Friday's Trades - Research In Motion Limited (USA) (Public, NASDAQ:RIMM); Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

HCPG daily spot for MOS on Thursday night's newsletter was $55.00. Juxtapose the MOS 15 min. and the POT 15 minute timeframes and they are identical. So, if we can target trade MOS to the daily spot, we can also target trade POT to resistance of Wednesday's high. I'm not suggesting that you trade both, I'm just saying, if like me, you prefer POT, trade POT. Get your inspiration from the HCPG newsletter, borrow the setup from MOS and apply it to POT, or not. Either way, both trades are winners.

The trade is executed on 1 minute. Price forms a handle at the base, breaks out for a gap fill, consolidates and extends to the target.


RIMM was an ambush setup on the daily. RIMM turtle souped (printed a lower low on initial test of support of the PDL and reversed). It chopped around and eventually carved out a tradeable triangle on the 1 minute timeframe. After the BO it moved quickly to close the gap, consolidated and rallied up to PDH.

More consolidation in the upper half of the day's range led to a second entry.


Friday's market action was narrow range and choppy, but also on the bearish side, so that tells us that we don't want to over stay our long positions. Target trade and get out.

N.B. Turtle Soup refers to a Linda Raschke trade setup I read about in this month's Active Trader magazine.

Q&A - Risk Management

Q. Jamie, Love your trades! You make it look so easy! I have a question for you in regards to risk management. I was also watching POT the other day for a break of 105 but didn't like the risk associated with taking the entry off of the 15min candle with a stop below that=94 cents risk. So I didn't take the trade. When price breaks such a major level like that are you buying the break of the level with a stop at the base of the 15min candle that's forming or are you dropping timeframe and managing risk off of the 5min candle? I know you like to see a candle close strong before entry.

A. There's no guarantee that we will get a NRB at the base prior to BO, so it's a good idea to size up the potential risk ahead of time. You can mitigate risk of loss in a number of ways. Here are two examples.

Option 1 requires looking for a mini base within the bigger base. This way you can possibly get a head start, and secondly, if the bigger base fails, you have time to scratch the trade and move on to something else.

Higher priced stocks frequently require wider stops. I like to look and the underlying price action of higher priced stocks such as POT, before committing money to the trade. Ideally, you want to see price and volume contraction during consolidation and expansion as price moves into the base. You can't see that on a 15 min. chart, so it's a good idea to drill down. Subtle hints on the 1 minute timeframe can often alter your confidence level in the setup.


Option 2 works well when the base is wide ie. price travels far to get to the base, so it has to consolidate shortly after the BO. But don't expect this to work on a tight narrow base. You risk missing the trade if you employ this strategy on a narrow base such as the handle in C&H pattern.


Q. I was also watching GS for a break of the 175 level but was uncomfortable with the risk that setup gave me as well. I did enter the break of the bear flag that day but missed my original entry idea because of the confusion as to where to put my stop. If price consolidates at a major level than it's not a issue where to put my stop but if price blows thru a major level and is extended from the last consolidation what's your stop placement rules on that scenario? Thanks.

A. I see the base at $175.50 as opposed to $175.00. The bear flag forms at gap support and the target is a gap fill. The setup is somewhat risky in the sense that it prints two dojis (indecision) prior to breaking. The bear flag is a pause prior to the attempt at a gap fill. If you don't see the whole picture and are unsure of the target, you are wise not to take the trade.

Technical Picture - Technical Correction of Overbought Market

The markets are technically overextended, so a minor bounce in the dollar and some weaker than expected data, gave rise to some profit taking. Most of the selling occurred in the first hour, after which, it was a slow drift sideways as OPEX came into play.

The trendline from the 2007 highs to the May 2008 retracment as depicted on the SPY chart below, is in play ie. providing resistance.

As noted above, stocks sold off sharply in the first hour, but sort of drifted sideways thereafter. Good low risk setups were hard to find, but I did spot a nice bear flag on GS and this bearish h pattern in ESRX.

Minor setup in RIMM - Ambush play - 62% retracement of the last leg up.

