Technical Picture - New Recovery Highs

A mixed open with the broader markets extending yesterday afternoon's weakness in early trade versus the NASDAQ which gapped up slightly. Bears were foiled and the bulls emboldened to pursue the upward momentum. A broad based rally with little in the red except steel and gold.

The aggressive advance off of the March lows was somewhat alleviated by yesterday's weakness, however, today's outside day leaves the markets somewhat extended. At some point we will have to correct.

Econ. calendar: CPI in pre-market, crude at 10:30, and FOMC rates at 2:15 EST.

Cup & Handle - CME Group Inc. (Public, NASDAQ:CME)

The bears failed to capitalize on early weakness and I got stuck on the wrong side of the trade in SU for a small loss. SU printed two shooting stars at the base of the R-zone of the RH to RL. They were quickly offset by hammers and I lowered my stop.

Similar action on CNQ except I managed to salvage the trade, and get in on the right side.

UTHR from yesterday's gap scan, set up a retracement trade in the R-zone back to PDH.




SOHU caught my eye with a Cup& Handle at the base of the retracement zone of the PDH to ORL. It was a little slow, so I decided to take half off at R1. It stalled at the 50% Fib extension of the low of the cup to the base, so I exit. Normally, for chart patterns we target a full measured move of 100%, but these usually break fast and wide. If they're slow, we have to manage them accordingly.

CME was ripping on my Trade-ideas scanner in the morning, but I didn't want to chase. Finally, it paused to consolidate midday. I took a cautious entry on break of the morning reaction high, trading it as a C&H pattern. Took a partial when it gave back the 50% Fib. ext. level and tightened stop on balance to 38%. Sweet!

Technical Picture - Overbought

As noted in last night's post some retracement was expected early this week in the wake of last week's surge. The S&P carved out a shooting star reversal pattern at the 50% fib. retracement of the Feb. highs to the March lows, and the NAZ printed a bearish engulfing stick at resistance area. Further corrective trade is expected in the coming days.

The manner in which we correct is of utmost importance. A sharp, high volume retracement would be bearish. But if the retracement observes the R-zone as support and volume is contained, it will be positive for the bulls.

The markets opened the week with an extension of the four day win streak and the Dow/S&P were able to maintain the intraday uptrend into midday. Finance paced the way in early trade after gains overseas, encouraging remarks from the Fed Chair during a weekend interview on 60 Minutes, and rumors about the government possibly requesting delivery of stock certificates held by AIG and other TARP institutions, thus preventing short-sellers from borrowing the shares.

But, the Nasdaq faltered after a higher open and failed to confirm the S&P move to new highs. Then the XLF carved out a double top and rolled over with afternoon profit taking persisting into the close. The steady slide over the final few hours of trade ended the winning streak but losses were minimal.

Important to monitor economic data - housing starts, building permits, and PPI tomorrow in pre-market. FOMC - FED interest rates on Wednesday.




OPEX (options expiration) is on Friday. Open interest sometimes moves from one extreme to the other during OPEX week. Also, things start to get a little choppy Wed. and Thurs. prior to OPEX.

Range Trading

The first chart is X and it was one of the weakest WL stocks Friday, setting up a short when it couldn't hold the R-zone of the PDL to ORH as support.

Today X printed an IB in the upper shadow of the OB, green on green, for a target trade back up to Friday's high. It then carved out a tower top reversal pattern for a short back to the R-zone.

SU and CNQ set up shorting opps on Friday after Thursday's big rally. I was hoping to go from top of channel to lower channel, but prices stalled.

Today they opened weak but found support on the lower channel and rallied back to test Friday's highs. SU carved out a morning star reversal for a long entry and CNQ IB. After testing Friday's highs, we had shorting opps.

So, we were long SU and CNQ Thursday, short Friday, long and short today - making the same money over and over. Tomorrow, I expect the channel to break.

I added ECA to the short oil list as it extended to the 50% Fib. level of the ORL to PDH.


MS, a long on Friday, should have been shorted on a trendline break, but I missed it. Eventually, it carved out a bear flag for a quick short.

Technical Picture - Confirmed Rally

Last week we said "The elusive bottom is in our sights. As we can see from the weekly chart of the S&P above, the head of the inverse H&S bottom is really taking shape. We could bottom as early as next week, or it could take a few more weeks." Read full post here.

This week I'm going to suppress the urge to say that we correctly predicted the bottom, because we don't know if this is the bottom. We have plenty of reasons to believe that March 5th was the bottom, however, we won't be able to confirm it until the reaction high from the November lows has been taken out. That would be the early January highs around SPX 944.

Markets hit 12 year lows in the first week of March. What's so significant about 12 year lows? Twelve-year lows are rare. Thomas Lee, U. S. equity strategist at JP Morgan, says the event has only happened twice, on April 8, 1932 and Dec. 6, 1974. The 12-year low in 1932 was three months before the end of the bear market, while the 1974 low turned out to be precisely the low.


So if we compare the S&P with the NASDAQ, the former took out 12 year lows, the latter did not. However, the NASDAQ has been in a cyclical bear market since the tech bubble burst in 2000. From trough (2002) to peak (2007), the NAZ just edged back into the retracement zone.

Tech stocks led the 2003 recovery, however after 6 months, their leadership waned as depicted by comparing the two monthly charts above.

Expect the same this time round, Financials and to a lessor degree, commodities should be strong in the early stage recovery, but I expect tech, which made a higher low, to finally resume some leadership in the next stage of the recovery.



IBD says we are in a confirmed rally. Tuesday was the reversal day and Thursday the follow through day. We are approaching overbought levels, and I would expect a shallow retracement on lighter volume to start early this week.





Gold is struggling, but it could get a boost on a lower dollar.

Technical Picture - Bulls Own It

The markets opened slightly weaker in the wake of higher than expected Initial Claims and a ratings cut for GE. However, better than expected retail sales and some M&A in the pharma and biotech sectors helped fuel another rally. Also sub committee meeting on mark-to-market accounting rules and positive comments from the CEO of BAC kept the rally going. Broad based rally with little in the red except the $USD.

This has been the best 3 day run since November, however we are moving into more resistance as highlighted on the NASDAQ chart as we approach overbought levels.

Economic calendar Import/export, trade balance in pre-market, and Michigan sentiment at 10:00.

Parabolic Move - Suncor Energy Inc. (USA) (Public, NYSE:SU)

Parabolic move - initial run comprises small tight candles which get increasingly wider is price/volume increases. I traded SU and CNQ.

CELG and AMGN momo biotech moves in the morning on an M&A fueled snap back rally. AMGN has now retraced 38% of its recent drubbing.

Sorry for the brevity, but I'm pressed for time.