Technical Picture

The broad based advance in stocks continued with a strong up move on Thursday ahead of the 3-day weekend. The 20 MA has crossed the 50 MA in stock indices and in the commodities index (CRB). Although volume appeared strong in the indices, volume in the futures (NQ and ES) may be painting a different picture.

The McClellan summation index continued higher for both the Nasdaq and the S&P. The US dollar is trading sideways and the weakest sectors appear to be gold and drugs.

Currently (Sunday night), the futures are trading down several points from the strong close on Thursday.

Weakness in Gold

The weakness in gold stocks over the past week or so coincides with breaks in support for nearby gold futures. Following a failure at the $1000 price level, both sloped and horizontal support have now been broken in the futures.

Best Setup of the Week (Perhaps) - WYNN

WYNN had a strong 3-4 day upside move on the daily. Yesterday was a gap up that formed a shooting star on big volume. A red candle today could confirm the shooting star and potentially form an evening star on a weak close. What happened? A gap down open that had the potential to leave a 1-day island reversal. Here is the daily chart.


How to trade the gap down? Draw Fib line across the opening range (OR) and read price action in the congestion zone (38-62% Fib levels). Bars 3 and 4 (15min) were narrow range with bar 4 closing weak and just below the congestion zone. The entry was a breakout of bar 4. The 62% extension of the OR is a good profit target (normally). Since the 62% target was achieved so quickly, perhaps I should have targeted 3 WR 15min bars for my first exit. WYNN setup a second entry 'beyond the extension' for a continuation move. In fact, it closed near the low of the day.


Had I set my Fib lines from the PDH to the ORL (classical method), here is where a 62% extension target would have triggered.

Tracking Big Gappers - RIMM

Trader Jamie advocates populating his WL with stocks that have recently experienced a large, high volume gap. Besides being a WL regular, RIMM experienced a big upside gap last Friday after beating estimates. The daily chart is shown below.


On Friday, RIMM was in consolidation mode. Today, the opening range (30min) action demonstrated that RIMM was in a range expansion mode (wide range, full bodied, green candles). Following a breakout of the OR, the 15min chart setup a low risk entry following a doji candle at the ORH. The target was a 62% extension of the OR.

Single Focus - RIMM

Coming into today (Friday), I knew that RIMM had beat estimates and was going to open with a big gap up. Sometimes I choose to focus all of my attention on a single stock if: a) I have limited time due to work, and b) I know that one of my watchlist favorites (such as RIMM) is going to gap big and probably trade huge volume.

Below is a 10min chart of RIMM. The first candle was a doji with long lower wick. The second bar was bearish and closed below the 50% level of the OR. The third 10min candle closed just below the 62% retracement zone and was the narrowest range of the morning. That was the trigger bar.


I could (and should) kick myself because it traded exactly (to the penny) to the 61.8% downside extension of the OR. I was EXPECTING more range and missed the exit. The stop out resulted in less than half of what the target would have generated. Afterwards, I could tell that the indices were in consolidation mode and RIMM was acting similarly. Overall, a fairly choppy Friday.

Path of Least Resistance - Up

With the gap up in the indices on Thursday, longs setups were abundant from both my WL and from gapper scans. Here are a couple of gappers that were also on my WL. Initial setups in both were based on Fib levels drawn with respect to the 30min OR. Both were closed at the 62% extension of the OR.



RIMM (above) beat estimates after the close and was trading up $11+ at $60-61. I always feel cheated when I daytrade a stock (long in this case) and it jumps big after the close. Oh well, I got a piece of the action with small risk.

And Then There Was Silence...

With Jamie (Wall St. Warrior) and Trader-X both on vacation, it is very quiet. Below is what Jamie's trading facility looks like when he is gone. This supports the adage that simpler (trading) is better.


Monday and Tuesday of this week were fairly choppy and good trading setups were elusive. How do you know if a market session is "choppy"? Choppy sessions are characterized by congestion regions with lots of offsetting candles and/or doji like candles with upper and lower tails. Offsetting candles are pairs of candles whose bodies alternate color (green followed by red, or red followed by green). Also, most choppy days have a closing price that is near the opening price.

Look at the 15min QQQQ chart below and notice the congestion regions highlighted on Monday and Tuesday. Also notice where the market closed relative to where it opened. Although the market opened lower today (Wed gap down), there was steady buying pressure throughout the day (with some chop near the close). So, the market opened near the low of the day and closed near the high. These types of days are easier to trade and are where bigger money is made.


Here was my best trade on the long side today. The Fib lines are drawn per the classic gapper rules - from PDL to ORH. The steady buying pressure in the overall market allowed me to hold for the 62% extension of the large Fib range.