foxex: Stocks and Safe Havens Rise Together

Chart Advisor | Focus on the Price

By John Jagerson, CFA, CMT

Tuesday, February 19, 2019

1. WMT's profit taking and patterns within patterns

2. S&P 500's bullish indicators

3. Gold and Treasuries move higher as traders hedge their bets

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Major Moves

Walmart (WMT) surprised traders – who have become increasingly skeptical about the health of the retail industry – this morning with a better-than-expected earnings announcement.

The company announced revenue that was in-line with estimates and beat Non-GAAP earnings estimates by $0.08 per share – coming in at $138.79 billion and $1.41 per share, respectively.

While the earnings per share (EPS) beat was a positive for the stock, the real bullish surprises came when WMT announced its comparable sales had grown by 4.2% during Q4, compared to analyst estimates of 3.3% and its online sales had increased by 21%, year-over-year.

Throw in a 1.9% dividend increase – raising the annual dividend from $2.08 to $2.12 – and you have the recipe for a huge gap higher at the opening bell.

This bullish move confirmed the inverse head-and-shoulders bullish reversal pattern that was completed yesterday. Based on the $13 height of the bullish pattern, WMT has a potential price target of $112 ($99 breakout point + $13 pattern height = $112 price target).

Unfortunately for all of the WMT bulls out there, the stock couldn't hold onto all of its gains. While WMT jumped as high as $104.18 today, it slid all the way back down to close just $0.13 above its low of $102.07 for the day.

This late-day profit taking kept the stock below the down-trending resistance level that has been interacting with the stock since early-2018 when WMT reached its recent high of $109.98. The stock hit this level again in early-November 2018 when WMT rallied to a high of $106.21 before collapsing with the rest of the bearish market.

Coupled with the up-trending support level that has been interacting with the stock since October 2017, the down-trending resistance level is forming a potential long-term symmetrical triangle price pattern.

If WMT can break above the down-trending resistance level, the stock could be signaling the renewal of a long-term uptrend, but it's going to have to get past the profit takers first.

S&P 500

The S&P 500 continued its relentless move higher today, and while it still has farther to go before it reaches its all-time high, it is providing plenty of technical signals to confirm its bullish momentum is still strong.

A few days ago, the S&P 500 crossed above its 200-day simple moving average (SMA). I noted last week how more than 50% of the S&P 500 component stocks have risen above their respective 200-day SMAs and what a strong market breadth signal that was. Now the S&P 500 itself has done the same thing.

The farther the S&P 500 pulls away from its 200-day SMA, the more likely it is to remain above it in the near term.

The S&P 500 is also still climbing its upper Bollinger® Band. It retreated slightly from the band in early-February, but it is now showing renewed strength as it rides the band higher.

Many traders mistakenly believe hitting the upper Bollinger® band during an uptrend can serve as resistance, but it actually confirms the strength of the current trend and signals there may be more bullishness to come.

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Risk Indicators - Gold

Gold spiked higher today as the value of the U.S. dollar (USD) slipped and traders renewed their efforts to hedge their portfolios with the safe-haven asset.

You can see in the SPDR Gold Shares ETF (GLD) chart below how gold has been increasing in value since the stock market topped out in late-September 2018.

Interestingly, that bullish trend has accelerated as Treasury yields – as illustrated by the blue 10-year Treasury line (TNX) in the chart below – have fallen and the stock market has moved back into bullish territory.

This tells us a few things.

First, gold is always more competitive when Treasury yields are lower because gold is a non-yielding asset. It doesn't pay a dividend or have a coupon rate associated with it.

Second, traders appear to be trying to hedge some of the risk in their long-equity portfolios by adding gold to the mix.

Read more:

Does it Still Pay to Invest in Gold?

Why Gold Matters: Everything You Need To Know

What Moves Gold Prices?

Bottom line: Strong but cautious

The bullish trend that is underway on Wall Street is strong, but traders are still showing signs of approaching the trend with caution. They are adding risk by buying stocks, but they are attempting to hedge a portion of that risk by buying safe-haven assets, like gold.

So long as this diversification continues to assuage traders' nerves in the short term, the S&P 500 has a great chance of climbing back up to its early-November highs in the near term.

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