Technical Picture - Follow Through Stalls at Gap Resistance

A strong start for the markets as they were able to extend previous day's impressive performance in early action with Financials again pacing the way. The follow through gains brought resistance for the S&P at its early month gap at 729/734 into play which also lined up with a roughly 10% jump off of Friday's intraday low. The market averages pulled back slowly but steadily into early afternoon trade but pressure was relatively limited. Gold was up 5% as it tried to rally off of the lower trendline. $USD confirmed yesterday's hanging man with a close just below the 20 EMA.

Economic Calendar: initial claims, retail sales in pre-market and business inventories at 10:00 EST.

Bearish Tower Top Reversal Pattern - Amgen, Inc. (Public, NASDAQ:AMGN)

Steve Nison on Tower Tops (TT):

The TT unfolds at high price levels. During a rally there's a lull after one or more green candles. Then one or more red candles emerge. This creates a top with green and red tower on either side smaller sticks. So WRBs on the way up and on the way down. The opposite of TT is the tower bottom.

AMGN rallied up to the RH from last week, carved out a tower top reversal pattern. Short as price breaks support. The characteristics of the TT pattern usually result in a fast move.

CELG was a sympathy play.

JOYG carved out a TT at the 50% FE of the PDL to the PDH. BUCY was the sympathy play.

B&B long on AMZN 1:30 15 min. bar failed. Markets were somewhat extended after yesterday's big move.

Technical Picture - Reversal Day

The pre-market news that Citigroup earned a profit over the last two months lit the fire, setting the stage for a gap open and some serious short covering. Financials lead the way, but tech outperformed the broader markets. Volume was strong and the markets closed on their highs leaving the door open for some follow through. Looks like a bullish morning star reversal pattern on the daily.

Watch the bearish gaps from last week as these might act as resistance.

Crude inventories tomorrow at 10:30

Two hanging men on the USD chart in three sessions foreshadow a reversal. Waiting for confirmation.

Financials have bullish gap support as well as bearish gap overhead.

A lower low will confirm new downtrend for gold.

Finally A Rally - Amazon.com, Inc. (Public, NASDAQ:AMZN)

AMZN rallied to the top of the R-Zone , consolidated sideways, printed NRIB (NR7) and rallied all the way back up to the reaction high from last week. I did not change the Fib. placement from yesterday because yesterday was an inside day, so RH and RL are the same going into today's session.

The two weakest stocks on my WL were ABX and AEM. Here I'm placing my fibs from intraday RH and RL. ABX retraces 50% and carves a bearish stick for a short. AEM was less obvious so wait for NRB.
SU gapped above the trend channel and traded sideways, forming a very narrow wedge. It finally broke down for a gap fill.

SEC - Reinstate Uptick Rule :(

Reuters is reporting that Rep. Frank wants uptick rule reimposed in about 1 month.

Reversal in the R-Zone - Apple Inc. (Public, NASDAQ:AAPL)

The first chart is the trend channel of the QQQQ on the 15 minute timeframe. So far, each attempt to rally has failed. Friday's late day bounce was likely to be met with selling as well. How do we know where supply will overwhelm demand? Probably in the R-zone.

Place fibs. from the most recent reaction high (RH) to the most recent reaction low (RL) and wait to see what will happen. If the bounce is real, price will move into the R-Zone, consolidate then move higher. Candlestick patterns in the R-zone are our guide. If the R-zone acts as resistance we'll see red reversal sticks followed by a move lower. If prices consolidate in the R-zone, we want to see more sideways action.

This strategy worked fairly well with stocks trading with the market. I reviewed my WL last night, drew in the Fibs. and set alerts within the R-zone. AAPL set up perfectly.

CELG opened lower but thrust to the top of the R-zone and reversed.


WMT is not trading with the market, but I placed the FIBs from the RL to RH and finally it set up with NRIB at the base of the R-zone.

Same principles apply to stocks in an uptrend. As we noted over the weekend, oil was well positioned to BO. This a chart of SU, which held the R-zone as support on the open. A possible trade opp. is identified by the black arrow.


Tomorrow, I'd like to see a run lower for the markets, followed by a reversal. I anticipate the third rally attempt will have legs. However, I'm not saying that it will happen tomorrow. I'm saying that as we descend the wall of worry, we have to be nimble, and catch the opportunity, if and when, it presents itself.

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.