Technical Picture - Multiyear Lows on Higher Volume

The government is taking a major stake in Citigroup, GE is slashing its dividend, and fourth quarter GDP readings show the economy contracted at its sharpest rate since 1982. Those headlines led to some very choppy trading and pushed the S&P 500 and the Dow to their lowest intraday and closing levels since 1997. For the week the S&P lost 4.5% on higher volume. As long as we keep making new lows on higher volume, the bears own it.

The NASDAQ has been the lone major US index to hold above the November lows. On a positive note the Canadian TSX had a technical bounce on the retest of its November lows, lead by oversold oil and banks.


As we noted Thursday, open interest was too bullish and Friday it neutralized.

Financials are still very weak, but positive divergence of the MACD to lower prices, implies that a bottom and potential reversal is near.
A correction in the $USD would help commodity related names.

Oil had a nice 3 day bounce last week. Still Canadian oil stocks outperforming - ECA, SU, CNQ. Currently approaching overbought levels, we are keeping a close eye on this sector for a consolidation breakout.

Although oversold, gold appears to be topping out. We note slight negative divergence creeping in. We do expect prices to retest recent highs, but will be watching closely for sell signal.

Solid performance for some Agchem names on Friday - MOS, TRA, CF. Sector is in a box play and oversold, so we are watching closely.

Although oversold, we expect further correction to health care/biotech sectors, following Obama's health care budget. We do, however expect a technical bounce when prices test support. AMGN $45.00 could produce a worth while retracement 38- 62%.

Update on ABX Swing

This is the TSX chart of ABX where I placed yesterday's swing trade. The Canadian chart is slightly more symmetrical than the US chart. Price gapped into resistance and the whole $ level so I exit the swing for almost 3 point gain. Price retraced back to the $38.00 base and I entered long again. The R-zone acted as resistance and I didn't want to have a losing trade going into the weekend, so I exit. Price retested yesterday's lows and reversed, so I swing again.

From the daily chart below, we can ascertain that $38.00 is a solid support area - several pivots and 200 SMA. However, it could fail and price could go to $35.00. Hopefully that won't happen. I'm targeting $45.00.

Inverted h Pattern -Hansen Natural Corporation (Public, NASDAQ:HANS)

HANS was an earnings gap from the pre-market scanner. Price gapped slightly and made a fast move higher. Place fibs from the ORL to the early pivot high. Price found support in the R-zone and I entered long. Exit as price approaches whole $ level just below 100% fib. extension. Price doesn't always reach the full extension and it's better to exit into strength. This is an inverted h-pattern.

Technical Picture - Box Play

The market proved unable to generate enough momentum to work back through Wednesday's highs on the morning push led by banks and oil, with a choppy pullback into midday trade. The markets sold off on the Obama budget. The worst performing sectors were led by Healthcare -10.3%, Health Provider -6.6%, Biotech -4.4%, Medical Equipment -4.2%, Medical Supplies -3.6% amid concerns over the president's health care system plans. We're trading in a box. Expect more intraday swings until the BO which could occur tomorrow.

Follow Up Trades - FSLR and ABX

Last night we said that FSLR could go lower because it closed weak. The fibs were placed at the early pivot high and low. Price rallied back through the R-zone and carved out a shooting star ,so short as it exits the R-zone.

From the 15 min. chart we see that the initial inverse C&H turned into an inverse H&S. The H&S failed and we reached full extension of the initial pattern in early trade this morning.


I started scaling in ABX on a higher low, when I noticed that AEM, today's loss leader was reversing and moving out of its base. Added to the position after it formed a 3 pivot base. I partialed out when price ran into the downsloping 50 SMA on the 15 min. There was a C&H pattern on 15 min. but it stalled shortly out of the base because of 50 SMA.

I did same trade in my retirement account except holding for a swing. If markets roll over, gold should be the safe haven play once again.

