Technical Picture - Financials Lead Advance

Minor upside on the open was quickly faded with weakness in energy/tech. However, continued strength in financials following the Whitney upgrade of GS from neutral to buy, helped push the markets higher. As noted previously, the markets were technically oversold and needed a catalyst for relief beyond consolidation. Today's strong finish puts us back above the neckline of the widely watched S&P head-and-shoulders pattern.

Big pressure on GS to deliver better than expected earnings/guidance tomorrow morning.



GS opened wide, retested support of 2 previous days' highs. It looked solid on a break of IB (not perfectly inside), but good enough.

Technical Picture - Consolidation

Four consecutive lower weekly closes for the S&P. IBD says that the market rally is under pressure, but waiting for more evidence to determine if the rally is over.

This week is OPEX , but it's also the beginning of earnings season. As you can see from the SPX daily, we are in a consolidation chop until we get a catalyst to retrace or continue lower.



Friday's Catalyst Trade:

MOS breaks out in early trade (TI scanner), so I focus on Agchem. I'm looking for some consolidation. I don't want to chase MOS, so I look to see how AGU and POT are trading. They both stall at PDH and then everything reverses. It happens very fast and I don't know what the underlying catalyst is when I start scaling in. As it turned out, Russia sold a very large order of potash to India, undercutting market price significantly, so the whole sector suffers yet another setback.

Notice how after capitulating, POT couldn't get a bounce. I should have covered the POT short and entered long MOS, ie. short the weakest and long the strongest, but in the heat of the trade, I wasn't thinking smart.

Technical Picture - Oversold

The path of least resistance this morning was down again, but markets found support midday. We are technically oversold, so expect some stabilization/retracement to work off the OS posture in the short-term.

Technical Picture - Jobs Data Disappoint

A disappointing jobs report prompted sellers to knock stocks sharply lower in the first few minutes of trading. The jobs data hung over the markets like a bad smell. Even after strong factory orders data was released, stocks lingered in an extremely narrow trading range until the S&P 500 finally slipped below the psychologically significant 900 level in the final half-hour of trading and finished at session lows.

Investors should prepare for a deeper correction if the mini H&S top on the S&P breaks its shoulder line. On a measured move basis, expect price to drop approx. 50 pts.


VIX breached support but has reclaimed. If S&P breaks, look for increase in volatility.

Happy 4th of July

Technical Picture - Resistance Holds

New month/quarter cash inflows prompted some early gains, but everything stalled after the first hour and shortly after taking out yesterday's highs. A lot of midday chop was followed by selling into the close. Tomorrow's jobs data could provide some direction, but for now we continue the pattern of low volume on up days and higher volume on down days.

FUQI, one of IBD's leader stocks looks ready to roll over soon. Why? We broke out of the continuation triangle on euphoric volume spikes. Like capitulation, euphoria usually foreshadows the end of the move. Today's red shooting star is another hint.

Happy Canada Day

What does this post have to do with Canada Day? Nothing, but I just wanted wish our Canadian readers a happy July 1st. Cheers! Oh, and three of the four trades below are Canadian ADRs.

If oil breaks down, DUG will break the channel to the upside.

I've been watching and trading CNQ. Yesterday it broke it's short-term trendline. Today it gapped above it, but turned into a quick fade despite a weaker dollar. Inventory build means less demand, so oil is poised to correct.

On the DUG chart, the same trade would be the reversal at the lower channel line.

The 5 minute chart of CNQ shows how it set up a perfect ambush trade. A decisive move lower after failing to hold on the trendline, followed by a quick retracement. Within the R-zone, it forms a base at the 50% level, breaks higher and stalls at 62%.

POT is another Ambush example. I didn't trade the ambush, but rather the h pattern, which took a long time to get going, but eventually delivered.


RIMM - I'm calling this the Groundhog Day setup. If you've seen the movie, you will get it, but if you haven't, I'm taking the exact same trade as yesterday, at the same price. Worked like a charm today.
PFCB was a stock I found on the TI scanner. The scan is called Stocks with the MOST Upside Momentum. I've modified the scan to meet my particular needs. On a day like today I get a reasonable amount of hits and when I see something I like, I wait for a pullback and jump in.

The stock broke out of C&H pattern and came back to retest the base. This is a shallow retracement as opposed to an ambush, so I prefer to wait for base & break. I exit as price approaches the FE and whole $ level. PFCB carved out a bearish rounded top so I couldn't resist the shorting opp. That was the best part of the trade!