Will Global Conflicts Stall Stocks or Will They Melt Up?

06/16/2014 11:00 am EST


Thomas Aspray

, Professional Trader & Analyst

Although the geopolitical turmoil dominating last week's headlines has made the financial press increasingly nervous about this bull market, MoneyShow's Tom Aspray says the technical studies suggest that last week's loss is nothing but a normal correction within an uptrend.

The major averages gave up ground last week, which has not helped to alleviate investor confusion. A recent poll of sophisticated investors revealed that 52% thought the market would move higher in the next month while 48% thought it would move lower.

The financial press seems to be also hedging their bets as the Wall Street Journal featured one article that focused on how the high crude oil price and the surprising primary loss of Eric Cantor were increasing investor uncertainty. This uptick in skepticism over the recent stock market rally is keeping investors from buying now.

The next article wondered Could Stocks Melt Up and reported that a number of money managers would start to lower their exposure if stocks suddenly surged further to the upside. The proposed catalyst for such a rally would be panic buying by those who were afraid they were going to be left behind. Many have concluded that a period of consolidation would be best for the market.

The technical outlook from Friday's Week Ahead column suggests that last week's decline was just a correction within an uptrend that should set the stage for further gains. As for a period of consolidation, it has already occurred. The Spyder Trust (SPY) completed its 10-week trading range on May 27 with measured upside targets in the $198 area.

Crude oil's breakout indicates it can still move higher and the seasonal outlook allows for crude to stay strong for a few more months. Let's look at crude oil and two energy stocks, which also look attractive if bought at the right price.

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Chart Analysis: The weekly chart of the continuous crude oil contract shows that is closed well above resistance,
line a, last week.

  • The prior trading range, lines a and b, has upside targets in the $109-$111 area.
  • The monthly projected pivot resistance for May has been reached with the tentative resistance for July at $111.52.
  • The yearly chart analysis reveals that the 2012 high was $110.55 with the 2011 high at $114.83.
  • The seasonal analysis I noted early in the year shows that crude oil typically bottoms in February (line 2).
  • The rally generally extends into the summer months with the seasonal trend dropping below its 21-week WMA on September 20.
  • The weekly OBV (not shown) has confirmed the upside breakout as it has moved well above its previous highs.
  • There is first good support now in the $105-$106 area.
  • The midpoint of last week's range in the August contract is in the $104.50 area.

In last week's look inside the key sector ETFs, I looked at Chevron Corporation (CVX), which had a positive monthly outlook but the weekly studies did allow for a further pullback. Instead CVX accelerated to the upside last week signaling that the correction was over.

  • The weekly chart shows that major resistance, line c, was overcome six weeks ago.
  • The pullback held the support in the $122 area before last week's strong close.
  • The broad trading range in CVX, lines a and b, has upside targets in the $138-$141 area.
  • The weekly OBV broke its downtrend, line e, in the middle of April after forming a bullish setup (see circle).
  • The weekly OBV made further new highs last week, which confirmed the price action.
  • The daily technical studies for Chevron Corporation (CVX) turned positive late last week.
  • CVX closed at its daily starc+ band with the weekly now at $130.80.
  • There is initial support now in the $125.50-$126 area.
  • The daily relative performance formed higher lows, line d, and then moved above its WMA.
  • A move in the RS through its downtrend, line c, would signal it is a market leader.
  • The volume late last week was strong and the OBV has moved above its WMA and the downtrend, line e.
  • The 20-day EMA is at $124.26 with the recent correction lows at $121.70.

NEXT PAGE: One More Stock to Watch


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Vanguard Natural Resources (VNR) is a $2.5 billion dollar oil and gas exploration company that has a whopping yield of 8.4%. Its current ratio of 0.71 suggests that the dividend is not totally safe.

  • Last week's strong weekly close makes the next upside target at the monthly projected pivot resistance at $31.61 with the quarterly at $31.91.
  • The weekly starc+ band is at $32.23.
  • The weekly relative performance has turned up from support at line h.
  • A move through the resistance at line g is needed to signal that it is a market leader.
  • The weekly OBV has broken the downtrend, line i, that goes back to the early 2013 highs.
  • The OBV is above its WMA and has formed a pattern of higher lows.
  • VNR has monthly pivot support at $30.33 with the rising 20-week WMA at $30.11.
  • The early May low is at $29.69 while the quarterly pivot is at $29.38.

What it Means: Both the Select Sector SPDR Energy ETF (XLE) and SPDR S&P Oil & Gas Exploration & Production (XOP) are overextended as both are getting much closer to their weekly setbacks.

Chevron Corporation (CVX) is one of the top energy companies but needs to pull back in order to provide a reasonable entry point.

I also like the technical action in Vanguard Natural Resources (VNR) but the high yield indicates a higher risk, so longs in this stock will need to be watched closely.

How to Profit: For Chevron Corporation (CVX), go 50% long at $125.86 and 50% long at $124.66, with a stop at $121.47 (risk of approx.3%).

For Vanguard Natural Resources (VNR), go 50% long at $30.76 and 50% long at $30.37, with a stop at $29.12 (risk of approx.4.7%).

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