Fund (USO) is firming near a key retracement with a bullish continuation pattern. First, USO surged some 38% from June to September and hit a 52-week high. The falling wedge correction retraced around 2/3 of this surge. Both the pattern and the retracement amount are typical for corrections within bigger uptrends. USO is attempting to firm in the 68-72 area and a breakout at 73 would be bullish. Such a move would signal a continuation of the prior advance.
The next chart shows the Energy SPDR (XLE) surging some 22% and then retracing around 2/3 with a decline to the prior breakout (82). Broken resistance turns into support and the ETF firmed over the last few weeks. As with USO, the September-November decline looks like a correction after the 22% surge. A breakout at 86 would signal an end to this correction and a resumption higher.
The next chart shows the Oil & Gas Equipment & Services ETF (XES) with a falling wedge that retraced just over 50% of the June-September advance. A falling wedge formed as XES returned to the breakout zone (green shading). I am marking first resistance at 86 and a breakout here would provide the first signal that XES is poised to resume its long-term uptrend.
FANG Forms Corrective Pattern after big Surge
The next chart shows Diamondback Energy (FANG) surging 20% in October and hitting a 52-week high. The stock fell back into November with a falling channel. Notice that this decline retraced around 2/3 of the 20% advance. This is basically three steps forward and two steps backward. FANG firmed in the 150 area and a breakout at 158.22 would be bullish.
Packaging Corp Breaks Out of Consolidation
Breakouts are sometimes messy affairs as prices break above resistance, fall back below the breakout level and then chop around. The chart below shows Packaging Corp (PKG) with a 52-week high and then an extended triangle/wedge into late October. PKG broke out in early November, but then turned choppy and consolidated around the breakout zone at 155. The breakout is largely holding and bullish. Moreover, PKG is a leader because it hit a 52-week high this week. I view this breakout as bullish and would mark support at 153. A close below this level would warrant a re-evaluation.
Amgen Forms Bull Flag After Surge
Amgen (AMGN) is in an overall uptrend with the dashed green lines marking this ascent. The stock surged to 290 in mid October and then fell sharply into early November as it retraced half of the prior advance, which was 36%. AMGN reversed on a dime with a surge off the 250 area in early November. The stock then corrected with a falling flag and I view this as a bullish continuation pattern. A breakout at 275 would confirm this pattern and target a move towards the 300 area. Chartists looking for a jump on this breakout can watch the swings within the pattern. AMGN broke short-term resistance on Wednesday and this is the first sign of strength
Regeneron Turns Up within Triangle
Regeneron (REGN) shows an example of trading the swing within the pattern. Overall, the stock is in an uptrend with a 52-week high in mid October. REGN retraced half of the June-October advance with a decline to 770 and then turned choppy. The pattern since mid October looks like a triangle, which is a continuation pattern. The prior move was up (+24%) so this is a bullish continuation pattern. Within the pattern, we can see REGN breaking short-term resistance with a surge the last two days. This is the early signal and a follow through breakout at 840 would open the door to new highs. A close below short-term support at 783 would call for a re-evaluation.
