Technical Picture - Modest Gains on Higher Volume to End the Month

Markets opened somewhat mixed, with the DOW outperforming on the strength of solid earnings from CAT and MRK, whereas the NASDAQ lagged following disappointing reports from RIMM and MSFT. Still, we managed to close positive across the board on higher volume. Leaders included solars, semis, coal, GLD, MOO, airlines and energy. Biotechs saw profit taking after an extended run.

Some of the companies reporting earnings the week of May 2nd-6th: Monday: ACV, AB, CPO, DISH, SATS, JKS, APC, DVA, DNDN, FMC, FST, HOLX, and NETL Tuesday: ANR, ADM, AVP, BZH, BYD, BPI, CLX, CTSH, INCY, LM, MA, PCS, MYL, OSG, CBS, CEPH, CRL, CMCSA, DENN, GNW, KNXA, MAKO, OPEN, VCLK, WWWW, and AUY. Wednesday: ASCA, AOL, CLH, GRMN, HNT, K, GAS, NUS, OIIM, PCG, SLGN, BEBE, CMO, CECO, CLWR, ERTS, GG, GDP, IPI, LEAP, PRU, SMSI, TSLA, and WFMI. Thursday: CVC, CBOE, DTV, RAIL, GM, MINI, MNTA, OWW, PXP, RDN, SHOO, TBL, THS, VNDA, VC, WNR, JOBS, NILE, CQB, DEPO, FLR, HANS, KOG, JCOM, KFT, LLNW, PWER, PCLN, RNWK, V, WBMD, and WMGI. Friday: CAS, DSX, ZEUS, PNM, UPL, WTW, and WCG.

The $USD is in a free fall versus GLD and SLV which are parabolic. We should get a technical oversold bounce in the $USD any day now. This is not likely a bottom because there's no positive divergence to indicate an imminent reversal.


By the same token, GLD is due for an overbought technical correction, similar to what we saw in SLV early last week.


Last week's correction in SLV provides us a preliminary support level.

Coal is breaking out of a tight congestion area.

Day Trades

OXY - HCPG pick - favorable earnings was the catalyst for this high volume extension. I waited for a NRB before jumping in.

DRIV - A narrow range coil triggers the short entry. Came within 5 cents of a stop out, but by EOD, my target was reached.


RIMM was a gap down on earnings warning. After the opening range, price couldn't move beyond the 50% Fib. retracement level and eventually broke the trendline for a low risk short.

I covered half when I saw some real size on the bid side at the $48.50 level.


AMRN printed NR7 on Friday. Watch for price expansion.

Overbought Profit Taking

The advance stalled when the S&P tested it's June peak. The combination of extended technicals and disappointing outlook from CAT's conference call, and the Fed Chair's outlook for a slow recovery, led to a steady but only modest slide into early afternoon trade. However, no follow through developed with the S&P stabilizing near congestion and bouncing into the close allowing the markets to extend their winning streaks (Nasdaq up 10 in a row) and all majors setting new multi-month closing highs). But the SPY carved out a red hanging man and the S&P a green one. Haning man has to be confirmed.

AAPL and SBUX rally on earnings after hours.

The H&S top in POT which I described last night was broken on the open when price gapped and tested Friday's highs. However, sellers fought back. A bull/bear battle ensued. The initial price action was like a yoyo with wide spikes up and down, but the bears had the advantage as measured by lower highs. Eventually, we reached price/volume contraction and a bearish rounded pattern took shape, leading to expansion on the down side.

MOS forming H&S top intraday at $48.00


CNQ was a NRB at base of support.

Technical Picture - Bears Step Up

Last weekend I wrote in the chart notes of the weekly chart, that I wasn't optimistic that we could hold the January highs and declare a new bull market. Since then we've pulled back, and judging from today's action, the bears are finally stepping up their game.

So, just to be clear, the rally off of the March lows was a bear market rally. The criteria for a new bull market was to clear the January reaction highs. That was tested and failed. Now, assuming the lows have been made, we now need to clear the June highs. The June highs mark the beginning of the RS, if in fact that pattern proves itself. For the time being we'll assume it will and target a retracement back to the ambush zone - 50-62% Fibonacci retracement of the March-June rally.

What's the point of all this? The key is not to get of ahead of ourselves. In order to have a new new bull market, we have to form a proper base and break out. That has not happened., which leaves the door open for a retest of the March lows. For the time being, I'm still betting on an inverse H&S bottom until the price action confirms, or proves otherwise.

FOMC on Wednesday afternoon will be interesting.

On the daily chart I'm drawing in a new down sloping trendline, and now we look to short rallies. Today's aggressive selling and late day slide keep the door open to additional short term downticks with next support at 890/888 followed by the May trading range floor at 880/878.

The NAZ looks to be forming a H&S top which will take weeks to confirm. We closed below the neckline and should see a further decline to the shoulder line soon, before the RS begins. Typically, we should see light volume on the RS to confirm the pattern.

Short-term we are approaching oversold.

Today's trades - short SPY and CME. The entries are key because we don't want to get in too soon. The SPY couldn't catch a bid at support and CME filled a bullish gap and consolidated in the low end of the range with NRBs. Both trades were executed on the 5 minute timeframe.

Need some help with short selling? Try this post by John Lee - a good primer on bearish patterns.