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Fibozachi Forecast: Week of April 12th

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FF

 

After another week closing at new highs, it remains difficult to issue long-term long positions … so we remain focused on catching short-term pops on stocks that are positioned to quickly rebound from recent sell-offs.  Friday's end-of-day buying surge into the close raises the odds that the market begins the week with strength, but the real test will come when the S&P 500 cash (INX) tests 1,200 and the DJIA (INDU) 11,000.  If the S&P overcomes the round-number resistance, it will likely move up to 1,225 - 1,240 with relative ease, which was prior support back in June - July of 2006.  

Many NYSE issues are slowly drifting higher, or simply sleeping sideways, without much volatility.  As a result, much of our focus has shifted toward the NASDAQ Composite in an effort to highlight short-term trade setups across issues exhibiting greater beta.  The indices suggested 'more up' last week by closing in 'the right order of positive returns', whereby the Russell 2K led the NASDAQ brothers, who in turn led the S&P and DJIA ~ 'the right order'.

With an initial bailout of Greece 'out of the way', many market pundits will proudly proclaim the bear market slain.  An initial pop Monday morning will likely stoke fears of "missing the next leg up."  With upside momentum waning alongside ever-decreasing volume tallies, negative seasonality, and a lack of significant buy signals to cite, we will continue to snipe a specific long setup here and a ride a reflex bounce there.  Should the S&P 500 cash (INX) close above 1205 this week, then the next few weeks will likely bring about myriad long opportunities for those with 1-4 session time-frames.

The US Dollar (DXY) plotted a daily FNH (failed new high) this past Thursday at 81.91 before rolling over.  Barring a 3-day reversal pattern back up above 81.6, Uncle Buck will likely digest his gains into mid-May after having rallied for four months straight.  The most probable downside target spans an inflection point at 78.68 and 50% price retracement at 78.21.

$DXY price action and negative divergences over the past few weeks had been hinting at a correction in the near future.  The week of 3/26 registered a '3 Outside Up' candlestick pattern, which often begets bullish exhaustion, and the week of 4/2 registered a Bearish Harami pattern, implying that a bearish trend change was in the works.  While last week's doji wasn't exceptionally bearish in and of itself, when combined recent price action / candlestick patterns and a very narrow 4.8% weekly real body range (open-close range as % of weekly high-low range), the US Dollar (DXY) was well positioned for a sharp downward retracement.

Gold futures have weekly resistance at 1168, with 1184 - 1190 the last barrier before new highs would be quickly attacked; gold futures recorded record highs last week in Yen and Euros.  Oil futures have strong weekly resistance at 88.27 that dates all the way back to the first two weeks of November 2008.  And alongside continued US Dollar weakness, EURUSD targets would be 1.384 and 1.402 with EURJPY 128.6 and 130.3.

 

Have fun at the casino this week !

 

- Fibozachi & Chopshop

 


 

Short Trade Candidates

 

GNW: Genworth Financial (Intermediate-Term to Long-Term)

 

Current Price18.31

Candlestick PatternsBearish Harami & Doji

 

Interestingly, when GNW IPO’d back on 5/28/04, it put in a weekly low of 18.75 that held for years.  Since then the 18.75 – 20.00 level has acted as both support and resistance on multiple occasions.  GNW has now failed to close over 18.75 for the last two weeks, despite briefly trading above it.  From its picture-perfect FNL (Failed New Low) in early March ’09, GNW has now rallied over 2,300% from 0.78 to 18.84. This is a long-term trade that will likely take weeks to play out, where the 16.5x level provides a confluence target for a fueling zone that sends GNW back to test support at 10.50 – 13.68.  While any move over 18.75 could easily retest round number 20, nimble option traders would be wise to watch the short-term inflection levels of 18.75 and 16.56 for quick bilateral setups.

 

EntryImmediate (with daily confirmation) or with a move below 17.78

Target (Long-Term)10.50 - 13.68

Stop-Loss18.72

Potential Risk:  $0.94

Potential Reward (Long-Term)$4.10 - $7.28

Risk: Reward Ratio1: 4.4 - 1: 7.8

 

GNW

 


LNC: Lincoln National (Short-Term to Long-Term)

 

Current Price31.47

Candlestick PatternsDoji & Filled White

 

Measured from the 59.99 peak (9.19.08) to the 4.76 trough (11.20.08), LNC reclaimed 50% of lost territory this past week at the 32.38 level.  Plotting a Doji & Filled White weekly candlestick into a long-term inflection magnet at a 50% price retracement, LNC’s rally appears to be waning.  Last week’s high of 32.54 narrowly missed grabbing the weekly 144-EMA (at 32.77), which had repelled price action from 55.79 back on 9.19.09.  An Elite Oscillator™ daily sell signal that registered on the 7th (32.14 intra-day high) alongside 4.8 million shares traded has yet to be repealed by either price or volume.  LNC appears poised for a pullback, though our long-term targets won't be hit for several weeks if volatility decreases.

