Point & Figure Analytics July 9, 2019

Welcome to our second P&F Analytics report since the service relaunch. The publication schedule for P&F research is premarket on Tuesday and Thursday of each week.

The first session of this week saw a down market, ranging from -0.4% for the Dow Industrials to -0.9% for the Russell 2000. Healthcare saw noticeable breadth weakness, with 3 P&F sells on the S&P 500 and 5 from the sector in the Russell 2000. Performing well yesterday were consumer discretionary stocks, with P&F buy signals in 3 S&P 500 stocks (AZO, CMG and DRI). Among those stocks, we highlighted the potential in Autozone last Thursday; lower down the report today we analyze Darden Restaurants.


Indexes

In the previous P&F report we analyzed the broad market indexes. Today we take a look at smaller caps, the Russell 2000, still significantly shy of record highs.

The Russell is inching towards the 1600 level, a key fulcrum. Clearing 1600, particularly a box fill to 1620, would print a Triple Top, signaling a likely return to the record high, as the longer-term uptrend regains control. Certainly, good foundations are already in place to enable an upside extension, a Low Pole at the start of this year and a Bear Trap with the May dip.

 

 

The ratio between the Russell 2000 and the S&P 500 sits one box above a 15 year floor. With the present column of Os overextended, a period of outperformance by the Russell would be the natural course. However, confirmation must be provided, and the first building block to achieve that would be a 3 box reversal up.

 


Breadth

The general market breadth charts plotted no new movement since our last report on Thursday. The NYSE % 10-week moving average indicator has seen a sizeable value drop but a direction change is still 3% points away. A 3 box reversal down would occur at 66% and even then, the buy signal would remain in effect.

 


Sectors

Our transports theme continues to evolve this week. The NYSE Airline Index printed a Triple Top breakout with Monday’s session. That move further defeats the correction off the early 2018 peak. With two buy signals since the end of 2018 correction low, longs in the stronger members of the group may be considered. We analyzed Southwest Airlines in yesterday’s Contrarian Outlook and cover the P&F charts for United Airlines below.

 

 

The Airlines relative chart, against the S&P 500, shows the ratio attempting to find its 4 year range floor. A buy signal would confirm a P&F 3SR and should that occur, expect medium-term outperformance, back up to the range ceiling.

 

 

There is no liquid airline ETF to speak of but there are transport ETFs. The iShares Transportation Average ETF has an 18% weighting in airlines. The IYT Point & Figure chart registered a P&F buy signal on July 1st, a move that followed a successful test of the 2019 Bullish Trendline in May. Also attractive is support just beneath current trading from both the 10-week and 30-week moving averages. 

 


Stocks

UAL [PRICE SPREAD TRIPLE TOP | SECTOR RELATIVE DOUBLE TOP] | Target = $110, Stop = $84

United Airlines broke out from a $78/$90 range last week, printing a Spread Triple Top in the process, a P&F buy signal. The general uptrend is reasserting and should carry through to record price highs.

The P&F relative chart is against the Industrials sector and demonstrates the airline’s outperformance since 2016. The relative correction over the first half of this year is over; ratio’s uptrend is also resuming.

 


UNP [PRICE DOUBLE TOP | INDEX RELATIVE DOUBLE TOP] | Target = $188, Stop = $162

Union Pacific exhibits a reliable healthy uptrend. The start of this month saw a buy signal, challenging the Bearish Trendline drawn down from the May record high. That push higher followed a consolidation across its 30-week moving average.

We like the transports sector as discussed in yesterday’s Contrarian Outlook. The P&F relative chart for UNP maintains a 3.5 year uptrend, presently consolidating, an entry window.

 


DRI [PRICE DOUBLE TOP | INDEX RELATIVE DOUBLE TOP] | Target = $144, Stop = $112

Darden Restaurants is a straight forward uptrend reassertion case. A buy signal printed on Monday, with trading now just one box away from a fresh all-time high. The sideways consolidation over the past 4 months, between $114 and $124, has ensured an attractive non-overbought condition.

The P&F relative chart, versus the S&P 500, exhibits a rising trend over the past 5 years, with confidence from a buy signal in March.

 


VAR [PRICE DOUBLE TOP | INDEX RELATIVE DOUBLE TOP – nearing] | Target = $150, Stop = $124

Varian Medical Systems is another upward trending candidate. A recent buy signal, with a new all-time high just two boxes away. Here too the trend has consolidated, in this case across $130, also the level of the 30-week moving average.

The P&F relative chart, versus the S&P 500, has been working higher since 2016. We are not worried by the April sell signal – to be expected during healthy retreats.

 


CUB [PRICE DOUBLE TOP | INDEX RELATIVE TRIPLE TOP – nearing] | Target = $80, Stop = $55

Cubic (small-cap aerospace) generated a P&F buy signal at the end of June and has shown important follow-through. Trading has also pulled out of a $15 base, likely signaling the correction off the 2018 record high is over.

The P&F relative chart, versus the large cap index, is one box away from a bullish Triple Top. Note the rounding base attempt of the past 5 years.

 


UNIT [PRICE DOUBLE BOTTOM | INDEX RELATIVE DOUBLE BOTTOM] | Target = $6.5, Stop = $11.5

Uniti Group (mid-cap infrastructure REIT) is a short candidate; contained in price and relative downtrends. Sell signal yesterday as the downtrend resumes. Fresh all-time price lows expected over the next few weeks. Uncertainty looms over the stock.

The relative chart, versus the S&P 500, is one box away from a new record low. Relative sell signal in effect since February. Severe underperformer, down 42.3% for 2019.

 

 

REMINDER – P&F charts should be seen as a tool in the analyst’s toolbox and nothing more. Do not rely solely on charts! Always conduct further research of your own. If you are not an investment professional, seek advice from your broker.