Today’s analysis is simple and involves two exponential moving averages, the 13 and 23 day lines on the daily chart.  The signal we’re looking for are crossovers of the 13 day average either up through the 23 (bullish) or down through it (bearish).   The chart shows the wonderful signals this indicator has produced.

We sit on the cusp of a bearish cross right now.  What will your next move be?  The odds say go to a safe haven vehicle like cash or bonds for now to preserve your capital.

Good luck!

After a huge pullback late spring and through most of the summer, the S&P 500 staged an incredible rally in the month of October.

Then, the past couple of weeks has brought an increase in volatility as more bad news emerged out of Europe, specifically Greece and Italy.  The DOW lost 400 points earlier this week. Bears were salivating…

However, Government shakeups happened in those two countries and Italy has accepted an austerity package.

Notice below how this is shaking out on the chart.

The October rally represents the dominant trend.  The recent volatility has formed a symmetrical triangle consolidation pattern.  Although symmetrical triangles can break in either direction, they are usually continuation patterns of the dominant trend.  The dominant trend is up.  Also notice we’re currently above the 50 and 200 day moving averages, and also the 13 day EMA. These are all very bullish signals.

I look for run to S&P 1370 by year’s end unless something horrible happens in Europe between now and then.

Also, remember there are lots and lots of fund managers that have bonus money riding on end of the year rallies.

All the major indices are now in bear market territory.

But stocks don’t go straight down right?  Absolutely not!  Some of the best rallies occur during bear markets. But with extreme fear and volatility being every day occurences over the past few weeks, when is a good time to dip your toe in the water and buy?

Major Chart Patterns Repeat

To answer the above questions, we need to look back at late 2007, early 2008 at a very similar time in terms of how the charts look.  In early 2008 (see chart) the 200 day moving average (blue line) crossed below the 200 day moving average (red line).  Also (and very key), the 200 day moving average changed from an upsloping line, to a flat line.  This is EXACTLY the pattern we have in the SPY right now.

13 DAY EMA METHOD

The trading method involves the 13 day EMA.  You can buy stocks for a position trade (several days to several weeks in duration) when the 13 day EMA (green line) changes from a downward slant to an upward slant, AND the stock is trading above it.

In the chart shown, obviously we were in a vicious bear market and most money was made on the short side.  However, if you would have bought stocks using the 13 day EMA method, you would have made money each time.

BROADCOM PROFILE (BRCM)

Broadcom Corporation designs, develops, and supplies semiconductors for wired and wireless communications. It provides a portfolio of system-on-a-chip and software solutions, which enable the delivery of voice, video, data, and multimedia content to mobile devices; consumer electronics devices in the home; and business networking products for the workplace, data centers, service providers, and carriers.

It markets and sells its products through direct sales force, distributors, and manufacturer’s representatives in the United States, as well as through regional offices, and a network of independent distributors and representatives in Asia, Australia, Europe, and North America. The company was founded in 1991 and is headquartered in Irvine, California.

FUNDAMENTAL TIDBITS

• Forward PE: 13.17.  This is a perfect time to grab such a high quality stock while it’s still a value play.
• Return on Equity: 22.26% (Very, Very strong in this economy)
• Operating Cash Flow (1.37 Billion) (Lots of Capital to work with)

TECHNICAL ANALYSIS FOR BRCM

Today, we are looking at a weekly candlestick chart of BRCM.  Each candle on the chart represents one trading week.  The weekly chart is PERFECT for longer term trades and investments, and boy is this one set up nicely.

Starting with the slow stochastic indicator, we can see it has finally bottomed out after 3 months of selling!  The last time the indicator was this low and rising was August 2010.  In 3-1/2 months BRCM went from $32.50 to $47.50, or a 46% GAIN!!!!  Here we are again with a perfect setup.  This indicator is rarely wrong.

Next, the news gets even better when looking at the weekly price chart.  BRCM has been in a bull trend since March of 2009.  In that time, the price has bounced off of the 50 week moving average (blue line) 5 times, with every single one producing monstrous gains.  Now, we have a 6th time. Should you buy now? YES!

Next, the MACD histogram has formed a PpP bullish reversal pattern this week. Essentially this is just a change in direction in the blue histogram bars.  This is a good signal, and we’ll look for confirmation with a close above this week’s candle over the next week or two.

Finally, we look at the ADX momentum indicator.  Although there hasn’t been a bullish +DI cross yet, the ADX line (black line) appears to be changing direction marking a change in momentum.

