Technical Picture - $USD Strength Weighs on Energy/Commodities

A choppy mixed session of little consequence to the overall bias. Dollar strength weighed on energy/commodities and if it continues, we could get more of a pullback. As depicted on the NASDAQ chart above, at this point, the markets are pricing higher as momentum weakens.


From the 15 minute chart of POT above, we see that it is a relatively easy read with respect to support/resistance due to the gaps. Wednesday's gap was filled in early trade, but price carved out inside bars ready to break to the downside. The NRIB was the trigger. After the initial swoon, price paused at the guidance gap support from last week...more inside bars and that level failed as well. Finally the trade was stopped out. From there, price retested former support, now resistance.

I've mapped several areas of support for a buying opp, but the full gap fill would attract a lot more buyers IMO.

As discussed last night, the RIMM swing trade was in peril. Early strength was attibuted to an analyst target increase. But that didn't last long. I exited half at $75.00 and was stopped out as soon a price breached yesterday's low.

Technical Picture - Overbought

Tonight's HCPG newsletter points out that today's action leaves the SPY with 14 days of consecutive higher closes. The SPX chart above shows that price barely paused at resistance before breaking through. Volume on the BO is average, so there was no short squeeze in play. Are investors too complacent? Since we didn't pause at the base, we should expect a retest.



The RIMM swing trade is in peril. Price closed below 6DMA and the rounded top looks very bearish.



Daytrade - GMCR formed a bullish flag pattern, but didn't reach full extension.

Potential H&S Swing Trade

GOOG has a H&S pattern with support around 556. That support level happens to coincide with the 50 day SMA. A measured move down would test the range/support levels formed in February. This scenario is more likely to play out if the broad market starts to sell off from the current extended (upside) levels.


Update: The charts below (30min and daily) show what happened with the H&S pattern. After forming a more complex right shoulder and testing support several times, GOOG gave a good test down (yesterday and today) into support as shown on the daily chart. A sharp reversal from that level brought it back to the H&S breakout level by today's close. The test down did not achieve a full measured move (height of the H&S pattern), but it was a good move down in an overall bullish market. The possibility still exists for achieving the full measured move before trading above the H&S pattern, however the strong reversal today lessens that chance.

Technical Picture - Markets Mixed

New 52 week highs in early trade following retail sales data, but Michigan sentiment was below consensus and prices retraced, spending the rest of the session in a sideways chop. As we can see from the above chart, prices are testing resistance and a period on consolidation would be healthy at this point.

The $USD succumbed to weakness Friday, finally closing on the trendline.


POT gapped into resistance on guidance. We have a volume spike which should lead to a swing long as soon as prices consolidate the move.

CLF gapped after JPM raised their target price to $83.00. I set a buy stop order just above the pre-market high. Resistance at $65.00 so I'm going to wait for a pullback or consolidation before swinging long.

Swing Trader

Swing Trading Rules:

• Look for stocks breaking out of bases or chart patterns on strong volume. Lots of stocks break out of bases and fail, so I want to stress the importance of strong volume on the BO bar. Strong volume means accumulation.
  
• Once the swing trade is underway, we need a follow through day to confirm a high probability of success. Ideally, the follow through day should close in upper half of the day's range with good relative volume. How long after the BO should we expect to see a follow through day? It depends on whether or not there is a wide gap accompanying the BO. A wide gap can take several sessions to consolidate.
  
• Identify a target using Fibonacci extensions. On a measured move basis, price should extend 100% of the depth of the base from low to high. The same goes for chart patterns.
  
• Manage the trade with the 6 day EMA (pastel blue on my charts below). If price breaches the 6DMA on a closing basis, exit the trade, otherwise stay in the trade until price approaches the target. Stops should be set with some wiggle room especially in consolidation zones.
  
• Scope out support/resistance zones including unfilled gaps as areas to take partial profits.
  

APKT, which we discussed back on February 24th, is a great example. The stock broke out of a lengthy base with a wide gap. It consolidated the gap by forming a perfect bull flag pattern. The follow through bar took well over a week - time for the flag to form. Price held the 6DMA on a closing basis throughout the ascent. Exit the trade as price approached the 100% FE of the flag pattern. Shortly after taking out the target, price formed a top and began to retrace.

I was late getting in this one - started buying as price consolidated between two blue line segments


AAPL gapped up on Friday after announcing scheduled launch of the ipad. The follow through day occurred on Tuesday, again with good volume. With separate accounts for swing and day trading, it makes sense to day trade these swing stocks as they propel higher.

RIMM broke out of a multi-month base on Monday following an analyst upgrade (HCPG pick from daily newsletter). Notice how the 100% FE of the base lines up perfectly with the gap fill.

MA was a failed bear flag pattern. Failed patterns usually result in fast moves in the opposite direction. I closed my position on the gap fill, but price is consolidating nicely so I will be ready to get back in.

I missed the GS trade, but it's a good example of a BO out of an ascending triangle. Also the bearish trendline has been broken.



BIDU broke out of a base in January, but failed to follow through and fell back down. A second gap BO in February which I didn't swing, reached full extension in early trade today.

N.B. These charts are from yesterday. I started writing this post last night, but got distracted.

Cyclical Bull Market within Secular Bear Market

The tech bubble at the turn of the century led to a secular bear market. Within the secular bear, we enjoyed a cyclical bull market from 2003 thru2007, followed by a fresh round of selling in 2008. Today is the one year anniversary of the so-called bear market bottom and as we can see from the NASDAQ monthly chart above, we are approaching a test of the secular bear's trendline. Until that trendline is broken for good, we are in a cyclical bull market within a secular bear.

Technical Picture - Overbought

Despite the weak open, the market was able to notch fresh February highs before succumbing to pressure in the last hour and half. Transports lead with a test of YTD highs. Financials also managed to test resistance. However, the spike in volume we see on the S&P chart was courtesy of sellers. A pause here would be a good thing. IMO, we need to work off the overbought posture before we attempt to break higher.