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.