Trade watch – CXO

From time to time, I would like to give readers a heads up on potential trading opportunities. Before considering any trades that I might outline in Chart School, always remember that you must decide for yourself if you like the trade.

A key factor in making that decision will be coming up with which side of the trade you believe gives you the highest probability trade. In other words, do you like the short side of the market, or do you like the long side? You don’t necessarily have “know” what side to be on, but it certainly helps to take a stance. So, if you haven’t thought about it, review the overall indices themselves. Take a look at the S&P 500 for example.  Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

One trading opportunity that I’d like to review today is that of CXO (Concho Resources).  Before discussing, please review the 1 yr. chart of CXO that I have outlined below:

If you have read any of my previous Chart School newsletters, you will already know that I believe the simplest to be the best. In my experience with other traders and students that I have coached to trade, the ones that kept it the simplest always seemed to do better than others who may have overcomplicated things a bit.

This simplicity is on full display when you look at the chart of CXO above. CXO has formed a common price pattern called a Rising Wedge. This type of pattern tends to have bearish implications. A break below the up trending support level would confirm the pattern. The decrease in volume over the last 2 – 3 months is a common “calm before the storm” with patterns such as these.

The Tale of the Tape: CXO (Concho Resources) has formed a Rising Wedge price pattern over the last 4 – 5 months. Volume has also been drying up as the stock has continued higher. If CXO were to break above the up trending resistance on above average volume, entering a long position could be advised and the bearish implication of the pattern would be nullified. If instead CXO were to break the up trending support level, the pattern would be confirmed and a short position would be advisable. Could you enter a long position if CXO approaches that same support? The wedge pattern does not mean that CXO is definitely going to break lower, so yes, you could enter a long position when CXO approaches the up trending support.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Battle Lines Have Been Drawn

I have to admit, I didn’t think we’d get back up here, but here we are nonetheless. The markets have had a great run over the last few weeks, so the question is: Can we go higher?

The thing I love about the market right now is that the battle lines seem very clear. Please look at the chart of the S&P below to see where I believe the main technical points are:

First, the chart above was taken from Friday morning, so please take today’s price action into consideration when you make your trading decisions. You will notice that the 1130 level is an important price to the S&P even going as far back as January. The strongest evidence of this level though can simply be seen over the last 3 months. In addition, the 1040 level has shown itself to be quite formidable since the start of the year. Other than the quick fake-out in July, the 1040 price has been a strong technical level of support.

Now, there has been a lot of chatter about the lack of volume throughout this most recently rally, and in general over the last few months.  Although I agree with the skepticism in this rally because of this lack in volume, it obviously doesn’t mean the markets cannot go higher. I would encourage everyone to remember the proverbial “Price discounts everything”. In other words, volume may not support this latest price trend, but it certainly doesn’t change what the trend has done.

The Tale of the Tape: The S&P seems to have given us clear levels to watch. The 1130 level of resistance is key at this point. If the market were to break above this level, I would expect the markets to move higher until they tell you otherwise. Entering long positions would then be advisable. However, if the markets were to hold this 1130 resistance and move lower, I would keep a close eye on the 1040 level, if it happens to be reached. At that time, entering a long position could be in order. A break below that level though would be a very ideal entry point for short positions.

Waiting for the most opportune times that I have outlined above could provide you with higher probability entry points. No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.

Good luck!

Christian Tharp, CMT

Trade Watch – PLCE

From time to time, I would like to give readers a heads up on potential trading opportunities. Before considering any trades that I might outline in Chart School, always remember that you must decide for yourself if you like the trade.

A key factor in making that decision will be coming up with which side of the trade you believe gives you the highest probability trade. In other words, do you like the short side of the market, or do you like the long side? You don’t necessarily have “know” what side to be on, but it certainly helps to take a stance. So, if you haven’t thought about it, review the overall indices themselves. Take a look at the S&P 500 for example.  Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

One trading opportunity that I’d like to review today is that of PLCE (The Children’s Place Retail Stores).  Before discussing, please review the 1 yr. chart of PLCE that I have outlined below:

If you have read any of my previous Chart School newsletters, you will already know that I believe the simplest to be the best. In my experience with other traders and students that I have coached to trade, the ones that kept it the simplest always seemed to do better than others who may have overcomplicated things a bit.

This simplicity is on full display when you look at the chart of PLCE above. PLCE has created a very strong resistance level at $50. At the same time, PLCE has formed a significant support level at $40. This is a very simple chart pattern that you may be familiar with: A Rectangle. This pattern creates very clear, defined trading opportunities.

