Technical Picture - Bulls Win the Week and the Month

Most of Friday's session was choppy in the wake of mixed economic data. However, a late day rally in the last half hour pushed the S&P to fresh highs for the week. The rally seemed contrived but I'm not going to fight the tape. That said, we need to focus on key levels going into next week - Most recent high 924; May high/ 200 DMA 929/930; January closing high 934; and finally, January high 943.

Normally, we see new institutional money being put to work in the first week of the new month, but this rally is three months old and testing significant resistance, so I would not be initiating any new long position trades at this late date.

Keep a close watch on economic data, especially employment data later in the week. Economic Calendar for June 1 - June 5th




$USD breaches minor support level as $CAD approaches resistance.



Focus List of Stocks:

CME - dragonfly doji after a big run up in price could signal bears are getting ready to take over.

FSLR could retest $200 this week.

ENER - solar laggard could be setting up to join the rally.

GIL - Bullish flag pattern

AMZN - coiling as MAs converge

AMGN attempting to save itself, but either way there's a trade setting up here.

WFC - may get one last pop before we retrace.

Technical Picture - More of the Same

Tomorrow's economic data includes GDP in pre-market, Chicago PMI at 9:45 and Michigan sentiment at 9:55. Any data which surprises versus consensus estimates can move the markets. NASDAQ testing resistance.

Gap Fade - SPY

The SPY setup a perfect gap fade shortly after the open, when prices tested resistance and formed a descending triangle on the 1 minute. The red line segments are how I managed my stop. After the double bottom, I exit half and was stopped on balance minutes later. I was hoping the PDL would hold as resistance but the bulls wouldn't have it.


A choppy session with a midday price/volume spike noted on auction results. The auction stuff is over my head so I stayed away and took the rest of the afternoon off.

Technical Picture - Bears Step Up on Lack of Follow Through

Early NASDAQ follow through strength after yesterday's broad based advance , was unconfirmed on the broader market. The bears took control of S&P morning chop eventually prompting an afternoon decline on accelerating volume. Notice the divergence between tech and SPX.

Still the markets are in a tight, low volume consolidation. Until either support/resistance gives way, trading is tricky.

TI Gapper Scan - ATI Mirroring VIX

ATI (lower 15min chart) hit one of my TI gapper scans today. Mid-day I noticed that the pattern in ATI was mirroring VIX (top 15min chart). The VIX tends to move inverse to the broad market (VIX moving up means market probably moving down). The main reason I like the VIX is because it usually has less noise - compare it to SPY, QQQQ, etc. Therefore, the turns and flags are more obvious (to me anyway). The action in ATI alone was compelling. Combined with the pattern in the VIX my confidence level was up two notches. Notice that the trendline breach and flag in VIX lines up perfectly with the respective features in SPY from Jamie's post below.

Ambush - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

After early weakness, POT retraced 62% from morning high/low. it printed 3 IBs, the last of which was NR7 with body in the shadow of the previous bar (red on red) - very bearish.

Normally on the ambush trade, we take half off when price approaches lower fib, but today the market was starting to rip lower, so hang on for 3 WRBs. Price carved out a hammer reversal stick at the 50% FE so I tightened stop. It ended up being just a pause, as price eventually tagged the 100% FE.

The SPY formed a mini flag after breaching its trendline, setting up a low risk short.

Bullish Flag - SOHU; C&H - CNQ

Several analyst upgrades to BUY from the watchlist - AAPL, BUCY, JOYG and SOHU was initiated as a buy at Citi. The others moved too fast, but SOHU paused to form a flag, so I jumped in on the flag BO. At the EOD these four stocks were the biggest % gainers on my WL.

CNQ gapped wide and filled. It eventually paused at resistance from Friday's high and formed a handle to complete the C&H setup. I exited as price approached 50% FE and resistance from last Wednesday.

Divergence in VIX and SPY

Jamie had a great short in the SPY late on Friday described at the end of this post. I shorted AAPL late on Friday based on the divergence between the VIX and SPY. AAPL was a WL stock that had shown relative weakness throughout the session - so the choice of AAPL was just a relative weakness play. However, the more important point is the divergence between the volatility index (VIX) and the S&P (SPY) on Friday afternoon. Following the rounded bottom pattern in the VIX 15min chart, the divergence region is marked with vertical lines. The flag action in the VIX was screaming to short something late on Friday. The VIX has been a powerful indicator/tool for me over the last few weeks.