BOTTOM LINE:  It’s still early, but BRCM is a screaming buy here. Grab it here and put your stop below the 50 week moving average (38.41 or so).  This could easily make new highs and eclipse $47.50 over the next 2-3 months!

www.companyinvest.com

Today’s pick is a platinum miner in the metals and mining sector.  The company is Platinum Group Metals, Ltd (PLG). Platinum Group Metals Ltd. explores and develops mineral properties in Canada and South Africa, primarily platinum. It holds interests in the Western Bushveld Joint Venture, War Springs, and Tweespalk properties in South Africa; and the Agnew Lake and Lac Des Iles properties in Canada. Founded in 2000, PLG is headquartered in Vancouver, Canada.

FUNDAMENTAL TIDBITS

Trailing PE:  9.82 (Making PLG a value play)

Return on Equity: 14%

Debt: Zero!

Beta: 1.47 (Ideal for a trade)

TECHNICAL ANALYSIS FOR PLG

After an impressive bullish run in 2010, PLG has had a significant correction in early 2011.  This is good, because it is always better to find quality stocks on sale.  What is significant here about the daily candlestick price chart is PLG is in the middle of a bullish “W” formation. This pattern is also known as a double-bottom, and, when it occurs below a major moving average (200 day MA in this case), it is even more powerful, because there are short sellers sitting right above that level that will be forced to cover their shorts should PLG break the 200 day MA to the upside.  When this happens, the stock price will rocket upwards.  Another thing about “W” formations: they are more valid when the 2nd “V” (right side of “W”) is higher than the left side of the “W” (which is the case here.).  This is a very bullish pattern.  Additionally, PLG closed above the 200 day MA today.

The MACD indicator also just formed a higher low and got a bullish cross as well, which is another buy signal. And, as this happened, the histogram (blue bars) have moved above the zero line.  This confirms the MACD bullish cross.  The ADX is a favorite technical analysis indicator of mine.

Finally, the ADX momentum indicator got a bullish +DI cross today. This happens when the positive DI line (green), crosses up through the negative DI line (Red). Look for a confirming close over $2.20 to validate this buy signal.

Bottom Line:  Technical analysis for PLG is strong to the bullish side. Grab it here with a stop below the low point of the right side of the “W” (around $1.93). That way your loss will be minimal, but this pattern could easily produce a 20+% gain (challenging the $2.56 and $2.62 levels).

www.companyinvest.com

GEMS:

Ford Motor Company (F).  Company Invest entry: $14.01.   Friday close $15.16.  Up 8.21% with LOTS more upside potential.  It’s not too late to get in.  Technical analysis for this one says buy or add on the pullbacks.

Darling Industries (DAR).  A unique food processing play.  Compan Invest entry: $14.30.  Friday’s close: $15.89, 11.12% gain.  A wonderful trade.  But this one’s getting a bit overheated.  Technical analysis for DAR says take some profits and/or wait for a correction to add.

Sierra Wireless (SWIR).  Wireless internet connectivity supplier.  Good company that got punished after the last earnings report.  Company Invest entry:  $10.70.  Friday’s close:  $10.98.  2.62% gain, with LOTS of upside potential.  Like Ford, this is a longer term hold.  Technical analysis for SWIR says that this is a long term buy, but wait for a pullback to buy or add.

SCCO: Southern Copper Company.  Company Invest entry: $40.  Friday’s close: $39.84: Down 0.4%.  But this gem has way too mucn upside to ignore.  This is one where you take advantage of the correction in the copper commodity and buy this stock on sale.  This was way too good of a stock in 2010 to ignore.  Plus, with China heating up and rebuilding necessary in Japan, copper will be in high demand.

TURDS

(APWR).  A-Power.  Once again, we got stopped out with a small loss.  This one is worth taking a shot on periodically because of its incredibly high short interest.  When it pops, it will go off like a rocket.

HOV:  Homebuilder.  Housing on the verge of a double dip, if not already in one.  Stopped out of this with a small loss when the triangle broke to the downside.  Keep on your radar though, as short interest very high on this one too.

WATCH LIST

LQMT:  Liquid Metal.  Correcting bigtime right now, but when it’s ready (soon) this will be a 30%  plus gainer.

MELA:  Biotech stock.  Developed a mobile skin scanner that detects melanoma.  Awaiting FDA approval.

We’ll look at these two in later posts.
www.companyinvest.com

Current Technical Analysis for the $INDU

The 20 day Relative Stength Index (RSI) is above 50 which is the sign of a healthy, bullish market.  When the RSI is over 50 and the market is trading above its 50 day moving average (which it is now), these are very bullish conditions.

The daily candlestick price chart flashed an extremely bullish signal today.  The powerful 13/34 golden cross.  This signal hasn’t occured since September 10, 2010. If you had bought in then, you would have made 19% before then next sell signal.  This is a good signal!  Also, as earlier mentioned, the 200 day moving average is a granddaddy of health in technical analysis for the stock market.  When this line is sloping upward and the market is trading above it, it is a very bullish environment.

