Today’s Big Stock: General Motors Company Common Stock (NYSE: GM)

General Motors Company is a global automotive company. It develops, produces and markets cars, trucks and parts worldwide. General Motors also provides automotive financing services through General Motors Financial Company, Inc. (GM Financial), formerly AmeriCredit Corp. These financing operations consist principally of financing automobile purchases and leases for retail customers. General Motors operates in five segments: GM North America, GM Europe, GM International Operations, GM South America and GM Financial. GM Financial is an automotive finance company. GM Financial purchases automobile finance contracts for new and used vehicles purchased by consumers primarily from franchised and select independent dealerships.

To review potential trading opportunities with General Motor’s stock, please take a look at the 1-year chart of GM (General Motors Company) below with my added notations:

 

 

After a 7-month trend lower, GM formed what appeared to be a Double Bottom (blue) price pattern. The pattern is as simple as it sounds: Bottoming (B), rallying up to a point, selling back off to the same bottom (B), and then rallying back up again. As with any price pattern, a confirmation of the pattern is needed. GM confirmed the pattern by breaking up through the $27 resistance (navy) that was been created by the Double Bottom pattern. The stock added validity to the confirmation with the increased volume activity on the day of the breakout (brown).

Keep in mind that simple is usually better. Had I never pointed out the Double Bottom pattern, one would still think this stock is moving higher if it simply broke through the $27 resistance level.  In short, whether you noticed the pattern or not, the trade would still be the same: On the break above the key $27 level.

The Tale of the Tape: After a 7-month downtrend, GM formed a Double Bottom price pattern with a $27 breakout resistance. A long trade could be entered on a pullback to the $27 support with a stop placed under that level.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT

Today’s Big Stock: Motorola Solutions, Inc. Common (NYSE: MSI)

It is nearly impossible to talk about chart patterns on stocks without eventually discussing the very common Head and Shoulders (H&S) pattern. An H&S pattern is a reversal pattern that forms after an uptrend. A textbook H&S pattern starts to form when a stock rallies to a point and then pulls back to a particular level (shoulder #1). Next, the stock will rally again, but this time to a higher peak (head) than the previous shoulder. After forming the head, the stock will pull back to the same support as the first shoulder did. Finally, the stock rallies a 3rd time, but not as high as the head (shoulder #2). The level that has been created by all 3 of the pullbacks is simply a support level referred to as the “neckline”. The formation of an H&S pattern warns of a potential reversal of the uptrend into a possible downtrend.

As with any chart pattern, a trader will usually not want to act on the pattern until the stock “confirms” the pattern. Confirmation is the break of the key level that has been created by the pattern.  In the case of an H&S, confirmation would be when the stock breaks the neckline (support).

What some new traders do not know is that H&S patterns can also form upside-down after an uptrend as well. This pattern is a little more rare and would be called an Inverse Head and Shoulders pattern. It would also be considered a continuation pattern, not a reversal pattern, and the neckline would be a resistance rather than a support. To see such a pattern formed, please take a look at the 1-year chart of MSI (Motorola Solutions, Inc.) below with my added notations:

 

 

After moving higher for more than a year, MSI formed what appeared to be an Inverse H&S (blue). I have noted the head (H) and the shoulders (S) to make the pattern more visible. (For future reference, if you imagine this pattern flipped upside down you would have a regular H&S pattern.) MSI’s neckline was at the $48 level (navy). MSI confirmed the pattern by breaking up through the $48 resistance/neckline last week and the stock should be moving higher from here.

Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown point to get the minimum price objective. For example, since the H&S pattern for MSI is $10 high ($48 – $38), MSI should climb to a minimum of $58 ($48 + $10) now that the pattern has confirmed. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.

Lastly, keep in mind that simple is usually better. Had I never pointed out this Inverse H&S pattern, one would still think this stock is moving higher simply because it broke through the $48 resistance level.  In short, whether you noticed the pattern or not, the trade would still be the same: On the break above the key $48 level, which was also a new 52-week high.

The Tale of the Tape: After a long uptrend, MSI formed an Inverse Head & Shoulders pattern and confirmed it last week. A long trade could be entered on a pullback to the $48 level with a stop placed under that level. A break back below $48 would negate the forecast for MSI’s move higher.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT

Today’s Big Stock: Guess?, Inc. (NYSE: GES)

Guess?, Inc. designs, markets, distributes and licenses apparel and accessories for men, women and children. The company’s apparel is marketed under numerous trademarks including GUESS, GUESS?, GUESS U.S.A., GUESS Jeans, GUESS? and Triangle Design, MARCIANO, Question Mark and Triangle Design, a stylized G and a stylized M, GUESS Kids, Baby GUESS, YES, G by GUESS, GUESS by MARCIANO and Gc. The lines include full collections of clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets, knitwear and intimate apparel. It also grant licenses to manufacture and distribute a range of products that complement its apparel lines, including eyewear, watches, handbags, footwear, kids’ and infants’ apparel, leather apparel, swimwear, fragrance, jewelry and other fashion accessories. The company operates in five segments: North American retail, Europe, Asia, North American wholesale and licensing.