Gap - MDVN, Gap Fade - ATHN, Ambush - SPY

MDVN, from the TI scanner, gapped up in late pre-market. The opening range leaves a long upper shadow, but clears daily resistance (blue line) on a closing basis. The next two bars are NRIBs in close proximity to rising 5 period EMA. This setup is very similar to the GIL trade earlier this week. Burn it to memory for future reference.

It's always a good idea to map out daily support/resistance of gapper candidates in pre-market and/or first 15-30 minutes of trading session. That's why I like the TI scanner - it tells me how many days of S/R are being taken out in pre-market price action.

ATHN, also from the TI scanner, had two support levels at $29 and $28. Buyers stepped in at $29. The opening range was solidly bullish and I waited for a break of ORH. It's important to watch carefully, for a close above the downsloping 5 period EMA just above the BO point.


SPY setup a perfect ambush trade. Took a partial as price approached the downsloping 50 SMA and exit balance on weakness following lower high. Price eventually retested sessions highs, but failed to close above, so I waited for confirmation and shorted the failure.

Technical Picture - Pressure

Markets gapped down on the open with steady pressure noted into mid-morning. The midday drift and new afternoon lows were met with muted interest so the bulls were able to able to put together a late day reversal with higher volume into the close.

Gold extended its BO gains as the $USD continued its slide. Commodities, many of which were extended, came under pressure, carving out evening star reversal patterns - agchem (MOO), steel (SLX) , coal (KOL). Financials held up fairly well.

No economic data tomorrow ahead of the long weekend, so it could be a slow day. ADSK - big earnings beat in after hours will be on my focus list tomorrow.

Ambush - Barrick Gold Corporation (USA) (Public, NYSE:ABX)

ABX, from the WL set up a perfect ambush trade. What is an ambush? Hubert Senters of Trade the Markets, uses this setup on a regular basis with gold and futures.

Place fibs from PDL to PDH or from begininng to end of last leg. Price retraces between 50-62%. Ideally, price should not close beyond the 62% retracement level. Look for a reversal back to the base, and sell half.

POT gapped wide and printed WRB on huge volume. The second bar was bearish with no overlapping bodies and closed at base of the round $ number, so I went short as there was little or no chance of a retracement. Partial at gap support and whole $ level. Stopped out on balance. Late in the session POT head faked lower, filling the gap from Monday, and setting up a fast move (long) into the close.

Technical Picture - Rally Stalls

Markets gapped up on the open, but the rally came to an abrupt halt a little over an hour into the session as traders realized there was no catalyst to keep going higher. Clearly, the only bullish play was commodities/gold versus a very weak $USD.

As Jim pointed out in the post below, the VIX carved out a tweezer bottom reversal and provided a leading indicator that things were about change. I had 3/4 scratches on my gapper longs (COST, BIIB, TGT). The CNQ oil play was good, but the failed gappers struck a chord and I scoped out a futures short.

Today's SPX shooting star on higher volume foreshadows a change in direction. This is a lower high which implies the bulls are tired. Let's see if the bears can show some muscle here.

Economic calendar - initial claims in pre-market, leading indicators and Philadelphia Fed at 10:00 EST.


Gold, another leading indicator, broke out of a huge base today.


5 minute chart of ES futures trades on either side of FOMC.

Advantages of Work - VIX and SKF

Many times, working and checking the market occasionally throughout the day has its advantages. Today was one of those days. I missed the whip saw action - early bear trap (weakness late yesterday followed by gap up open) which turned into a bull trap a couple of hours into the session. When I checked the market, the volatility index (VIX) had reversed, formed a flag pole, and was well into the formation of a bull flag on a slightly rising 20EMA (15min chart). An upturn in the VIX indicates increased fear and/or risk (i.e., market selloff).

From my WL, I found SKF (inverse ETF) forming a consolidation between its 20EMA (15min chart) and its 5-day MA. I waited for range contraction (NRIB) and entered aggressively when it appeared the 5-day MA would give way. I closed half after 3 bars and carried half for a swing. I even threw in the execution window for those skeptical of success in the whip saw action.

