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Analysis

Buy FDS, PPC, BERY, and IIVI for the short-term

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The US tax reforms received a major boost on Thursday when a measure approved by the Senate, enabled the Republicans to proceed with the tax cuts, without the support of the Democratic party.  Suddenly, passage of the tax cuts looks more plausible.

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Key observations

  1. Positive news is flowing on the tax reforms front.
  2. Tax reforms are likely to boost the S&P’s earnings significantly
  3. The stocks are likely to remain buoyant in the final quarter of the year
  4. Buy FDS
  5. Buy PPC
  6. Buy BERY
  7. Buy IIVI

Goldman Sachs believes that if corporate tax rates are reduced from 35 percent to 20 percent, it will increase the annual per-share earnings of the S&P 500 by $15. Consequently, the stock market will look a lot less richly valued on a forward price to earnings basis.

With this bullish backdrop, the stock markets are likely to remain buoyant in the short-term. However, we don’t advise investing for the long-term at these levels. We believe that the markets will fall within the next few months, offering an opportunity to buy stocks at lower levels.

Therefore, we shall trade this market and attempt to ride the momentum. We have selected stocks that are making new 52-week highs because they have a favorable tailwind and are likely to participate in the rally, along with the S&P 500.

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So, without further ado, let’s check out the stocks.

FDS – Buy 185.76, Stop Loss (SL) 174, Target 204 and 216

Weekly chart

The stock’s history shows that it tends to rally for a few years and then enters into a shallow correction or consolidation. We find three such instances in the past decade. The stock has been in a consolidation since end-2015. Two attempts, one in September 2016 and the second in March 2017, failed to sustain the breakout.

However, the stock again broke out in end-September and extended the rally last week. It is likely to start a new uptrend now and we plan to hop along for a ride.

Daily chart

The stock broke out of the bullish ascending triangle formation on September 26. Thereafter, it faced resistance at the $184 levels, from where the bears attempted to sink the stock, back into the triangle.

However, the bulls provided support at the $176 levels and the stock broke out of the overhead resistance on Friday. It is now likely to rally towards its first target objective of $204. The pattern target on a breakout from the ascending triangle, however, is higher at $216.

Therefore, we recommend a buy on the stock at the current levels with a stop loss of $174. We don’t want to hang on to the stock if it falls back into the triangle once again. The stock has a risk to reward ratio of 1:1.5 at the first target objective and a ratio of about 1:2.5 at the second target objective.

PPC – Buy 31.04, SL 27, Target 37

Weekly chart

The stock rose sharply from end-2012 to end-2014. Thereafter, it corrected and entered into three-year long consolidation, during which, it remained range bound between $17 on the lower end and $27.5 on the upper end. PPC formed a double bottom at $17.3 levels and the pattern completed when the stock broke out of $27.5 in mid-August of this year. Subsequently, the stock completed a successful retest of the breakout levels of $27.5 and rose to multi-year highs last week. We, now, expect the stock to start a new uptrend.

Daily chart

The stock broke out of the overhead resistance on August 15. However, the stock faced considerable resistance following the breakout. It remained sandwiched between $28 and $30 for almost two months. Finally, on October 18, the stock broke out of the range and extended its rally on October 20.

It has a pattern target of $37, which is close to the lifetime highs. There is no significant resistance in between, therefore, we recommend a buy on PPC at the current levels of $31.04. The stop loss can be kept at $27, a level not seen for more than two months. The trade offers us a risk to reward ratio of about 1:1.5.

BERY – Buy 59.88, SL 56, Target 67

Weekly chart

BERY has been in a strong uptrend since 2016. It has a clear pattern. It rallies and then corrects towards the 20-week exponential moving average (EMA) and occasionally to the trendline drawn. On completion of the correction, it again resumes its uptrend.

Recently, the stock had again corrected to the trendline, from where it found support and broke out to new lifetime highs last week. We expect this trend to continue until the stock breaks and closes below the trendline support. We want to enter this stock as it has re-established its uptrend.

