Editor's Note - In Tom's monthly scan at the end of July these two stocks were selected by his technical criteria. As we approached the end of the month NextEra Energy (NEE) is up 7.3% and we hope you can learn from his method of technical analysis.
August 1, 2021: In last week’s earnings reports, Apple (AAPL), Microsoft(MSFT), and Alphabet (GOOGL) reported combined profits of more than $50 billion for the second quarter. This was further encouragement for the retail traders, who have been buying the dips in the Invesco QQQ Trust (QQQ)QQQ so far this year. These three stocks alone make up 32% of QQQ.
Despite the strong earnings, concerns over how the supply of semiconductor chips might impact future earnings dropped AAPL by 1.82% for the week. MSFT was down 1.64%, while GOOGL managed to close up 1.29%. The big surprise on the earnings front last week came from Amazon.comAMZN (AMZN).
AMZN beat the earnings estimate but reported revenues that were weaker than expected. The third quarter sales guidance was also below consensus estimates, catching many traders by surprise and pushing stock prices down 9% for the week. The close was below the lows of the prior six weeks as support (line a) was reached. If that level is broken, the next good support is in the $2871 area (line b), which is 13.7% below Friday’s close.
Amazon's weekly relative performance (RS) against the S&P 500 peaked in July 2020 and dropped sharply below its weighted moving average (WMA) last week. This forecasts Amazon's continued weakness as compared to the S&P 500. The On Balance Volume (OBV) has been diverging from prices since last October, forming lower highs (line d) while AMZN made a new high in July. The OBV closed on its WMA so this week’s action will be important.
Most of the markets were lower last week, though the iShares Russell 2000 and SPDR Gold Shares managed gains of 0.7% and 0.8% respectively. The Dow Jones Transportation Average dropped 2% while the decline in some of the large tech stocks pushed the Nasdaq 100NDAQ down 1% for the week. The Dow Jones Industrial and S&P 500 were both down 0.4%.
For the month, the Dow Jones Utility Average performed the best, up 3.6%. In the first part of July there was bullish volume action (see chart) in the Utilities Sector Select (XLU)XLU. Only the iShares Russell 2000 was lower for the month, while most markets were up over 2%.
For the week the market internals were positive. On the NYSE there were 2026 issues advancing and 1469 declining. The monthly chart of the Spyder Trust (SPY)SPY shows that it has closed positive for six months in a row after the lower close in January. The monthly starc+ band at $463.47 is 5.7% above the July close.
The S&P 500 Advance/Decline Line made another new all-time high in July, as did the Nasdaq 100 A/D line, which was featured last month. The A/D line surged to a new high in March of 2016 (line a) and has made a series of new highs since then. It is well above its rising WMA. Not all of the A/D lines look as strong; the NYSE All A/D line and NYSE Stocks Only A/D lines did not make new highs last month.
As part of my regular monthly scanning, stocks are selected using a combination of momentum, volume, relative performance, and chart formation criteria. In addition, I look for stocks that trigger monthly doji buy signals. A monthly doji is formed when a market opens and closes the month at approximately the same level.
A monthly doji buy signal occurs when the market closes in the next three months above the doji high. That is what happened to the SPDR Gold Trust (GLD)GLD in October of 2018, which helped identify a major low. Of course, doji sell signals are important as well. You can learn more about doji signals here.
There were two stocks that I like that triggered monthly doji buy signals in July. Rollins, Inc.ROL (ROL) is a personal services company. ROL traded above its monthly starc+ band for five consecutive months at the end of 2020 (points a), which meant it was overdue for a correction. From the November high at $42.65 it had a low in March of $31.37, which was a decline of 26.2% from the high.
In July, ROL closed at $38.33 which was well above the June doji high of $34.67. The monthly starc+ band is at $44.25, with chart targets in the $50-$52 area. The July pivot is at $37.02 with the rising 20-week exponential moving average (EMA) at $32.82.
The relative performance (RS) made a new high last November before it dropped below its WMA. The RS has turned upward but is still below its WMA. The monthly OBV crossed above its WMA in May 2020 and has stayed above it despite the correction from the November high. This is a positive sign.
NextEra Energy, Inc.NEE (NEE) is a regulated electric utility that yields 1.98% in dividends yearly. NEE peaked in January at $86.77 before dropping to a low in early March of $67.97. This was a decline of 21.7% from the high.
NEE has stayed well above its rising 20-month EMA which is now at $68.72. This was also the high NEE made in February and March of 2020 (line a). The July close at $77.90 was above the June doji high of $75.85, which now represents first support. The monthly starc+ band is at $90.67, with chart targets in the $94-$96 area.
The weekly RS peaked in early 2020 and then formed lower highs (line b). The RS has turned upward but is still well below its WMA. The monthly OBV moved above its WMA in November 2020, and still shows a positive pattern of higher highs and higher lows.
Value stocks did better than growth last week, as the iShares Russell 1000 Value (IWD)IWD was up 0.64% while the iShares Russell 1000 Growth (IWF)IWF was down 1.22% for a difference of almost 2%. It will be interesting to see if the trend in favor of value stocks continues this week.
On the economic calendar this week, we have the ISM Manufacturing Index and the ISM Services Index plus the monthly jobs report on Friday. Even though the market held up relatively well last week, I still think a market vacation might not be a bad idea, as I am looking for more choppy market action as we head into September.
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