Technical Picture - Short Term Correction

From the weekly SPX chart above we note that the RSI usually signals negative divergence to higher prices and positive divergence to lower prices ahead of a major trend change or significant correction.  The exception was the flash crash of 2010.  So far this year, we have no RSI divergence signal, so the assumption is that we will make higher highs in the near term.

The daily SPX chart below did signal negative RSI divergence to higher prices and the current price action shows that we have been working that off through short-term corrective price action.  The mathematical Fibonacci levels in play are extension long with a target of 1454 (23.6% FE). The anchor is October 2011 high.  We anticipate that the ambush zone will hold as support and will be followed by eventual new highs.  If new highs signal negative RSI divergence on the weekly chart, we will anticipate that a larger correction will follow and lead us back to our longer term trendline on the weekly timeframe.

As depicted on the chart below, the DOW made a minor new high on May1st, but was unconfirmed by all the other major indices.  Non-confirmation of new highs and lows, usually leads to fast collective moves in the opposite direction.  Keep this chart handy as we note that the QQQQs are correcting at a much faster rate than the broader indices.  If, for example, the DOW fails to confirm lower lows, it would foreshadow a reversal of the short-term downtrend.

Technical Picture - Uptrend Persists

After a pullback at the front end of March, the uptrend has exceeded the 23.% FE and continues with little hint of a correction any time soon. As long as we hold the HWB level of the current FE (green fibs), we should reach the next target 1420 very shortly.

The only caveat I see is that small caps are lagging as depicted below. A failed BO of the IWM would be a red flag for the broader markets.


Swing trades in play DVN, POT, GLD.


DVN broke out of a long consolidation pattern on high volume. I waited for a pullback to the bottom of the ambush zone. Price had a nice bounce off of the initial entry, but stalled and retested. Now, it is starting to move in the right direction towards a retest of the highs.

As we can see from the daily chart of POT above, it pulled back to the bottom of the ambush zone (50-62% Fib. retracement level) on Wednesday.

On the 15 minute chart below, we entered long on the first ambush retracement after Thursday's gap up. We added to the position on Friday as it flagged after another gap higher. Partial profits taken into the close. Plan to add back on a pullback.



GLD sold off sharply following the last FOMC statement. It has corrected back to the ambush zone on the daily. I'm looking for a bounce half way back to the ambush zone of the counter trend trade (green fibs). After which I'll be looking for a short.

The 15 min. chart below, shows the initial entry, stop below red line.

AAPL is extremely extended. It has breached it BB twice in this parabolic move higher. The first breach was met with a quick shallow retracement to the ambush zone, and we appear to be doing the same again on the second breach. A failure of the ambush, could see a deeper correction back to the rising 20 MA.

John Bollinger talks about the Three Pushes to a High pattern in this month's issue of Stocks and Commodities magazine. This pattern suggests that the next time the BB are breached within this uptrend, AAPL will be ripe for a full HWB (half way back) from the October high to high.

N.B. Apple will disclose its plans for $100 billion cash reserves tomorrow at 9:00 AM EST. NQ futures have rallied to new highs this evening.

Technical Picture - SPX Target Reached

Our SPX target - 1344 was reached Friday on positive jobs data. The Fibonacci extension remains in play until it fails. We'll stretch it to encompass any new highs and look for a pullback to the ambush zone. If the extension fails in the ambush zone, we'll look for a deeper pullback - 50% retracement from Feb. high to Dec. low.

In the meantime, I'm monitoring the 15 min SPY chart for any negative divergence of the RSI to new highs. This often foreshadows a pullback. So far, there's nothing to indicate the uptrend is in jeopardy. Gap support held on the first test.

BIIB flagging within a Fib. extension after coiling and ripping out of its base.

Technical Picture - Small Caps Outperform (January Effect)

Small caps are pacing the way higher. The 23.6% Fibonacci extension was reached and exceeded yesterday.

The chart below highlights the January effect with small caps far outperforming large cap broader markets in the month of January.


Last week, we said we were looking for a small correction to SPX 1300. A good place to add to long positions. Now, we need to see follow through to our target at 1344. Also note the golden cross of the 50/200 SMAs.

Divergence between light crude and the SPX is a bit of a red flag. A stronger market due to improving economy should lead to higher demand for oil. Since the beginning of January oil is in decline. What's up with that?

Technical Picture - Reversal Bar

Today the SPX carved out a reversal bar - higher high and lower close from the previous session. We are looking for minor corrective action to bring us half way back to roughly 1300 before resuming the uptrend towards our 1344 target.