Are IBD's Top Four Looking Toppy?

08/06/2014 10:00 am EST


Thomas Aspray

, Professional Trader & Analyst

Despite the recent broad based selling, some stocks have still managed to hold up well, so MoneyShow’s Tom Aspray studies the charts to determine if the top four stocks from Investor’s Business Daily IBD 50 show any signs of technical weakness.

The afternoon rumors of Russian troops on Ukraine’s border squashed the stock market’s feeble rally attempt. There have been signs of technical deterioration since July 11 when I asked Should You Reconsider Buying the Dip? The market did not peak up until almost two weeks later as the Spyder Trust (SPY) made its high on July 24.

The technical studies shifted into the sell mode last week which was the real reason for last Thursday’s plunge. Even the economic data Tuesday that beat the socks off of most estimates could not support the stock market going into the close.

A lower opening is likely Wednesday as the European markets are sharply lower in early trading with the German DAX over 1.0% lower. The sharp decline in German industrial orders has put further pressure on the markets and the euro.

The good news is that the technical indicators continue to favor a sharp reflex rally in the next 3-5 days. Last week I was just looking for a 1-2 day bounce but the technical readings now suggest we could get a rebound that will last longer.

In my view, an oversold rally is likely to last long enough for the many media analysts to conclude that this was actually a dip to buy. The rebound also needs to go far enough to worry those on the short side and squeeze the late sellers. Such a rally should be followed by another wave of selling that will take the market averages below this week’s lows.

Some stocks have continued to hold up well despite the broad based selling. So what about the top four stocks from Investor’s Business Daily IBD 50? Do they show any signs of technical weakness?

Click to Enlarge

Chart Analysis: Bitauto Holdings ADR (BITA) was down 1.37% Tuesday but is still up 84.76% YTD. The Chinese company provides Internet marketing and content for the automobile industry.

  • This year, the rallies to the daily starc- bands have been followed by corrections.
  • The daily band is now at $62.16 with the quarterly projected pivot resistance at $62.49.
  • BITA bounced off the 20-day EMA last week and it is now at $54.46.
  • The monthly pivot is at $52.01 with more important chart support (lines a and b) in the $47-$48 area.
  • The daily relative performance did make a new high with prices and has been holding well above its rising WMA since early June.
  • The RS line has additional support at the uptrend, line c.
  • The daily OBV made marginal new highs on Monday, line d, but does appear to be losing some upside momentum.
  • A drop in the OBV below the recent low and the uptrend, line e, will signal a deeper correction.
  • The weekly technical studies are all positive but are currently overbought.

Trinity Industries (TRN) is a $6.8 billion manufacturer of railroad and marine products, including freight tank cars and barges.

  • TRN spiked to a high of $47.53 on July 30 as it came quite close to the monthly projected pivot resistance at $47.95.
  • TRN is currently below the monthly pivot at $44.71 as the daily uptrend, line f, is now being tested.
  • The daily starc- band is at $41.74 with the projected monthly pivot support at $41.60.
  • The more important quarterly pivot is at $40.58 and TRN has not had a weekly close below the quarterly pivot since August 2013.
  • The daily RS Line has just closed below its uptrend, line g, as it has been losing momentum for the past two weeks.
  • The daily OBV peaked on May 29 and formed lower highs last week, line h.
  • This negative divergence would be confirmed by a drop below the support at line i.
  • The weekly OBV (not shown) did confirm the recent highs.
  • The projected pivot resistance for August is at $48.57.

NEXT PAGE: Two More Investor’s Business Daily IBD 50 Stocks to Watch


Click to Enlarge

Facebook, Inc. (FB) made a new high on July 24 at $76.74 (line a), which was just above the quarterly projected pivot resistance at $76.66.

  • The weekly starc+ band was also tested and is now at $78.79.
  • The next support is now at $70.53 and so is the monthly pivot.
  • There is additional support at $68.54, which was the early July high.
  • The 20-week EMA is now at $65.54 with the weekly starc- band and support (line b) in the $60.60 area.
  • The weekly RS line moved back above its WMA in mid-June and did make a new high with prices.
  • The weekly OBV also still looks strong as it is above its WMA and the support at line e.
  • The daily OBV (not shown) closed below its WMA on Tuesday.
  • There is initial resistance at $74.17-$75.19 and a daily close above this level will signal a move to further new highs.

United Rentals, Inc. (URI) is a $10.3 billion equipment rental company that services the US, Canada, and Mexico. It is up 35.7% YTD but is down 2.9% in the last month.

  • URI dropped below its 20-day EMA and the uptrend, line g, on July 30.
  • The monthly projected pivot support is at $101.98 with further support in the $99-$100 area (line f).
  • The weekly starc- band is now in the $98.35 area.
  • The daily RS line broke its uptrend, line h, last week and a drop below the late June lows would be more negative.
  • The daily on-balance volume (OBV) did confirm the recent highs, line i.
  • The OBV dropped below its WMA last week with more important support at line j.
  • The weekly OBV (not shown) did not confirm the recent highs and could close the week below its WMA.
  • The 20-day EMA is at $108.50 with even stronger resistance in the $111.50-$112 area.

What it Means: Of the four stocks, Facebook, Inc. (FB) looks the best, followed by Bitauto Holdings ADR (BITA). Still, I think that before the market’s correction is over even the strongest stocks are likely to be hit by selling.

Intel Corp. (INTC) was one of the Dow’s most Overbought and Vulnerable stocks. It was down 3.6% on Tuesday and looks ready to decline even further.

The weekly analysis suggests that United Rentals, Inc. (URI) is the most vulnerable of the four stocks and the daily analysis of Trinity Industries (TRN) is negative.

How to Profit: No new recommendation.

Related Articles on STOCKS

Keyword Image
Top Picks in Cybersecurity
18 hours ago

Cybersecurity is an industry with exceptional potential for expansion. No computer or network today ...