Technical Picture - Narrow Range Chop

After a weak start the markets got a boost from better than anticipated new home sales, however, failed to follow through with much of the session spent in narrow range chop. That leaves us with NR7 (price/volume contraction ) on the daily. Tomorrow's pre-market economic data should set the tone with initial claims, prelim. Q2 GDP and core PCE at 8:30.

As noted earlier in the week, V is carving out a Cup & Handle pattern at $70.00. Yesterday it formed an intraday base at $69.00. Today I decided to place a buy stop order on a break of PDH for a target trade to the C&H base. Price consolidated midway to the target, but held support of R1 (not depicted), eventually reaching the target.



MYGN was my gapper trade. It formed a C&H which broke late in the session, but the extension was really lame. Bullish island reversal on the daily could develop some follow-up trades.

Technical Picture - Bearish Candlesticks

Markets notched new intraday highs on strong economic data, but failed to hold. After failing to retest the early highs, prices retraced back to session lows. This leaves the S&P with two consecutive shooting stars and possibly a tweezer top reversal pattern.

Keep an eye on economic data tomorrow - durables in pre-market, followed by new home sales at 10:00 EST and crude inventories at 10:30.



If you have POT on your focus list, we lucked out again today with a bearish h pattern. Quite similar to Jim's CME bearish flag yesterday, except the consolidation has more of a curve. Price penetrated support from 3 PDLs (red line segments) and tried to save itself through a lengthy period of price/volume contraction. But the bears were victorious on the expansion. Once support gives way, all the preset stops trigger resulting in a fast move to the next support level.

Technical Picture - Weak Close

Markets extended in early trade. The pullback after the early session move to new multi-month highs reflects weakening momentum with the long upper tail creating a weak candlestick. However, weak stick patterns have been seen several times over the last month or so with no follow through pressure. Watch for consumer confidence data at 10:00.


Initially, it was hard to know which direction POT's narrow price contraction would break. I was prepared to take the trade either way, but since this is one of my weaker WL candidates, I was satisfied with the break lower for a gap fill.

Summer Time - Basic Multi-TF Patterns

In slower summer time trading, I often find it helpful to look at a longer period intraday chart. It can cleanup some of the noise and reminds me to be more patient for a good setup. I found this setup today on a 30min chart (left chart). The daily chart (lower right) is extremely weak compared to the broad market and has a very interesting pattern on a longer term daily or weekly chart. After the weak OR, the intraday volume contraction was confirming the bear flag and is visible on the 30min and 15min (upper right) timeframes. Range contraction (NR7/NRIB) followed by a hanging man marked the end of the bear flag pattern.

Technical Breakout

The market staged a technical breakout on better than expected Existing Home sales and a positive economic assessment from the Fed Chair. Narrow range trade at range highs dominated for several hours before a later afternoon push to a fresh session high. The upside extension allowed all the market indices to establish new 2009 close/intraday highs.

However, that left the CPC way too bullish and prices are popping well above trend channels. Futures are higher as I write this post. Target S&P 1050 on this last thrust. I see resistance there and the smart money is likely to takes profits which will result in a much needed correction back to the trendline.

V forming a cup & handle.

Technical Picture - Buying on the Dip

Bulls defended support off of a weak open leading into gap fill. Limited downside following the gap fill as prices coiled and contracted leading to expansion midday. We may attempt to fill Monday's gap before OPEX.

Crude has formed a solid base if the dollar rolls over here.

The SPY is a perfect example of coiling - NRIBs (NR7) leading to expansion. Burn the chart to memory on multiple timeframes.

TGT formed a C&H but didn't deliver the full measured move. Daily chart looks good if we can consolidate the earnings gap and try again.

Technical Picture - Bulls Defend Support

Prices opened slightly weak, but the bulls defended support and the early thrust held into the FOMC, at which point the bears came in strong, but not strong enough as you can see from the SPY chart below.

An inverse H&S pattern developed on 1 minute chart and a short squeeze ensued. That didn't last long and the bears pushed prices back down into the close. Still we end the session with a bullish engulfing stick on the daily.

One of my strategies going into the session was long oil/commodities after the run up in the $USD. Luckily, oil didn't have as wide an opening range as most other stocks on my focus list, so I was able to get in for a fast trade.


SOHU and SNDA look compelling as short opps.

Technical Picture - Profit Taking

Sellers controlled the session from the open, with some retracements in the afternoon, followed by a push back to morning lows EOD. Volume was low ahead of the FED, and/or summer doldrums.

FOMC minutes tomorrow afternoon at 2:15 EST. Crude inventories at 10:30.

