Technical Picture - Strong Start to the New Year

The first week of the new year started strong and ended with 5 consecutive higher closes despite the weak jobs data on Friday. The Nasdaq spent most of the week in a sideways chop, waiting for the broader market to catch up. Markets approaching overbought so I'm expecting some consolidation/retracement sometime this week.

According to IBD, the market is back in a confirmed uptrend. Pressure from distribution days has been neutralized or turned positive because the price has moved substantially above them.

The $USD is consolidating its gains in a flag pattern, but if it doesn't break soon, we could see it slip back.

The new year also saw some sector rotation with Energy, financials, and gold leading on the long side, as some high flying tech names take a breather.


A few charts to watch next week. GLD is forming a base a $112.00

MON is testing a lengthy base at $87.00. We have 2 inside bars on Thurs. & Fri.

AMZN appears to be forming a symmetrical continuation triangle. Looks like a good swing trade setup.

Cup & Handle - Monsanto Company (Public, NYSE:MON)

MON from the HCPG focus list, carved out a C&H pattern. It didn't quite reach full extension. I exit when it it printed a lower high.

MON reports tomorrow before the open. MOS reported today after the close and is slightly lower following a $0.03 earnings miss.

The Agchem space was conspicuous in its underperformance yesterday, but today they rose to the top of the usual suspects list on the open. So I stuck with them in the early going. POT was good for two longs and one short.


GS has been on a tear since HCPG highlighted it as a focus stock out of the base. I thought we were done for now yesterday when it closed at the 62% retracement level of the last leg down.

I couldn't resist buying this ascending triangle for a nice rally into the close.

According to the daily, we are hitting resistance (black line), so expect some consolidation/retracement as traders digest the move.

Happy New Year!

According to the Stock trader's Almanac, the January Effect refers to the historical tendency of small-caps to outperform large-caps from mid December until April. This period also coincides with the bullish six month cycle that extends from November to April. Historically, the strongest period of small-cap outperformance runs from mid December until end January.

The graph above which compares performance of the Russell 2000 (red) versus the S&P 500 (blue). Clearly, the January Effect is in play.

The NASDAQ chart above shows a solid BO from the base with a low volume rally. The S&P chart below shows a failed BO. What happens when one market breaks out and is unconfirmed by the broader market? Price usually reverses.

The monthly S&P timeframe shows that we have retraced 50% of the losses from high to low. It also shows this month's range is NR7 and the momentum is waning.


The VIX is forming a broadening pattern and looks poised to bounce. The S&P versus VIX chart below was highlighted last week and we note that the VIX has crossed back above the support line.

My thoughts on AAPL - BO premature. We need a right shoulder.

Technical Picture - Low Volume Chop

$USD consolidating gains in orderly fashion. Looks well positioned to go higher.

SPX versus VIX - Time for some retracement?


AAPL just broke out to all time highs on low volume. Can it hold? Today's bearish engulfing bar foreshadows a failed BO. It may be just a retest of the BO point, or not. Keep this one on the radar. Remember, failed BOs lead to fast moves in the opposite direction.

Continuation Play - Cephalon, Inc. (Public, NASDAQ:CEPH)

The first chart of CEPH is the daily. We note that yesterday it broke out of a seven month base and today we filled the bearish gap. Prices closed near the highs of the day, so the gap fill didn't give rise to profit taking.

The 15 min. and 5 min. timeframes show the day trades. Two low risk entries followed each by vertical expansion. Intraday pivots used as guides for support/resistance.

The last chart is the 3 minute timeframe of the trading channel since CEPH broke out of its base. The next level of resistance is $62.50. Price is testing the lower channel into the close.

Handle - Cephalon, Inc. (Public, NASDAQ:CEPH)

CEPH gapped up, printed a wide, bullish OR, followed by a handle in the upper range. The handle leads to price expansion and a full measured move as measured using the Fibonacci tool from the ORL to the ORH.

REGN was found through the Trade-Ideas scanner using the momentum scan. Again, a small, tight handle with NR7, leads to a full measured move of the last leg up.

Stock Picks

FLR $44.00 should be good to go long. Tuesday's WRB had high volume. Price is consolidating the move in the upper range (3 NRBs - price contraction before expansion). Looking for another WRB on the break.

POT closed on support Friday, but I expect it might go lower before it retraces ( closed on lows with big volume). Hoping for a hammer reversal bar tomorrow, followed by a retracement to the ambush zone.