Please take a look at the 1-year chart of GES (Guess?, Inc.) below with my added notations:

As with most stocks, GES had a rough go of it back in July, August and September. While running mostly sideways from August through January, GES created a strong resistance at $35 (navy). Last week, the stock finally broke through that resistance level. Although that is certainly a good sign for the stock, one would have liked to have seen the stock break out on higher volume. This volume deficiency definitely doesn’t mean the stock can’t go higher, but it is worth noting nonetheless.  

The Tale of the Tape: Now that GES has broken above $35, the stock should be headed higher and that $35 level should now act as support on any pullbacks. A long trade could be entered on a pullback to that $35 level with a stop placed below $35. If GES were to break back below $35, a short trade could be entered instead.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

 

Good luck!

Christian Tharp, CMT

 

Today’s Big Stock: Owens Corning Inc Common Stock (NYSE: OC)

Owens Corning, Inc. is a producer of glass fiber reinforcements and other materials for composites and of residential and commercial building materials. The Company’s products range from glass fiber used to reinforce composite materials for transportation, electronics, marine, infrastructure, wind-energy and other markets to insulation and roofing for residential, commercial and industrial applications. It operates in two business segments: Composites, which includes its reinforcements and downstream businesses; and building materials, which include its insulation, roofing, and other businesses. As of year-end 2010, the company’s composites and building materials segments accounted for approximately 37% and 63% of its total segment net sales.

Please take a look at the 1-year chart of OC (Owens Corning, Inc.) below with my added notations:

 

 

The chart of OC is interesting due to the presence of (2) converging support levels. First, the potential of an up-trending support level (blue) has developed. A 3rd test of that line would confirm its importance, but (2) points commonly start the trend line. Next, OC had a very strong resistance at $30 (brown). Now that the stock is above that $30 level, traders would expect it to be just as strong of a support.

The Tale of the Tape: OC has (2) support levels, both of which currently sit at or near $30. If the stock pulls back to $30 a long trade would be advisable. However, if the stock were to break below $30, thus breaking both supports, a short play should be made instead.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT

Today’s Big Stock: Mohawk Industries, Inc. (MHK)

Most of the price levels highlighted in Today’s Big Stock are of the horizontal variety. They’re easy to identify and easy to trade off of. However, from time to time I also like to discuss important levels that are somewhat of a “moving target” in the form of up or down trendlines. One such stock forming an up trendline is that of Mohawk Industries, Inc.

Mohawk Industries, Inc. is a producer of floor covering products for residential and commercial applications in the United States and residential applications in Europe. The company is a carpet and rug manufacturer, and manufactures, markets and distributes of ceramic tile, natural stone and hardwood flooring in the United States, as well as a producer of laminate flooring in the United States and Europe. It operates in three segments: the Mohawk segment, the Dal-Tile segment and the Unilin segment. The Mohawk segment designs, manufactures, sources, distributes and markets its floor covering product lines. The Dal-Tile segment designs, manufactures, sources, distributes and markets a line of ceramic tile, porcelain tile, natural stone and other products used in the residential and commercial markets. The Unilin segment designs, manufactures, sources, licenses, distribute and markets laminate and hardwood flooring used in the residential market in Europe and the United States.

To review Mohawk’s stock, please take a look at the 1-year chart of MHK (Mohawk Industries, Inc.) below with my added notations:

First, please notice the Rising Wedge I have outlined on the chart of MHK. A Rising Wedge price pattern is essentially a type of triangle formation in which the stock, MHK, has formed an up trending resistance line (navy) and an up-trending support level (blue) after a steep sell-off. These two trend lines converging on one another combine to form the Rising Wedge on MHK. In addition, the stock is approaching its previous 52-week high of $68 from back in May.

The Tale of the Tape: MHK has created a nice trend line of support over the last (5) months and has made its way back up to its previous 52 week high of $68. At some point either the support level or 52-week high resistance will have to break. A long position could be entered on a pullback to the trend line support or on a break to a new high. A short position could be entered if MHK were to confirm the Rising Wedge pattern by breaking the trend line of support.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

 

Good luck!

Christian Tharp, CMT