JPM was a planned trade as discussed last night. Not a great setup, but I set a sell stop order on break of ORL as price contracted between the two blue lines. The second trade was an ambush, but it really started to feel like the bulls were going to take the close, as usual. Just managed to work in the final minutes of the session.

NRIB (NR7) - Research In Motion Limited (USA) (Public, NASDAQ:RIMM)

I think the RIMM trade is self explanatory. If you're not familiar with the power of NR7, read this post from last week.


JPM breached the top of it's steep upwards channel on Friday. Today, it carved out a higher high with negative divergence of the RSI, so I put in a buy stop order on break of blue line. I'm keeping this on the focus list - looking for a correction back to lower channel line.

H&S and Gap - RIMM

Over the weekend, Jamie mentioned a potential H&S top in POT. RIMM had a similar setup on the 15min chart and setup beautifully today with a gap down on heavy volume, followed by a consolidation on declining volume. The entry was a NRIB near the 5ema on the 15min chart.

The following chart is in response to a question by Day Tradr. Key features are shown for the last couple of days - none of these trades were taken. There was a clean 3 PP entry on Friday. Today there was loose base that led to a retest of the OR and $20 level. A small consolidation (low ADX, left shoulder) setup the retest of the OR and then turned into a small intraday H&S formation. Notice the matching consolidation (low ADX, right shoulder).

Technical Picture - Mixed

The measured move of a chart pattern is 100%. The time element is the same as the time it takes for the entire pattern to develop to the BO point. In the case of the inverse H&S on the S&P, it took 10 months to develop (Oct. 08 - July 09), so we target 10 months to reach full extension - April 2010.

The S&P notched a new high Friday on big volume following the release of the jobs data. However, the NASDAQ failed to confirm. That's the second time in a short period of time that the NAZ failed to confirm, so I'm expecting a pullback to the blue line on 60 minute chart. That is the short-term trend. The third test of the line makes or breaks the trend. Time for a correction?


As discussed earlier this week, the MACD was way too high when the $USD tested support, thus foreshadowing a bounce. Weakness in commodities...

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

Last night we said that POT was coiling and looked ripe for a BO either up or down. The red lines indicate the pre-market high/lows. The pre-market gives a pretty clear signal that price wants to break to the upside.

In order to trade the BO, we move to the lowest timeframe. On the 1 minute chart below, we see that price gaps and pulls back on lower volume, candles form lower shadows and we pull the trigger as price approaches the BO base at $97.00. If price stalls at the pre-market high, we'll exit. That doesn't happen so we hold on until price breaches consolidation lows, where we lock some in. Price retraces and eventually comes back down close to BO point. Once it rallies back up to base, we add back to our position at the same price we partialed out.

Price makes new high and continues above whole $ level - $100. After it prints a lower high, we tighten stop.


GRMN - B&B back up to ORH.

Stocks to watch tomorrow - CNQ - 2 inside days. Gold stocks - waiting for range BO - Canada said it will takes measures to curb $CAD strength as the higher dollar will hinder economic recovery. Also continue to watch $USD and reaction to rate decisions overseas - Euro and British pound.

$CAD Weakness -

Last night we said that the breach of support in $USD and breakout in $CAD were suspect because they were unconfirmed by MACD. I was watching $CAD closely intraday and was able to take advantage of the early afternoon swoon in commodities.

That is a gap fill and $USD didn't do much, but keep watching.

This is a 1 minute chart of AEM. Once the MA's crossover above price, pick a spot and get short.

This is a 15 minute chart of POT. Coiling at $97.00 base. Breakout or breakdown, either way, the coiling foreshadows a big move.


Missed the box play in my beloved RIMM. Hope some of you guys were in it!

Technical Picture - Higher Highs for Broader Markets

The markets opened the new week/month on a modestly favorable note. Positive news/data from overseas and better than expected construction spending and ISM kept buyers busy. Despite the choppy session, the S&P and NYSE notched new highs, unconfirmed on the NASDAQ. The rally was broad based with energy/commodities leading the way on a weaker $USD.
Speaking of the $USD, it breached support on a closing basis, however, the lower low is unconfirmed by the MACD and RSI. Same goes for the $CAD which gapped higher. I suspect this may be a head fake. If so the commodity rally will stall. Watching this one closely.


Two trades from the WL, CNQ gapped up on weak $USD, but broke the ORH way too soon as measured by distance between price and the rising 5 period EMA. Wait for a better entry.

Price retested the ORH as support, held the 5 ema on closing basis, and eventually carved out a base at $64.00.