Daily chart

The stock broke out of the overhead resistance of $58.95 on October 06. Afterwards, it successfully retested the breakout levels and has resumed its uptrend. We can buy the stock at the current levels of $59.88 and keep a stop loss of $56. We shall close the position if the stock falls below the trendline. Our target objective is $67. The trade offers us a risk to reward ratio of about 1:2.

IIVI – Buy 43.3, SL 39, Target 52

Weekly chart

The stock bottomed out in October-2014 around the $10.78 mark. Thereafter, it started a new uptrend that continued till February of this year, after which, the stock entered a period of correction. $41.1 has acted as a stiff resistance on the way up. However, last week, the stock broke out to new highs and we expect it to continue higher.

Daily chart

On the daily chart, we find that the stock has formed a bullish inverse head and shoulders pattern. The pattern completed with a breakout of the neckline on September 27. Thereafter, the stock successfully completed a retest of the neckline. The stock has a pattern target of $52. We want to enter the stock at the current levels and keep a stop loss of $39, which is just below the low created on October 19. This gives us a risk to reward ratio of greater than 1:2.

 

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




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Analysis

Long-Term Cryptocurrency Analysis: Correction Deepens but Leaders Remain Stable

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As the major cryptocurrencies got hit hard this week, losing around 20% on average, the long-term picture in the segment got close to an entry point for investors. The overbought readings that developed during the late-April rally are now cleared and although the short-term trends are still clearly negative, we still expect the coins to resume the recovery. With that in mind, long-term investors could start accumulating the relatively stronger coins.

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On a negative note, even the leaders violated key support levels during this week’s selloff, but the secular long-term trends are not yet in danger. The prior leaders Ethereum, EOS, and IOTA are still in the center of attention, as we expect them to form a bottom soon. Bitcoin and the other relatively weak coins, like Litecoin, Monero, Dash, and NEO are still lagging the form a technical perspective, but they are also well above the support levels that would indicate an end of the secular bull market.

BTC/USD, Daily Chart Analysis

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Bitcoin is below the key $7650-$7800 support level and it remains the biggest drag on the market, despite a brief period of relative strength this week. The upper boundary of the base pattern that we identified in April is found near $6150, with a weaker zone around $6500, and with the short-term trend clearly being negative, the latter might be tested before a bottom forms. Further resistance is ahead at $8400, $8700, and between $9000 and $9200, and traders and investors still shouldn’t enter positions here.

ETH/USD, Daily Chart Analysis

Ethereum is testing the $555-$575 support zone after violating the $625-$645 range, with the declining short-term pattern being intact. A bottom near the $500 would still keep the recovery intact, but the correction low might already be in, and investors could already add to their holdings here. Further resistance zones are ahead between $735 and $780 and near $845, while support is found near $450.

(more…)

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 256 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Pre-Market: Oil Plunges Below $70 as Markets Mixed Before Long Weekend

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Financial markets are relatively calm today, despite the hectic week that was highlighted by the Turkish currency crisis, wild swings in bonds, and a step back in US-North Korean relations. Stock markets turned lower globally, with US equities outperforming the rest of the world, essentially drifting sideways all week long, thanks to the slight correction in the Dollar’s rally, and the dip in Treasury yields that was triggered by the dovish Fed meeting minutes.

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S&P 500 Futures, 4-Hour Chart Analysis

Today, the durable goods report came out before the opening bell and although the headline number was a tad worse than expected the more important core figure beat the consensus estimate, helping the slightly dampening economic outlook, even as yields continue to fall, especially with regards to long-dated Treasuries.

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EUR/USD, 4-Hour Chart Analysis

Although emerging market currencies are way less volatile today than recently, despite the rebound in the Dollar, equities shed their early gains and are now slightly in the red. The all-important EUR/USD pair hitting yet another 6-month low near 1.1650, and the test of the key long-term 1.1450-1.15 zone looks more and more likely in the coming weeks, even as the pair is a bit oversold.

