Technical Picture - Another High Volume Distribution Day

Sellers are in control, however, we should get some sort of bounce, likely a dead cat bounce, as prices test support at these very oversold levels.

Transports are a good leading indicator, so keep an eye on the chart. Judging by how the transports are setting up, this correction will be a lot deeper than the other corrections we've experienced since the March lows.



Today we had lots of good, low risk entries on the short side.

Gap Support/Resistance - Baidu, Inc.(ADR) (Public, NASDAQ:BIDU)

Last night we talked about BIDU. This morning I mapped out former gaps as areas of potential support/resistance. The lower gap dates back to Sept. 8th and the upper gap dates back to Oct. 6th.

In pre-market sellers were pushing prices lower and eventually reached and probed the Sept. 8th gap at $350 - $343. Buyers stepped in at $350 in pre-market and when the market opened BIDU carved a wide opening range. The bulls were in control and sold into strength as the October 6th was filled.

Mapping out gaps of widely held names is a good way to spot good trading opportunities.

Last night we anticipated further downside and weak consumer confidence data triggered the first short. A fast move lower, but buyers stepped in too quickly and I tightened the stop to 1725. After a quick retracement, prices started to drift lower and finally setup a low risk entry just below S1. This time we reached S2. The SPY didn't confirm a lower low in the afternoon, so it was time to get long.

Last night we anticipated GLD would hold gap support. Now it looks like it might form a base at $102. If it retests today's lows and holds, that's another way to trade it.

The markets have had three consecutive lower closes, and conversely, the greenback has three consecutive higher closes. Prices are closing in on the 50 SMA on the dailies, so we do expect some retracement to come into play at those levels.

Keep a close watch on economic data at 8:30 - Durable orders; 10:00 new home sales; and crude at 10:30.

Technical Trade - Short Qs on Failed Retest of Recovery Highs

The first chart is a 15 min. NQ futures chart, where we see that the attempt to take out last week's highs fails. The 5 minute chart below with daily pivots shows how failure to hold R1 as support led to a fast trade all the way back down to S1.

The failure of the market coincided with a BO in the $USD. Use the ETF UUP as a proxy for the $USD.

Gold and the $CAD fell, as anticipated on $USD strength. Lots of good shorting opps in gold stocks today. But watch the bullish gap to see if it provides support.

Agchem - failed BO.

Internet was a bright spot amid the market drubbing, but after hours BIDU got crushed so expect a retest of gap support.


What to Anticipate for Tomorrow -

Futures look weak following BIDU earnings so despite oversold technicals, we may go lower tomorrow. The SPY has some unfilled gaps which can act as support. So watch the pink lines as potential support areas.

Technical Picture - Rally Stalled

The top of the Lehman gap which was tested Wednesday morning, is holding as resistance thus far. Despite some better than whisper number earnings reports from tech heavyweights such as AAPL, AMZN, and MSFT, the Nasdaq can't break resistance.

IBD notes that 6 distribution days for the comp and 8 on the S&P would, in most circumstances kill an uptrend, but they also note that the worst bear market in 120 years doesn't qualify as "most circumstances". We'll soon see.


Couple of trades on the SPY setup.

1. Technical trade on Lehman gap closer. It started off good, but eventually felt like it might fail, until WFC was downgraded late in the session by key bank analyst.
2. Next day buyers stepped in to buy the dip - C&H formed with 3 consecutive NR7s in the handle.


Agchem sector breakout is tenuous.

Transports breach trendline support and could be a leading indicator for the rest of the market.

$USD edges lower but feels ready to retrace anytime.

Meanwhile $CAD coming in for a retest of the base.
Gold still strong and basing, but could falter if $USD pops.

Internet sector still bullish.

Failure of Daily Setup - AGU

AGU has been on my WL since I traded the BO trend day a few days ago (from scanners). Coming into today it appeared to have a daily long setup on/at support. It gapped down (profit warning) and formed a bearish intraday pattern right at the daily support level. Typically the failure of a setup leads to a significant move in the opposite direction.

Gap Fade - Caterpillar Inc. (Public, NYSE:CAT)

CAT gapped wide on earnings and immediately started to fade. Support from the rising 5 EMA initially looked promising, but price got stuck inside the second 15 min. stick. After NR7 completed, it started to look like a bearish h pattern was developing, so I shorted the break of NR7.

Took a partial at the 50% extension and rising 20 ema. I covered the balance as price crossed back above the 20 ema.

CNQ - Sell break of support as oil stocks finally succumb to some profit taking.

Good Daily Charts to Study

Jamie mentioned POT (top chart) in his Technical Picture post last night. It broke through resistance right on que today. AGU (bottom chart) is in the same industry group - agricultural chemicals - and also broke out with a trend day. Compare and contrast the two charts. Both were excellent daytrading opportunities today.