Technical Picture - Overbought

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

Yesterday in the comments to the prior AMZN post, I mentioned a handful of stocks on my focus list. POT was on the list. It was also a long pick in the HCPG newsletter last night. Hope you guys caught this one today.

On the daily we see 2 NRIBs at the base $105.00. Today it was a runner.

The AMZN trade below is from yesterday. Early strength did not extend after the retest of the base. Eventually, it carved out a 3 PP base with NR7 trigger bar for a gap fill. AMZN was downgraded today and traded lock step with the retail sector XRT - leading the laggards on weak retail sales data.

Technical Picture - Waiting for the $USD to Find Support

Now that the laggard DIA has finally filled the Lehman gap, we just need to wait for the $USD to find support and reverse in order for the markets to begin the anticipated correction.

Despite higher highs again this week, the markets are moving on lower volume which means that institutional players are not enthusiastic at these levels and the bears are side lined (no market squeezes). Good daytrading opps are few and the focus list is slim. OPEX this Friday and Thanksgiving next week will put trading in slow gear, notwithstanding a catalyst.

Day Trade - Amazon.com, Inc. (Public, NASDAQ:AMZN)

Thursday night we said that each time AMZN tests it's 50 SMA on the 15 minute timeframe, it results in a higher high. We also said that a lower high under weak market conditions could setup a shorting opp.

Friday's market conditions were not weak with each of the three major spiders SPY, DIA and QQQQ printing inside days on lighter volume (consolidation). AMZN set up a long when it found support in the ambush zone of the last leg up, after breaching the 50 SMA and snapping back as depicted on the 15 min. chart above.

The reversal back up was on light volume, so we suspected a short was setting up when price could not hold R2 (blue line), resulting in a lower high from the PDH. As depicted on the 5 minute chart below, we partialled out at the initial sign of weakness and after another lower high, we exit the balance of the position and shorted simultaneously. Volume on the short side wasn't enough to get past the median daily pivot P (black line) and the short trade was stopped out for a small gain.

Price moved all the way back up to the initial base on accelerating volume, so we took a long entry into the close. Once the intrday high was taken out, the shorts were in a squeeze which propels price higher at a much faster rate.

From the daily chart below, we see a flag pole (high volume)/ flag (declining volume) and BO ie. extension. The only caveat is the lack of volume on the extension. Volume increased on the BO day, but has since failed to follow through, so price is moving slowly. This looked to be setting up as a failed BO and that's why I said I would look to short on a lower high if the markets were weak. Now we adjust the strategy because if there's a big enough short float, price could move higher faster. If that pans out, we'll wait for a euphoric volume spike before we attempt to short AMZN. For now, buying pullbacks is the way to go.

Technical Picture - Resistance Lehman Gap Range Top

The SPY printed a new recovery high yesterday but the Lehman gap top held as resistance on a closing basis. Today the QQQQs carved out yet another higher high in early trade, but was not confirmed by either the SPY or the DIA. Non-confirmation at support/resistance levels, usually foreshadows a reversal.

So we try to incorporate this into our day-trading strategy. After the initial retracement, draw in a trendline and extend off of the first two points. Short the trendline breach.

On the 15 min. AMZN chart below, we observe that each test o the 50 SMA (green MA), is followed by a higher high. If we get a lower high tomorrow and weak market conditions, we'll be looking to short AMZN.

Key Questions at Decision Point

Q1: What price and volume pattern(s) do you see in this chart?
Q2: How many times has this stock tested the intra-day support level (dashed line)?
Q3: Does current price action appear to be consolidating at support?
Q4: What would you expect to happen if it breaks support?
Q5: Can you see/define a tight stop level that might give a good reward-to-risk ratio?


EDIT: There are several good responses to the above questions in the comments. I agree with JTT that multiple timeframes help. In this case, the BIDU daily gave me confidence on the short side - it was testing an upside daily PP zone following a big gap down on Oct 27, 2009.