The MACD indicator is well above the zero line, and the MACD bullish cross is still well intact.

Finally, the ADX momentum indicator got a bullish cross three sessions ago and was confirmed the very next day.

RECENT COMPANY INVEST PICKS

Ford Motor Company (F).  This recent Company Invest pick is a dandy right now.  We have rock solid support above the 200 day moving average, and there is a stair step uptrend in place now.  This stock could have a 20%+ move over the next 4-8 weeks.

Darling Intl (DAR).  Looking very bullish was well.  It has already moved up nicely since we suggested it and all indicators are pointing to new highs above $15.50 in this stock.

A-Power Energy Generation (APWR). We suggested this stock a while back and got stopped out with a small loss.  However, there is support at the $4.50 area and this stock is a high beta play with heavy short interest, so it could rocket forward in a hurry.  It’s worth a stab here with a stop below that $4.50 support.

www.companyinvest.com

It has been quite volatile in the $SPX from the end of February until now.  There has been all kinds of unrest in the world in that short time period from the food cost riots in Egypt, to the unrest (and later military campaign) in Libya, to the disaster in Japan with the massive earthquake, AND the near nuclear meltdown.  The VIX index ($VIX) which measures volatility based on put vs. call option contracts has spiked up, then calmed way back down during that time.   In the US, we continue to run up debt and it seems like every new economic report is worse than the last (last week the New Home Sales number was the WORST on record).  Gas is nearly $4 a gallon again, unemployment is still near record highs, yet, somehow the market keeps going up.  However, we’re sitting here now still significantly below the last high made on the $SPX on February 21, 2011.  WHere do we go from here?

HISTORICAL CHART PATTERN COMPARISON

In technical analysis, particularly when looking at chart patterns, history tends to repeat itself.  For this anaysis we are going to compare the $SPX chart pattern and candlesticks of the current 3 month daily chart with a 3 month period from April to June of 2010, nearly one year ago.  You will see there are quite a few similarities.

WORLD NEWS COMPARISON

We mentioned all the global tension arising over the past month with Egypt, Libya, and Japan.   In April of 2010 we had the begining of the European debt crisis and the crash of the Euro.  There were protests throughout Europe, and countries such as Greece, Spain, and Poland’s economies were teetering on the edge.  Massive bailouts were needed to calm the enviroment.  BOTTOM LINE:  lots of global unrest during both 3 month periods.

TECHNICAL ANALYSIS FOR $SPX — CHART COMPARISONS

APRIL-JUNE 2010.  A huge bullish runup occured in the $SPX Peaking on April 23rd (See A on Chart).  Next, we had an initial large 2-day selloff that broke the 23 day Exponential Moving Average (EMA) support (See B on chart).  That was followed by 4 days of consolidation (sideways movement) (See C on chart), while the market sorted out which direction to move in. This consolidation ended with a bearish 13/23 day moving average cross (blue line below red line)  Next, we broke support from the previous low (April 26) and made a lower low as massive selling ensued, including the infamous “flash crash” (See D on chart).  Next there was a massive relief rally (see E on chart).  This was based on news of European bailouts and shorts covering their positions.  However, this relief rally would fail, as a new selloff would happen soon (see F on chart).

February 2011 through Current.  You can see an eerily similar chart pattern going on right now in the market.  January 1, 2011 through February 21, 2011 was an incredibly bullish run in the market (see A on chart).  Next we had our initial 3 day selloff (see B on chart). Notice the 23 day EMA was broken here too.  Consolidation was longer here (9 days) (See C on chart), but nevertheless, quite similar.   The consolidation ends with a bearish 13/23 day EMA cross (blue line below red) and the selloff continues (see D on chart).  Finally, we see a similary relief rally (contratrend) occuring right now (see E on the chart).  This relief rally is occuring after coalition forces moved into Libya and as the Japan situation stabilizes and again, shorts cover.

WHERE DO WE GO FROM HERE?

This is a very critical juncture for the $SPX. And the $SPX represents the entire US Stock market.  3 out of every 4 stocks moves in lock step with the $SPX.  The last candlestick printed on the $SPX is a shooting star (which is bearish).  This candle happens at the end of an uptrend.  There is a gap up and bullish momentum throughout the day, but it sells off toward the end of the session.  If we have significant down day on Monday (good sized red candle), look for the selloff to contine (like F on the first chart).  However, If the market goes up much more from here, the bearish pattern could be nullified.  Stay tuned.  Next week will be interesting.

Sector: Consumer Goods

Industry: Cleaning Products

Full Time Employees: 3,330

With commodity prices still on the rise and planting season just about underway, now seems like a good time for a food Industry selection. However, this one has a twist. Not a conventional restaurant of food producer, but one that that provides recycled and recovery solutions into the food industry. The stock pick is Darling International, Inc.

