Todays Big Stock: Valeant Pharmaceuticals (NYSE:VRX)

Top executives from Valeant Pharmaceuticals International Inc told Reuters on Friday that Valeant wants to become the world’s biggest player in the skincare sector in about five years. The company has backed those statements up recently with a string of recent mid-sized acquisitions in the highly fragmented but lucrative dermatology sector.

The specialty drug maker said on Friday it will pay $345 million to buy the skincare unit of Johnson & Johnson-owned Janssen Pharmaceuticals. It was the second such deal for Valeant last week. The other was its planned $425 million acquisition of Sanofi’s Dermik skincare business. Friday’s news sent Valeant stock (VRX) up 4.50% to $55 per share.

Please take a look at the 1-year chart of VRX (Valeant Pharmaceuticals International, Inc.)) below with my added notations:

VRX has created a common chart pattern known as an Ascending Triangle. Combining a horizontal resistance with an up trending support forms an Ascending Triangle pattern. As the support and resistance converge on each other the pattern forms. Untrue to common perception, Ascending Triangles do not always break higher; they can just as easily break lower. This is why some traders might wait for the breakout or breakdown before entering a trade.

Just like with Rectangle patterns, Triangles will provide you with clearly defined breakout and breakdown points. In the case of VRX, the breakout would be above $55 (red). The breakdown would be below the trend line support (green), which as of now appears to be the same $50 that has acted as support over the last month or so. On Friday, VRX closed at a key area of resistance on a significant increase in volume.

The Tale of the Tape: VRX has formed a very common chart pattern know as an Ascending Triangle. A trader could enter a long position on a break above the $55 resistance OR on a pullback to $50. Stops should be set under the entry level, either $50 or $55. However, if VRX were to break below the trend line support (currently near $50), a short trade could be entered with a stop above the trend line.

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

Todays Big Stock: Berry Petroleum Company Common (NYSE: BRY)

In one of my recent newsletters I reviewed the Rectangle pattern that had formed on HAL (Halliburton Company). HAL had formed a nice sideways consolidation from $45 to $51 and recently broke through its $51 resistance. After posting that newsletter, I received several inquiries on whether or not I had any stocks on my list similar to HAL. Well, actually, I do!

Berry Petroleum is an energy company engaged in the production, development, exploitation and acquisition of crude oil and natural gas. Please take a look at the 1-year chart of BRY (Berry Petroleum) below with my added notations:

Look familiar? BRY had created a similar Rectangle pattern as HAL, only with a higher resistance. To refresh, a Rectangle pattern is simply formed when a stock gets stuck bouncing between a support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. The great thing with a Rectangle pattern is that it will provide you with clearly defined breakout and breakdown points. In the BRY’s case, the Rectangle pattern formed a $52.50 resistance (red) and a $45 support (green). I also noticed that BRY sometimes finds $50 as important, which could prove useful if BRY doesn’t hold $52.50 on it’s recent pullback.

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 points to get the minimum price objective. For example, since the Rectangle pattern for BRY is $7.50 high ($52.50 – $45), BRY should climb to a minimum of $60 ($52.50 breakout point + $7.50 pattern height) now that it has broken higher. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.

The Tale of the Tape: BRY formed a very common chart pattern know as a Rectangle. This pattern shows clear breakout and breakdown points for a potential long or short position. BRY has recently broken above its $52.50 resistance, should be moving higher, but has now seemed to have pulled back to that $52.50 level to test as support. A trader could enter a long position here in expectation of a run to $60. However, if BRY were to break below $52.50, a long trade could also be entered on the “mini” level of $50 that I have highlighted (blue).  Stops should be set under the level of entry, either $52.50 or $50.

Side note: If BRY were to move considerably lower, $45 would come back into play for a trade.

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

Todays Big Stock: Google (Nasdaq: GOOG)

Google, Inc. (GOOG) is set to release its quarterly earnings report after the bell today. Although the price of GOOG is higher than the preferred range of most of our readers, knowing how the ”bellwethers” perform can still be informative in gauging potential moves in the market. Along those lines, technology can tend to lead the way. Tech stocks worth watching during earnings season might be AAPL, IBM, AMZN, and of course, GOOG.

