Technical Picture - Failed Breakout

The market made a solid attempt to breakout in early trade, but failed. Let's review.

All of the economic data was favorable. As depicted below, the Emini futures spiked on the GDP and Jobless claims giving us two waves going into the open. At 9:45 positive Chicago PMI spiked prices for a third wave, breaching the breakout point. By that time, the move was exhausted and it failed to hold.

Failures usually move in the opposite direction, so we saw a lot of selling when price took out support.

Last night we said that we'd like to see the SPY completely fill the Tepper Gap to confirm with the QQQQ. I'm still fixated on that idea. The backing and filling will be healthy and maybe we can make a clean break on the next attempted breakout. Keep a close watch on tomorrow's economic data, most of which, will be released during regular trading hours - 9:55-10:00 EST.

P.S. Emini futures slowly ticking higher in AH - China PMI 53.8 beat estimate 52.5

Technical Picture - Minor Losses

Before we get to the U.S. markets, it's worth noting that Canada's TSX closed at recovery highs today, taking out the previous highs set in April. The TSX is heavily weighted in commodities and the three day run in oil pushed us over the top.

The major U.S. markets are still range bound despite some constructive sector rotation. One of the problems as I see it, is the Tepper gap from last Friday.

As you can see from the 15 minutes charts of the QQQQ and SPY above and below, when prices tried to break above Friday's highs, they were firmly rejected. The markets sold off Monday afternoon with follow through into Tuesday morning. The Qs filled the entire Tepper gap in early trade, but the SPY/DIA only did a half gap fill. The last day and half have been spent chopping around intraday support. One way to get resolution is for the SPY and DIA to go back in fill those gaps more completely. Other than that, we would need some really favorable economic data to propel us out of this range.

I always monitor the SPY, DIA, and QQQQ intraday for tells. Today, the Qs were lagging most the session. So when the SPY and DIA tried to break session highs, they were rejected. After three attempts, we printed a lower high and down we went into the close as depicted below.

Gapper trade - CRUS - Price consolidates the bullish gap by flagging in the upper range. Place fibs. from low to high of opening range to set targets. On a measured move basis, price should run to 100%. CRUS stalled just shy of the target.

TSL was a HCPG pick. Price hit the number in the OR, printed an inside bar and broke out. I missed the break, so I scaled in on the retest and added when price took out the previous high.

SNDK was carving out a bearish flag, but today it broke to the upside (short squeeze). I only caught a half point scalp, but the chart looks good for a retest of the base at $40.00.

Technical Picture - Minor Gains

Opening spike down in bellwether AAPL set the tone for early trade. As we said last night, the weak close, left the door open for further downticks.

As you can see from the chart above, we shorted the break of closing lows and covered half at gap support. Price continued lower, almost reaching the second target which was a half gap fill.

Despite, notching minor new highs intraday, the markets could do further backing and filling. Watch the trendline off of today's lows to see if it holds as support.

Some large cap tech stock charts are still very unclear. AAPL's intraday 15 min. chart (below), for example, looks like the flash crash, so we need to take a cautious approach until all the backing and filling is done. Because if AAPL decides to go lower, it can affect the entire market.

We also need to see some more sector rotation. Now that semis are finally catching up, we need financials to kick in.

Interesting Pattern

S&P mini futures - Looks like an inverse H&S pattern taking shape within a downsloping broadening channel.

Technical Picture - Rally Stalls at Bearish Gap Resistance

A weak open to start the week, but by midday, the markets were able to find support in the middle of Friday's range and eventually worked their way back up to range tops. The SPY just edged above Friday's range and ran into bearish gap resistance dating back to mid May.

As we can see from the 1 min. timeframe below, price almost tagged $115, and backed off, followed by a lower high, then price breached the afternoon trendline and sold off sharply. Notice the loss of momentum as the price bars stopped printing red for the last two higher highs. Negative divergence of RSI to higher prices foreshadows a reversal.

What's next? Well, we have bullish gap support from Friday's gap open. If that fails, we have partial gap fill support and a full gap fill as mapped out on the chart below.

GOOG carved out a bearish shooting star and needs to retrace and retest.

BIDU is extended, but could go higher as momentum is still strong.

AAPL satlling after breaching upper channel.

AMZN could be stalling just above upper channel.

CRM could be forming a bearish diamond top.

CAT still has room to move higher, possibly to $85 before reaching upper channel line.

