Breakout Comparison - ARO vs CRM

To help determine the probability of BO follow through, focus on these two key areas: 1) daily chart setup, and 2) intra-day price action around the opening range or BO.

Here are key comparisons between ARO and CRM on 6/3/2010:
From the daily charts below, both had notable daily patterns with BOs on 6/3. ARO had pulled back to form a symmetric triangle, but it was below key price pivots and below its declining 50 day MA. The CRM setup was much better technically. CRM formed a B&B above its upsloping 50 day MA. In general, a flat-top B&B in a strong uptrend is more powerful than a symmetric triangle below recent price highs. From a daily comparison, CRM carries the higher probability of follow through.


On the 15min charts below, I marked several features: 1) range/volatility of the 15min OR bars, 2) proximity of the first pullback to the 15min 5EMA, and 3) proximity of the BO level to the 5EMA. While both gapped up on the open and both had upper wicks on the OR bar, ARO was much more volatile and moved "too far too fast". CRM moved up and had an orderly pullback to the 5EMA while ARO remainded well above the 5EMA. The BO level in ARO was well extended and above "loose" price action. The BO level in CRM was much closer to the 5EMA and associated with "tight" price action. From an intraday perspective, CRM gets the nod. The result was that CRM trended up all day while ARO spent the remainder of the day consolidating the volatile OR action.

Day Trade - Toyota MTR CP ADS (Public, NYSE: TM)

Following the HCPG Blog and sampling a couple of their subscriber service emails has made me focus more on trading S/R at key MAs. If you trust the setup on the daily sufficiently to enter at a price extension/extreme (but at S/R where a reversal/pause is likely), you can sometimes get amazing entries. Today for example I had a great entry on TM (daily left, 5min right) off of the 200 day SMA. The nice thing about a good first entry is that it gives you confidence to reposition or add on the first retrace.

Edit: For the order fill highlighted, I intended to highlight my initial short fill (avg near 80.50) but instead highlighted the closing of a partial long position carried overnight. The previous day's long was initiated following a gap up and triangular consolidation breakout. It ran into stiff resistance at the 200 day SMA. That is how I knew that price level was in play.

Amgen Inc. (Public, NASDAQ: AMGN)

AMGN daily had a nice setup today with respect to the 50-day MA. Often when price gets sandwiched between a couple of key MAs on the daily, it will ping-pong between them. Today AMGN broke down from the 50-day MA and moved toward the 200-day MA with a nice setup on multiple timeframes (15min "h" pattern). RIMM is also currently bouncing between key daily MAs.

Failure of Daily Setup - AGU

AGU has been on my WL since I traded the BO trend day a few days ago (from scanners). Coming into today it appeared to have a daily long setup on/at support. It gapped down (profit warning) and formed a bearish intraday pattern right at the daily support level. Typically the failure of a setup leads to a significant move in the opposite direction.

Good Daily Charts to Study

Jamie mentioned POT (top chart) in his Technical Picture post last night. It broke through resistance right on que today. AGU (bottom chart) is in the same industry group - agricultural chemicals - and also broke out with a trend day. Compare and contrast the two charts. Both were excellent daytrading opportunities today.

Edit: Note that POT reports on Thursday.

Range Contraction, Range Expansion

Per Jamie's post above, HCPG definitely had some nice picks today. If you do not have an evolved scanner and a good eye for picking the best setups, a service like HCPG can help orient you in the right direction.

A key to these nice setups is to look for range contraction in an active market and at appropriate zones on the daily chart. BIDU had broken above a key pivot level on the daily chart (bottom) and then contracted for a couple of days. Today BIDU was very active (hitting my intraday scanner) in early trading and then setup range contraction intraday (symmetrical triangle, penant). The setup led to 3 WR 15min bars (upper chart), plus a tad more. An aggressive trader might have entered earlier based on the daily setup.

Combo Confidence - SRS

The gap down open and overall weakness in the broad market produces gap ups in several inverse ETFs on my WL. I noticed the perfect combo for trading SRS (inverse Real Estate ETF). Early in the session, SRS was the %change leader on my WL and VNO (Vornado Realty Trust) was near the bottom based on %change. Additionally, with SRS trading at/above the PDH, the daily chart (left) looked great.

My first entry was a strong full b0died candle closing above the 50% Fib level of the 30min OR. I was stopped out following consolidation at the ORH. The long upper tail on the first 15min bar was not easy to overcome. Two bar later the ORH was decisively taken out with another strong full-bodied candle. After some chop, the traded carried to the 62% extension of the 30min OR. The second trade never violated the ORH.

