Last month was the worst August for the venerable Dow Jones Industrial Average in more than 16 years. For the S&P 500, it was the worst August since 2001.The volatility since has been almost sickening, but I believe the most intense portion of the selling is behind us. The AIM sentiment indicator, which I discussed last week, has plunged even further into bearish territory. In fact, it’s dropped so far it’s more bearish now than it was during the 2008 financial crash.  As I explained then, market sentiment is a classic contrarian indicator that can help spot changes… Read More

Last month was the worst August for the venerable Dow Jones Industrial Average in more than 16 years. For the S&P 500, it was the worst August since 2001.The volatility since has been almost sickening, but I believe the most intense portion of the selling is behind us. The AIM sentiment indicator, which I discussed last week, has plunged even further into bearish territory. In fact, it’s dropped so far it’s more bearish now than it was during the 2008 financial crash.  As I explained then, market sentiment is a classic contrarian indicator that can help spot changes in financial trends. When too many people are thinking one way, the market is primed to move in the opposite direction. From a sentiment perspective, this market downturn is a giant vise squeezing out all the bears. #-ad_banner-# When it’s over, I expect the ensuing bottom to provide solid profit opportunities in stocks with high Alpha Scores (more on this later). And from what I’m seeing, those outperforming stocks are likely to be based in the United States. Relative to the rest of the world, U.S. stocks are doing the “least poorly.” You can see this clearly in the Relative… 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… 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

You might think we are crazy for going long a stock that has posted revenue declines in 15 of the past 16 quarters — a stock that has also underperformed the S&P 500 by 24 percentage points over the past 52 weeks.  But we are. And we have good reason.  Both fundamentally and technically, Hewlett-Packard (NYSE: HPQ) appears to be on the verge of an important turnaround that should send shares significantly higher. For starters, HPQ is selling at a bargain-basement valuation compared to other tech stocks.  Its current P/E is 11.1 while the S&P 500 Information Technology Index trades… Read More

You might think we are crazy for going long a stock that has posted revenue declines in 15 of the past 16 quarters — a stock that has also underperformed the S&P 500 by 24 percentage points over the past 52 weeks.  But we are. And we have good reason.  Both fundamentally and technically, Hewlett-Packard (NYSE: HPQ) appears to be on the verge of an important turnaround that should send shares significantly higher. For starters, HPQ is selling at a bargain-basement valuation compared to other tech stocks.  Its current P/E is 11.1 while the S&P 500 Information Technology Index trades at 18.8 times earnings. And HPQ’s forward P/E of 7.3 is less than half that of its sector index. #-ad_banner-# If you argue that many fast-growing tech stocks like Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOGL) skew the broader valuation, it should be pointed out that in the top 10 index weightings are several mature stalwarts like IBM (NYSE: IBM), Cisco Systems (Nasdaq: CSCO) and Intel (Nasdaq: INTC).  Plus, the valuation doesn’t just come through when looking at earnings. HPQ is currently trading for a price-to-sales (P/S) ratio of 0.48 versus a ratio of 3.1 for the Information Technology Index. Read More

There is an old trading adage I’ve always liked: “The market will scare investors out or wear investors out.” Prior to Aug. 20, we were in a wear-you-out stage. The Dow was trading in the narrowest range in more than 100 years of just 7.7% from top to bottom. #-ad_banner-# To make things worse, the S&P 500 had crossed its 50-day moving average a total of 35 times, exceeding the number of crosses ever seen in a full calendar year in the first eight months alone. And the vacillating, whipsaw nature of the sideways trend aggravated investors. Just prior to… Read More

There is an old trading adage I’ve always liked: “The market will scare investors out or wear investors out.” Prior to Aug. 20, we were in a wear-you-out stage. The Dow was trading in the narrowest range in more than 100 years of just 7.7% from top to bottom. #-ad_banner-# To make things worse, the S&P 500 had crossed its 50-day moving average a total of 35 times, exceeding the number of crosses ever seen in a full calendar year in the first eight months alone. And the vacillating, whipsaw nature of the sideways trend aggravated investors. Just prior to the violent sell-off, I wrote about how the massive pickup in new lows indicated a stealth correction occurring in stocks. At the time, about 60% of S&P 500 stocks were down at least 10% for the year — i.e., in official correction territory — yet the index was basically flat.  Then, on Aug. 20, the market entered a scare-you-out stage. Traders embarked on a selling spree sparked by global growth fears that brought the index into full-blown correction territory in just four days. The chart below shows the gargantuan spike in stocks making new 52-week lows as traders… 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

There’s a little-known indicator that’s making a small group of investors a lot of money. It consistently beats the market, often with less risk than buy-and-hold investing. It can flag exactly which stocks are about to jump double and triple digits in the coming days… weeks… and months. #-ad_banner-#I call this indicator the “Alpha Score.” I’ll tell you more about this indicator in a second, but just know that a stock’s Alpha Score can range from 0 to 200. The higher the number, the more potential the stock has. Read More

There’s a little-known indicator that’s making a small group of investors a lot of money. It consistently beats the market, often with less risk than buy-and-hold investing. It can flag exactly which stocks are about to jump double and triple digits in the coming days… weeks… and months. #-ad_banner-#I call this indicator the “Alpha Score.” I’ll tell you more about this indicator in a second, but just know that a stock’s Alpha Score can range from 0 to 200. The higher the number, the more potential the stock has. For example, you’ve probably never heard of Westmoreland Coal (Nasdaq: WLB). It operates six surface coal mines and two power generating units in the western United States. The company looked promising when we recommended it on Dec. 18, 2013. Westmoreland had sold 95% of its future production under long-term contracts, and the market for coal looked stable. But that’s not what attracted us to the stock. What most investors didn’t know about Westmoreland is that it had an Alpha Score of 158. Less than 1% of stocks have a score that high at any given time. 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

Look solely at the major indices, nothing seems amiss. The S&P 500, Nasdaq Composite and Wilshire 5000 Total Market Index are off only 2% to 3% from their 52-week highs. But despite the relative calm on the surface, hundreds of stocks are quietly tanking. A classic technical indicator… Read More

The major U.S. indices managed to finish last week fractionally higher, led by the S&P 500, which gained 0.7%. However, nothing has been resolved as the broader market index, as well as the bellwether Dow industrials and PHLX Semiconductor (SOX) index, continue to hover just above major support levels.  S&P 500 2,077, Dow 17,342 and SOX 630 are major support levels that represent an important inflection point from which the next significant move, either up or down, is likely to begin.   Two weeks ago, I first stated that utilities were on my radar as a potential sector… Read More

The major U.S. indices managed to finish last week fractionally higher, led by the S&P 500, which gained 0.7%. However, nothing has been resolved as the broader market index, as well as the bellwether Dow industrials and PHLX Semiconductor (SOX) index, continue to hover just above major support levels.  S&P 500 2,077, Dow 17,342 and SOX 630 are major support levels that represent an important inflection point from which the next significant move, either up or down, is likely to begin.   Two weeks ago, I first stated that utilities were on my radar as a potential sector to overweight this quarter. And last week, I pointed out a bullish chart pattern in the Utilities Select Sector SPDR ETF (NYSE: XLU) that targeted a 4.8% rise to $46.50.  XLU jumped 2.7% last week and appears to be on track to meet that target, which is 2% above Friday’s close. The chart also shows that XLU is starting to edge above its 200-day moving average at $44.99. A sustained rise above this widely watched major trend proxy would suggest that a major bullish trend change is emerging in the ETF, which would potentially set the stage for… Read More