Silver Consolidating - Preparing to Move Higher?

A quick look at silver's daily and weekly chart (weekly of the silver etf, SLV, shown below) shows it is clearly consolidating in a cup-like basing pattern.

Commodities exhibit the same characteristics in their technical action as stocks. I have purchased commodity etf's in the past on break outs of bases, and I'm considering doing it again with SLV or GLD if they move higher and clear their recent highs, or if they form handles to their cups.

There are a number of fundamental drivers behind both gold and silver's big moves lately, and these haven't changed much. Combine that with their chart action and you have a potential formula for success.

NOG Breaks Out Monday, Reverses Tuesday

It’s not often I buy a stock on the AMEX, but you may have noticed that some oil groups have done well lately, but not all. When looking at IBD’s industry groups, which breaks down the groups into more specific plays, and which makes better sense than using the broader groups others use, you will see Oil & Gas US Exploration and Production is one of the top groups lately.


One super stock, GPOR, broke out recently, just as the turmoil in Egypt starting hitting critical mass. I missed it. So, I kept an eye on Northern Oil & Gas, Inc (NOG). A significant part of a stock’s move is determined by its industry group, so it’s always best to buy leading stocks that come from hot groups, particularly groups with other top notch stocks in terms of fundamental strength and product or service the company sells.

NOG broke out Monday, I bought it, then it slammed into reverse during today’s sell-off. This happens sometimes with breakout stocks. How do you know when they need to be dumped? Stick with your sell rules – if it falls 8% below your buy point, wave goodbye and move on. This hasn’t happened yet with NOG.

Today’s action put NOG just below the buy point and volume came in slightly below the break out’s volume. Not a sell signal yet, but a signal that raises concern, especially given the 4.5% drop in price.

Will certain oil stocks continue to be hot? Who knows. Just use price and volume action as your clue. At this point, I’m suddenly not as hot on the group.

DE in Buying Range: But Earnings Due This Week

Agriculture powerhouse Deere & Co. (DE) recently broke out of a 3-week’s tight pattern and is still in buying range. DE offers solid fundamentals as farmers have extra cash and a reason to buy new farming equipment.


The entire agriculture complex has been moving of late with food commodity prices soaring for a number of reasons from shortages in some countries to world growth rebounding.

DE has naturally been a beneficiary of this as farmers need equipment to take advantage of the situation and get as much out of it as they can, as soon as they can. As noted above, farmers have quite a bit of free cash sitting around that many analysts have noted is being put to use in new purchases.

DE’s bottom line shows this as its recent earnings and sales have soared.

DE is not some new hot shot company that could grow several hundred times over in a short period of time. With the conditions currently right for it, however, DE is seeing and is likely to continue to see excellent near-term growth.

DE is currently about 3.7% above its most recent buy point. On the weekly chart below, you can see where it pushed higher from three tight weekly closes in a row. The daily chart shows volume coming in on that day’s push higher above the 3 week’s tight buy point, showing conviction in the move.

Keep in mind, DE reports earnings Wednesday. While it has beat earnings expectations 7 quarters in a row, it is worth noting that Jim Cramer, host of CNBC’s Mad Money, pointed out the stock itself has not done well after earnings reports, selling off more than it has rallied.

Technically speaking, DE’s chart shows a steady move higher. When it has pulled back, it hasn’t been much. Also, when it’s pushed higher, the moves haven’t been huge either. This is a classic steady-eddie that just grinds higher.

I did buy some recently and made money on it and got out. I also bought some more last week, but may take my so far small profits and wait, as Cramer suggests, until after the report to consider getting back it, if I do at all. I like to concentrate my money on the stocks that show a potential for going higher, faster.

 

PCLN in Buying Range

Priceline broke out of a flat base over four weeks ago and promptly traded sideways. This sideways action was exceptionally tight, with only a 6% difference between the top of the pattern and the bottom, and constituted a new, smaller base.


This behavior is constructive and constituted a base-one-base pattern, which can be very powerful consolidations. They indicate big institutional money isn’t selling, but rather supporting the stock in a tight range, storing up energy for another move higher.

Sure enough, PCLN broke out of this pattern last Wednesday and is only about 2.8% above the buy point. I bought PCLN upon its earlier break out, almost five weeks ago. I purchased a call option in it, and thanks to the strange dynamics of time decay, I’m actually down in the option even though I was right in thinking PCLN would go higher.

If you consider taking a stab at PCLN, which is in buy range, know that it’s earnings report is next week. Many traders prefer a nice cushion in a stock before earnings. I’m not always so cautious as I believe a break out on strong volume from a sound basing pattern of a fundamentally strong stock is confirmation enough.

I do confess, it’s always nice to have good amount of profit in a stock going in to earnings.

The chart images are provided by www.freestockcharts.com, which is a great resource. It provides real time data. For researching and planning my stock purchases, I use IBD’s Market Smith package, but they do not let me post their charts online. The arrows on the charts designate PCLN’s breakouts.

CMG: Breaking Out?

First off, pardon the long interruption in postings. I'm still determining the usefullness of posting ideas from the IBD meetup group.

Today, CMG is in the spotlight. It beat earnings yesterday and was up 8% after horus. I wanted to buy this stock, hoping for some kind of brief pullback since being up 8% from yesterday's close would put it well above it's buy point of $262.88 of a cup without handle.

What I got was something I did not expect at all.

I set my alarm clock, got up 35 minute ago as I write tihs and set up my stock charts and screens and anticipated a launch out of its chart and.... CMG was down about 4%!!

So what happened? I quickly checked news reports and saw an analyst had actually downgraded CMG.

This is a good real world, real time scenario of a truly unique event. What does one do?

I toggled my screen to a 5 minute chart to watch the real time price action from http://www.freestockcharts.com/ and waited. As I did this, I opened my E-Trade account to get some pricing on the stock as well and time an entry if CMG reversed.

First five minutes, CMG still down....next five minutes, it went positive, finishing the 5 minute chart just below its buy point. Then the 3rd 5 minute bar showed a spike above the buy point and a quick dash back below it. Volume was already clocking in at over 1.5 million shares, demonstrating volume was there.

So, I decided the market had made up its mind and is kicking the analyst asside, at least for now. Therefore, I jumped in and bought some CMG around $262.92, right near the buy point.

You can watch this play out today right now. I will attempt to post a 5 minute chart from 7:14am.... as usual, this is not a recommendation to buy, just pointing out that CMG is currently breaking out and is still within an IBD style buy range.

Other stocks I'll cover shortly include: Priceline (PCLN), John Deere (DE) and Netflix (NFLX).

Five Minute is Above, Daily is Below