Technical Picture - Failed Breakout

The S&P had its worst day since the Oct. 4th reversal, but still managed the best October performance in 20 years. Confidence in the euro was lost as it appears to be making a U-turn at the top of the ambush zone as depicted in the chart above. The euro dove more than 2% against the greenback. The yen was an even worse as it tumbled more than 3% after Japan's officials intervened in the currency in an effort to curb its strength after it had set a post-WWII record high last week.

ES futures have extended losses after hours. FOMC minutes on Wednesday afternoon and jobs data on Friday will set the stage for November.

Gap Momentum with NR7 - FEIC

High volume gapping stocks offer good trading opps if you can sit on your hands until a good setup presents itself.

There were two trading opps for FEIC on Friday.

1. Fib retracement long - red fib lines where you should target the 23.6% FE. I missed it. After coming within 10 cents of the FE, price consolidated in an increasingly narrow range, which we identify as coiling ahead of the next leg up.
2. Within the coil, we spot the NR7 bar and place a long entry, using a few cents below the low of the NR7 as the stop.

Related post - NR7

Technical Picture - Ambush Fails, Bulls Own It

News of the EU debt resolution sparked a huge rally as depicted on the ES emini chart above. The ambush zone was broken and we expect this rally to continue to through to the end of the year.

On the SPY weekly chart below we are targeting the $148-149 level which represents an extension of 23.6%. All future fib pullbacks will be measured from highs to highs where August high is the base, until the pattern fails.



We saw some profit taking into the close on Thursday. Buyers stepped in half way back of the US trading hours price levels. Then we traded all the way half way back short, and held within that range overnight Thursday and all day Friday. Short-term, we don't expect wide price expansion ahead of Friday's jobs data, notwithstanding a catalyst. In the meantime our trading is guided by the 15 min. Fib. levels.

Friday's daily bar is narrow, in the upper range of Thursday's WRB which is bullish. A few more upper inside bars would lead to a coil.

Technical Picture - Ambush

As depicted on the daily ES emini futures chart above, the bears ambushed the bulls at the cusp of the ambush zone ( 50-61.8% Fib. retracement) and carved out a reversal bar.

On the 15 minute chart below, we see that in pre-market, price printed new highs, but failed to hold, leading to failed BO and swoon back to former resistance just as the US markets opened. The first test of support was a buy and we traded half way back to the 15 min. ambush zone. This is where the algos a programmed to short once a trend is broken. This level was tested twice and the algos defended both times.

Basically, we carved out a symmetrical continuation triangle and support gave way into the close.

The short squeeze off of the Oct. 4th lows was getting long in the tooth. We were overbought and needed to correct. If the bears can push prices below last week's congestion area, we will likely trade half way back to the October lows.

Technical Picture - Short Squeeze

Yesterday's the bears ambushed, controlling the entire session and carved out a bearish reversal bar. Today, the bulls countered and completely offset yesterday's action. It's clear that most of yesterday's participants were squeezed out of the their short positions today. The only curious thing today, was that the ES came within 1 point (4 ticks) of yesterday's high and stalled. The bulls couldn't finish the job and close above range highs (white line segment in chart above).

We are at a critical level. If we retest highs tomorrow, watch for confirmation of all major markets. For example, if ES breaks out, but isn't confirmed by NQ, YM, and TF, it will be suspect and the bears will jump back in.

Technical Picture - Best Weekly Performance since July 2009

The broader market scored its strongest weekly gain since July 2009 and the Tech heavy Nasdaq had its best weekly performance since March 2009. A commitment early this week by leading eurozone officials to develop a comprehensive plan intended to stabilize precarious conditions and shore up capital at European banks sent a strong signal to global investors. It also got the week started on a strong note. The stock market rallied more than 3% on Monday. JPM results were a drag on the banking sector mid-week. Strong results from Google on Thursday night, helped prices press higher on Friday, even though we are hitting up against resistance.

Earnings will be key this week as many Tech heavyweights are scheduled to report including AAPL and INTC on Tuesday. Markets are overbought and will correct soon.


LNKD is starting to make a move ahead of earnings scheduled for Nov. 3rd.

OVTI carved out a bearish reversal bar on Friday, following the disclosure that their video chips have been replaced by Sony chips in the new iphone iOS4. Unconfirmed by OVTI. Speculation that maybe Apple used more than one supplier for its iOS4 video chips.

Technical Picture - Strong Tape

Tuesday's failed bearish extension has emboldened the bulls. We now have a bullish candlestick reversal pattern on the daily "Three Advancing White Soldiers". We've also retraced more than half way back of the two month trading range. We are extended as the pattern implies, however, tomorrow's jobs data in pre-market will be key to keeping the pattern and momentum with the bulls.

