Technical Picture - Constructive Market Action

Friday's action was constructive despite the lack of volume. The Nasdaq as depicted below retook the 200SMA. New highs on the NYSE outnumbered new lows 42/12 (Nasdaq 38/36). Several names we like and talked about in the comments were included in the new highs list NTAP, AKAM, NFLX. And the markets closed near the HOD on late day strength despite the lousy retail sales data.

We're not out the woods yet. The markets closed just shy of the 20EMA which was our next level resistance. Even so, we need to see a follow through day with big volume or we need to close above the previous high set on June 4th before the bulls can confirm that the correction is over.


The VIX looks weak. A close below the 62% Fib. retracement level could see price fall back to the base.

Transports testing the down-sloping trendline.


Failed rally attempt in $USD on Friday. Euro index (below) positive divergence of RSI and MACD to lower prices, foreshadows the end of the move.


In addition to NTAP, NFLX, AKAM, my focus list includes CRM, AAPL, PRGO, BIDU, SNDK AMLN, HGSI, APKT, POT, CNQ, CHK, and CLF. On the short side, as mentioned in the comments GS and CSCO. Also watching GLD (Gold ETF) and gold stocks. If GLD retests its highs and fails on the third attempt, I will swing short.

My open swing trades are NTAP (chart below) and POT long. Day trades on Friday - NTAP and AKAM long.

Technical Picture - Markets Push Higher

Broad based push higher on stronger economic data and euro strength vs. USD. Weakness was limited to Gold. Energy, commodities, transports, industrials... sported gains in the 4-8% range.

As depicted in the chart above, prices have pushed through the ambush zone. The next areas of resistance to watch are the 20 EMA, followed by the 200 SMA.

The ascending triangle BO in the $USD appears to have failed. Next support level is the 20 EMA.

OIL and Agribusiness charts are forming ascending triangles.


The SPY held support of the ORL and eventually made an attempt to rally. I mapped out the Fibs from the support base to the top of the early afternoon thrust, waiting for an ambush trade. It set up perfectly and momentum continued throughout the balance of the session.

Gold, was weak again today. This is my third consecutive day, shorting GLD and/or gold stocks.

I placed my fibs from yesterday's late day highs to this morning's lows and waited for a setup.

Technical Picture - Support Holds

The Dow and Nasdaq slipped a touch below their May lows, but the S&P as depicted above did not confirm, allowing for some corrective action into midday. That was followed by a retracement with the Nasdaq slipping below the morning lows, but not confirmed by either the Dow or the S&P, leading to a late day rally into the close. Use Fibonacci retracement levels from Thursday's high to today's low as a guide.

The weekly chart pf the $USD above shows that the sharp thrust from the 2009 lows is coming into resistance in the$90.00 range.

The daily chart below shows that the BO of the ascending triangle is having trouble with follow through. Also note the negative divergence of the RSI to higher prices.

GLD tested and breached 52 week highs, but failed to hold. The second test rarely succeeds (turtle soup), but the third test often does. Keep this one on the radar.

Day Trades:

AMZN - target reduced at Bofa-Merrill based on strong $USD. Yesterday's close was weak, the Bofa comments pushed it over the edge for a fast swoon.


GLD etf was going to test highs after yesterday's WRB. Find a gold stock with a clean base and wait for an opportunity. ABX - yesterday's highs held as support on the open. As price formed a triangle on 1 minute, I put in a buy stop order. I was long and short throughout the session as depicted below.

$USD Breaks Out

$USD has broken out of a small ascending triangle. On a measured move basis, target $90.00.

Breakout Comparison - ARO vs CRM

To help determine the probability of BO follow through, focus on these two key areas: 1) daily chart setup, and 2) intra-day price action around the opening range or BO.

Here are key comparisons between ARO and CRM on 6/3/2010:
From the daily charts below, both had notable daily patterns with BOs on 6/3. ARO had pulled back to form a symmetric triangle, but it was below key price pivots and below its declining 50 day MA. The CRM setup was much better technically. CRM formed a B&B above its upsloping 50 day MA. In general, a flat-top B&B in a strong uptrend is more powerful than a symmetric triangle below recent price highs. From a daily comparison, CRM carries the higher probability of follow through.


On the 15min charts below, I marked several features: 1) range/volatility of the 15min OR bars, 2) proximity of the first pullback to the 15min 5EMA, and 3) proximity of the BO level to the 5EMA. While both gapped up on the open and both had upper wicks on the OR bar, ARO was much more volatile and moved "too far too fast". CRM moved up and had an orderly pullback to the 5EMA while ARO remainded well above the 5EMA. The BO level in ARO was well extended and above "loose" price action. The BO level in CRM was much closer to the 5EMA and associated with "tight" price action. From an intraday perspective, CRM gets the nod. The result was that CRM trended up all day while ARO spent the remainder of the day consolidating the volatile OR action.

Technical Picture - Low Volume Retracement

The candlestick patterns on the $USD look somewhat bearish, so we may get a retracement back towards the trendline. This would allow energy and commodity sectors to bounce. On the S&P we need to see a move back above the 200 SMA.

Swing Trader - NetApp Inc. (Public, NASDAQ:NTAP)

NTAP is forming a bull flag on the daily (Darvis Box on the 15 min. timeframe below) following last week's earnings gap. The earnings gap accompanied by the volume spike foreshadows higher prices. Swing traders can target full extension on the daily timeframe above when price successfully breaks the highs.



What is the Darvis Box?
Trading strategy developed by Nicholas Darvas in 1956-57. Look for stocks breaking out of a base on huge volume. After the BO, price consolidates in a very narrow range - Darvis box (price/volume contraction ahead of expansion). As price breaks out of the box, enter the trade. Darvis made $2M in approx 18 months using this simple strategy.