 

EntryImmediate (with daily confirmation) or with a move below 30.67

Target (Short-Term)28.44

Target (Long-Term)23.68 - 22.52

Stop-Loss32.55 or higher

Potential Risk$1.88

Potential Reward (Short-Term)$2.23

Potential Reward (Long-Term)$6.99 - $8.15

Risk: Reward Ratio1: 1.2  &  1: 3.7 - 1: 4.3

 

LNC

 


 

PFG: Principal Financial (Intermediate-Term to Long-Term)

 

Current Price29.30

Candlestick PatternsBearish Engulfing

 

PFG’s weekly candlesticks are simply screaming exhaustion.  The week of 3.19 plotted ‘3 White Soldiers’ and ‘3 Identical Soldiers’ patterns (think 3 large, wide-range, connecting real bodies); the week of 3/26 registered another ‘3 White Soldiers’ pattern; the week of 4/2 registered ‘Deliberation Bear’ and Doji patterns; and last week plotted a Bearish Engulfing candlestick.  The chart below clearly shows how the last 2 weeks have resulted in a narrow-range consolidation that is much more likely to precede a pullback than another push.

 

EntryImmediate (with daily confirmation) or with a move below 28.84

Target (Short-Term):  25.75

Target (Long-Term):  22.04

Stop-Loss30.88 or higher

Potential Risk:  $2.04

Potential Reward (Short-Term):  $3.09

Potential Reward (Long-Term)$6.80

Risk: Reward Ratio1: 1.5  &  1: 3.3

 

PFG

  


  

RDC: Rowan (Short-Term to Long-Term)

 

Current Price29.94

Candlestick PatternsFilled White

 

Last week RDC hit a key level of prior support between 30.00 - 31.00, which we now expect to morph into resistance that will halt the rally for at least a few weeks.  RDC has been nice and volatile over the last 8-12 weeks and we're hoping that it will continue, enabling us to catch a worthwhile move in a relatively short period of time. 

 

EntryImmediate (with daily confirmation) or with a move below 29.33

Target (Short-Term) 27.24 - 25.92

Target (Long-Term):  21.21

Stop-Loss31.03 or higher

Potential Risk $1.70

Potential Reward (Short-Term):  $2.09 - 3.41

Potential Reward (Long-Term)$8.12

Risk: Reward Ratio1: 1.2 - 1: 2  &  1: 4.8

 

RCD

  


  

IBB: iShares Nasdaq Biotechnology (Short-Term to Long-Term)

 

Current Price91.98

Candlestick PatternsDoji & Filled White

 

After plotting a Shooting Star pattern the week of 3/26, IBB has floated sideways and plotted consecutive Doji candles.  Spanning back to 2006, it has twice failed to penetrate an upward sloping trendline of resistance that currently measures out to 95.  While volatility has died down over the last 4 weeks, if IBB cracks here and fails to hold above 90.00 - 91.00 then it will rocket higher.  It is unlikely that IBB will drop below the 86.00 support level without bouncing feverishly over several weeks.

 

EntryImmediate (with daily confirmation) or with a move below 90.98

Target (Short-Term) 86.00

Target (Long-Term):  80.08

Stop-Loss93.55 or higher

Potential Risk:  $2.57

Potential Reward (Short-Term):  $4.98

Potential Reward (Long-Term)$10.90

Risk: Reward Ratio1: 1.9  &  1: 4.2

 

IBB

 


 

EMR: Emerson Electric (Intermediate-Term to Long-Term)

 

Current Price50.80

Candlestick PatternsNone

 

Measured from the FNH (failed new high) peak of 58.59 (5/30/08) to the trough of 24.39 (3/6/09), EMR has reclaimed the 76.4% price retracement at 50.52.  Measuring time from the cyclic peak of 7/18/08 (51.27 intra-week high, 50.50 close), it took EMR a Fibonacci 89-weeks to reclaim 50.50 while notching an intra-week high of 51.36.  Even if EMR were to move higher in months ahead, this is about as natural a place (per time and price) for a pause in price action to digest recent gains.