Technical Picture - Markets Mixed

The markets closed mixed on late session weakness. The NASDAQ ended the day in the green on SOX strength, but for the most part today's trade was choppy. Strength was mainly attributed to commodities on $USD weakness - energy/solar, coal, steel, agchem, gold/silver posted gains of 2-3%.

Weak housing data on the heels of last week's poor retail sales could be leading indicators that we are going to turn back down soon. S&P carved out a spinning top on light volume.

Crude inventories tomorrow at 10:30 and FOMC minutes at 2:00 EST.

Low Risk Dummy Trades - GIL, SNDA

GIL - analyst upgrade from neutral to BUY. Two NRIBs at the base of the whole $ level on the 15 min. and 2 NRIBs in the upper shadow of a bullish WRB on the daily. That's very bullish.

After topping out at $17.00, I shorted it (blue line segment) back down to $16.00. The reason I'm exiting at $16.00 as opposed to holding on until price meets the rising 20 EMA, is because of the whole $ level and because price based a long time at $16.00 on the way up, so that provides support (matching congestion).

SNDA from my WL, had a small gap and a perfect entry on break of ORH which I missed. It then carved out a flag pole (high volume) and flag (declining volume) setting up the next leg higher. For chart patterns such as flags, we look for a measured move of 100%, so I placed my fibs from the ORL to the BO point of the flag.

Yeah, I missed the rest of that move, but who knew after that shooting star?

Technical Picture - Oversold Bounce

As outlined yesterday, we expected support at 875 to hold on the first test, following last week's pullback on declining volume. Today's broad based bounce was on light volume, so now we are watching to see if the market will test recent highs with a new high or a lower high. Today's advance was lead by banks/financials, oil, retail and industrial materials. Precious metals were out of favor. Oil combined with weak $USD could test resistance tomorrow. I'm watching Canadain oil stocks CNQ, ECA, TLM, SU...

Cup & Handle - STT, AAPL, JPM

STT from the Trade-Ideas pre-market scanner, formed a cup & handle just prior to market open. This is a little riskier because it involves buying the open, so size it accordingly. I took a partial at R2 (dotted red line) which was close enough to the measured move target 100% FE and in line with round$ number. Then it carved out an IB in the upper shadow of the OR, so I was confident we could go higher. Exit balance at 150% FE.

After STT carved out a lower high, I was watching for a shorting opp. - NRIB was good for a retracement back to the rising 20 EMA.

AAPL formed a perfect C&H at the base of the ORH (entry as price takes out $124.00). It made a fast move to the middle ground between the 62% FE and R2 then stalled. I took a partial and then we consolidated at length before, finally taking out R2 and the full extension. After all that consolidation, I thought we might go higher, but not enough momentum.


JPM, another C&H pattern, stalled at the 38% FE so I moved my stop just below the whole $ level. It didn't retest the base, but took forever to form a second base. Worth the wait!

The C&H pattern should BO on an uptick in volume. JPM was suspect because of the minor uptick on BO.

Technical Picture - Profit Taking

Before I left for vacation we said that the S&P was forming an inverse H&S bottom and that we expected some symmetry (matching congestion) areas on the way back up. That's pretty much how it played out as we can see from both the weekly and daily timeframes.

Taking a closer look at the daily, we note that last week's profit taking was on lighter volume, and thus implies, that the rally is not over. I'm watching support at 875 as we consolidate between the two blue line segments. I wouldn't be surprised to see prices rally to test the January highs before beginning the longer consolidation process of carving out the right shoulder in the inverse H&S bottom.


The $USD took its sweet time before finally succumbing to a trendline breach. Thus far the breach is minor and could easily bounce for a retest. If so, gold and commodities, which rallied on USD weakness could come under short-term pressure.

Oil, is already pulling back to retest it's BO point.

Gold consolidating at it's base. I like how all of the moving averages have formed a bullish cross.

The rally in financials is also consolidating just below the downsloping 200 DMA.

Jim did an awesome job on the blog while I was away and I really appreciate it. The depth and variety of content is great and I look forward to more if he has time. Read his post below for analysis of key technicals in play.

In the next week or so I plan to respond to emails piling up over the last seven weeks. I'm feeling really jet lagged so I expect things will be a little slow in the next few days.


Good Trading!