Two for the Bears

Two for the Bears

April 10, 2018 Off By Chuck

While Tuesday seems to have confirmed we put in a short term tradeable bottom in stocks, it does not mean ALL stocks. Remember what we invest in is not a stock market but rather a market of stocks. There is a big difference! It means some can (and do) move counter to the direction of the indexes (what most refer to as the stock market). Today’s blog post is about two companies that look to have topped and are set up for future downside.

My first is Restaurant Brands International, QSR, which is a Canadian-based fast food company. While you may not have heard of them you have likely heard of their franchises, Tim Hortons, Popeye’s Louisiana Kitchen and Burger King.  As you can see in the weekly chart below, price has broken its red long-term uptrend line while creating bearish RSI momentum divergence (upper pane). For long term readers, the look should be familiar by now as this is stock has topped and begun to rollover, with price sitting below a falling 200-day moving average. A break below the green horizontal support points to a target of T1, an important level of past support some 12% below.

My next bearish “opportunity” is a company you have likely heard of before, Hilton Hotels (H). The daily chart of H shows another example of a stock that has temporarily topped. As you can see it made 3 (failed) attempts to get through that ~$81.5 level. Notice how on the first two attempts price fell to $75, found support and then went on to retest $81.5? But yesterday, that $75 support level failed to hold and price slice right through without a pause. Notice also how the first test of $81.5 created negative RSI momentum divergence warning of a correction or reversal? If the bulls cannot regain control, and I mean real soon, the pattern points to a target at T1 below. Notice also that same level is an open gap and where the 200-day moving average currently resides. This is a great example of a confluence of signals at or near the same level. When a confluence occurs it provides a much higher probability the target in question will be hit. Finally, if the stock has much more momentum to the downside and T1 does not hold, T2 is the next likely target for buyers to step in and stop the decline as it is acted as an important level in the past and it sits just below the other open gap in price.