Technical Picture - Sell the News

The S&P notched fresh 2009 highs in early trade, on better than expected non-farm jobs data. The enthusiasm was short lived and it turned into "sell the news" as the opening gap was quickly filled and prices fell further, to the next support level. The rest of the day was spent in an increasingly tighter range. That's the second failed BO of the January highs in one week.

As noted previously, we need to close above the January reaction highs and hold in order to declare a new bull market. I want to see this on the weekly chart. Ideally, I'd like to see a bigger right shoulder.


General weakness among commodities came as the Dollar index jumped 1.3% in its best single session advance by percent since January. Gold fell 2%.

The XLF (financial) failed on its first test of the downsloping 200 DMA.


My strategy going into a new week is short commodities on dollar rally. Monitor dollar with the ETF UUP. AGU, for example is developing a bear flag, so I would look to short break of blue trendline with a target of $44.00.

Buy pullbacks in biotech which broke out of a base last week.

Look for weakness in tech which is really stretched at these levels. AAPL and GOOG up 9 consecutive sessions and both carved out spinning tops on Friday.

Mail Bag - Gap Scan

Hi J

I noticed on your newsletter you said ANF from the gapper scan, are you referring to the Trade Ideas Scanner? If so, can you tell me which scan parameters work best?

Again thanks for your help.

Hi E,

Yes, I'm referring to the Trade-Ideas scanner. Basically, I started off with the TI pre-configured scan entitled "Stocks down big in pre-market" and I adapted to my personal needs. In the window specific filters I set a min . price of $6.00; min. daily volume of 200,000 shares/day; with a max up from the close of -5%. In the symbol lists, I exclude all ETFs, Holders, Ishares and special symbols.

In summary, I'm looking for a wide gap from previous day close, like an earnings gap or story stock. The settings I'm using limit the number of hits to a manageable level, and eliminates all those ETFs. When trading gaps, you want to focus on the momentum plays, which mostly involve individual stocks. Measure quality by number of days and check the daily for a good idea of support/resistance levels. In the case of ANF, although the number of days was few, the daily chart was setting up for a bearish island reversal because the gap was wide.

Technical Picture - Another Yawn

Why did oil rally to fresh new highs when the $USD was barely unchanged on the session? Because Goldman analysts were out early this morning pushing their new target of $85.00/barrel. Ha Ha! As if we've already forgotten about the commodity bubble. Anyone going long oil at these lofty prices is buying their shares from Goldman. My guess is that Goldman has a huge position in oil that they want to unload before the correction.

Jobs data tomorrow in pre-market.

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