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Defensive Area Buys | Greg Schnell, CMT | Your Daily Five (03.30.21)

Greg brings the 5 charts he is following this week. At the moment, he is looking to buy in defensive areas of the markets. These areas include Healthcare, Consumer Staples, and Utilities which are starting to take over leadership.

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Stuck In A Canal

This week saw a 400′ meter ship stopped by 5 meters of soil. A bunch of ships are now backlogged. 12% of the world freight goes through the canal. It is the location of that ship and the soil that makes the situation so important.

Somehow to me, I see some of the same traits in the market right now.

The entire momentum trade is sitting right at the base of support, and if they all get unstuck here and move higher, we can breath a sigh of relief. If they all start to drop below support this could create a real surge lower. It is a big backlog if they all start to fail. The floodgates could open here.

Shopify (SHOP)

Shopify is threatening to break down through the support dike at $1065. It is also the 200 DMA level (green line). I don’t like the 4-month lows on the relative strength to the $SPX in purple.

Tesla (TSLA)

Tesla has been underperforming the $SPX since February. That was shortly after the January high. Now support at $600 continues to be tested. Over the next few weeks this needs to hold on one of the most watched stocks.

Ballard Power (BLDP)

Ballard has been one of the big alternative power stocks. The chart needs to hold support $22.

ServiceNow (NOW)

ServiceNow is already making 6 months lows in relative strength. There is a pretty big top here. It needs to hold there.

Peleton (PTON)

Peleton sits at $100 and the 200 DMA. Another one where the dike could break.

ROKU (ROKU)

ROKU is already down $150 off the highs. Sitting on support.

I could go on and on. We are at a very important level that needs to hold.

Already this week, we have over 1600 stocks down big on the week. We only have a little more than 100 stocks up using the same scan criteria this week. But the $SPX is only down 4 points on the week. Its a fragile market. Be prepared for both directions.

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5G Is The Meme

I can’t tell you how excited I am to get 5G. I am not sure why I am excited, but we are supposed to be. Rarely a tech segment goes by on the financial news shows, where they are not discussing 5G. After being schooled on Twitter about memes and blast radius (stocks that may move in relation to the meme), I thought this article would check out 5G network names in the 5G blast radius. I have a whole chartlist on 5G names and no one needs a new book to read, so we’ll stay within the traditional carriers.

 

The CEO of Verizon (VZ) is a great interview. He gives candid looks at how they are building out 5G. The stock has been in a steady uptrend within a wide channel. The SCTR ranking shows the stock is rarely a top performer and is currently the worst ranking in three years. It is near the low end of the channel, so perhaps a call to buyers could connect. Link to chart

AT&T (T) continues to push forward. The SCTR rankings suggests T is not average, but weak. It has been weak for a year, underperforming its peers. The relative strength to the S&P 500 is weak. The trading range is pretty boring for those looking for upside. Not sure what it will take to kick this higher, but the blast of 5G isn’t turning this up so far. Link to chart.

We are also watching the execution of the Sprint / T-Mobile strategy now that the merger can proceed. At least the uptrend looks good here, but you can see it is still underperforming the large cap peers with an SCTR ranking of 30. While the other stocks have been climbing lately, this one has been put on hold. Link to chart.

In Canada this week, Rogers (RCI) – Eastern Canada network – made a bid for Shaw (SJR) -Western Canada network – as they try to establish the third Canadian network coast to coast. That sent the SJR chart popping, and surprisingly the acquiring company also popped. As it tries to break through all time highs, this may consolidate for a while here. Link to chart.

Telus (TU) just spun out a division called Telus International (TIXT). The stock looks like it is soaring, but the SCTR helps us see the real truth. The stock is only better than 30% of the mid-cap peers. How can that be? The computer adjusts the scale on the chart to fit the highest and lowest price in the last three years. The stock has climbed a dollar this year so that is not a real portfolio driver. At least its trending up, and made a new high. Link to Chart.

Bell (BCE) is the old general in the space. This one is trying to take out all time highs, but once again, the SCTR is only at 30%. Link to chart.

So far, the 5G is all talk and short on action for these company stock prices. That’s my interpretation of the meme’s blast radius. There are better places to park your wealth.

Good trading,
Greg Schnell, CMT, MFTA

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What Happened To Retail?

In one of the oddest twists of the market lately, this is the oddest one I can’t figure out.

If we are about to add $1.9 T in support, why are many of the retail names so weak? Let’s walk through a few ‘stores’.

LULU appears to be so last year. Making new 9-month lows on Friday. It is now below the 200-day moving average (DMA). The SCTR suggests it is one of the worst stocks in the mid-cap group with a ranking of 9%. That’s poor. On the purple area chart it has continued to underperform the S&P 500 for the last three months. Lastly, the PPO momentum trend is weak. Both the downtrend and the 200 DMA will provide resistance, so we’ll need to work through those levels.

Here’s the good news. The stock had the highest positive volume day of the year on Wednesday. Price action looks like it is surging off the false breakdown.

Then one of the larger shocks is Costco. A great online presence. A destination store for people trapped in their homes. A wide variety of value through to elegance. But one look at the stock and it is so weak.

The negatives: The SCTR rank is 4.0%, which I find almost amazing. The relative strentgh has been sliding since December, much like LULU. The stock topped December 1, and has since dropped 20%. With the acceleration lower for the last three weeks, this looks like it has fallen with the rest of the momentum names as yield went higher. Thee volume looks capitulatory, which is to say, anyone who was thinking of selling, probably has. The momentum trend on the PPO is at the lowest level on the chart, which surprises me.

The positives:

With the stimulus package passing, the stock is rallying above the downtrend line. After the capitulatory low, this is a nice entry with a close stop. The PPO is trying to turn up, but it has not finished yet! The stock has lots to overcome to change the trends on this chart meaningfully. If you think the 1.9 T is going to move a lot of TV’s, Costco’s probably a destination.

Another retail stock with the price below the 200 DMA is Walmart (WMT). Without hitting copy and paste for all of the descriptions above on Costco or LULU, we have the same situation setting up. If you like to shop for sales, there might be one on the stock, if the low prices inside the store don’t entice you first.

So those three stocks all look weak. There are other retail names doing much better, but I like how close I get to set my stop with the backdrop of stimulus being mailed to every household. Are we looking at the lows for the year in these three names? We won’t know for a while, but as the economy reflates, this might be one place to look.
Good trading,
Greg Schnell, CMT, MFTA

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