Bullish Day and Close - ABX

Bulls owned it today with a gap up opening and a strong close on higher volume in both the NASDAQ and S&P. The VIX is still holding longer term support in the 35 area.

The previously mentioned daily coil in gold combined with weakness in the US dollar led to an upside range expansion move in gold. Of the gold stocks on my WL, ABX appeared to be the relative strength leader. Following consolidation at the ORH, the 10th 15min candle took out the ORH and closed at its high. I partialed at the 62% extension of the OR and trailed a stop at the lows on the remainder.

Daily Range Contraction

The following charts are examples from a scan for range contraction on a daily timeframe. The range contraction ratio (RCratio) indicator is in the bottom sub-window of each chart. Low values for RCratio indicate more range contraction. Range contraction often leads to range expansion. The direction of range expansion coming out of a low volatility point is uncertainty. The first chart is the Ultrashort Real Estate Fund (SRS). Many of the bear market ETFs have a similar pattern.

The second chart is a gold related chart. See the Technical Picture post from Friday describing the coil (involving range contraction) in many gold stocks.

Beware the Chop - Vacationing Traders

I just realized why there is so much chop in market of late. Many/most of the traders at trading blogs I follow are on vacation (including Jamie and Trader-X). Without those market movers, we are left with chop as shown on the SPY chart below. There is nothing remotely resembling a trend day over the last 5 days. The good news is that consolidation is either accumulation or distribution and will eventually lead to a nice expansion move (up/down?).
This morning VRTX hit my scanner based on %change from open and big volume. The daily had broken out above a trendline and the 15min setup a low-risk entry at the 30min ORH. It easily reached the 62% extension of the OR and went beyond. Even when the overall market is in chop mode, a strong setup in an individual stock can lead to a trend day (i.e., opens near the low/high and closes near the high/low).

Bear Flag Breaks in Gold - AEM

A question was ask in the comments about the following from last night's Technical Picture. "Gold might be forming a bear flag, but overall it is in the context of a larger trading range (TF). "Flags" which form within TRs are always suspect." The gold sector/index chart ($XAU) below shows that the bear flag formed above the trend line and at approximately the same price level as recent congestion.

Since the index bear flag is in a congestion zone and thus more questionable, the best approach is to find an individual gold stock that is weaker than the index. AEM got my attention. Notice the weakness of the AEM daily chart compared to the index above - bear flag is below trend line. It broke quickly and I had to wait for a pause to enter. Sweet exit at 62% Fib extension.

As the market was firming up, SRS (inverse ETF) had a great setup at the ORL and PDL. I covered at 62% extension of OR and left a lot on the table.
EDIT - Beware that longer term chart patterns in leveraged inverse ETFs (like ultra short 2x and 3x ETFs) are not as reliable and behave differently from their unleveraged counterparts. Such inverse funds track the inverse of the underlying index on any given day, but longer term relationships (on a % a basis) become skewed. The greater the volatility, the more skewed a leveraged ETF becomes with respect to its underlying (unleveraged) index.

Best Setup of the Week (Perhaps) - WYNN

WYNN had a strong 3-4 day upside move on the daily. Yesterday was a gap up that formed a shooting star on big volume. A red candle today could confirm the shooting star and potentially form an evening star on a weak close. What happened? A gap down open that had the potential to leave a 1-day island reversal. Here is the daily chart.


How to trade the gap down? Draw Fib line across the opening range (OR) and read price action in the congestion zone (38-62% Fib levels). Bars 3 and 4 (15min) were narrow range with bar 4 closing weak and just below the congestion zone. The entry was a breakout of bar 4. The 62% extension of the OR is a good profit target (normally). Since the 62% target was achieved so quickly, perhaps I should have targeted 3 WR 15min bars for my first exit. WYNN setup a second entry 'beyond the extension' for a continuation move. In fact, it closed near the low of the day.


Had I set my Fib lines from the PDH to the ORL (classical method), here is where a 62% extension target would have triggered.

Tracking Big Gappers - RIMM

Trader Jamie advocates populating his WL with stocks that have recently experienced a large, high volume gap. Besides being a WL regular, RIMM experienced a big upside gap last Friday after beating estimates. The daily chart is shown below.


