Yum! Brands, Inc. (YUM) Chart Officially Falling Apart

Posted by jbrumley on March 24, 2017 9:56 AM

On Thursday, the BigTrends Daily Scans service -- as usual -- delivered its top trading prospects for the day to the service's subscribers. All 18 possibilities (9 bullish, 9 bearish) were compelling, but one was particularly noteworthy... the bearish CCI signal given for Yum! Brands (YUM). See, while the bearish clue was clear, the stock's downside was augmented by a couple of other key bearish hints. They're worth a look, if only to illustrate how the best trades often have multiple signals working all at the same time.

The CCI, or commodity channel index, is a single-line tool plotted on a scale of -100 to +100, plotting the difference between a stock's price change for any given bar and its average price change (per bar) over the course of a specified timeframe. High readings (above +100) of the commodity channel index say prices for that instrument are above their norm thanks to abnormally large gains for recent bars, indicating strength. Conversely, low readings (below -100) of the commodity channel index say recent weakness has been uncharacteristically weak, suggesting extreme bearishness.

If it sounds like an oscillator, you're right. The BigTrends interpretation of the CCI oscillator, however, is a bit different than the norm... which is to say, it's a lot different than the norm. Rather than buying when the CCI says the instrument is oversold, we're sellers when the CCI indicator gets and stays in oversold territory. Conversely, rather than sell when the CCI line moves into an overbought condition, we're strong buyers when the CCI tool moves into overbought territory and stays there.

It can be difficult to determine the "and stays there" part of the interpretation, which is how and where the use of other technical indicators and clues comes into play.

One of the easiest ways of determining whether or not a commodity channel index signal is built to persist is simply observing the chart to see if the instrument in question (stock, index, commodity, etc) is going to remain in motion after the CCI becomes overbought or oversold is simply watching to see if it moves to new lows or new highs. If the CCI becomes overbought but the underlying chart moves to new highs the next bar, it's apt to stay overbought. On the flipside, if the CCI tool says the chart is oversold yet the stock or index moves even lower the next bar, that's a strong sign the chart is going to become more oversold soon.... with that chart sinking further.

Not many trades confirm bearishness or bullishness with that interpretation, but that's the point - you're limiting yourself to the very best of signals.

That being said, it never hurts to get a second opinion, so to speak, and the bearish CCI signal for Yum! Brands yesterday was indeed supported by two other bearish clues.

The chart below clearly shows YUM's CCI line had fallen below the -100 mark earlier in the week. That was soon followed by YUM's move to lower lows and lower closes, Wednesday and Thursday. The clincher here, however, was the move below the pivotal 200-day moving average line (green).

032417-yum

Though more nuanced, you can also see the bearish volume's been on the rise since early March, suggesting more and more sellers were dumping their shares the lower Yum! Brands shares went.  That's not been the norm of late. Traders have been buyers on dips, and the selling herd thinned out on the way down for most recent pullbacks. This time was different, in that the selling herd got bigger as the stock moved lower.

YUM shares are up a bit today (Friday), but that doesn't really negate the CCI bearish signal, or any of the other bearish clues. This downtrend took several days to fully form, and one pushback won't break the move. If YUM makes a higher close on a day the CCI line moves back above -100, that's cause for pause. This is a compelling risk/reward setup though, with several other clues confirming the CCI sell signal we told our Daily Scans members about in Thursday's alert.

The lesson here is, most of the very best setups will be backed by several confirming clues.

If you'd like to get lots of trading setups and suggestions every day, the BigTrends Daily Scans newsletter will give you plenty to think about. Not only do we deliver CCI scan results, but PercentR signals as well as Acceleration Band signals, all built on Price Headley's proprietary techniques.

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