Review this FUQI chart from a June 30, 2009 post by Jamie where he stated - "Not sure what to call the FUQI setup other than inverse C&H. But if you see a big thrust higher, consolidation, and a big move back down, just draw in the lines and wait for the handle to form. [Target] approx. 100% measured move down...". Note that Jamie drew trendlines around the entire inverse C&H in FUQI whereas I have trendlines on the handle portion only. There are a lot of similarities.


So, what did I see in the BIDU intra-day chart? I saw a gap up, consolidation in the first 20 mins, a big thrust up with volume, small consolidation at the top, a big thrust down with volume - all of the preceding forms the inverted cup - then the handle started to form. The handle (lower volume) turned into a nice 3 PP base (inverted) with lower highs. The target was a 100% extension of the entire C&H pattern - about 6 grid line blocks. I exited half on either side of the target zone.


Today (Thursday 11/12), BIDU formed an IB on the daily - interesting.

Oversold Bounce - Research In Motion Limited (USA) (Public, NASDAQ:RIMM)

Last night we said that yesterday's downgrade resulted in a mini capitulation for RIMM. Today, the stock was bid up sharply on an oversold technical bounce.

I started scaling in as price crossed the base, and added to the position as price broke its consolidation zone after the first leg up. Set the stop just below the lowest point of the consolidation zone. Trending stocks will make higher highs and higher lows, so the stop placement allows you to stay in the trade as long as the trend continues.

On the daily we have a WRB with volume. I'm placing my fib retracment lines from the earnings gap to yesterday's low and looking for an ambush type bounce back up to the 50-62% level.


We talked about gold maintaining its bullish bias over the weekend. Today GLD broke above its trading range and most gold stocks participated. I'm staying away from AEM after recent weakness, but GG and ABX traded sharply higher.

Can't Keep a Good Scan Down

I get an extra boost of confidence when a stock that I have recently read about (from technical trading blogs that I follow) hits my RT scanners. Often these stocks are already on my watchlist. Such was the case today with RIMM (Jamie's post here last night) and AU (HCPG blog a couple of days ago). The fact that the stock is being noticed/discussed elsewhere implies move potential in either direction - I simply go with the NOW moment flow.

Also from the scanner, UNP had a very nice gap up and consolidation setup. The snapshot below captures some key scanner hits today and 15min charts for RIMM & UNP with the associated NR7 bars highlighted. I just love it when a scan, I mean plan, comes together.

Technical Picture - Support Zone

The 60 minute timeframe of the SPY above, shows that we started to bounce off of the $103.00 base (blue box) of the October lows. We also see some positive divergence of the MACD and RSI to lower prices. This usually foreshadows a bounce. The price action of the last few days looks like a bullish wedge is developing. However, I'm not sure if we will get much of a bounce given that the FOMC is on Wednesday. So the bears still have time to try to push price to the lower end of the support zone at $102.00.


Some idiot at Citigroup downgraded RIMM from a buy to sell and revised the target from $100 to $50. WOW, talk about about kicking someone when they're already down. Anyway, that nonsense gives us a hammer-like stick on high volume and suggests a mini capitulation within a longer downtrend.

Technical Picture - Market Correction Approaching Support Zone

The consecutive monthly win streak, as measured by higher monthly closes, has come to an end at month 8 for both the S&P and the NASDAQ. The DOW stalled in month 4 (June).

From the weekly chart we note that the correction is occurring on higher volume, so we can expect it to continue. In other words, this isn't just a minor pullback, but rather a retracement of the some of the gains to date, before we resume the uptrend. I still believe we are on track to reach full extension of the inverse H&S bottom by Apr./May 2010. A correction at these levels is healthy. However, we continue to monitor it closely.

The SPY is in support zone of the August highs and October lows. I've set an alert at $103.00 which is the base that formed off of the October lows. Once we find support, use a Fibonacci retracement tool to help set targets for the dead cat bounce.


RIMM, one of my watchlist laggards provided another good shorting opp. on Friday. From the daily chart below, we see that gap support is in play.

AMGN - gap fill support in play.

GLD still holding gap support with relative strength in market correction.

AMZN - bullish flag developing on declining volume.