Edit: Note that POT reports on Thursday.

Technical Picture - Divergence

Despite the fact that the SPY was able to carve out new highs this week, the RSI continues to print lower highs, thus negative divergence of the RSI foreshadows that the rally may soon stall. Also, note that the $USD is starting to show some positive divergence to lower prices. The Lehman gap fill is $110.34, another important technical level to keep an eye on going into next week.

Earnings this week - AAPL, STLD, AMZN, AMGN, SNDK, BRCM, CAT, EBAY, POT, BTU, FFIV, GILD, GENZ, TXN.

One chart that I found significant this week, was tech bellwether, INTC (not pictured), which had good earnings and favorable guidance, yet it was a fade. Are we selling the news?

POT which has not participated in the last couple of legs of the rally, appears to be setting up to BO of this narrow trading range. But keep in mind earnings are on Thursday morning.

Positive Earnings

Based on positive earnings news from companies reporting yesterday and today (INTC, CSX, JPM, ABT, etc.), the market appears to be anticipating more positive earnings going forward. I followed the trend and focused on the top %changers from my core WL. FWLT gapped up, attempted to fill the gap, and then formed a small C&H. The C&H pattern is clearer on a 5min timeframe. I managed the trade and exits - partial at test of previous PP and remainder near EOD - as shown on the 15min chart below.

Short Side Vigor

Overall volume was light today (Columbus Day) as the S&P tested recent highs. Per recent comments, I have been favoring the short side at these levels. Yesterday I tried a short in NTES and ended up scratching. Today, my short side trades showed a bit more vigor. NTES responded much better than I expected. BIDU had a nice matching congestion pattern (looks like small H&S, but not at top of recent price action) that was good for a quick downside pop. Note that the first hour or so in NTES was also a matching congestion with yesterday's action.

Technical Picture - Retracement of Last Week's Sell-off

Despite last week's sell-off, prices managed to retrace most of the damage. The retracement took place on lighter volume and that is a bit of a red flag. Going into earnings season, we need to see some really stellar results and/or some uplifting guidance going forward.

From the weekly NASDAQ chart above we see some formidable resistance in play. However, as noted in last week's IBD, "historically, the first run-up after a bear market has gone for months without a 10% dip in the NASDAQ. After the bear markets of 1987, 1190 and 2000-03, the NASDAQ rose 22, 16 and 10 months respectively, before making a correction of 10% or more." We are now in month seven following the 2008 bear market and as noted, we are testing strong resistance.

And speaking of IBD, the current status is "market under pressure". Since the recovery off of the March lows, this is the fifth time that IBD has flagged the "under pressure" label. The previous four times, the market resumed the the uptrend within 4-8 trading days. Monday will be the eight trading day following the current label status.

Reporting this week -Tuesday: JNJ, ALTR, CSX, and INTC... Wednesday: ABT, ADTN, CBSH, HST, JPM, PFR, GWW, ATR, CCK, LSTR, SPTN, SLY, WDFC, and XLNX... Thursday: APH, BAX, C, CY, DRH, FCS, GS, HOG, HOMB, KNL, NOK, PII, PPG, SWY, UTEK, UMPQ, USAK, WGO, CBST, CYT, GOOG, IBM, MTG, PBCT, TPX, and UFPI... Friday: AOS, BAC, FHN, GE, GPC, HAL, MAT, PRSP, and SXT.



$USD holding support, but for how long? If $USD doesn't hold at this level, it could easily slip to $74.00.

Gold providing clear leadership on the weak greenback.

Transports are lagging - not a good sign.

Despite the Baird upgrade to outperform on Friday, RIMM still provided a decent shorting opp. As noted in the comments on Thursday, RIMM's retracement had been on very light volume, so it was ripe for shorting.

RIMM gapped up, but the momentum died after the first 20 minutes or so. The second 15 min. bar was very bearish. A lengthy sideways, deadzone type trade, eventually succumbed to the bears. NR7 was the trigger after price closed below 5 EMA. Buyers stepped in at whole $ level, but that retracement was on declining volume, setting up an ambush.

Gapper - Teck Resources Limited (USA) (Public, NYSE:TCK)

Last night I mentioned in the comments of the previous post, that TCK was a focus list long. As you can see from the daily timeframe above, it had carved out a solid base. Yesterday's NRB was the perfect pause before expansion. This is a high volume BO and I'm holding for a swing in my retirement account. The day trade in my trading account is outlined below.

This morning TCK gapped up with bullish opening range. Price retraced to the 5 ema on declining volume. Enter on break of ORH. Take a partial after 3WRBs as price approaches whole $ level. Exit balance as price approaches full extension.

Intraday Box Trade - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

EOD POT looks well positioned to form an inverse C&H. If not, I'll be watching for a double top as this stock is still weak (IMO) despite yesterday's gap.