Swing Trade Update - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT); Research In Motion Limited (USA) (Public, NASDAQ:RIMM)

The daily chart above depicts the swing trade entry and exits. As you can see the trade has become extremely extended (distance from trendline and moving averages). I'm sure POT and the sector will go higher, but for now I felt I needed to lock it in and wait for a retracement.

Yesterday POT trended higher. It carved out a ambush of the last leg up in early afternoon which I day traded as depicted below. When I closed out the day trade I also locked in 25% on the swing trade.

This morning it gapped up again when the market gapped lower. I locked in the last 25% when it failed to hold $115.00.

I'm hearing that Cramer recommended the fertilizer sector on tonight's show, so many of the names (POT, AGU, MOS, IPI ...) traded higher in after hours. I hate shorting strong stocks, but Cramer might have setup a perfect storm. We'll see how it plays out tomorrow. AGU, and MOS printed a shooting stars on the daily today.

The RIMM swing short hit the first support level today and I covered 25% on my position. Plan to lock in more at the next support level as depicted on the chart below.

ABX short was stopped out on Friday. It has since broken its downsloping trendline and is basing at $43.00. I'd like to see a matching pattern develop - inverse H&S before going long.

Ambush Trade

Ambush trades were developed by Hubert Senters of Trade the Markets. I believe he uses the setup mainly to trade futures. I find it also works well with trending stocks, stocks that gap, and stocks that test support/resistance in the opening range.

The first example below is FSLR's earnings gap on Friday. Price started to move lower, retraced into the ambush zone (50-62% retracement) and reversed. The basic rules are price must breach the 50% and cannot close beyond the 61.8% level. Wait for confirmation and enter the trade. Ideally, we target the 50% Fib. extension, but if price pauses and attempts to reverse at the base, take a partial.

The second example is PRGO today. PRGO fills yesterday's gap in the opening range, moves up to test resistance and retraces into the ambush zone. Wait for confirmation and take it long.

NFLX initially looked like a good ambush setup until price closed beyond the 61.8% retracement level.

AMZN initially looked like a good ambush setup until price closed beyond the 61.8% retracement level. In this case, the setup did give the desired result, but we have to establish rules and stick to them. I'm still experimenting with this setup and may eventually work around this problem.

Swing Trade Setup:

RIMM filled it earnings gap today and sold off on high volume. I think she's done here and will be looking to swing swing short below 20 EMA ie. trendline break.

Swing Trader - Barrick Gold Corporation (USA) (Public, NYSE:ABX); Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

Two swing trades short ABX. The first was a short following failure to BO on test of previous high. We noted on July 6th that the gold hedge against a weak Euro was out of favor because the Euro reversal had proven quite strong. I waited for price to retrace 50% and I covered as price approached 200 SMA.

The second trade, depicted below is the same principle, 50 % retrace of last leg down (points A to B). Now price has taken out the 200 SMA and we are targeting point C - 50% extension. ABX reports tomorrow in pre-market. I hope price will not regain 200 SMA, but if it does I will cover half.

POT is a swing long, the day after markets reversed. I sold half today as price retested the base ahead of earnings tomorrow morning. I'm not optimistic on favorable earnings, but I think the bottom is in and the sector will continue higher based on crop commodity prices and severe global weather conditions.

Technical Picture - Overbought

Tonight's HCPG newsletter points out that today's action leaves the SPY with 14 days of consecutive higher closes. The SPX chart above shows that price barely paused at resistance before breaking through. Volume on the BO is average, so there was no short squeeze in play. Are investors too complacent? Since we didn't pause at the base, we should expect a retest.



The RIMM swing trade is in peril. Price closed below 6DMA and the rounded top looks very bearish.



Daytrade - GMCR formed a bullish flag pattern, but didn't reach full extension.

Potential H&S Swing Trade

GOOG has a H&S pattern with support around 556. That support level happens to coincide with the 50 day SMA. A measured move down would test the range/support levels formed in February. This scenario is more likely to play out if the broad market starts to sell off from the current extended (upside) levels.


Update: The charts below (30min and daily) show what happened with the H&S pattern. After forming a more complex right shoulder and testing support several times, GOOG gave a good test down (yesterday and today) into support as shown on the daily chart. A sharp reversal from that level brought it back to the H&S breakout level by today's close. The test down did not achieve a full measured move (height of the H&S pattern), but it was a good move down in an overall bullish market. The possibility still exists for achieving the full measured move before trading above the H&S pattern, however the strong reversal today lessens that chance.

Swing Trader

Swing Trading Rules:

• Look for stocks breaking out of bases or chart patterns on strong volume. Lots of stocks break out of bases and fail, so I want to stress the importance of strong volume on the BO bar. Strong volume means accumulation.
  
• Once the swing trade is underway, we need a follow through day to confirm a high probability of success. Ideally, the follow through day should close in upper half of the day's range with good relative volume. How long after the BO should we expect to see a follow through day? It depends on whether or not there is a wide gap accompanying the BO. A wide gap can take several sessions to consolidate.
  
• Identify a target using Fibonacci extensions. On a measured move basis, price should extend 100% of the depth of the base from low to high. The same goes for chart patterns.
  
• Manage the trade with the 6 day EMA (pastel blue on my charts below). If price breaches the 6DMA on a closing basis, exit the trade, otherwise stay in the trade until price approaches the target. Stops should be set with some wiggle room especially in consolidation zones.
  
• Scope out support/resistance zones including unfilled gaps as areas to take partial profits.
  

APKT, which we discussed back on February 24th, is a great example. The stock broke out of a lengthy base with a wide gap. It consolidated the gap by forming a perfect bull flag pattern. The follow through bar took well over a week - time for the flag to form. Price held the 6DMA on a closing basis throughout the ascent. Exit the trade as price approached the 100% FE of the flag pattern. Shortly after taking out the target, price formed a top and began to retrace.

I was late getting in this one - started buying as price consolidated between two blue line segments


AAPL gapped up on Friday after announcing scheduled launch of the ipad. The follow through day occurred on Tuesday, again with good volume. With separate accounts for swing and day trading, it makes sense to day trade these swing stocks as they propel higher.

RIMM broke out of a multi-month base on Monday following an analyst upgrade (HCPG pick from daily newsletter). Notice how the 100% FE of the base lines up perfectly with the gap fill.

MA was a failed bear flag pattern. Failed patterns usually result in fast moves in the opposite direction. I closed my position on the gap fill, but price is consolidating nicely so I will be ready to get back in.

I missed the GS trade, but it's a good example of a BO out of an ascending triangle. Also the bearish trendline has been broken.



BIDU broke out of a base in January, but failed to follow through and fell back down. A second gap BO in February which I didn't swing, reached full extension in early trade today.

N.B. These charts are from yesterday. I started writing this post last night, but got distracted.