Technical Picture - Markets Swoon

The markets gapped down and plunged lower as the July/Aug. trendline was badly broken. The Fed's indications they would be buyers of government debt spooked the markets because the rest of the statement regarding slowing growth was already priced in. In addition, weak data overseas (China/Japan) exacerbated the fear factor. Technically, the market momentum had reached a crawl and the averages were holding on to an extended posture. The markets closed on their lows with some additional weakness noted following CSCO earnings.

The SOX is testing range support floor.

Waiting for a pullback to buy gold.

OIL - No real supply/demand story, so wait till price pulls back to trendline.

Ag/chem - Strong supply/demand story as depicted by crop futures - scale in on weakness.

$USD oversold bounce will likely break the downsloping trendline, but I suspect a short-term play.

Euro topped out at resistance - correction back to original trendline.

$CAD - failed BO leads to correction and lower trendline.

Day Trade Bear Flag - SanDisk Corporation (Public, NASDAQ:SNDK); Darvas Box - Apple Inc. (Public, NASDAQ:AAPL)

SNDK carved out a bear flag in the first hour of trade. The daily support level was $42.40 as depicted on chart above, so just partial at full extension of the flag pattern. Exit balance at daily support target. The best way to trade this type of pattern is waiting for the downsloping 5 period EMA is reasonably close to price.


Last week, we posted the daily chart of AAPL and said that the stock was coiling inside the Darvas Box and that we were expecting an explosive move when the box broke. Unfortunately, today's BO isn't about AAPL, it's about fear re: Fed policy. So, in a way, it delegitimizes the original plan. I'm just day-trading this BO. Not sure the explosive move is going to last more than a couple of days.

Ambush setup - short break of third bar low. The third bar breached the ambush zone by a couple of pennies.

Both SNDK and AAPL trading lower in after hours following Cisco earnings.

Swing Trade - AGU Long - Scaling into a long position in the ambush zone of the last leg up. Scaling is the operative word. I'm prepared to average down.

Technical Picture - Late Day Rally Pares Losses from Weak Jobs Report

A firmly negative start on Friday in the wake of the worse than expected non-farm payroll and private payroll numbers (previous month revised lower as well). As we can see from the SPY chart below, price held initially at this week's narrow trading range floor, but the rebound stalled 30 minutes into the day. A second wave of selling accelerated into mid-morning with the SPY unable to stabilize until it almost completely filled Monday's gap. To make matters worse, Goldman cut their 2001 GDP forecast. This left prices trading in a tight, narrow range for several hours. Eventually all that coiling, produced a breakout to the upside as prices rallied in the last 90 minutes leaving the indices with only minor losses.

On the daily we have a either a hammer or hanging man. Keep a close watch on the trendline for a potential breach and some retracement.


If the market weakens, play defense with biotech/healthcare sector. Large caps biotechs such as CELG and AMGN look poised to move higher.

Swing Trade Update

From the RIMM chart above, we see that Friday's strength (bullish engulfing bar) sets up a perfect ambush long. I trimmed my short position by another 25% and tightened the stop as depicted above. Barron's unfavorable article this weekend may help tomorrow.

Day Trade

As mentioned Thursday night, Cramer's ill-timed Mad Money recommendation to buy POT and other sector names, after such a huge move, could provide the perfect storm for a shorting opp. The sector gapped up Friday morning as his disciples blindly jumped in. As soon as prices fell below the PDH, I shorted POT for a nice swoon to fill Thursday's gap. Notice the negative divergence of the RSI to higher prices on the 15 minute chart above.

Technical Picture - Consolidation Ahead of Jobs Data

The S&P has spent most of the week in a tight consolidation trading range in the upper half of Monday's gap day. After weaker than expected initial claims data, stocks spent most of the session playing defense. A late day surge filled the gap.

Tomorrow's jobs data will set the tone.

$CAD broke out of symmetrical triangle. $USD is still trending lower, but has paused at the 200 SMA. A strong job report tomorrow would really help the $USD.

Ag/Chem sector should pause anytime now to work off the overbought posture. Long term, the sector has more upside.

AAPL is in a tight trading range, printing narrow range bars - coiling. The BO, when it occurs will be explosive.

Swing Trade Update - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT); Research In Motion Limited (USA) (Public, NASDAQ:RIMM)

The daily chart above depicts the swing trade entry and exits. As you can see the trade has become extremely extended (distance from trendline and moving averages). I'm sure POT and the sector will go higher, but for now I felt I needed to lock it in and wait for a retracement.

Yesterday POT trended higher. It carved out a ambush of the last leg up in early afternoon which I day traded as depicted below. When I closed out the day trade I also locked in 25% on the swing trade.

This morning it gapped up again when the market gapped lower. I locked in the last 25% when it failed to hold $115.00.

I'm hearing that Cramer recommended the fertilizer sector on tonight's show, so many of the names (POT, AGU, MOS, IPI ...) traded higher in after hours. I hate shorting strong stocks, but Cramer might have setup a perfect storm. We'll see how it plays out tomorrow. AGU, and MOS printed a shooting stars on the daily today.

The RIMM swing short hit the first support level today and I covered 25% on my position. Plan to lock in more at the next support level as depicted on the chart below.

ABX short was stopped out on Friday. It has since broken its downsloping trendline and is basing at $43.00. I'd like to see a matching pattern develop - inverse H&S before going long.

Ambush Trade

Ambush trades were developed by Hubert Senters of Trade the Markets. I believe he uses the setup mainly to trade futures. I find it also works well with trending stocks, stocks that gap, and stocks that test support/resistance in the opening range.

The first example below is FSLR's earnings gap on Friday. Price started to move lower, retraced into the ambush zone (50-62% retracement) and reversed. The basic rules are price must breach the 50% and cannot close beyond the 61.8% level. Wait for confirmation and enter the trade. Ideally, we target the 50% Fib. extension, but if price pauses and attempts to reverse at the base, take a partial.

The second example is PRGO today. PRGO fills yesterday's gap in the opening range, moves up to test resistance and retraces into the ambush zone. Wait for confirmation and take it long.

NFLX initially looked like a good ambush setup until price closed beyond the 61.8% retracement level.

AMZN initially looked like a good ambush setup until price closed beyond the 61.8% retracement level. In this case, the setup did give the desired result, but we have to establish rules and stick to them. I'm still experimenting with this setup and may eventually work around this problem.

Swing Trade Setup:

RIMM filled it earnings gap today and sold off on high volume. I think she's done here and will be looking to swing swing short below 20 EMA ie. trendline break.

Technical Picture - Gap Extension to Multi-Week High

An impressive start to the month with a gap open and extension on the strength of overseas markets. A broad based rally with commodities providing leadership - Coal, steel, Oil Services all added 4+% on the session. Ag/chem continued higher as well, gapping above the 200 SMA. The sector is overbought but propels higher on the supply/demand issues priced into crop futures. Another bad day for the $USD vs, $Euro. As depicted on the $USD down below, price is fast approaching the 200 SMA. A technical bounce is due so it's important to keep an eye on it and it's effect on commodity related plays. Canadian markets were closed due to holiday.

Day Trades

Ambush short for AKAM which is weak since earnings last week.

MOS tested the ambush zone of the last leg up in opening trade. Wait for confirmation, enter long. Partial as price approaches resistance and let the balance run.

BTU was a HCPG pick from last night's newsletter. Looks like a box play and extends 100% before lunch. Sweet!

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