On the lower timeframe, we still don't have any negative divergence of the RSI to higher prices. Every test of the rising 20 period EMA was supported by buyers.

Day Trade AAPL. I placed my Fibs from high to high as the stock has been trending higher since Tuesday's capitulation. I was looking for a break of the symmetrical triangle to the downside. Took a partial when price popped back into ambush zone, just before it broke back down and traded to, and eventually exceeded the target.

Technical Picture - Markets Extend Gains

Futures held their Fib levels in overnight trade and the markets opened near the PDH. On the US market open we had early consolidation in the upper range, which was followed by further extensions long. We ended the session near our Fib targets. Volume was lighter than yesterday. After hours, news of the death of Steve Jobs put pressure on NQ futures. ES futures still holding Fib retracement levels.

So sad to hear about the passing of Steve Jobs. He was such an important innovator. RIP


Initial claims and ECB conference in pre-market.

Since we were able to hold our gains overnight, it was safe to trade stocks on the long side today. I traded POT and TCK. Both trades were executed in the same manner except that TCK reached its target by mid-morning.

Technical Picture - Short Squeeze on Breach of August Lows

As discussed in my last post, we were expecting a rip your face off, bear market rally on the retest of the August lows. That's exactly what we got this afternoon.

We took the August lows out overnight on the ES mini futures, gapped wide, and after bottoming on the 10:00 turn, we managed a half way back into the ambush zone of yesterday's break down lows to lows. Initially, I thought we might base and break from there, but the bears didn't want, so I got a signal to short again. After retracing most of the morning run up, I noticed the NQ futures were printing new lows on AAPL weakness. The new lows on the NQ and QQQ were not confirmed by the broader markets and that was the tell that we might get the much anticipated short squeeze, if AAPL could just capitulate and reverse.



Bear market rallies are usually very short in duration, so I'm not expecting much follow through. The maximum expectation is the ambush zone of the last leg down as depicted on the 15 min. chart below. But don't be disappointed if we don't even get that far. Don't fight the tape on the squeezes, but don't forget that the overriding trend is still to the downside. If we gap down tomorrow morning, look for support in the ambush zone of today's range.

Technical Picture - Very Bearish

On Sept. 22 we broke out of H&S pattern on decisive volume. From Sept. 23-27 we had a dead cat bounce on lower volume. Since then we have been pushing back down, ending last week on lows.

To calculate the measured move of the H&S pattern, we take the distance from the top of the head to the neckline (blue line) which is approx. 10 points and extend from the breakout point - approx. $116 and subtract to arrive at our target of $106. The August low is a psychologically significant level and its retest could produce a rip your face off, bear market rally (day trade).

Reading the stream this weekend I saw a lot outrageous predictions of gloom and doom based on the H&S pattern and the top that preceded it. I think some people are incorrectly drawing the neckline. We don't move a trendline unless we make a higher high, so the way I've drawn the neckline is technically correct.

Technical Picture - Bears Follow Through

Price stalled at the 62% Fib retracement of yesterday's range and the bears ambushed. Initially, the PDL held as support, but after the midday doldrums, the bears came back in pursuit, pushing price beyond yesterday's gap fill. We came back for a retest of morning support and it held as resistance, forming a bear flag, which broke into the close.

As depicted below, bulls are trapped and need to hold the 61.8% Fib retracement of the last leg up, if it doesn't give way overnight.

Technical Picture - Gap, Chop and Fade

The big moves took place during the overnight session and we were left with scraps. EOD, we have a bearish black candle which closed in the ambush zone and below the daily 20 SMA. Is this the end of the dead cat bounce? I don't know, I'm waiting for a close below the ambush zone.

As depicted on the 5 min. chart below, we gapped up wide, and chopped around a narrow range for most of the session.

As noted last week, when price is extended and choppy and we want to fade the market, we look for either

1. A failed BO, or
2. The 50 SMA to cross above the 20 EMA on the 5 min. timeframe (MA kisses and air kisses don't count).
   

We short, on a first come basis.

Today, we had a failed BO, which set up a short into the close as depicted below.

Last Tuesday (Sept. 20th) we had a 20/50 MA cross for a short into the close.

Technical Picture - Waiting for Capitulation

Markets consolidated on Friday after a week of sharp declines. On the SPY chart above, we have gap resistance above price and a retest of the August 9th lows just below. Headline risk related to tenuous global economic conditions and precarious financial conditions in Europe will continue to dominate.

CME will be raising metal margin requirements by EOD tomorrow on gold (21%), silver (16%) and copper (18%). Expect more forced selling.

