Trading in Slow Motion

ANF from the gapper scan. Ambush on the first retracement and MA convergence on the second. It's very important that the second retracement be shallower than the first.

POT carved out a huge cup and handle, but the target was a gap fill. Normally, we expect a C&H pattern to deliver a 100% extension, but not if breaks out in slow motion with only a slight uptick in volume. I shorted the lower high after the gap fill, for a small move into the close.

Technical Picture - Bearish Evening Star Reversal Pattern

The markets gapped lower on the open due to modestly weaker ADP numbers. But the real story in today's trade was a rally in the $USD, exacerbated by a build in crude inventories which put the entire commodity/energy complex on the defensive.

Everything we've been talking about in the last week is coming into play. The S&P carved out a bearish evening star reversal pattern at resistance. The tail end of the rally has been mainly about commodities sprinting higher as the $USD was throttled. The greenback is bouncing in the support zone and now we expect the markets will begin a correction in the short-term. Defensive sectors such as biotech are breaking out - sector rotation. Tech is still hot, but it will come around. The only caveat to this scenario is volume. Today's volume was dismal so we need to see some follow through, on higher volume, soon (next few days).

$USD Bounces - Commodities Get Crushed

We've been monitoring the $USD's slide and said that it was coming into support. Today the USD gapped up on the open and rallied all day. So, the obvious play is to short commodities. I prefer the Canadian names because the $CAD is going to take a hit on a stronger USD as well, and that sounds like a double play. Not sure if that's real or bogus, but in my mind, it all makes sense.

The first chart is CNQ 15 min. the blue lines represent S/R. CNQ was basing along the middle trend channel line yesterday and gapped lower on the open. Ideally, you want to get in as close as possible to a blue line, and above the lower trend channel line.

The best way to get in is to move it to the lower timeframe. Using the 1 minute chart below, we see a tiny h pattern form at the base of the second blue line.


POT paused at support to consolidate the first leg down. It couldn't close above the downsloping 5 period EMA, so short as price crosses below the blue support line.

AGU formed a bear flag with lots of room to move to the next support level.

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Technical Picture - Narrow Range Consolidation

The S&P edged slightly above Monday's range following the stronger than expected Pending Home Sales data (+6.7% vs. +0.5%). However, it stalled at resistance with choppy sideways trade persisting into the close. I'm seeing some sector rotation with more defensive sectors such as medical supplies, biotech, and education seeing some green today. Airlines were the leaders and financials the laggards.

ADP employment figures will be out in pre-market tomorrow morning.

Focus list - Bearish - BUCY, JOYG, WFC, JPM; Bullish - ESRX

Base & Break - Celgene Corporation (Public, NASDAQ:CELG)

CELG from my usual suspects list, setup a clean B&B entry on break of ORH and whole $ level. Took a partial as price approached $44.00. Added back on break of bull flag, but the momentum died and the rest of the trade was like watching paint dry.

Technical Picture - Retest of January Highs

We've come full circle and retested the January highs as well as the May-Sept. trendline. Now what? Well, after reviewing all of the charts below, a few themes are developing - negative divergence to higher prices; and, bearish candlestick patterns. Also notice that volatility increased today despite the big move higher. Financials failed to really participate in today's big move and volume was luke warm. The commodity led rally will end when the $USD reverses its downward trajectory. We got a first hint that the $USD may be bottoming as it carved out a hammer-like stick with long lower shadow in the support zone. Start scoping out some good reversal setups as this rally concludes in the very near-term.

Click on the charts below to enlarge and read my chart notes.

Focus List Trade - Amazon.com, Inc. (Public, NASDAQ:AMZN)

The markets gapped open this morning on impressive overseas gains and better than expected pre-market spending data. Everything was moving so fast, it was hard to get in. I took a low risk entry on AMZN using the 5 minute timeframe - NRIB at base of round $ level. I exited when it stalled just shy of the 100% FE of the PDL to the base.

AMZN consolidated and managed to rally well beyond the FE target, but it was exhausted and carved out a huge shooting star, setting up a late day short.

A reader asks - AMZN - coiling as MAs converge. What is the importance of MAs converge in general and in AMZN case?

When prices coil at an area of MA convergence, the BO can be extremely powerful as we see from the NKE chart below. Once price broke out of the base, the MAs start to separate like a bow tie.

AMZN looks good on the break of resistance at blue line $80.00 entry point. However, if we look at a wide range view of the daily (last chart), we see a lot of resistance at this level. Normally, the BO of the coiling/MA convergence zone is the best place to initiate a swing trade, but because this rally is long in the tooth, last night we said we don't recommend any new long swings at this time.