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What Do BAC, AMGN, ESRX, & RHT Have in Common?
05/02/2014 10:45 am EST
While doji formations are typically seen as a sign of indecision, MoneyShow's Tom Aspray found that one analyst' s unique application of these patterns can help identify tops or bottoms. Here, he identifies four stocks that are currently displaying this pattern.
Stocks had a quiet session ahead of today’s monthly jobs report with slight losses in the Dow Industrials and S&P 500 while the Dow Transports gained 0.61%. The market seemed to pay little attention to either the better-than-expected economic data or the apparent heightening of tensions in Ukraine. Many of the major averages did form dojis on Thursday, a candle formation that suggests indecision.
On the big board, the A/D ratios were slightly positive but they were slightly negative on the Nasdaq Composite. Though the A/D lines continue to look strong, the McClellan oscillator at +48 may be losing upside momentum. Several analysts are turning more bearish on the stock market and individual investors became a bit more cautious this week as the bullish % dropped from 34.5% to 29.77%. This is a positive for the market.
Now that a new month has started, it is a good time to look at the monthly charts, which many analysts find very informative. For example, the creator of the low close doji candle chart formation, John Person, sent me a list of those stocks that had triggered monthly low close dojis at the end of April.
I have found this to be one of the most valuable candle chart formations as I noted in A Candle Trigger For Market Tops. One stock that looks especially vulnerable, says John, is Bank of America (BAC), and I have selected three other stocks from his list that you should examine more closely if they are part of your portfolio.
Chart Analysis: The monthly chart of Bank of America (BAC) shows that a doji was formed in February (see arrow). The stock made a new high the following month but closed below the doji low of $16.12 at the end of April.
- Of course, the stock is down sharply this week after a $4 billion accounting mistake was revealed on Monday.
- BAC closed below its quarterly pivot on April 4 and has since dropped 9.4%.
- The stock is now below the quarterly S2 support with the 20-month EMA now at $13.79.
- The long-term monthly uptrend, line a, is now in the $12 area.
- The monthly relative performance had been above its WMA since October 2012 but has now closed below it.
- The monthly on-balance volume (OBV) has been diverging from prices since early in 2013, line c.
- The weekly AOT (not shown) triggered a sell signal on April 25 and warned of the recent plunge.
- For May, the monthly pivot and initial resistance is at $15.80 with the 20-week EMA at $16.12.
Amgen Inc. (AMGN) formed a doji in March (see arrow) and closed April at $111.75, which was well below the doji low of $118.56.
- The stock is now approaching its long-term uptrend (line d) with its 20-month EMA a bit lower at $103.25.
- AMGN also closed below its quarterly pivot on April 4.
- The monthly relative performance made its high in late 2013 and formed a negative divergence, line e, in early 2014.
- The RS line has dropped well below its WMA and is now close to the more important support at line f.
- The OBV did make a slight new high in 2014 and has now dropped back to its WMA.
- The weekly OBV (not shown) has turned up but it well below its flattening WMA.
- The monthly pivot is at $115.75 with the declining 20-week EMA at $116.75, so this is an area of strong resistance.
NEXT PAGE: 2 More Stocks with LCD Signal|pagebreak|
Express Scripts, Inc. (ESRX) dropped 6.2% on Wednesday as its earnings and revenue both missed while providing negative guidance. The stocks formed a doji in February and March.
- ESRX closed April at $66.58, which was well below February’s doji lows of $72.68.
- The 20-month EMA is at $64.40 with the uptrend, line a, in the $57 area.
- The relative performance peaked in 2010 forming lower highs in both 2012 and 2014, line b.
- The April close in the RS line below the support at line c confirmed the divergence.
- The monthly OBV does look much stronger as it made a new high with prices in 2014 and is still above its rising WMA.
- The weekly OBV (not shown) broke below support in the latter part of March and has formed a series of lower lows.
- Volume of over 20 million shares on Wednesday was four times the daily average.
- There is gap resistance in the $66.72 to $70 with the monthly pivot at $69.14.
- The quarterly pivot is at $74.69.
Red Hat, Inc. (RHT) triggered a LCD in May 2012 (see circle) and drifted lower for the next 16 months. The stock bounced in late 2013 and early 2014.
- A monthly doji was formed in January with a low of $54.90.
- The March close of 51.80 triggered the low close doji sell signal and RHT has dropped 6% since.
- The monthly chart shows an apparent double top formation, line e.
- A monthly close below the support at $41.89 would complete the top with downside targets in the $21-$24 area.
- May’s monthly projected pivot support is at $43.53 as RHT closed April below its 20-month EMA.
- The relative performance broke over three-year support, line g, in September 2012.
- The RS line shows a well established downtrend, line h, that was tested in early 2014.
- The monthly OBV violated its support, line i, in early 2013 and dropped below its WMA the following month.
- The lower highs in the OBV, line j, support the double top scenario as if it were a continuation pattern the OBV should be acting stronger.
- The monthly pivot is at $50.01 with the declining 20-week EMA at $52.75.
- The high in April was $53.93.
What It Means: Both of John Person’s high and low close doji candle formations can be used on any time frame. Like most analytical methods, monthly signals are more important than weekly or daily.
As I noted in the March 14 Week Ahead column, the PowerShares QQQ triggered a LCD sell signal with its close at $88.47. Two weeks ago, it had a low of $83.38 and I recommended long positions on April 25.
Therefore, these signals do make a further decline likely, so investors should take note.
How to Profit: No new recommendation
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