Technical Picture - Consolidation - Markets Mixed

We had little in the way of catalysts during the trading session, to move the markets, hence we printed inside days. After hours TXN announced bid for NSM at 70% premium over closing price. This prompted buying in SMH and more specifically in names similar to NSM such ADI, MXIM, ISIL, and LLTC.

We'll see if the euphoria carries over into tomorrow's session. At the moment, the S&P futures are ticking down as depicted below. Support in the 1320-21 area looks good and I would be a buyer, notwithstanding negative news.

QCOM forming bearish wedge. Prelim. target $50.00. QCOM popped after hours on TXN/NSM news, but I doubt it will hold for long.

Day Trades

ALXN - Fib. retracement trade

TCK - Traded in my swing account. TCK is on my short WL of Canadian stocks (mostly commodities). TCK formed a bullish flag on 5 min. timeframe. I took a partial at full extension and swinging the rest. From the daily chart above, we see an inverse H&S pattern basing for a BO. Full measured move will bring us back to highs and beyond.

RHT formed a nice flag pattern (tweeted by Independant trader). Exit after it formed a bearish tweezer top, because it just didn't have enough profit at that point to partial and ride it through.


RIMM - shorted break of PDL and it snapped back. What else is new? I keep trying the same bear flag BO trade and keep getting the same result. I was getting a little discouraged, but deep down, I knew it was going to break eventually. So I sat back and placed my Fibs from Friday closing handle to opening swing low and waited to see if anything developed. Price rallied to 1.27 FE, carved out some bearish long upper shadows, and fell back into the retracement zone. So I decided to short again as price broke out of the Rzone. Finally, lower prices. Took a partial at weekly S2 (1.62 FE). Price then retraced sharply, sort of forming a triangle into the close.

Not sure what to expect tomorrow. Felt there wasn't enough volume on this move lower, to risk a swing on the second half, but I will get back in if we break $53.85.

Technical Picture - Broad Based Selling

We were expecting weakness in the ambush zone as the markets were technically overbought and last week's advance came on light volume. The 10:00 consumer confidence data was so far below expectation (46.0 vs. 55.0) that the bottom fell out leading to a broad based retreat into midday. Attempts to rally from there were lame, with the bears firmly in control.

POT and MA printed inside bars with long upper tails foreshadowing weakness. Both trades triggered at 10:00.

Gap Fade - Caterpillar Inc. (Public, NYSE:CAT)

CAT gapped wide on earnings and immediately started to fade. Support from the rising 5 EMA initially looked promising, but price got stuck inside the second 15 min. stick. After NR7 completed, it started to look like a bearish h pattern was developing, so I shorted the break of NR7.

Took a partial at the 50% extension and rising 20 ema. I covered the balance as price crossed back above the 20 ema.

CNQ - Sell break of support as oil stocks finally succumb to some profit taking.

Shanda Interactive Entertainment Ltd ADR (Public, NASDAQ:SNDA)

The first chart is the daily EOD Friday. I was looking to short SNDA below the middle blue line around $55.00.

SNDA gapped down on the open and carved out a hanging man (sort of - long lower shadow). The next stick was an IB in the lower shadow of the HM. The only caveat was the distance of the down sloping 5 period EMA (pink). I decided to take the trade anyway with a stop at PDL. If the distance from 5 ema too wide, stop has to be placed accordingly.

After my entry SNDA printed a doji with long lower shadow, which looked like it wanted to retrace and it did, but it held S1 as resistance and came back down for a fast move to the 50% FE of the late day swing high to the ORL. My target on the second half was eventually reached.

The daily has now carved out a base at $50.00 from a double top. Today's selling on high volume. So we have three consecutive lower closes on accelerating volume - looking for consolidation at the base, prior to BO.

Chinese internet ADRs, as a group were weak today - SOHU, SINA, NTES.

Real-Time Scanning Strategy

Using a real-time (RT) scanner seems exciting. The thinking is - out of the thousands of stocks, ETFs, indices, etc., the scanner has just flagged "this one". However, after playing with RT scans for awhile, you find that most scanner settings produce too many hits and don't flag a setup that can be entered immediately. Given a few more seconds/minutes, the scanner will find another trading candidate and then another... This is the case with most canned scanner configurations supplied with the software.

So, when using a RT scanner, the big issue becomes 1) How to sort thru all of the scanner hits to find a solid low-risk entry, and/or 2) How to create custom scans that are much more restrictive (fewer and higher quality hits).

I have been working with custom RT scans (in Trade-Ideas (TI) ) for the past several years. The key for me is to scan for unusual/extreme price action combined with unusually high volume (especially during the opening range (OR) period), and then to monitor for low-risk setups. Although the implementation details will vary depending on the scanner you use, here are the scanning filters I use:
1) Price - eliminate low priced markets by requiring Price > $10.
2) Average volume - eliminate thin markets by requiring Average Volume > 1M shares/day.
3) Relative volume - find unusual volume by requiring Relative Volume > 2 (greater than 2x average volume for the current time of day).
4) Find unusual price action by using one or more of the following:
a) Gappers - gap up/down by 1.5% or more.
b) Impulsive move - change up/down with respect to open of 2.7% or more.
c) Gappers and quick moves - % change up/down of 3% or more.
5) To overcome recent support/resistance - require trading outside of previous day's range.

** NOTE: The thresholds for each option are somewhat arbitary and may be tweaked/changed depending on market conditions and/or the number of hits your desire.

Combined with the above filters, I use a heartbeat alert with a settings of 10 mins. This means that if a stock continues to pass the scanning criteria (filters), it will hit the scanner every 10 mins. The screen shot below shows some canner hits (long on left and short on right) from Friday morning. The last column in each scanner windows displays the Relative Volume.

I add a manageable number (15-25) of the scanner hits (during the OR) to my watchlist (WL) and cycle thru the WL looking for patterns and low-risk entries. I also run a scanner on my WL that alerts on NR7 (narrowest range of the last 7) bars. The concept is that in an active market, range contraction alternates with range expansion. If a NR bar forms at a key sup/res level or within a larger pattern, it may represent a good low-risk entry point.

I would like to alert on inside bars (IB), but TI currently does not offer IB alerts.

Opportunities Every Day - SNDA

Beware of the negative psychology trap. Great traders (like Jamie and Trader-X) demonstrate that there are good opportunities everyday - you just have to remain focused and find a few of them (at least one).

What are the most common reasons that traders can not find a good setup: 1) they are already in a weak/mediocre trade, 2) they are not clear/certain about what distinguishes a GOOD/GREAT setup, 3) they don't have the tools (resources, scanners, etc.) to locate good setups from all the noise, 4) they don't have the patience to wait for a good setup.

The screen shot below includes a snippet of my long scanner from this morning. Of the 10 or so stocks that were hitting the scanner (tends to repeat every 10 mins), several produced good setups sometime during the day.

SNDA was hitting the scanner all morning and eventually setup a nice range contraction at the 38% retracement of the AM range.