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Charts of the Week: Supervalu, Elan, Motorola - 10638 views
Technical analysis can be a great asset to investors who want to determine what the trend of the market or a stock is before they throw down hard-earned money. Consulting the charts can help you spot important market action before it happens, preparing you to follow the trend and make the right trade.
Technical analysis is a method of evaluating securities by relying on the assumption that market data, such as charts of price and volume, can help to predict future market moves and trends.
Technical analysis will help guide you to discovering the chart patterns that offer the highest probability of success. By consulting the charts and using technical analysis, plus combining those methods with fundamental analysis, you will truly have an edge over a majority of market participants.
There has been a lot of talk lately among the chartist community about a technical indicator called the Hindenburg Omen. This indicator is supposed to be predictive of a major market correction once it has been triggered twice. A number of technical indicators need to be meet in order for the Omen to flash a major warning sign.
These key conditions are as follows: The daily number of NYSE new 52-week highs and the daily number of new 52-week lows must be greater than 79. The daily number of NYSE new 52- week highs and the daily number of new 52-week lows must both be greater than 2.2% of total NYSE issues traded that day. The NYSE 10-week moving average is rising. The McClellan Oscillator is negative on the same day, and the new 52-week highs cannot be more than twice the new 52-week lows.
According to Sentimentrader.com, a second conformation of the Hindenburg Omen was triggered yesterday. This could mean that a larger move down is in the cards for the major U.S. stock market averages. However, I wouldn’t trade just solely off the Hindenburg Omen.
Instead, I would continue to monitor the action in the S&P 500. Right now, the S&P has officially broken below both the 50-day and 200-day moving averages. This is clear sign that stocks are in a distribution phase and could be setting up to head even lower. The next area of significant support for the S&P is around the 1056 level and then at 1,044 to 1,040. If the S&P breaks below those levels I would look for a move down towards 1,010.
Here’s a look at some compelling charts that are piquing the interest of the Stockpickr community.
Stockpickr member kjp712 submitted Supervalu (SVU), a U.S.-based grocery chain that operates 2,349 traditional and hard-discount retail food stores, including 855 licensed Save-A-Lot stores.
If you take a look at the chart for Supervalu, you will see that since April of 2009, nobody wanted to buy this stock above the price of $17.50. Every time the stock traded up towards that level it was meet with heavy selling that would push the stock down considerably. Some of that heavy selling is probably coming from the shorts that make up 10% of the tradable float as of July 30.
Just recently the stock bounced off of $10.40 and traded right up to the 50-day moving average, but quickly failed and was hit with heavy selling. That $10.40 area has now been breached to the downside and it looks like the stock is ready to break below $10.20. That level is significant, because it’s the last support area between this stock and the $8 area.
I think the probably of a move towards $8 a share is highly likely and I just can’t see anything from a technical standpoint that would make me want to buy this stock right now.
Stockpickr member kjp712 also submitted Elan Corporation (ELN), a neuroscience-based biotechnology company that operates primarily in Ireland and the United States.
This stock formed a double-top chart pattern back in May when it failed to move higher after hitting $8.24 a share. Since that double top was formed, the stock has been absolutely hammered losing over 30% in value. Shares of Elan have now broken below the 50-day moving average of $4.91 and look ready to test the next area of significant support.
That support level is currently at around $4.65 to $4.44 a share. It’s possible that down at these support levels the stock could be setting up for a fantastic buying opportunity. I would definitely want to see the selling volume dry up and the stock to possibly move into a sideways trading pattern that clearly puts an end to the recent downtrend.
However, if the stock fails to hold those levels, it could return back to its 2005 lows when the stock traded in the mid-$3s.
Stockpickr member husky20 submitted Motorola (MOT). This company offers technologies, products, and services for mobile communications worldwide.
Shares of Motorola are trading right into both the 50-day and 200-day moving averages which are exactly the same price of $7.41 a share. Market players who are looking to play this stock should keep a close eye on a potential moving average crossover that could be setting up to occur at current levels.
If the shorter faster moving average (50-day) crosses over the longer slower moving average (200-day) it is usually considered a bullish crossover. When the 200-day moving average crosses over the 50-day moving average that is usually considered a bearish crossover.
Right now it looks like Motorola is setting up for a bullish crossover. If the stock does indeed run higher, I would want to see shares take out the heavy resistance around $8 a share and make a run at the next area of significant overhead resistance at around $9.50.
However, if a rally doesn’t materialize off of the crossover, Motorola still has a lot of solid support down around the mid-$6s.