On Friday, RIMM was in consolidation mode. Today, the opening range (30min) action demonstrated that RIMM was in a range expansion mode (wide range, full bodied, green candles). Following a breakout of the OR, the 15min chart setup a low risk entry following a doji candle at the ORH. The target was a 62% extension of the OR.

Question on WL and Stock Selection

Anarco ask the following question(s) in the comments and I feel it is a very common question: I typically start my morning with my WL and a few other stocks (gapers, earning stocks, etc) and as I go through the charts, I keep narrowing down the ones I want to focus on. But many times I find myself not making the most optimal selection and, of course, I realize that after I am already in the trade. So my question is: do you feel that making “good picks” is simply a matter of gaining more experience? Or do you feel there are other factors to consider? For example, do you find that the action in the daily chart (previous day/s action) is a deciding factor?

Anarco, your question is one that I ask myself and worked on for a long time (and continue to ponder at times). So, I was writing an additional response (after Jamie's response in the comments) and it got so long I decided to post it. I hope you don't mind. As Jamie said, experience is a key factor. Additionally, the following observations may help.

1) When I use a non-dynamic WL (not tweaked day-by-day) I typically focus only on the top & bottom ~10% based on %change (per Jamie's recommendation). Example: For a WL of 50 stocks, I will only focus on and trade the top & bottom ~5 sorted by %change for any given day. Of course the stocks that appear in the top/bottom will change or rotate day-by-day. Using this approach alone (without pre-market planning), I find good trades but my confidence tends to be a little lower and I am slower to initiate.
2) Pre-market analysis of the daily charts from my WL stocks will add some confidence. Example: Suppose I have noted 2 days of range contraction in stock Z. If stock Z happen to show up in the top/bottom %changers, I am ready and more aggressive in initiating a trade.
3) Pre-market analysis and day-by-day tweaking of a WL (based on EOD scans, etc.) can also improve confidence and increase the number of good setups in your WL. However, often what I predict should move, does not; and what I don't expect to move, does.
4) A TraderX like method is to build your entire WL from gaps or other highly active scans just after the open. This is fruitful but can lead to trades in stocks that are not familiar.
5) What I have been doing of late is a hybrid method. I keep a very small core WL. I add to this using scans for gaps and highly actives during the first 15mins. From the scans, I tend to select stocks that I recognize or have traded before.

Today I had a WL of less than 25 that included: CLF, X, NKE, SOHU
Notice that Jamie traded X, NKE and SOHU today. My focus was on CLF (top of my %changers) and SOHU (bottom of my %changers). The result on a choppy day was two great long trades in CLF and a short trade in SOHU. I'll bet you can pick out the two longs in CLF and Jamie posted the short in SOHU.

So, shift your focus to the extremes of your WL - it makes a lot of difference!

Gapper Retracement Trade - Emergent BioSolutions Inc. (Public, NYSE:EBS)

EBS is a perfect example of a gapper retracement trade. Price spikes higher on the open after trading lower in post market trade on Thursday. It then retraces back to the R-zone, where it carves out a mini C&H, before expanding and retesting the early reaction highs.

FSYS faked me out before setting up for the real extension. I have to pay closer attention to level II when trading unfamiliar stocks. This is a low priced stock with a wide spread. I didn't take that into account when sizing my trade. Anyway, not a big deal because I had plenty of winners.

I traded the same core WL stocks as Thursday - V, IDCC, and POT for some more downside extensions. POT gapped in to the R-zone of the PDH to the PDL, printed a cluster of bearish sticks and voilà. The target on the daily was $65.00 which matched up perfectly with the FE.

The X-List - BAIDU.COM, INC. (Public, Nasdaq:BIDU)

BIDU has been on my watch list since exhibiting range contraction on the daily chart in mid-to-late January. I caught a nice trade on Jan 28th. Since then, it has displayed whippy consolidation action until today. Early today, BIDU was my %change leader and drew most of my attention.

The daily chart (left) was a nice setup - notice the convergence of multiple moving averages - leading to today's gap up. The 10 minute chart (right) has key levels highlighted. The first entry (first arrow) easily fits under Trader-X's New Simplified Rules (ah, but which setup?). I entered on the 7th 10m bar, although an aggressive entry could have been made off of the 5th 10m bar. The first exit was at the 1.38 Fib extension. The second entry was off of a narrow-range inside bar at the opening range high (ORH) which gave much lower risk than the first entry - also exited at the 1.38 extension, but it almost reached the 1.62 extension.