The Tale of the Tape: PLCE (The Children’s Place Retail Stores) has formed a rectangle price pattern between $40 and $50. If PLCE were to break above the $50 resistance, entering a long position could be advised. A more aggressive trade could be to enter a short position when PLCE approaches the $50 resistance. However, if PLCE pulls back down to $40, you could also enter a long position in expectation of a bounce. If the $40 support were to break, a short position could be entered.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Gold is back on the grid

Well, the conversation on gold comes back into focus. In previous months it appeared gold might be cooling off and setting up for a correction, but here we are hitting new highs yet again. Although I am personally getting a little skeptical about the prospects for gold continuing higher, my opinion certainly doesn’t mean that the price of gold can’t go higher. That’s the great thing about chart analysis: Ultimately, the chart tells you the truth and what you need to know.

One of the common ways to trade gold is by trading the ETF GLD. Although there are other ways such as by trading the stocks of gold mining companies or any other gold linked ETF, the GLD is the main trading vehicle for gold itself. I use the GLD to analyze what gold is, or is not doing.

Below is a chart of the GLD with some of my added details:

You will notice that the GLD had created a decent resistance in the $123 area over the last 3 months (This resistance is highlighted in blue on the chart).  Yesterday gold hit a new all time high, which corresponded with the GLD making a significant break above its $123 resistance. On breakouts, it is preferable to have a “pop” in volume to confirm that the breakout was made with conviction.  If you look at the bottom right of my chart, you will see where I have denoted a large increase in volume on yesterday’s breakout (green).  So, there seems to have been definite conviction in the breakout.

The Tale of the Tape: The gold ETFD GLD, and gold itself, broke to new highs yesterday on significant volume.  This appears to be telling us that gold is starting a new leg higher. Buying the GLD would provide a great long position, with a stop below the $123 level. The GLD is expensive, so looking at gold related stocks such as BVN, GG, AU and SLW (silver) would also be great potential plays.

Waiting for the most opportune times that I have outlined above could provide you with the highest probability trading points. No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.

Good luck!

Christian Tharp, CMT

Reason to stall?

As the markets rallied on Friday, I was curious as to why the markets seemed to stall all day at or near the high. Why not sell-off? Why not rally higher? I decided to analyze a few charts to see if there might have been a reason. Well, I found 3 or 4 good reasons why the market may have stalled.

Let’s take it one chart at a time. First, please take a look at the 1-year chart of the S&P that I have shown below. You will also notice my notations.

As the S&P has moved higher, it appears to be trending within a common price pattern known as an up trending channel. The S&P seems to be struggling at the top end of this channel. When it comes to trend lines/channels, my view is that (2) connected points create the trend line, but a 3rd confirms it. So, we’ll have to see how this plays out as the markets continue higher.

In addition, the same 1150 area of resistance created by the channel now also acted as resistance back in January.  This area could be a tough nut to crack in the short term.

So, let’s move on to chart #2!

The chart above is a 5-year chart of the S&P. I have added a down trending resistance line that connects the 2007 bull market high with what may end up being the April bull market high of the 2009-2010 rally. If you believe in the secular bear market returning, then that April high could prove very important. Although the S&P hasn’t actually made it to this trend line, it sure is getting close. Will the 3rd hit confirm it?

And one last chart:

Although I usually pay more attention to the S&P over other indices, I do tend to keep tabs on the NYSE Composite. It never hurts to know what all stocks combined on the NYSE Exchange are doing. Some traders actually prefer this index for their market analysis rather than the S&P or even the Dow. You will notice that the NYSE Composite also hit what appears to be an up trending resistance. Also, is there the possible formation of a bearish wedge pattern on the NYSE? It could be a little premature, but definitely something to keep an eye on.

The Tale of the Tape: The S&P seems to have created a channel pattern to watch. The 1150 level of resistance is also a familiar resistance level, which also happens to be where the top end of the channel’s resistance lies too. A longer term S&P resistance line is coming into play as well. The NYSE also seems to be at the top end of a resistance line.  These areas may prove to be difficult levels to get through, at least in the short term, especially after such a great September run.

Watch for pullbacks to the support levels I’ve highlighted above, especially if the S&P falls back below the key 1130 level that was referenced in a previous Chart School newsletter. These supports could provide ideal entry points. The resistances I’ve outlined will also give you a heads up for stop loss management. Breakouts or breakdowns of the levels above will provide entry points for either additional longs or new shorts.

Waiting for the most opportune times that I have outlined above could provide you with higher probability entry points. No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.

Good luck!

Christian Tharp, CMT