Technical Picture - Oversold

The path of least resistance this morning was down again, but markets found support midday. We are technically oversold, so expect some stabilization/retracement to work off the OS posture in the short-term.

Technical Picture - Jobs Data Disappoint

A disappointing jobs report prompted sellers to knock stocks sharply lower in the first few minutes of trading. The jobs data hung over the markets like a bad smell. Even after strong factory orders data was released, stocks lingered in an extremely narrow trading range until the S&P 500 finally slipped below the psychologically significant 900 level in the final half-hour of trading and finished at session lows.

Investors should prepare for a deeper correction if the mini H&S top on the S&P breaks its shoulder line. On a measured move basis, expect price to drop approx. 50 pts.


VIX breached support but has reclaimed. If S&P breaks, look for increase in volatility.

Happy 4th of July

Technical Picture - Resistance Holds

New month/quarter cash inflows prompted some early gains, but everything stalled after the first hour and shortly after taking out yesterday's highs. A lot of midday chop was followed by selling into the close. Tomorrow's jobs data could provide some direction, but for now we continue the pattern of low volume on up days and higher volume on down days.

FUQI, one of IBD's leader stocks looks ready to roll over soon. Why? We broke out of the continuation triangle on euphoric volume spikes. Like capitulation, euphoria usually foreshadows the end of the move. Today's red shooting star is another hint.

Happy Canada Day

What does this post have to do with Canada Day? Nothing, but I just wanted wish our Canadian readers a happy July 1st. Cheers! Oh, and three of the four trades below are Canadian ADRs.

If oil breaks down, DUG will break the channel to the upside.

I've been watching and trading CNQ. Yesterday it broke it's short-term trendline. Today it gapped above it, but turned into a quick fade despite a weaker dollar. Inventory build means less demand, so oil is poised to correct.

On the DUG chart, the same trade would be the reversal at the lower channel line.

The 5 minute chart of CNQ shows how it set up a perfect ambush trade. A decisive move lower after failing to hold on the trendline, followed by a quick retracement. Within the R-zone, it forms a base at the 50% level, breaks higher and stalls at 62%.

POT is another Ambush example. I didn't trade the ambush, but rather the h pattern, which took a long time to get going, but eventually delivered.


RIMM - I'm calling this the Groundhog Day setup. If you've seen the movie, you will get it, but if you haven't, I'm taking the exact same trade as yesterday, at the same price. Worked like a charm today.
PFCB was a stock I found on the TI scanner. The scan is called Stocks with the MOST Upside Momentum. I've modified the scan to meet my particular needs. On a day like today I get a reasonable amount of hits and when I see something I like, I wait for a pullback and jump in.

The stock broke out of C&H pattern and came back to retest the base. This is a shallow retracement as opposed to an ambush, so I prefer to wait for base & break. I exit as price approaches the FE and whole $ level. PFCB carved out a bearish rounded top so I couldn't resist the shorting opp. That was the best part of the trade!

Technical Picture - Another Distribution Day

As you can see from the monthly chart above, the S&P has notched four consecutive higher closes. June is just marginally higher because we spent most of the month consolidating the big move from the three prior months. Also note that the June highs are a key pivot point (support/resistance) over many years and secondly, that the entire move off of the lows took place on declining volume. It is unlikely that we successfully break through without a reasonable retracement.

On the daily, we had another distribution day (lower close on higher volume), that's four in three weeks. Open interest crossed above the neutral line once again. The weak consumer confidence data initiated some profit taking resulting in a fast move down. Choppy sideways trade persisted throughout most of the afternoon with some trimming of losses at the end of the day.

Light crude feels like it wants to retest the highs but it's been choppy and the RSI has pulled back to the mid-range, so clearly it's a tough slog.

The OIH (oil services index) is forming a bearish flag or H&S top, either way, it looks bearish as the MAs converge over price. We would need to see a move back above 105 to neutralize and invalidate the bearish bias.

The $USD has an impact on commodity prices including oil. Currently in a sideways chop. watch for the RSI to test 50. A break above 50 would give the greenback the strength to retrace back to its downsloping trendline.

Day Trades Short - AEM, ABX, FUQI, RIMM

Short gold on break of support. AEM was the obvious trade and ABX was the sympathy play.

Not sure what to call the FUQI setup other than inverse C&H. But if you see a big thrust higher, consolidation, and a big move back down, just draw in the lines and wait for the handle to form. Approx. 100% measured move down, if we measure the pattern from 21.50 to 20.50, target 19.50.

I shorted RIMM when it failed on a BO attempt. Not a big move today, but I still think RIMM is going to setup a swing short when it breaks the lower trendline of this bearish pennant.

Technical Picture - Window Dressing

Since last Monday's sell-off, we've had some institutional quarter-end window dressing. Still, no accumulation as the up days are on declining volume, excluding Russell re-balancing which doesn't count. I'm expecting that the bounce will fizzle out once the window dressing is complete. S&P /SPY may be setting up for an ambush back down as it approaches the 62% retracement of the previous leg down.




Day trade CELG after breach of support reverses with a hammer-like stick. Easy to spot these if you have S/R lines mapped out ahead of time.

Perfect World - No Counter Trend Impulse

Earlier tonight I exchanged comments with another trader about a failed trade. He was trading a gap up, with the trend, and took an entry after a shallow (38-50%) test into the intra-day ambush zone (38-62%). The only sign of a problem was somewhat of an impulsive (counter-trend) move coming into the ambush zone.

A key is to look for non-impulsive counter-trend corrections to trade. I traded PWRD (from scanner), and even though it was a bit choppy and it was a short in an overall up market, it worked for a late retest of the AM low. Notice the absence of any significant counter-trend impulse in the bear flag (15min and 5min charts). It also helped that the bear flag formed near the ORL and below the PDL.

Technical Picture - Short Squeeze

Futures dipped ahead of the open on initial claims, but after a minor dip, the markets quickly recovered. It felt like a short squeeze to me. At the EOD we have a WRB, a broken trendline, but low volume. We've retraced 40% of the slide and I suspect we are setting up for an ambush in the 50-62% area.

After hours POT lowered Q2 guidance to $0.70, down from $0.93, so the chart looks like this. Lots of sympathy plays in the sector - AGU, CF, MOS MON, IPI...

PAYX was an earnings gap down from the TI pre-market scanner. When a liquid stocks trades in a narrow range pre-market, I like to trade the open. The stop is the high/low of the PM range as depicted on the chart below. Although the fill wasn't great, it generated almost a pt, in 5 minutes.


CELG - bull flag, partial at recent range top and swing balance (as described in last night's post).

AMGN - IB forms below base we talked about yesterday, so take the trade.


SPY - low volume consolidation after early thrust sets up the second leg.

ABX - strong performer as gold reclaims its trendline. I suspect gold will pause to consolidate this three day upward move.