V formed a base at $67.00. The base BO would lead to a clear path back up Thursday's break down base. That part of the trade went very smoothly, unfortunately, it wasn't finished.

I was sure that $69.00 would be the top so I shorted it at $69.00. V proved too strong and the trade had to be scratched.

NR7

What is NR7 and what is its significance in trading?

NR7 is the the narrowest bar in the last seven bars. The significance of which is price/volume contraction ahead of expansion. Alan Farley refers to NR7 as a coiled spring. Therefore, if we look to track NR7, we presumably, can find setups that will provide solid entry points and quick results on the plus side of the P&L.

Actionable NR7 setups usually occur in the congestion zone following a decisive move in one direction or the other. Volatility contracts as many participants move to the sidelines awaiting a signal of continuation or reversal of the existing trend.

What timeframe to use for spotting NR7?

NR7 can be traded on any timeframe, but the longer the timeframe, the more meaningful the setup. So using a 15 minute chart for daytrading NR7 would likely have more meaningful results than a 1 or 3 minute timeframe. I currently monitor NR7 bars on the Trade Ideas Scanner which runs on the 15 minute timeframe. The scan was developed by Trader Mike for TI, and the archives Mike's blog are a great resource for NR7 trading tips.

So, once NR7 scans spit out a list of candidates, what do we look for as far as actionable trade setups?

It's easier to define your criteria beforehand, rather than using a process of elimination. As we stated earlier, actionable candidates have already made a decisive move and are consolidating that move. So if I'm scanning my usual suspects watchlist, I want to focus on sectors/stocks that are in or near the top or bottom of their recent trading range, or stocks that have already broken out and are forming a base such as a handle or flag through price/volume contraction.

How do the key moving averages come into play?

In reference to the 15 minute timeframe -

• avoid trading NR7 if the 50 SMA is flat and close to price. Why? By my definition, the 50 SMA defines the broader trend and a flat 50 SMA means the stock has no trend. The closer it is to price, the more likely the stock has little or no pulse. Therefore, in this case, it's better to wait for price to make a move before jumping in;
  
• in the a.m. (EST) look for proximity to the rising/declining 5 period EMA;
• in the p.m. look for proximity to the 20 EMA if you spot am ambush-like setup.

How do we define the bar count to determine a real NR7?

The TI scanner has a continuous count from one day to the next. If a stock had a series of NRBs at the end of the previous day, we likely won't print NR7 on the scan until the 7th bar. How practical is this? It may not be practical for gappers, so we have a second, work around, strategy for gappers - NRIBs (narrow range inside bars), again in very close proximity to the sloping 5 period EMA. The sweetest setup of all is the NRIB (NR7).

Let's look at some examples of NR7

GXDX, from the TI pre-market gap scan, printed NRIB NR7. The way I trade these is to place a buy stop order above the outside bar. Once the trade executes, I place a stop pennies below the outside bar. GXDX is an example of NR7 in the context of a gap trade. I didn't trade it.

GG was a NR7 from the TI scanner on Friday. AEM, NEM and GG all printed NR7 at the same time. AEM had already filled it's gap, so I entered long GG and NEM.

RIMM is a trade from June 19th following a disappointing earnings report. The NRIB sets up at the base (handle) of an inverse C&H pattern.

All of these setups meet the primary criteria:

• consolidating after a decisive move;
• close proximity to sloping 5 period EMA;
• NR7 price and volume contraction;
• easily identifiable base or chart pattern.

On days where the markets gap and run, the NRIBs usually setup within the first hour, so keep that in mind as well. Running the TI NR7 scan on the entire universe of stocks (even with filters) is a waste of time because many of the candidates will be anemic, flat liners. Best to use the TI NR7 scan in the context of a WL and/or as an add on to pre-existing scan either gaps or breakouts. As an add on, the first criteria is already met before it prints NR7. The WL is usually small and manageable, and presumably you've done the homework and already have a focus list.

Related posts: NRIBs Revisited

N.B. - TI scanner does not currently have a scan for NRIBs, this part is done purely through eye balling.

Technical Picture - NASDAQ Testing Resistance

The NASDAQ just carved out 2 consecutive bearish shooting stars after testing resistance.


The 60 minute view of the S&P shows negative divergence of the RSI and MACD to higher prices. This foreshadows the end of the move. I doubt there will be a reversal unless we get a major catalyst, but a pause is likely as we approach the congestion zone on the monthly timeframe.

The $USD is setting up for a test of major support. Gold, oil and commodities bounced in the last two days.