foxex: Evening Star

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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Thursday, June 04, 2020

1. Nasdaq stocks show potential weakness ahead

2. The dance between oil and natural gas

3. Unusual optimism lifts both plaintiff and defendant

Market Moves

The Nasdaq 100 index (NDX) fell .77% today even as oil and gold prices rose slightly. But the pattern created by the price action on the index is a bit of a warning sign. This does not bode well going into tomorrow's NonFarm Payroll report.

The chart below reveals that the tech-heavy index, as tracked by Invesco's Nasdaq 100 index ETF (QQQ), is running into resistance. Yesterday's high price for this ETF matched the exact high previously recorded on February 19th. It recorded that price late in the session yesterday. Today's high pushed a few cents higher in the first 90 minutes of trading, but sellers took over and the ETF closed lower on the day. This created a 3-day candlestick formation known as an Evening Star.

This pattern has a higher-than-average predictive quality, especially if the pattern occurs on previous resistance and is followed up by a lower opening on the next day after the formation completes. If tomorrow's jobs news disappoints investors, that could easily play out and a multi-day downward trend could easily follow.

The Dance Between Oil and Natural Gas
Natural gas can, in some places and in some circumstances, be an energy substitute for oil. That's why it is useful to compare the relative strength in their futures prices. The chart below looks at the comparison between Crude Oil (USOIL) and Natural Gas (NG) indexing them to a starting point of 100 (scale on the right of the chart).

What chart watchers may notice is how both of these price patterns stay close to one another. Oil's sharp divergence last month had more to do with a lack of storage for refined crude than a lack of market demand. That appeared evident this month. Even so, as the price of oil climbs, it is approaching the relative equilibrium to natural gas. That implies that the strong upward trend in the price of oil may hesitate in its upward climb here in the coming days and weeks.

Roku Stock Losing Ground Despite Broad Advance

Crude Oil Entering Zone of Heavy Resistance

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Unusual Optimism Lifts Both Plaintiff and Defendant

The chart below tells the most bullish story for the day, and perhaps it has implications for the rest of the market. Simon Property Group (SPG), the largest retail mall landlord in the U.S., announced it was bringing a lawsuit against Gap Stores (GPS), one of its biggest tenants. This confrontation seeks to resolve a one-hundred million dollar shortfall in unpaid rent, left by Gap Stores. Here's the amazing part: investors bought BOTH of the stocks. (GPS shares were down after hours when the company announced its quarterly earnings.) The general optimism behind this result signals that investors are willing to stick with the market through anything.

The Bottom Line

Stock market indexes paused today as the Nasdaq 100 hit resistance at its former high price. Oil and natural gas prices may be reaching a point of relative equilibrium, which could temporarily diminish the strength of oil's upward move. Shares of GPS have been strongly bullish, but that may change after today's double bad news (poor earnings news and a lawsuit from Simon Property Group). If not, the unusually strong optimism investors are showing will likely contribute to higher prices in weeks to come.