The release of GOOG’s last earnings report in April resulted in a severe drop in the stock price and a trend lower that continued until June. The stock has since rallied nicely, but is the rally over? This quarter’s estimates for GOOG have been lowered. So, if GOOG has been expected to beat these lowered estimates, could that good news have already been discounted over the last month? Or could a positive surprise send the stock higher?

Below is a 1 yr. chart of GOOG (Google, Inc.) with my added notations:

The chart of GOOG is very simple: The $550 level is the key price to watch tomorrow. As can commonly happen with stocks, GOOG has rallied into earnings up to an important level. You can see how just as recently as last week GOOG tested the $550 level again as resistance. Will a strong earnings report give GOOG the lift it needs to break higher?

 

The Tale of the Tape: GOOG releases its quarterly earnings report after the bell today and the $550 level is the price to watch. If GOOG can break above $550, and hold that level, GOOG should be moving higher, thus a long position could be entered. If the stock breaks significantly higher, waiting for a possible pullback to $550 would provide a better, lower risk entry point. Either way, a stop below the $550 level would be recommended. On the other hand, if GOOG tests $550 tomorrow, but cannot hold, a short position might be entered with a stop above the $550 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

Todays Big Stock: Steelcase Inc (NYSE: SCS)

Whenever I review a stock above the $50-55 price range, I have tried to get into the habit of following up with a similar stock with a lesser $$ amount.  Yesterday’s newsletter included CSTR, which was in that $50+ range. So, today I will be looking at a stock in the same industry, but that is less expensive: Steelcase, Inc. (SCS)

Steelcase, Inc. deals primarily in providing the work experience in office environments. Steelcase Inc. services customer needs through three core brands: Steelcase, Turnstone and Coalesse. The primary focus of these brands is in office furniture, but it also serves needs in areas like healthcare, education and distributed work. Steelcase Inc. markets products and services to customers, primarily through a network of independent dealers, around the globe and has sales, manufacturing and administrative operations in North America, Europe and Asia.

Before discussing the potential trading opportunities with SCS (Steelcase, Inc.), please review the 1 yr. chart of SCS that I have outlined below, with my added notations:

SCS has recently approached its 52-week high of $12. Along the way, SCS has demonstrated a pattern of treating each whole dollar amount as an important area of support and/or resistance. Notice how nearly every time SCS hits $10 (pink) and $11 (red) it finds support or resistance there. Currently, the stock is holding $11 and is potentially getting ready to make another run for a 52-week high breakout through the $12 resistance.

The Tale of the Tape: SCS has stair stepped its way towards a new 52-week high. $10, $11 and $12 have all proved themselves to be important to the stock.  A long position could be entered now at $11 or on a breakout above $12. The longer-term trader may prefer to wait for the breakout, while short-term traders will need to “thread the needle” carefully due to SCS’s limited runs of $1 at a time. However, a $1 gain on SCS can quickly turn into a $2 gain if entered at the right time.

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

Todays Big Stock: Coinstar, Inc. (NasdaqGS: CSTR )

A stock to keep on the radar today is CSTR (Coinstar, Inc.) Coinstar is a provider of automated retail solutions and one of its core offerings in automated retail include its DVD business, where consumers can rent or purchase movies from self-service kiosks. Another key part of Coinstar’s business is its Coin business, where consumers can convert their coin to cash or stored value products at coin-counting, self-servicing kiosks. As of year end 2010, Coinstar had approximately 30,200 DVD kiosks in 26,100 locations and 18,900 coin-counting kiosks in 18,700 locations such as supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants.

Before discussing the potential trading opportunities with CSTR, please review the 1 yr. chart of CSTR that I have outlined below, with my added notations:

CSTR has formed a very important level over the last 8 months at $55. As you can see, that level has been tested several times as both support (green) and resistance (red). After moving back above the $55 level in early July, CSTR has been holding support at that level and should be poised to move higher. Also, a lower level worth watching on a break below $55 would be $55 (light blue). 

Depending on when a trader might enter a trade, caution should be advised since CSTR has an earning release on July 28th.

The Tale of the Tape: CSTR has recently broken above a key area of resistance at $55 and is now holding that level as support. A long position could be entered now at $55 with a stop below $55. However, if CSTR were to break back below $55, either now or once their earnings report is released, the next level down for a potential long entry would be $50.

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