Technical Picture - Diverging Markets

Futures sold off overnight on disappointing data out of Europe. Initial claims weren't good enough to turn things around so we gapped down on the open. Tech buyers immediately stepped in, but the broader markets needed a bit of a nudge in the form of better than expected existing home sales and leading indicators.

As you can see from the 15 minute charts of the Q's and SPY below, we have diverging markets. Tech is still holding support above the 5 day MA and the SPY barely tasted it on the gap fill. The Q's took out the PDH and tested Tuesday's post FOMC highs, but the SPY just managed to fill the gap, edging into the lower range of yesterday's action.

The two markets don't have to trade in lock step, but at some point, they have to confirm each other. This is an intraday tell and non confirmation leads to reversals in the price action. So, it was no surprise when the markets swooned into the close.

One of the reasons we've diverged so much is quarter-end window dressing. Institutions are busy loading up on sexy tech names like BIDU, AMZN and AAPL to make it look like they got it right, and at the same time, they're unloading the weaker sector names like GS.

After three consecutive lower closes, I would expect some stabilization in the S&P. Hopefully, we can manage to hold the 200 SMA on a closing basis.

GS has broken through several support areas and we have two bearish gaps to deal with. If it can't stabilize here, watch out below.

Trade of the day - AAPL - Break of ORH after NRIB. Place fibs over previous day's range to set Fib. targets. AAPL is trading blue sky (all time highs) so it can run. When the Q's tested Tuesday's high, it was time to fold.

GOOG is flagging nicely.

Technical Picture - Market Retests the Base

The S&P rallied back up to the baseline (highs of the left shoulder) and price was firmly rejected, resulting in a fast move down to the trendline. Price tested the support of the breakout point twice with no traction. We closed below the trendline on the cusp of the 5 day MA. If price fails to hold support tomorrow, the SPY could easily break lower - next supports at $112.00, followed by the gap fill at $111.50 as depicted on the chart below.

Over the past two sessions several leading stocks succumbed to profit taking - CRM, AKAM, NTAP APKT to name a few. When leading stocks slip, it usually means the market is tired and needs to rest.

Tomorrow's economic data should help set direction.

The Euro has broken out of a cup & handle pattern. The $USD continues lower.

Semis started to slip just shy of their 200 SMA.

Several important sectors have yet to breakout of their multi-month bases, including transports and financials. Financials are of particular concern as we can't seem to hold above the 200 SMA.

Trade of the day - AKAM - Over a two day period, price made multiple attempts to break resistance but failed. Yesterday, we closed on the trendline and 5 day MA (orange MA). Price breached the trendline and lost the 5 day MA in opening trade and fell through to second level support.

Technical Picture - Markets Mixed

Lackluster trade until the FOMC statement was released at 2:15. As expected rates are unchanged and, current economic conditions dictate exceptionally low rates for an extended period. FED is also prepared to provide additional accommodation if required. How did the market react? Stocks, gold, and treasuries rose and the dollar sank. All but stocks managed to hold those moves into the close.

TLT has regained its broken trendline, UUP looks really ugly, GLD notched new closing high and the S&P looks somewhat bearish intraday, but it has a lot of support from the BO base. If it forms a right shoulder intraday, the technical picture will become clearer.

Doji flags are bearish. GS rips to resistance zone, carves out a doji flag on the 15 min. timeframe above, and sets up a reversal. Short as depicted on the lower timeframe below.

Post FOMC, short the trendline break.

Gold rips post FOMC. Using ABX as a proxy for gold, wait for retracement of initial spike, and go long.

Dividend Investing in an Uncertain Economic Climate

Guest Post by Vincenzo Desroches

The economic recovery in the United States is hitting a major wall of resistance. In early 2010, the recovery seemed to be doing quite well. Unemployment was falling, retail sales were increasing, and economic growth as measured by GDP was expanding. It all seemed so rosy.

But when the European Debt Crisis fully erupted in the spring, the global economic recovery began to show signs of faltering. Then in June and July, key economic data out of the United States disappointed to the downside quite strongly. By mid-June it became very clear the U.S. recovery was in trouble, and in late July Federal Reserve Chairman Ben Bernanke basically sealed the deal and removed all doubt from the market when he stated before Congress that the economic outlook for the United States in the 2^nd half of 2010 is “unusually uncertain.” It was official—the Federal Reserve had no clue how bad things were going to get.

