Digital currencies have caught most investors off-guard. Are they here to stay or just another beanie baby investment fad?
Ensco
The third attempt and failure by ESV to breakout in the first quarter of this year marked “the top” as the stock went on to fall more than 65%, peak to trough. With its fortunes tied to the price of crude, as an oil services company it was no wonder its price was hammered. With the price of oil now stabilizing between $50-$60/bbl, it would seem ESV shares may have a chance to move higher and allow investors a path to profits.
Steep sell-offs can sometimes create very profitable money making opportunities. The problem is sell-offs, especially as sharp as this has been, are rarely done to healthy and viable companies. In other words, there is a reason the price just fell off a cliff and unless you know what you are doing, it’s best not to try and catch a falling knife. But if one were so inclined and because any investment at these levels would be considered going against the current trend (on my timeframe), minimization of risk via tight stops and smaller position size would be a prudent consideration. After forming positive RSI momentum divergence at the same time finding a bottom in August, price has formed a higher high and higher low, the first step required for a reversal. Additionally, an inverse head and shoulders reversal pattern with an upward sloping neckline has formed. With price currently sitting just below the neckline, a break and hold above it would signal the pattern is in play and points to a pattern target at April’s high, T1.
By no means is ESV a perfect setup. Price still is below a falling 200 day moving average and as such any move higher will likely be met with choppy action. In addition, its stock price is directly tied to the price of oil, which adds additional layers of risk and highly subject to the vagaries of geopolitics, something I would prefer to avoid.
July 2017 Charts on the Move Video
With the markets and investors apparently lulled into a bullish induced coma (not unlike what happens to Homer Simpson when he sees doughnuts), seasonality tells us to expect more of the same for August. Instead with the extreme levels of complacency, extended price levels, this would be an ideal time for investors to revisit their management plans ... justin case.
My July highlights in the video link below.
Amazon as a Verb
WW Grainger, a company who has been around since 1927 serving more than 3 million customer has increased revenues and dividends for 45 years straight. They act as a distributor (mostly) to businesses providing products, inventory management and support. In spite of their success and glorious history, their stock, GWW, has been hit hard losing more than 35% since the start of the year. Back in April during the elevator down decline, you can see what looks like capitulatory volume as it almost 4x the weekly average. In case its not clear, capitulatory volume is where a very large amount of investor throw in the towel and sell their stock. This was eventually followed by a short, reflexive counter-trend bounce and then increased selling pressure taking the stock lower. This is a pattern that repeats so it is worthwhile recognizing what is likely to happen next as it eventually will present an investment opportunity. Since we are approaching a critical support area, I would expect buyers to step in and the stock to find a bottom in the coming weeks. This bottom will likely form positive momentum divergence and provide the opportunity for at least a tradeable bounce due to how far we are below the red 200 day moving average. When looking for opportunities we cannot forget one of the most powerful investment forces, reversion to the mean.
While I try not to spend too much time on the “why’s” because they will only be known for certain in the rear view mirror. WWG’s recent demise, as far as I can tell, has been nothing more than investors fear that Amazon has them in their sites and and eventually put them out of business. As in the company is being "Amazoned”. Because of this ongoing phenomenon I am officially adding Amazon to my list of businesses or products that become so successful they are used as nouns and/or verbs.
I am going to stop this post here as I have to get some “Kleenex” to wipe off the “White Out” that I spilled while “Jet Skiing” in my “Jacuzzi” on my way to “Xerox” a paper and "Skype" a friend.
The Wall of Worry
It is said the stock market climbs a “wall of worry”. This expression was coined in the 1950's and depicts a sustained stock market rise during a time of economic, financial or political stress in which stock prices are said to be ascending a "wall of worry". What greater stress is there than having a nuclear-armed, narcissistic nutcase as your nearest northern neighbor?
It appears as if South Korea has been able to overcome this wall as you can see in my chart of their stock market ETF proxy, EWY, below. It had been trapped in a huge 7 year, 35% sideways range, going nowhere offering buy and hold investors little to no stock market gains. But all that may have changed 3 short weeks ago.
As you can see, price gapped above long term resistance on more than a 50% increase in volume (lower pane) on the breakout which also pushed momentum (upper pane) into the bullish territory for the first time in many, many years. This is all very constructive and opens the door for additional and possibly significant future gains.
Even with the very positive outlook the charts are telling us as a backdrop, do your inner spidey-senses continue to tingle knowing you could be one bad hair day away from “a merciless sacred war” that will turn Seoul into “a sea of fire” or “reduce it to ruins with weapons of absolute justice”? If this were to happen I would guess it just might be one wall their stock market might not be able to climb. I don’t know about you but for now I am going to err on the side of caution and watch this all unfold from the sidelines in spite of the opportunities it presents.