Red Flags from Weekly Charts

Although many stocks that were hit the hardest last week missed earnings, even those that beat estimates were also weak, so MoneyShow's Tom Aspray takes a technical look at stocks from three different industry groups with charts and volume patterns that suggest they could move even lower.

Friday's strong rally helped to calm the markets as most of daily technical studies turned higher stemming their sharp declines from the prior day. Asian markets were generally quiet as the Japanese markets were closed. The Euro zone markets and US futures are both lower.

The technical studies need another strong close early in the week to indicate that the worst of the selling is over. However, another sharp down day will return the focus on the downside and would strengthen the case from Friday's analysis that a deeper decline was likely.

The earning season is now hitting high gear as 60% of the S&P 500 stocks report in the next two weeks. Though many of the stocks that were hit the hardest last week missed earnings, even those that beat estimates were also weak.

A review of the weekly charts highlights stocks from three different industry groups.  Their charts and volume patterns suggest they can move even lower in the coming weeks, even if their earnings were good.

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Chart Analysis: Johnson & Johnson (JNJ) beat on both earnings and revenues last week, it lost just over 3% for the week. As I mentioned last month, it is, by far, the largest holding in the Select Sector SPDR Health Care (XLV).

• The weekly chart shows that prior to last week's drop, JNJ formed three consecutive dojis.
• Therefore, last week's close triggered a LCD sell signal.
• Friday's close was also below the quarterly pivot at $102.
• The quarterly projected pivot support and the 38.2% Fibonacci support are in the $98 area with the weekly starc- band a bit higher at $98.71.
• The long-term uptrend, line b, is in the $92.60 area.
• The relative performance peaked in the summer of 2012 and formed a lower high in 2014, line c.
• The RS line has now dropped well below its WMA.
• The weekly OBV dropped below its WMA last week for the first time since last August.
• The OBV has major support at line d.
• There is initial resistance now at $103.34 with stronger at $104.50-$104.80.

St Jude Medical (STJ) is up 9% YTD as it beat on both earnings and revenues when it reported last week. STJ peaked ahead of earnings at $71.90 on July 7 and is already down over 6% from the highs.

• STJ closed last week below of $69.01 so a weekly low close doji sell signal was also generated.
• The weekly close was above the quarterly pivot at $66.40.
• The rising 20-day EMA and the uptrend from the November 2012 lows are in the $65.20-$65.60 area.
• The weekly starc- band is at $63.24 with more important monthly support at $59.64.
• The relative performance was not able to move above the February highs, therefore forming a negative divergence (line f).
• The RS line is below its WMA and a drop below the spring lows would be more negative.
• The OBV has now dropped below is WMA and support from last October (line h).
• The weekly volume did increase over the past two weeks.
• There is resistance now at $69.36, which is also the mid-point of last week's range.
• A weekly close above $70.27 would stabilize the weekly chart.

NEXT PAGE: Two More Vulnerable Stocks to Watch

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Devon Energy (DVN) is a $31.41 billion dollar independent oil and gas company that reports it's earnings on August 6.

• The week ending July 4, DVN formed a doji and the following week also triggered an LCD.
• The quarterly pivot at $75.52 was almost reached last week with the monthly projected pivot support at $74.94.
• The weekly starc- band and 20-week EMA are in the $72.60 area.
• There is quarterly projected pivot support at $70.42.
• The weekly studies on DVN look the best of these four stocks.
• The relative performance did make a new high with prices before turning lower.
• The RS line is still above its WMA and support at line c.
• The on-balance volume (OBV) shows a similar formation as it is still above its WMA.
• A weekly close back the $80 level would be positive.

US Bancorp (USB) also reported last week, beating on both earnings and revenues. It slightly surpassed the April high of $43.34 in early July with a high of $43.75.

• The previous week it had formed a doji, which warned of last week's sharp drop on heavy volume.
• USB closed Friday below the quarterly pivot at $42.21 with quarterly support now at $40.74.
• This corresponds nicely to chart support and the starc- band.
• A drop below the May low of $39.64 would be more negative.
• The relative performance formed sharply lower highs, line g, despite USB being a Wall Street favorite.
• This divergence was confirmed by the drop below support at line h.
• The weekly OBV did confirm the June 20 highs but dropped below its WMA last week.
• A sharp drop below OBV support, line i, would be more negative.
• There is strong resistance in the $42.60-$43 area.

What it Means: The formation of a weekly doji can be very useful in alerting investors or traders to both important tops and bottoms. When a stock makes a new high and forms a doji, I look at the weekly and daily technical studies to see if there are other signs of weakness.

Though all four of these stocks look vulnerable in the coming weeks, Devon Energy (DVN) looks the most positive basis both the weekly as well as the monthly analysis. I would recommend buying it at stronger support.

How to Profit: For Devon Energy (DVN) go 50% long at $72.88 and 50% long at $70.72 with a stop at $68.57 (risk of 4.5%).