Then, the Federal Reserve resumed talks of possible further quantitative easing measures, and they downgraded U.S. growth prospects substantially. Growth prospects for the 2^nd half of 2010 are now expected to be under 2%. That low of a growth rate makes it basically impossible to reduce unemployment. The best scenario for the United States is that we will enter into a multi-year period of very sluggish growth. Unfortunately, that seems to be the best case scenario. It seems very possible that the United States could slip back into recession in the coming 12 months. Although this scenario is not likely at the moment, it is possible. The most probable picture is an extended period of slow growth, but a complete melt-down and recession is definitely possible.

Therefore, in these extremely uncertain economic conditions, many investors are puzzled as to how or if they should partake in dividend investing. In 2008 and 2009, dividend investing took a huge hit. During Q4 of 2008, 288 companies cut dividend payouts and in 2009 another 804 companies cut dividend payouts. The estimated cost to investors was $58 billion. The reason companies cut dividends was simple—they needed cash. During a recession, credit markets tend to tighten significantly and companies do not want to risk an inability to access cash. Thus, they cut the dividend payout in order to bolster cash reserves.

Mr. Bernanke testified in July that the state of credit markets was less than optimal for business expansion and he addressed the fact that companies are still having a very hard time accessing the credit they need to expand and conduct business. This concern may be exacerbated by the current economic slow-down, and credit markets could be headed for even tighter conditions though the 2^nd half of 2010 and into 2011. This fear of tight credit markets may cause more companies to cut dividends in the coming year.

Consequently, in an uncertain economic environment such as this, how does an investor approach dividend investing? First of all, investors should be cautious of chasing high yields. Instead, during times of economic uncertainty, it may be better to stick with companies that are in line with the broader market average of 2-4%. Second of all, focus on cash. Cash is king during times of recession and slow growth, so make sure the company has a healthy cashflow. And finally, make sure you diversify across the broader market by investing companies in all major sectors. You may want to consider limiting your exposure to the financials as they may face a very difficult year. Diversification will help ensure that you are at least partially exposed to the sectors that do show strong growth over the next year. foreign exchange trading is another way to diversify outside of equities that could help hedge against poor stock market performance. Using a forex demo account is a good way to get started.

Technical Picture - Markets Breakout of Range

The markets gapped up slightly on the open, followed by a brief period of backing and filling. Once that was done, prices advanced through a broad based rally, cruising past last week's highs. Orderly consolidation midday, before the next leg up.

Markets are quite extended in the wake of the run off of August lows, and the NDX which has been leading the advance is approaching resistance -April topping congestion zone.

Map out support/resistance levels as well as trendlines.

Housing data in pre-market and FOMC at 2:15 EST.

SPY- Last week's broken trendline was resolved through time as opposed to price - sideways chop. Today, we established new recovery highs and therefore we have to draw in a new trendline as depicted below.

BIDU carved out a bullish flag chart pattern intraday. Full extension was reached as well as a new all time high.

Technical Picture - Minor Gains

Weaker than expected economic data set the stage for a gap down on the open. However, trading range supports held as depicted on the SPY and QQQQ charts above. The SPY opening gap was filled within the first hour of trade, after which it was slow grind until the final hour, when the Qs managed to take out the PDH. All major US markets closed in the green, near the highs of the session, but the overall gains were minor.

Leadership came through health and medical, disk drive, hardware, airlines. Weakness was noted in crude, steel, solar, and gold. Leading stocks are acting well.

Tomorrow's economic data starts off with initial claims and PPI in pre-market, followed by Philly Fed at 10:00. RIMM reports earnings tomorrow, after hours.

MA was news related gap up (share re-purchase plan). After a bullish opening range, price consolidated the gap through time, forming a bullish flag pattern. Place fibs from low to high of pattern to establish target for measured move.

The second breakout bar carved out a bearish engulfing stick, but was quickly neutralized back to BE. After that, price expanded in the right direction.

After breaking out last Friday, RIG has consolidated in the upper range. Today's close near the range top, foreshadows an extension soon.

RIG's early strength this morning was looking good for a BO, however, the sloppy basing pattern (wide shadows on 15 min.) set up a fast move back down to intraday support.

Price quickly stabilized and I entered long for a retest of range top.

ADBE has consolidated last week's bullish gap and looks ripe to expand higher very soon.

PRGO (discussed last night) - preliminary target was met today, so I sold my remaining shares. It needs to consolidate, but if the markets BO, it will likely go higher as well.