Divergence Watchlist – 10/30/2017

Happy Halloween!

The market finished extremely bullish, pushing the S&P 500 up to the top of the channel.  The slow stochastic is overbought, but the fast stochastic did pull back below the 80 line, setting up a possible bearish divergence.  The price has made a higher high and if we get a lower high on the stochastic there would be a bearish divergence signal.  Can’t wait to see what happens.

SPXd Chart 102917
S&P 500 (SPX) daily chart at the top of the channel and also at the upper boundary of a larger parallel channel. Will we see bearish divergence?

How to Spot a Stochastic Divergence

Once you know what to look for, it’s easy to spot a divergence.

A bullish divergence will have a lower low in price and a higher low in the stochastic.

The main criteria for the stochastic is that the first low should be below the 20 line and the higher low should be above the 20 line.  This signals a change in momentum.

Divergences happen often and the signal is stronger when you combine it with other indicators.

Candles, trend lines, and time intervals all help determine how likely it is for the signal to be true.  A strong signal will usually have 3 indicators.

Medtronic (MDT): From the 10/15/17 watchlist. There is bullish stochastic divergence combined with a falling wedge pattern (bullish) and on trend line support of an ascending triangle pattern (bullish) that you can see on the weekly chart. This was a strong divergence signal with multiple indicators. The price gained 5.5%.

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Divergence Watchlist 10/30/2017: Z, ACAD, BABA, SYNA, RICE, TSLA, DIS

Z Chart 102917
Zillow (Z) is ready to breakout of a pennant pattern inside a larger symmetrical triangle. The stochastic divergence signals the continuation of momentum and should drive the price up to the target zone and possibly beyond.
Buy: 41.50
Target: 42.50 – 44.00 (2.41% – 6.02%)
ACAD Chart 102917
ACADIA Pharmaceuticals (ACAD) is at the breakout point of the falling wedge . The bigger pattern is an ascending triangle that you can see on the weekly chart. I think there is going to be some downside, but we should be able to get a quick pop right into earnings on 11/6. I do not want to hold into earnings . Either we get there before or we don’t.
Buy: 35.62
Target: 36.68 – 38.40 (2.98% – 7.80%)
BABA Chart 102917
Alibaba (BABA) is oversold for the first time in 2017.  After a big day on Friday, I expect the momentum to continue and push the stock higher.
SYNA Chart 102917
Synaptics (SYNA) looks like it’s finally ready to turn up. The weekly put out a reversal candle and the stochastic moved above the 20. The daily is coiled up and ready to go. Buy on the way up and use a tight stop. It will move fast once it gets going.
Buy: 37.57
Target: 39.62 – 42.94 (5.46% – 14.30%)
RICE Chart 102917
Rice Energy (RICE): After a drop and a big pop on Friday, RICE is ready to breakout of a cup and handle pattern. Looking to buy the breakout on this one 29.15.
TSLA Chart 102917
Tesla (TSLA) is showing stochastic divergence on the hourly chart. Looks to be at the end of a falling wedge, but keep close watch, could go either way.
DIS Chart 102917
Walt Disney Company (DIS): This might not meet the exact criteria for a divergence, but it does look like momentum is shifting. Combined with trend line support of a symmetrical triangle, I like this setup and think there is a lot of upside.
Buy: 98.40
Target: 101.79 – 105.24 (3.45% – 6.95%)

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