COMPANY INVEST PROFILE: DAR

Darling International Inc. provides solutions to the food industry worldwide. It operates in two segments, Rendering and Restaurant Services. The Rendering segment engages in collecting and processing animal by-products and converting these into useable oils and proteins utilized by the agricultural, leather, and oleo-chemical industries. This segment offers various products, such as meat and bone meal, and bleachable fancy tallow. The Restaurant Services segment involves in the collection of used cooking oils from food service establishments and recycling them into similar products, such as high-energy animal feed ingredients and industrial oils. This segment provides grease trap servicing; and schedules services, such as fat and bone, and used cooking oil collection, as well as trap cleaning services for contracted customers. The company primarily sells its products to producers of oleo-chemicals, soaps, pet foods, leather goods, livestock feed, and bio-fuels through commodities brokers, company agents, and directly.

FUNDAMENTAL ANALYSIS TIDBITS

FWD PE:  12.17
Qtrly Revenue Growth (yoy): 51.90%
Beta:  1.83

TECHNICAL ANALYSIS FOR DAR

Even though this stock has made quite a bullish move over the past year, it looks like now could be an opportune time for another 20% move higher.

Looking at the chart, we’ll begin the technical analysis for DAR with the ADX momentum indicator. Basic buy signals on this indicator occur when the green line +DI crosses the red line –DI to the upside. However, there is another component to this buy signal. It must be confirmed with a close above the extreme high point of the day of the cross. The cross occurred on Monday, 3/21. Confirmation of that cross took place on 3/23. It is now a confirmed buy signal.

The daily candlestick chart of DAR, although entering some resistance, has produced at “golden cross” of the 13 day Exponential Moving Average (EMA), up through the 23 day EMA. This EMA combination produces wonderful buy and sell signals when the faster moving average (red) crosses up of down through the slower EMA (green). At Company Invest, we think this move could produce a run up to the 17.55 area or so, which would be over a 20% move.

The volume bars are showing more buyers than sellers, which is confirming the other buy signals. The gray bars on up days since March 1 are taller then the red bars from down days. This show that there is buying conviction in DAR right now.

Technical analysis for DAR concludes with a look at the MACD indicator. The MACD line just got a bullish cross up through the signal line today, putting it in line with the bullish ADX and EMA signals mentioned earlier. Additionally, the MACD histogram entered positive territory for the first time since February. The MACD histogram is a wonderful leading indicator.

Bottom Line: Hope for a gap down opening on Friday morning and buy DAR on the dip. Start with a small position and a tight stop, below the 50 day moving average at around $13.48.

In this Company Invest series, we will examine the most powerful candlestick patterns.  There are 6-8 patterns we incorporate here at Company Invest.  When performing technical analysis for a stock or ETF, candlestick charting should always be considered.

One important thing to remember about candlestick charting:  No matter what the signal is, you need a confirming candle to print after the signal (either above or below where the signal print was depending on if it’s a bullish or bearish candle).  Confirming candles validate candlestick charting signals.

THE EVENING STAR REVERSAL SUMMARY

The evening star reversal is a 3-candle pattern and is one of the most powerful signals in candlestick charting.  It is a bearish reversal pattern that takes place at the end of an up move and has a very strong reliability.  The sister pattern to the evening star reversal is a morning star reversal and is a bullish signal.  We’ll examine that pattern in another post.

THE EVENING STAR REVERSAL SETUP

1. Evening Stars start with a continuation of a bullish move. The first day is normally a long white bullish candlestick.
2. The second day begins bullishly with a gap up open, however a sell-off makes the market close at or near the open for the day. The first two candles suggest a loss of bullish momentum.  Ideally, the second day’s candle will be red, although it can still be valid as a white candle as well. Just these first two candles alone are considered a bearish signal (called a shooting star).
3. However, the third candle is what really makes this candlestick charting pattern powerful. Day three a sharp sell-off after the market open. Analysts want day threes high to be near equal to its open price, suggesting the market sell-off has no uncertainty in the new direction. The day 3 Evening Star Reversal candle should be red and finish at least midway down into candle 1 to be most powerful.

TRADING THE EVENING STAR

You can trade this pattern 1 of 3 ways.

• Short the stock at the end of day 2 right before the close.  Use a tight stop just a little above the day 2 intraday high.
• Short the stock at the end of day 3, again with a stop at the day 2 high.  This is a safer entry, but you may lose a little juice from the trade also.
• Wait until the stock closes BELOW the day 3 closing (confirming candle).  This is the safest entry of all, but you may have missed out on a good part of the move.

Good luck and look for more candlestick charting patterns in coming Company Invest posts.