Energy Markets in Turmoil as OPEC Signals Production Increase Again

WTI Crude Oil, 4-Hour Chart Analysis

It seems that the crude oil market is in for a strategic switch yet again, as the OPEC, together with Russia made it clear today that the price of the Black Gold finally reached a desirable level. The cartel will be targeting a higher level of output later on this year in order to keep the US shale players under pressure by capping the advance in the key commodity’s market.

The WTI contract reached a 4-year high at $72 per barrel recently and the Brent contract which is more exposed to Middle East woes rose as high as $80 per barrel after trading below the $30 level just two years ago. The last phase of the advance extended above the level where a large portion of the shale plays turn profitable, and as global growth worries also surfaced, the commodity entered a selloff this week.

Gold Futures, 4-Hour Chart Analysis

Safe haven assets continue to be bid despite the relatively calm environment, and gold hit a two-week high today despite the bounce in the Greenback as buyers are back after the wash-out plunge below $1300. With the long-term setup and fundamentals still being favorable for the precious metal, the short-term downtrend line is in danger here.

As US markets will be closed on Monday, which usually favors an active session, volatility might remain high throughout the day.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 256 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Recommendations

Trade Recommendation: Intact Financial

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Technical Overview

  • Since double-bottoming in 2008 and 2009 at $26 (violet horizontal trendline in Figure 1), Intact Financial (IFC.TO) has enjoyed a four-fold increase. During the 2013, 2016 and 2018 corrections, the stock found support at a long-term trendline (support – green trendline; retests – green arrows).

Figure 1. IFC.TO Weekly Chart

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  • Zooming in, after topping in November’17, IFC completed a H&S pattern (tops – yellow ellipses, neckline – yellow trendline in Figure 2).
  • In January, March, April, and May, all up-moves halted at a well-defined short-term resistance (red trendline). Yesterday (May 25), the stock managed to break and close above the resistance.
  • Today, the stock closed in positive territory, whereas the Financial sector (TTFS.TO) declined by over 0.5%.
  • The $95 level had served as support on multiple occasions in 2018 (purple horizontal trendline and arrows).

Figure 2. IFC.TO Daily Chart

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Implications

  • The bounce off of the long-term support and the break above the short-term resistance are considered constructive.
  • The stock is expected to find support in the $95 – $96.50 range during pullbacks (i.e. at the red and purple trendlines).
  • The downward target from the H&S pattern was nearly met during the May decline (target – $92.25 – white vertical trendline in Figure 2, May 9 low – $92.65 – last purple arrow).

Outlook

  • Short-term bullish as long as the stock remains above $95
  • Long-term bullish as long as the stock remains above its long-term support (green trendline in Figure 1).

 Trade Recommendation

  • Buy the stock at current levels ($97.50 at EOD on May 24).
  • Target: Half at $101 (the January low which served as resistance in March – second red arrow). Other half at $108 (origin of the late 2017 decline).
  • Stop: Half upon a close below $95. Other half upon a close below the long-term support (currently at approximately $93.50).

Disclosure: No position yet but may initiate at any time. Will likely recommend the stock to my clients as a potential play within the financial sector.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.8 stars on average, based on 12 rated postsPublished author of technical research. In his work on price “gaps”, published in the 2018 International Federation of Technical Analysts’ Annual Journal, he developed a new technical tool for analyzing and trading the “gap” phenomenon – the “K-Divergence” (http://ifta.org/public/files/journal/d_ifta_journal_18). Besides obtaining a Master in Financial Technical Analysis, he has completed a BBA and an MBA from the Schulich School of Business in Toronto and has completed all exams for the CFA, CMT and CFTe designations. Currently, providing research to investment management and financial advisory firms. http://www.linkedin.com/in/konstantindimov




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