Technical Picture - Uptrend Persists

After a pullback at the front end of March, the uptrend has exceeded the 23.% FE and continues with little hint of a correction any time soon. As long as we hold the HWB level of the current FE (green fibs), we should reach the next target 1420 very shortly.

The only caveat I see is that small caps are lagging as depicted below. A failed BO of the IWM would be a red flag for the broader markets.


Swing trades in play DVN, POT, GLD.


DVN broke out of a long consolidation pattern on high volume. I waited for a pullback to the bottom of the ambush zone. Price had a nice bounce off of the initial entry, but stalled and retested. Now, it is starting to move in the right direction towards a retest of the highs.

As we can see from the daily chart of POT above, it pulled back to the bottom of the ambush zone (50-62% Fib. retracement level) on Wednesday.

On the 15 minute chart below, we entered long on the first ambush retracement after Thursday's gap up. We added to the position on Friday as it flagged after another gap higher. Partial profits taken into the close. Plan to add back on a pullback.



GLD sold off sharply following the last FOMC statement. It has corrected back to the ambush zone on the daily. I'm looking for a bounce half way back to the ambush zone of the counter trend trade (green fibs). After which I'll be looking for a short.

The 15 min. chart below, shows the initial entry, stop below red line.

AAPL is extremely extended. It has breached it BB twice in this parabolic move higher. The first breach was met with a quick shallow retracement to the ambush zone, and we appear to be doing the same again on the second breach. A failure of the ambush, could see a deeper correction back to the rising 20 MA.

John Bollinger talks about the Three Pushes to a High pattern in this month's issue of Stocks and Commodities magazine. This pattern suggests that the next time the BB are breached within this uptrend, AAPL will be ripe for a full HWB (half way back) from the October high to high.

N.B. Apple will disclose its plans for $100 billion cash reserves tomorrow at 9:00 AM EST. NQ futures have rallied to new highs this evening.

Technical Picture - SPX Target Reached

Our SPX target - 1344 was reached Friday on positive jobs data. The Fibonacci extension remains in play until it fails. We'll stretch it to encompass any new highs and look for a pullback to the ambush zone. If the extension fails in the ambush zone, we'll look for a deeper pullback - 50% retracement from Feb. high to Dec. low.

In the meantime, I'm monitoring the 15 min SPY chart for any negative divergence of the RSI to new highs. This often foreshadows a pullback. So far, there's nothing to indicate the uptrend is in jeopardy. Gap support held on the first test.

BIIB flagging within a Fib. extension after coiling and ripping out of its base.

Technical Picture - Small Caps Outperform (January Effect)

Small caps are pacing the way higher. The 23.6% Fibonacci extension was reached and exceeded yesterday.

The chart below highlights the January effect with small caps far outperforming large cap broader markets in the month of January.


Last week, we said we were looking for a small correction to SPX 1300. A good place to add to long positions. Now, we need to see follow through to our target at 1344. Also note the golden cross of the 50/200 SMAs.

Divergence between light crude and the SPX is a bit of a red flag. A stronger market due to improving economy should lead to higher demand for oil. Since the beginning of January oil is in decline. What's up with that?

Technical Picture - Reversal Bar

Today the SPX carved out a reversal bar - higher high and lower close from the previous session. We are looking for minor corrective action to bring us half way back to roughly 1300 before resuming the uptrend towards our 1344 target.

Technical Picture - Bullish Response to FOMC

As discussed in my last post, the SPX chart above shows that since the new year started, we've broken out of the mean reverting pattern we were in over the past few months. The two fib patterns show two ambush setups. The second smaller ambush reached its 23.6% Fib extension target, and now we are moving towards the larger target - 1344.

Last Friday we were looking to BO of the first Fib extension. Monday morning, we blew past the 23.6% FE and drew a new extension (green), but failed to hold the 50-62% retracement. That failure resulted in a fast move back down the ambush zone of the stretched original FE. Buyers stepped in and managed to take price all the way half way back (grey fibs). As depicted below, the bears ambushed EOD and the counter-trend traded to the 23.6% target on the open Tuesday.

Today, bears failed after the release of the FOMC statement. Shorts were squeezed out of positions as price rallied to new highs.


Price reached the the 23.6% FE and now we stretch our Fibs and hope for a chance at a new ambush tomorrow.

Technical Picture - Bullish

The SPX chart above shows that since the new year started, we've broken out of the mean reverting pattern we were in over the past few months. The two fib patterns show two ambush setups. The second smaller ambush reached its 23.6% Fib extension target, and now we are moving towards the larger target - 1344.

The 15 minute SPY chart below, shows three ambush setups. The first two were traditional low to high Fib setups which involved some gap filling. The second Fib ambush blew past the 23.6% target, so now the third fib (red) is an extension from previous high to high. The ambush traded on Friday. If we blow past the 23.6 FE, we'll have to draw new Fibs from Friday's high to the next high, if not, we'll use the same anchor and stretch the Fibs and wait for the next ambush.

In the event that the Fib. extensions fail, we'll have a much deeper pullback, probably all the way, half way back from the base of the blue Fib. pattern on the SPX daily chart.

NR7 - Market Test Your Scan with OddsMaker

We've been in a mean reverting market for almost a year and long breakouts are few and far between. Long setups that worked well in 2009 and 2010 had little chance of success last year. If that sounds familiar, you need to refine your trade setups to the reality of the current market environment.

One of my favorite setups is the 15 minute NR7 which reflects price/volume contraction ahead of expansion. I like to trade NR7 with stocks showing intraday momentum. NR7 is a great trading strategy to deploy during earnings season. Earnings gaps offer good trading opportunities but we don't want to chase. Wait for NR7 and catch the next leg with low risk.

Using Trade-Ideas Pro Scanner 3.1 in conjunction with OddsMaker, I am able to market test under current conditions and refine my NR7 scan to generate a winning strategy.

As depicted below, my scan generates a 27.7% win ratio. That may not sound like a lot, but since I use a tight stop, losses are small and winners generate good income over a short period of time. The OddsMaker quickly market tests my NR7 scan and provides summary and detailed results of the strategy over the selected number of days of back testing. In this sample, I used 500 share size for all trades and after 15 days it generated $4,000.00. Even if we reduce the maximum number of trades possible on any given day, the results are still impressive, given that my testing assumes that all trades are closed after a $1.00 profit is attained.



My NR7 scan starts with a preview of stocks gapping up in pre-market and then alerts me of NR7 stocks that meet the criteria in real time as depicted below. If you want the exact configuration of this scan click here.

A couple of sample NR7 trades are CROX on Jan. 11 and SINA on Jan. 12.




Identify a trading strategy that works well under current market conditions and then let OddsMaker back test and crunch the numbers. All you have to do is refine the scan and trading rules to enhance the results and make the strategy manageable.

For more info check out the Trade-Ideas blog.