This week we feature seven key charts to watch. See our video chart analysis of the charts discussed in this article.
The first is Applied Materials (AMAT), which looks like it's getting ready to take off and challenge its prior high somewhere between 14.77 and 14.80, maybe even as high as 14.98. It closed at 14.47 on Friday, but looks like it's poised to challenge the 15 level and take it out.
The weekly chart shows the top of the channel up around the 16 1/2 area. The next Fibonacci recovery level is at 15.44, which would retrace 50% of the entire move. So 15 1/2 - 15.40 is an important level, with the 16.50 area being a reasonable upper channel target zone.
If AMAT failed broke below the 13.97 -14 level, then there would be problems, especially if it couldn't move higher first.
Looking at one in the pharmaceutical sector, Bristol-Myers Squibb Company (BMY) was among the decliners in the pharmaceutical sector last week but managed to hold Friday's low at 24.12, just 3 cents shy of touching the rising 200-day. Off the 200-day it managed to rally back to close at 24.74, which was up on the day. So, Bristol made an upside reversal on Friday off its 200-day.
The prior pullback low for Bristol was at 23 1/2, so it's preserved the series of higher highs and higher lows all throughout the rally phase from January. It looks like it finished a correction and will embark on another up leg.
On a weekly basis, Bristol shows a massive uptrend with higher highs and higher lows going all the way back to October '08. It looks like it gets sufficiently oversold and I have reason to believe that this upside reversal has meaning. As long as the 24 level holds I want to buy some weakness in Bristol, or, if it rallies, to see if it consolidates and goes sideways to give me an opportunity to get long on Bristol again.
Another one I'll be watching in the pharm sector is Merck & Co. Inc. (MRK). Friday's massive upside reversal in the daily chart may be a signal that the downmove from Jan 21 at 41.56 into Friday's low at 33.54 is complete and that Merck may be starting a new up leg. It had two days below its 200-day, closed above it on Friday, and looks like it should continue higher.
Looking back a year, Merck had a very big upmove from its March '09 low at 20, and its series of higher highs and higher lows remains intact. The downmove from January appears to be a correction of the larger uptrend, and if so then Merck is poised to move into a new upleg.
The Merck weekly chart doesn't look nearly as positive as the daily chart, which may be telling us that Merck, while it may rally back to 39 and change from 35.46 in the near term, may have some volatility in the coming months.
Though Merck doesn't look as dynamic as Bristol Meyers, on a daily chart basis I think there's a trade for Merck. I'm going to watch this chart to see how it performs in the aftermath of last Friday's upside reversal. That could provide us with hints as to how strong the Merck chart is.
Now let's take a look at some stocks that have not been performing well. Qualcomm Inc. (QCOM) has had a tough time of late, and looks like it needs to hold 36 and change or could have some real trouble.
The weekly chart in QCOM looks very much like the daily chart, which is that it had better hold that 36 level or it will retest the prior low at 351/2 and if that breaks look out below.
If it does hold 36 and change, then you can look for a signal on the upside, and all of this action will have been sort of sideways configuration, setting up a rally after it tests the trendline again back up to the 45- 48 level again. So, QCOM could be a very interesting intermediate trade, but is a problem right now.
Another stock having difficulties is Wal-Mart Stores Inc. (WMT). Wal-Mart was everybody's hiding place while the economy was either improving or neutral. But it has had a tough time for the last month or so going from a high of 56.30 to a low of roughly 53.80.
Friday's action was very interesting. There was an upside reversal for Wal-Mart. It went down to 53.92 and closed up on the day barely at 54.53. But the important part is that it tested its prior low, which was April 16, held, and then reversed from there. It also tested what could be a support line off the January consolidation lows. So I would look to Wal-Mart for a rally and see whether it develops into a strong rally. Key resistance is 55.20 on up to 56. So, Wal-Mart has some work to do, but for now it is a problematic chart that looks like it's in a position to improve.
Monsanto Co. (MON) is also a real problem, as it hasn't participated at all in the market rally. It's been going down since January. The rest of the market hit a low in early February, but Monsanto has continued lower and broken some significant support in the 67Â68 1/2 area.
The weekly chart for Monsanto shows a very dangerous picture. The fact that Monsanto has taken out the support line and seems to be pressing against its prior low at 63.47 and unable to rally leads me to believe we need to be very careful with the stock. What we need to see is an upmove back above 67 and change. The next key level after that would be 69.40-.42, and then Monsanto would be clear for a very powerful rally. For now, as long as it stays below 67 and change, Monsanto could be headed considerably lower.
Baxter International Inc. (BAX) had disappointing results on Friday. The market killed it, the company lowered guidance on top of it, and the Street is downgrading this stock as well. So, Baxter is in serious trouble and it's headed for a test of its June lows in the vicinity of 45 1/2.
On a weekly basis Baxter does not show anything that would mean to start buying yet. It had a huge run from 2003 to 2009, and closed Friday right on its trendline that connects the 2002 and 2008 lows. We need to watch 49.40 Â 49.50 very closely. If over the week Baxter takes out the low, moves into the 47 area and then back up, it needs to close above 49 1/2 to achieve a weekly upside reversal.
Right now it looks like that will not happen. Baxter needs considerably more time for repair work. Thursday and Friday's charts show no evidence of a turning point. Baxter needs to retest the lows, probably make a new low, and then reverse in a big way.
See our video chart analysis of the charts discussed in this article.
