From the desk of Thomas Bruni @BruniCharting
Twitter has been a disaster of a stock for the majority of its time as a public company, but recent price action suggests a tradable bottom may be in on an absolute and relative basis.
Before getting into the price action, it’s worth acknowledging the continued deterioration in sentiment regarding this stock in recent months. I’ve been negative on the stock for a while, but with the downside targets I outlined here being met, I don’t see a reason to be overly pessimistic on the stock at current levels. With price action improving in the face of another poor earnings report and another slew of analyst downgrades, it appears, at least anecdotally, that sentiment is overly bearish in this name.
With sentiment suggesting a neutral/bullish stance is appropriate, let’s see what price is indicating.
On the daily chart spanning back to last August I outlined the relevant downside targets for the intermediate term. As my notes indicate, the stock recently met both the tactical and structural downside price targets of 14.30 and 13.15 respectively, and quickly reversed. The day following its earnings report the stock opened, and managed to close well above, the after-hours lows and followed through with an 11% move to the upside on Friday.
From the desk of Thomas Bruni @BruniCharting
Regardless of how strong their brand may be, Disney continues to remain correlated to the S&P 500, as most stocks do during a bear market, and remains in a downtrend. Despite the neutral to bearish structural picture, the stock looks to be setting up for a tactical bounce in the coming weeks.
Structurally the stock remains range bound between 90 and the all-time highs at 122. During this recent selloff, prices retested the uptrend line from the 2009 lows, which also corresponded with the 38.2% retracement of the 2011-2015 rally. I don’t believe in triple bottoms, and although this is the third time testing the $90 level, current evidence suggests the stock can stage a counter-trend rally before continuing to the downside.
From the desk of Tom Bruni @brunicharting
South Africa ETF To Rally 25%?
With global equity markets looking poised for a tactical bounce in the week(s) ahead, one market in particular looks ripe for a potential squeeze higher.
South Africa has been in a strong downtrend since breaking down from a symmetrical triangle late last August. Selling quickly accelerated after a major support level near 51-52 broke shortly after the breakdown from, and retest of, the symmetrical triangle. Last week prices traded through another major support level near 40 and swiftly reversed to close the week back above it while momentum diverged positively.
Although the main structural downside target lies near 32, current conditions suggest a counter-trend rally may be in the cards. As long as this failed breakdown holds, prices look like they could retest the broken support level near 51, which also corresponds with the 38.2% retracement of the 2015-2016 decline and the downtrend line from the 2015 highs.
With oil prices bouncing nearly 20% off of last Wednesday’s lows, many are once again asking whether or not the bottom in Oil is truly in. My answer to that is simple: “A” bottom is in. Whether or not it is “The” bottom in oil will only be obvious in hindsight.
With prices roughly 58% from their 200 day moving average and public pessimism at levels not seen since 1998, the occurrence of a counter-trend rally is far from surprising. As history has shown us, some of the fiercest rallies occur during bear markets, of which Crude Oil most certainly remains.
With that being said, let’s look at where oil prices are currently indicating this market could be headed… assuming “a” bottom in oil is in.
From a structural perspective Crude oil remains in a strong downtrend and continues to be a “sell-strength” type environment. What’s important on the weekly chart is the potential failed breakdown below the 2009 lows that is setting up. Prices made new lows last week and quickly reversed with momentum putting in a bullish divergence on multiple time-frames. Prices also remain extended from the downtrend line drawn from the October 2014 highs, suggesting that if prices can close back above the broken support from the 2009 lows, the mean reversion in this market could accelerate and possibly retest that downtrend line. Some big “ifs” currently.
Crude Oil – Weekly Chart
This is a great piece from the desk of Tom Bruni @brunicharting
Approaching Tactical Bounces In Bear Markets
During market corrections, correlations tend to go to one across asset classes, but more specifically global equity markets tend to move together. Throughout the global equity markets and U.S. sectors I follow, many tactical downside targets were met with momentum diverging positively, suggesting a relief-rally may occur over the next few weeks. Many of these markets followed up their mid-week reversals with follow through to end the week, which adds to the case for additional upside over the short-term. It’s important to realize though that most of these moves are occurring within the context of structural downtrends / bear markets, which means this bounce is just that for the time being. Significantly more time will be needed to repair the long-term structural damage these markets have experienced.
How you approach this type of scenario will depend on your plan as a market participant, but for me it really boils down to two main scenarios. Either you can choose to take tactical long positions to capitalize on these bounces, or you can simply wait for them to play out and re-enter on the short side at higher levels. Some people will do both, others may do something different altogether.
If you’re looking to participate in these counter-trend rallies, how do you figure out what’s the best way to express the theme of counter-trend rallies occurring throughout the global equity markets when almost everything seems to participate in one capacity or another?
I’m sure there are a million schools of thought on this, but for me, I like to look for stocks / sectors / markets where the risk is well defined and the weight of evidence suggests that the probability of a bounce is high, relative to the other setups out there. I find that this occurs most often in names that have found support at levels where both structural and tactical downside targets were hit, with momentum diverging on multiple time frames. This means often passing on the more beaten down sectors where mean reversion could occur in rip-your-face-off fashion, in favor of a trade where the weight of evidence suggests there is a higher probability of success, but less potential reward. Some may be comfortable taking the lower probability trade in exchange for a higher potential reward, but I tend to lean toward what I view as higher probability trades.
To illustrate exactly what I’m talking about, I’ll outline an example of each from the current market environment. I’ll also list a few other names I’m watching / doing more work on toward the end of the post, but won’t post the charts of them here for the sake of space.