Contrarian Outlook August 19, 2019 – JPMorgan chart analysis

 

Last week’s ContraGauge (CG) readings were: Monday 187, Tuesday 186.7, Wednesday 178.3, Thursday 178.3 and Friday 185.7 degrees.

The CG is attempting a small base across 180 degrees. That activity further points to a recovery by the indicator from here, as per April 2018, a move that was followed by new highs for the S&P 500. The gauge will need to strengthen for bullish confirmation. Today includes JPMorgan chart analysis and Bank of America chart analysis.

 

 

The Volatility Index last week failed at another attempt to clear its 2019 ceiling. With the MACD seemingly rolling over from resistance of its own, it appears that volatility is settling down. Another clue that equities could now rebound.

 


Indexes

The S&P 500 rallied 1.4% on Friday, though down over the week, -1%. Support is being found from the 200-day exponential moving average, with resistance overhead from the 50-day exponential moving average, a consolidation is underway between the two. The MACD has unwound to the same level as per the end of May, ahead of the June upside reassertion to new all-time highs. We continue to respect the S&P 500’s 2019 uptrend.

 

 

The Russell 2000 is the only index to have breached its end of May low. However, Thursday’s break lower, then Friday’s recovery, is overall bullish, since a 3SR is developing. The break of the low barely lasted one session but was enough to cause a shake-out through the floor of the six month range. A bullish momentum divergence on the 14-day RSI further supports the case for a recovery from here, back up towards 1600 at least.

 


Sectors

The S&P 500 Energy Index extended weakness last week, -3.9%. The chart would ideally benefit from a revisit of the low from December 2018 and for that reason we would wait for a continuation lower. A major low, in this case a 2 year low, will have magnetic attraction. However, should it breach the 2018 low and then sharply reverse, a 3SR would form. In the meantime, we would avoid longs.

The Energy P&F chart reveals a similar weak outlook over the short-term. Three Double Bottoms in-a-row; the floor of the three year range is 2 boxes away.

 

 

The S&P 500 Consumer Staples Index was the top performing major sector last week, +1.6%. The 2019 up channel is reasserting following a successful test of the 50-day exponential moving average. The MACD is across neutral, starting to turn up, just as it did in early June. The relative ratio is impressive, now trading at a 52-week high.

The Staples P&F ratio is also making the right moves, 3 box reversal up on Friday, with a new all-time high just one box away. That upside breakout would also result in a Double Top, adding to the Double Top and Low Pole already in place.

 


Contrarian Stocks

JPMorgan chart analysis, price rallied 2.4% on Friday following a mid-week sell-off. The turnaround occurred following a brief breach of the low from May 31st, resulting in a potential 3SR. Range apparent between $105 and $117. A bullish on-balance-volume divergence hints at a rally off the range floor.

The JPM chart analysis, Point & Figure, shows a retreat this month but a sell signal has so far been avoided, by one box. The general trend remains up, with the buy signal from April still in effect.

 

JPMorgan chart analysis.

JPM chart analysis of relative ratio.

 

Bank of America chart analysis, sank last week (-4.6%), also on worries stemming from the inverted yield curve. Friday saw a fight back, +3% following a failed break of the May low, a possible 3SR. The 14-day RSI is ticking up from oversold. The relative ratio has found support from December 2018. Range trade potential, back up to the range ceiling across $31.

The BAC chart P&F has held a buy signal since March, with sideways swings following since. Last week’s weakness returned trading to the floor of the 5 month range. With a sell signal just one box away, the risk-to-reward ratio is favorable for entry here.

 

Bank of America chart analysis.

BAC chart analysis - Point & Figure.

 

Walmart surged last week on results yet the chart is not overbought. The 14-day RSI has only just pushed through neutral. Coupled to a firm on-balance-volume indicator, fresh record highs are imminent. If there is short-term weakness, possibly to fill the gap created last week, we would see that as an entry window.

The WMT P&F relative chart, against the S&P 500 Consumer Staples sector, shows outperformance over the past three years. A new 4 year high is two boxes away, as is a fresh bullish breakout.

 

 

Sysco has rallied strongly since the start of the month, pulling up from a 3SR, a failed break of the low from the end of May. Earnings were not spectacular, and as contrarians, that is what we like to see in an uptrending stock. Momentum, the 14-day RSI, has ample room to climb, and that should permit a challenge over the next few weeks of the record high from 2018.

The SYY P&F chart displays a tidy uptrend over the past decade. The June sell signal failed to follow-through, evolving into a Low Pole. Triple Top breakout nearing, $74 is needed. Trading is also attractively pulling up from the 30-week moving average.

 

 

Brown-Forman is reasserting its yearlong price and relative uptrends following a consolidation off the 52-week high in June. A 3SR is in place, a failed support break at the start of this month, propelling the price northwards. Momentum is favorably positioned. Earnings due on August 28th.

The BF/B P&F price chart is just 46 cents away from a fresh breakout, a Triple Top. Trading is also pulling up from a successful test of the 30-week moving average. Price and relative charts are both on buy signals.

 

 

At the end of July PayPal sold off following mixed results. The pull-back has travelled as far as the 200-day exponential moving average, potential support. Importantly, recent weakness has resulted in a breach, and recovery, at the May low, a 3SR on bad sentiment. The MACD is turning up attractively from the same oversold level as per October 2018.

The PYPL P&F chart exhibits four Double Tops in-a-row. Recent weakness has been deep but a sell signal has not generated, that would occur at $102, presenting a nice risk-to-reward ratio for entry here.