The good news is, we should get a robust relief rally when capitulation finally occurs!

Technical Picture - H&S Breakout

Markets traded lower overnight following a disappointing FOMC statement yesterday. We gapped wide and grinded lower for much of the session. From the daily chart of the SPY above we see that our H&S pattern has finally broken out successfully with volume. We are oversold and I am expecting a dead cat bounce soon.

Big picture, if we fail to hold the 61.8% Fib retracement of the 2010 low to the 2011 breakdown low as depicted on the SPX chart below, a full retracement is likely.


Update on the copper futures chart I posted over the weekend. H&S top within a big double top. The H&S measured move is close to target. Here again, I would expect dead cat bounce soon.

Technical Picture - SPY 50 SMA Holds as Resistance

Markets gapped up and filled the gap from the previous day close before rallying to retest Friday's highs and the downsloping, daily 50 SMA. Price consolidated for several hours in the top of the range before selling off one day ahead of the FOMC statement. Selling was aggressive leaving us with a tweezer top reversal pattern and shooting star.

Part of the problem was lack of resolution concerning the Greece/Troika dealings. Last I read, they have agreed to meet again in October.

As I was watching the price action on the 5 minute chart above, I thought we could have one of two scenarios:

1. Failed BO which could shorted.
2. The 50 SMA crossing above the 20 EMA and price breaks support.

The latter played out perfectly for a nice short into the close.

On the 15 minute timeframe below, we see the possibility of a double top forming. A double top breakdown would result in a fast move to the downside.

Technical Picture - Rally Extended

Equities closed the week with a string of five consecutive daily gains resulting in a 5.4% gain on the week, the best weekly performance since late June, but only the second weekly gain since the markets rolled over.

The week started on a low note as Europeon debt fears spilled over to Monday's open, but in the afternoon attention turned to rumors that a sovereign wealth fund from China was talking with Italy about a bond purchase. That news helped stocks stage a rally, which gained traction as short sellers were squeezed out of their positions. Later in the week another boost in confidence came on news that the European Central Bank had coordinated with other central banks, including the Fed, to make dollar loans available to European banks. These measures trumped poor economic data and by week's end traders felt compelled to chase the markets higher.

Watch the 50 SMA and top of channel for resistance if we make it that far.

An update of the chart I posted Wednesday, shows that the QQQ has leaped even farther ahead than the broader markets on the strength of AAPL (BO of symmetrical triangle) and leadership provided by the SMH, which has staged a sharp recovery after bottoming on August 19th. Notice how the IWM and SPY are starting to flatten out. Non-confirmation of new recovery highs in the QQQ by the broader markets is a red flag - caution going into next week.

As we can see from the chart below, the SMH has retraced almost 62% of the last leg down. Friday's stick is a bearish spinning top in the ambush zone and I expect a retracement to kick in early this week.

The chart below shows some leading names in the SMH that I follow. SNDK has been ripping higher since the beginning of Sept., up over 30% since Aug. 19.

Copper futures don't look very healthy. Copper is generally considered as a leading indicator for the broader markets and it has carved out a bearish H&S pattern within a double top. If it breaks out successfully, look for a $0.60 drop as targeted on the chart below.

Gold futures appear to be forming an ascending triangle.

Technical Picture - Retest of Last Week's High

The retest of last week's highs sold off sharply into the close with continued weakness in index futures as I write this post. Investors are reluctant to hold overnight especially on the third day of a rally.

The QQQ is far outperforming the broader markets as depicted in the chart below. However, unless we start to see some rotation, the broader markets are going to dominate and that is likely to lead us back down to retest support.

Also, keep a close eye on the $USD which has broken to the upside. We are consolidating the move, but once the next leg up gets underway, it will hurt stocks.

Technical Picture - Gap Fill and Fade

Markets gapped down on the open and the gap was immediately faded. Price retested the lows before extending yesterday's rally. As we can see from the 15 minute chart below, we filled the bearish gap from Friday's jobs data and immediately faded. Note the negative divergence of the RSI to today's higher high, foreshadowing the end of the move. Now we have support from the bullish island gap which occurred on yesterday's opening gap up.

From the daily chart above, we see a possible H&S pattern developing within the consolidation channel.

On the 60 minute chart below, we see a lot of gaps, but only the unfilled gaps, highlighted in color are important. If the bulls are going to do something, now is the time to show their strength with the bullish island as support. Overall, the bears still have the upper hand, but they need to own it on the next test of the lower channel line.

Futures sold off during the President Obama's speech, but have since recovered to pre-speech levels. Chinese CPI and PPI data seeing further upticks in ES futures.