3 for the Bulls

We are in interesting times. No matter where you look, most charts of stocks are screaming “buy me”. Far be it from me to fight the trend, so I thought I would devote this post to 3 bullish charts which are setting up to break out of short term consolidation to the upside. Why 3? I wanted to provide an example of a stock at the bottom, middle and top of their longer-term charts.

Let’s take a look at a bottom feeder first, Chipotle Mexican Grill (CMG). Anyone following Chipotle’s multiple catastrophic PR nightmares over the past two to three years won’t be surprised to see their stock off 65% from its prior highs.  But it looks as if it may be ready to turn things around. With bullish RSI momentum divergence and price forming an inverse head and shoulders bottom reversal pattern, a break out and hold above the neckline would present a compelling investment opportunity. The pattern projects to a ~25+% upside target (around the 415-420 range) if it were to follow through.

My second chart is that of Pretium Resources, PVG. As you can see its stock has been consolidating since June of 2016, stuck in a box, its bottom at $7 and top at $12. In addition to the longer-term rectangle pattern, it recently has also formed a bullish cup and handle. Having a bullish shorter-term pattern develop within a longer-term pattern is not unusual and if triggers, increases the probabilities of it meeting either one or both targets. The more conservative cup and handle target projects to a 30% rise while a breakout from the larger rectangle, points to a healthy move near prior 2012 highs some 40% higher. This one has my interest.

My last chart is one that is familiar to everyone, Apple. Its price currently sits at all-time highs but it looks like it’s not done. Like PVG above as it has formed a rectangle and is trying to breakout to the upside. The projections for this pattern if it were to break and hold would, based upon the conservative target, push Apple’s stock price up 8%, while the more extreme target would see Apple test $300, some 17% from where it closed on Friday.

Each of the above stock’s charts have formed bullish patterns using classic charting techniques as defined in the TA bible, “Technical Analysis and Stock Market Profits” by Richard Schabacker. While there are never any guarantees when investing, I find those opportunities that conform to the rules outlined in Schabacker’s book have a much higher probability of success.

Dubbya Bottom

Back in July of last year I wrote about the W bottom pattern that had formed in Vietnam’s stock market ( “Good morning, Vietnam”). It occurred after a long one and half year downtrend that was followed by a one and half year sideways consolidation potential bottom.  At the time I mentioned that If it broke out above the upper blue resistance line and held, it suggested an upside target of $18, a 20% move higher. The chart I posted at that time was:

Fast forward 6 months and I am happy to report VNM closed at $18 yesterday as you can see in the updated chart below. 

As always, when our targets are met we have to ask, “what now?” My investing rules are such that if my upside target is achieved, I am required to sell at least half of the position. In the case of VNM, because the chart still looks constructive and there appears to be more room to the upside (2014 prior highs near $21 is the next target), an investor should consider selling just ½ and letting the rest run. Of course, each person needs to make those decisions based upon their own risk tolerance. If you decide to hang on to some shares, be aware you will need to give it some room to wiggle as it is currently very overbought and due for a pullback/consolidation before a big move higher can occur. For those that are watching and wishing, do not chase, the next opportunity is just around the corner

December 2017 Charts on the Move Video

I do a quick recap on 2017 and take a look at what 2018 will likely bring for investors in this months Charts on the Move video.

https://youtu.be/KrBsM59DhM8

It's Coming, Are You Ready?

Automation may wipe out 1/3 of America’s workforce

In a new study that is optimistic about automation yet stark in its appraisal of the challenge ahead, McKinsey says massive government intervention will be required to hold societies together against the ravages of labor disruption over the next 13 years. Up to 800 million people—including a third of the work force in the U.S. and Germany—will be made jobless by 2030, the study says.

The bottom line: The economy of most countries will eventually replace the lost jobs, the study says, but many of the unemployed will need considerable help to shift to new work, and salaries could continue to flatline. "It's a Marshall Plan size of task," Michael Chui, lead author of the McKinsey report.

In the eight-month study, the McKinsey Global Institute, the firm's think tank, found that almost half of those thrown out of work—375 million people, comprising 14% of the global work force—will have to find entirely new occupations, since their old one will either no longer exist or need far fewer workers. Chinese will have the highest such absolute numbers—100 million people changing occupations, or 12% of the country's 2030 work force.

The details:

• Up to 30% of the hours worked globally may be automated by 2030.
• The transition compares to the U.S. shift from a largely agricultural to an industrial-services economy in the early 1900s forward. But this time, it's not young people leaving farms, but mid-career workers who need new skills. "There are few precedents in which societies have successfully retrained such large numbers of people," the report says, and that is the key question: how do you retrain people in their 30s, 40s and 50s for entirely new professions?
• Just as they are now, wages may still not be sufficient for a middle-class standard of living. But "a healthy consumer class is essential for both economic growth and social stability," the report says. The U.S. should therefore consider income supplement programs, to establish a bottom-line standard of living.
• Whether the transition to a far more automated society goes smoothly rests almost entirely "on the choices we make," Chui said. For example, wages can be exacerbated or improved. Chui recommended "more investment in infrastructure, and that those workers be paid a middle wage."
• Do not attempt to slow the rollout of AI and robotization, the report urged, but instead accelerate it, because a slowdown "would curtail the contributions that these technologies make to business dynamism and economic growth."

For Gold Bulls the Disappointment Continues

As you can see in the ratio chart (middle pane) below that gold’s out-performance against the SP500 came to an end in 2012 when the ratio broke both the upper red horizontal and blue uptrend line simultaneously. Since that time the SP500 has been kicking tail as it has outperformed gold by ~45%.  We can also see that the ratio has been consolidating sideways since 2015, bouncing between the upper and lower channel providing gold bulls hope a turnaround was in the cards.  Unfortunately, it was not to be as you can see support finally gave way to the down side last month.  

Ratio charts are a great way to view relative performance but ultimately help decide which to commit your investment capital to (assuming achieving the best returns are what you desire). In the choice between gold or stocks, the chart is sending a strong message that stocks are the place to be. Like all trends this will eventually change, but until then there is no reason at this time to be (over)exposed to gold.