Technical Picture - Rally Stalls

Markets gapped up on the open, but the rally came to an abrupt halt a little over an hour into the session as traders realized there was no catalyst to keep going higher. Clearly, the only bullish play was commodities/gold versus a very weak $USD.

As Jim pointed out in the post below, the VIX carved out a tweezer bottom reversal and provided a leading indicator that things were about change. I had 3/4 scratches on my gapper longs (COST, BIIB, TGT). The CNQ oil play was good, but the failed gappers struck a chord and I scoped out a futures short.

Today's SPX shooting star on higher volume foreshadows a change in direction. This is a lower high which implies the bulls are tired. Let's see if the bears can show some muscle here.

Economic calendar - initial claims in pre-market, leading indicators and Philadelphia Fed at 10:00 EST.


Gold, another leading indicator, broke out of a huge base today.


5 minute chart of ES futures trades on either side of FOMC.

Advantages of Work - VIX and SKF

Many times, working and checking the market occasionally throughout the day has its advantages. Today was one of those days. I missed the whip saw action - early bear trap (weakness late yesterday followed by gap up open) which turned into a bull trap a couple of hours into the session. When I checked the market, the volatility index (VIX) had reversed, formed a flag pole, and was well into the formation of a bull flag on a slightly rising 20EMA (15min chart). An upturn in the VIX indicates increased fear and/or risk (i.e., market selloff).

From my WL, I found SKF (inverse ETF) forming a consolidation between its 20EMA (15min chart) and its 5-day MA. I waited for range contraction (NRIB) and entered aggressively when it appeared the 5-day MA would give way. I closed half after 3 bars and carried half for a swing. I even threw in the execution window for those skeptical of success in the whip saw action.

Technical Picture - Markets Mixed

The markets closed mixed on late session weakness. The NASDAQ ended the day in the green on SOX strength, but for the most part today's trade was choppy. Strength was mainly attributed to commodities on $USD weakness - energy/solar, coal, steel, agchem, gold/silver posted gains of 2-3%.

Weak housing data on the heels of last week's poor retail sales could be leading indicators that we are going to turn back down soon. S&P carved out a spinning top on light volume.

Crude inventories tomorrow at 10:30 and FOMC minutes at 2:00 EST.

Low Risk Dummy Trades - GIL, SNDA

GIL - analyst upgrade from neutral to BUY. Two NRIBs at the base of the whole $ level on the 15 min. and 2 NRIBs in the upper shadow of a bullish WRB on the daily. That's very bullish.

After topping out at $17.00, I shorted it (blue line segment) back down to $16.00. The reason I'm exiting at $16.00 as opposed to holding on until price meets the rising 20 EMA, is because of the whole $ level and because price based a long time at $16.00 on the way up, so that provides support (matching congestion).

SNDA from my WL, had a small gap and a perfect entry on break of ORH which I missed. It then carved out a flag pole (high volume) and flag (declining volume) setting up the next leg higher. For chart patterns such as flags, we look for a measured move of 100%, so I placed my fibs from the ORL to the BO point of the flag.

Yeah, I missed the rest of that move, but who knew after that shooting star?

Technical Picture - Oversold Bounce

As outlined yesterday, we expected support at 875 to hold on the first test, following last week's pullback on declining volume. Today's broad based bounce was on light volume, so now we are watching to see if the market will test recent highs with a new high or a lower high. Today's advance was lead by banks/financials, oil, retail and industrial materials. Precious metals were out of favor. Oil combined with weak $USD could test resistance tomorrow. I'm watching Canadain oil stocks CNQ, ECA, TLM, SU...

Cup & Handle - STT, AAPL, JPM

STT from the Trade-Ideas pre-market scanner, formed a cup & handle just prior to market open. This is a little riskier because it involves buying the open, so size it accordingly. I took a partial at R2 (dotted red line) which was close enough to the measured move target 100% FE and in line with round$ number. Then it carved out an IB in the upper shadow of the OR, so I was confident we could go higher. Exit balance at 150% FE.

After STT carved out a lower high, I was watching for a shorting opp. - NRIB was good for a retracement back to the rising 20 EMA.

AAPL formed a perfect C&H at the base of the ORH (entry as price takes out $124.00). It made a fast move to the middle ground between the 62% FE and R2 then stalled. I took a partial and then we consolidated at length before, finally taking out R2 and the full extension. After all that consolidation, I thought we might go higher, but not enough momentum.


JPM, another C&H pattern, stalled at the 38% FE so I moved my stop just below the whole $ level. It didn't retest the base, but took forever to form a second base. Worth the wait!

The C&H pattern should BO on an uptick in volume. JPM was suspect because of the minor uptick on BO.

Technical Picture - Profit Taking

Before I left for vacation we said that the S&P was forming an inverse H&S bottom and that we expected some symmetry (matching congestion) areas on the way back up. That's pretty much how it played out as we can see from both the weekly and daily timeframes.

Taking a closer look at the daily, we note that last week's profit taking was on lighter volume, and thus implies, that the rally is not over. I'm watching support at 875 as we consolidate between the two blue line segments. I wouldn't be surprised to see prices rally to test the January highs before beginning the longer consolidation process of carving out the right shoulder in the inverse H&S bottom.


The $USD took its sweet time before finally succumbing to a trendline breach. Thus far the breach is minor and could easily bounce for a retest. If so, gold and commodities, which rallied on USD weakness could come under short-term pressure.

Oil, is already pulling back to retest it's BO point.

Gold consolidating at it's base. I like how all of the moving averages have formed a bullish cross.

The rally in financials is also consolidating just below the downsloping 200 DMA.

Jim did an awesome job on the blog while I was away and I really appreciate it. The depth and variety of content is great and I look forward to more if he has time. Read his post below for analysis of key technicals in play.

In the next week or so I plan to respond to emails piling up over the last seven weeks. I'm feeling really jet lagged so I expect things will be a little slow in the next few days.


Good Trading!