Biotech Blood Bath - Amgen, Inc. (Public, NASDAQ:AMGN)

I think the chart speaks for itself. Initially, I thought this was a bearish base with a perfect NRIB in the lower shadow of the outside bar (red on red). Obviously, it grew into much more than that. The h-pattern is awesome. I took a partial at $57.00 $55.00 - price stalls at whole $ number.

When I realized that the entire sector was in a race to the bottom, I ignored the fib. lines and waited for a bona fide reversal pattern. Price never closed above the downsloping 5 period EMA and never printed a red bar after consolidating $57.00 $55.00.

This was the best trade of the day, but I want to follow-up on ABX and FSLR if I have time later tonight.

Opening Range Breakout - Agrium Inc. (USA) (Public, NYSE:AGU)

Shortly after 9:00 EST, the TI pre-market scanner had a lot of activity in Agchem, with CF ripping higher and AGU lower. AGU for CF was in play - short the acquirer and long the acquiree. I place my fibs from the pivot low to the pivot high and the trade became obvious with NRIB at base of R-zone.

A second trade presented itself on the retracement. This time place fibs from ORH to morning pivot low and watch price in the R-zone.

CF didn't go anywhere near the offer price (I read $72 on Briefing, but maybe it was a typo).

Last night we said that after yesterday's gold drubbing, we might get a snap back. Okay, so that was too optimistic, but the ORB trade set up nicely as price tested the R-zone for support and rallied from there.

The snap back rally might happen tomorrow. As you can see from the daily chart of ABX, today's stick is an inverted hammer and could form the middle bar of a morning star reversal if tomorrow we rally up to the mid-point (or more) of yesterday's WRB. Many gold stocks printed similar patterns so not just ABX.

Last night we said FSLR was trading lower on earnings. I was watching it out of the corner of my eye, but must have been distracted, because I missed the actual BO. Rather than jump in, I waited for price to consolidate. Place fibs above BO base and wait for retracement. I was expecting a flag, but instead I got a shoulder, so I knew that I had to get out earlier than planned ( 15 min. chart looked like inverse C&H).

Nice extension (big head). I should have entered long as price broke above 50% extension level (NRIB), but I was waiting for inverse H&S to take shape. It got sloppy and didn't break successfully. Finally jumped in on a mini three point base.

Short into the close. Since the close is weak we may get further downside tomorrow. The prelim. target would be $100.00, but could, over next few sessions fill the Nov. gap.

Technical Picture - Oversold Bounce

An impressive technical bounce for the stock market, reversing the previous day's breakdown to post strong broad based gains on above average volume. This technical hold, the deeply over extended posture, relative strength yesterday in the key Financial sector (XLF did not breakdown) and again today (XLF +12%) along with the ability of the S&P to remain above Monday's trough despite the weakest Consumer Confidence data on record (25.0 vs. consensus of 35.0) helped to underpin the action. Also providing leadership were: Coal +11%, Paper +11%, REITs, Clean Energy/Solar +8%, Housing XHB +7%, Oil Service +6%, and Steel +6%, . Little on the defensive other than Gold/Silver XAU-7% (refer to chart below).

Looking forward, a 62% retracement of the last leg down, would fill last week's gap.

FSLR trading much lower after hours on weak earnings.

Bear Flag - ABX and Inverse H&S - V

ABX fooled me on the capitulation volume spike as price moved into the 50% fib. ext. of the PDH to ORL. Eventually, I found a spot to get back in for the rest of the ride.

Watch gold tomorrow for a snap back rally.

V- Inverse H&S - normally a measured move on a chart pattern is 100%, but I had a feeling that V would go to $57, so I locked some in and kept my fingers crossed.

Technical Picture - Oversold

The markets opened on a mildly favorable note in the wake of Friday's afternoon bounce and talk of a gov't plan to takeover C's bad assets. That quickly turned into a head fake with a steady slide into midday resulting in a breach of Friday's lows and the underperforming Dow dropping to its lowest intraday level since Oct 1997. Minor consolidation followed by more afternoon selling and a weak close.

We are extremely oversold and normally we would expect to get a technical bounce soon. However, with all the rumors and speculation, I'm not holding out for much of a bounce until the failing bank crisis gets resolved.