 

EntryImmediate (with daily confirmation) or with a move below 49.97

Target (Short-Term):  47.12

Target (Long-Term):  41.79

Stop-Loss51.48 or higher

Potential Risk:  $1.51

Potential Reward (Short-Term) $2.85

Potential Reward (Long-Term)$8.18

Risk: Reward Ratio1: 1.9  &  1: 5.4

 

EMR

 


  

HST: Host Hotels (Intermediate-Term to Long-Term)

 

Current Price15.12

Candlestick PatternsNone

 

Yet another retail / consumer discretionary name chugging higher into prior resistance on decreasing volume and extraordinarily stretched technical measures, HST’s nearly vertical 10-week rally appears to be drawing to a close.  An Elite Oscillator™ daily sell signal that registered on the 7th (15.33 intra-day high) remains in place and helps provide this target entry price of 14.77.  Host's rally has been so sharp and quick that it is unlikely that it has much bullish fuel left in its tank.

 

EntryImmediate (with daily confirmation) or with a move below 14.77                                      

Target (Long-Term):  12.70

Stop-Loss15.43 or higher

Potential Risk:  $0.66                          

Potential Reward (Long-Term)$2.07

Risk / Reward Ratio1: 3.1

 

HST

 


 

Long Trade Candidates

 

AONE: A123 Systems (Short-Term to Long-Term)

 

Current Price: 13.65

Candlestick PatternsNone

 

This relatively 'new' stock is a great bullish setup because of the fantastic risk: reward ratio that it presents.  This is a unique chart in that the stock has been stuck in a large down-trend since it IPO'd last year, while most of the market has rocketed upwards.  For this reason, we greatly prefer taking a chance to try and catch a FNL (failed new low) rather than trying to squeeze out a few more percent on stocks that are already up 300%+ since March '09.  While the 15.90 - 16.00 target is ideal for the short-term, there is a strong possibility for AONE to rally as it did at the end of 2009.

 

EntryImmediate (with daily confirmation) or with a move above 14.15                                      

Target (Short-Term) 15.90

Target (Long-Term) 18.00

Stop-Loss13.22 or lower

Potential Risk:  $0.93                          

Potential Reward (Long-Term)$1.75

Risk: Reward Ratio1: 1.9

 

AONE

  


  

SKYW: SkyWest (Short-Term - Intermediate-Term)

 

Current Price14.29

Candlestick PatternsDoji

 

SKYW is a good example of how depressed volatility can actually be beneficial for establishing a trade setup.  Last week's range was less than 3%, which enables us to keep our stop-loss very close to our point of entry in a trader that is either going to trigger immediately or become voided.  The last eight weeks have managed to hold above the 14.00 level and the trendline of support from prior swing lows is now coming into play, so any upwards push is likely to carry shares towards the previous swing high near 15.50. 

 

EntryImmediate (with daily confirmation) or with a move above 14.42                                                                                        

Target (Long-Term): 15.41

Stop-Loss13.97 or lower

Potential Risk:  $0.45                                                                    

Potential Reward (Long-Term)$0.99

Risk: Reward Ratio1: 2.2

 

SKYW

 


  

APWR: A-Power Energy Generation (Short-Term)

 

Current Price10.12

Candlestick PatternsNone

 

APWR managed to hold a penny above the support at 9.50 and now looks like it may be poised to grab an open daily gap at 11.67, with the potential of overshooting up to 12.00.  This is basically what our ideal short-term bullish setup looks like; a wide-range, long-body candle that loses over 10%, followed by a doji-like candle with a smaller range.  A new low was made, but the week still managed to close higher, which increases the odds that a short-term swing low may be in place.  It's not a perfect setup (range isn't less than 25% than previous week), but it may still lead to a pop over the next 1-2 weeks.  We can't afford to keep a stop-loss over 10% away (low of the candle at 9.51), so if our entry price is triggered we will be using an initial stop-loss just under 10.00 and scaling it up from there.

 

EntryImmediate (with daily confirmation) or with a move above 10.59

Target (Short-Term):  11.67 - 12.00

Stop-Loss9.98 or lower (trade is only voided if price drops below 9.50)

Potential Risk:  $0.61

Potential Reward (Short-Term):  $1.08 - $1.41

Risk: Reward Ratio1: 1.8 - 2.3

 

APWR

 



Disclosure: no position in the securities mentioned at the time of publication.  During any given session, we may trade any instrument bi-directionally.

 


For similar technical calls and insights into the idiosyncratic machinations of financial markets ~ check out fibozachi.com.

 

There, you can view a body of our analytic work as well as detailed explanations of the unique design development and technical methodologies within the proprietary technical indicator packages that we employ daily to perform a comprehensive technical analysis of financial instruments (stocks, options, ETFs, bonds, futures, FOREX, etc.) across interval periods of time, tick, volatility and volume.

 

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