As for the big picture, I see an inverse H&S pattern taking shape on the SPX weekly chart above.

Stocks reporting earnings in pre-market: FWLT, M, TGT, HD.

Opening Range Breakout - Agnico-Eagle Mines Limited (USA) (Public, NYSE:AEM)

Both AEM and NEM are the same type of setup. I'm placing my fib lines from the PDH to the ORL or early pivot low and looking for potential retracement trades (back to Friday's highs). AEM worked perfectly and NEM started out as planned, but couldn't follow through on the second half, so I had to short it on a lower high in the R-zone.

If you're like me, trading from a WL, focusing on certain sectors, you probably look at what's going on with yesterday's winners for follow-up trades. If not, this post won't be of much interest. Trying to find the best Fib. placement for these types of trades that gap within the previous day's range is challenging. I really like how this Fib. strategy worked for me, because both charts were easy to read. For AEM the R-zone acted as support, whereas for NEM, it acted as resistance. In both cases it was clear what action was required to make money.

Capitulation - Bank of America Corporation (Public, NYSE:BAC)

The banks went into free fall amid rumors and speculation regarding the government's bank stability plan. In early afternoon they capitulated on huge volume. BAC carved out a morning star reversal pattern, so it appeared safe to get long.

Capitulation volume spikes foreshadow that a bottom is near. However, if not accompanied by a clear reversal pattern, size it accordingly. In other words, be prepared to average down.

For this particular trade, I placed my fibs from yesterday's close to today's low because I wanted to be conservative in my expectations. I took a partial as price approached the ORH and exit balance on gap fill.

Cup & Handle - Newmont Mining Corporation (Public, NYSE:NEM)

NEM gapped up on the open as did most gold stocks with gold futures closing in on the psychologically significant $1000.00 level. NEM carved out a cup & handle with a NRIB (narrow range inside bar) (NR7) as the trigger bar at the base of the handle. On a measured move basis, the C&H pattern should extend 100%. Place the Fibonacci lines from the low of the cup to the base of the handle.

I exited half at the 1/2 $ level as price approached full extension and exit the balance as price moved into the whole $ level.

The attributes of the pattern as outlined below on the lower timeframe. Volume contraction should accompany price contraction as the handle forms. This leads to expansion.


Related post : Cup & Handle VMW

Also check out Anarco's AEM trade

Support & Resistance

CAT printed a hanging man at resistance.

V tested resistance at $58.00 in early trade. This was a HCPG pick on Friday - failures lead to fast moves in the opposite direction. My alert was set too high today, so I didn't get into V until the inverse C&H was about to break. But you can see from the chart that today's price action almost mirrors Friday's. So basically, I was able to make the same money twice.

1 minute chart below shows that two bear flags formed along the way so there was opportunity to get in after the initial break.


Last night we said that POT had carved out a nice inverse H&S. I was disappointed that it gapped so wide - into the R-zone. Eventually it printed a series of lower highs, setting up for a gap fade and fill.

ABX - the base from yesterday's inverse H&S held as support for most of the session, but it finally gave way for nice short into the close.

Last night I said price has a memory and the CAT, V and ABX trades prove the point. Remember to set alerts at key support/resistance levels.

And what's up with this Trader Transaction Tax? Sounds like some people are getting carried away, blaming Wall Street and the regular Joe day trader for everything that's gone wrong with the U. S. banking system.

Technical Picture - Possible Bear Trap

The doji sticks on the DOW and S&P imply a loss of momentum but we need to close above doji highs to confirm a retracement. The fact that the DOW is testing November lows and that neither S&P and NASDAQ are confirming, leads me to think that we may be in a bear trap. Clearly volume is not overly bearish.

You may have noticed that the afternoon session was rather choppy. That's OPEX (options expiration - 3rd Friday of the month) kicking in. And we may get more chop tomorrow.

Look for orderly setups like the inverse H&S pattern on the POT chart below. Don't get stuck in a choppy trade if you can help it.