Technical Picture - Profit Taking

The markets gapped up and were quickly faded. Price consolidated near the flat line until wholesale inventory data provided a catalyst for bulls to push prices higher. As the SPY rallied to retest last week's highs, the $USD was making its way higher for the third consecutive session. Something's got to give and the SPY gave way to the greenback as commodity/energy stocks headed south. At EOD price closed back within the Bollinger bands.

After three consecutive higher closes, I expect the USD to consolidate the move for a day or two.

GLD carved out a wide bearish engulfing stick today as participants took profits. We may have a H&S top developing as we see a lot of negative divergence in the RSI to higher prices. We'll follow this closely.

Financials fell back to the base, so we need to see some strength here tomorrow, otherwise, we have the potential for a failed BO.

I decided to scale into a short SPY position, when it stalled on the retest of recovery highs. The 5 minute topping candles with long upper shadows were bearish, but the markets have been so strong, I didn't want to go all in until further confirmation.

Price finally formed a flagging base which begged for more. I covered my position and went long at the 62% Fib. retracement (ambush) of the range since last week's mega gap. The rally attempt was lame, so I exit and re-entered on the short side on a trendline break. Price proceeded lower for a full retracement. Long into the final 10 minutes of the session.

The SPY chart below depicts the entries. It's a wide range view, to show how perfectly the Fibs worked. Today's low is gap support. We need to see a sustained move above the intraday trendline, in order to stabalize the price action.

The gap will be filled sooner or later, so keep the key fib levels in mind.

PRGO was from my NR7 scan last night. Yesterday we had NR7 within a bull flag for SOHU that worked perfectly. Today we had NR7 within a bear flag with PRGO.

PRGO is not as liquid as SOHU, so it was a bit tricky. I entered short, on the first pause after the flag broke. My target was $60.00 support as depicted on the daily above. Things got a little choppy midday, but price eventually reached my target. The bounce off of daily support was really lame, and turned out to be just a pause in the selling, as PRGO wanted lower still.

AKAM gapped down on earnings, found solid support after holding ORL on two tests. I entered long for a target trade to SMB Capital's inflection point tweeted in pre-market.

Daily NR7 scan - APOL, CECO, MA, CRM, FSLR, OTEX - the list of NR7 scan results is too long, but these names are widely held.

Day Trades - SOHU, BIIB, LVS, (DO - HCPG)

Yesterday, we said that SOHU was flagging and had just printed NR7 (price/volume contraction ahead of expansion) on the daily as depicted above.

We entered long after price broke above NR7, as price crossed $75.00. The preliminary target at the 1.27% extension was reached as SOHU expanded vertically, barely taking a breath.

Took a second trade after price held support. As long as it doesn't form a H&S top intraday, it remains bullish.


BIIB, another setup on our focus list, didn't breakout of its flag today, but still an active alert.

We bought BIIB on the initial retracement and exit after it printed a long upper shadow at intra-day resistance.

LVS was a short setup that didn't pan out. Price gapped lower on the open and retraced back to the ambush zone of the impulse leg down.

DO was a HCPG pick at $70.00 which I missed. I waited until price pulled back inside the BB to the rising 5 period EMA on the 15 minute timeframe. Worked like a charm.

Technical Picture - Best Week Since Sept. Surge

Jobs data reported significantly better than expected, but the upside was somewhat limited in the wake of the surge and the rebound in the dollar.

As we can see from the weekly chart of the S&P above, we have cleared the 200 week MA and retraced 61.8% of the 2007-2009 crash ie. ambush zone. We are likely due for some consolidation/corrective action prior to moving to the next resistance level.

Despite extended technicals, there are no short-term reversal signals for the S&P yet.

The USD carved out a lower low on Thursday in the wake of QE2, but Friday's shakeout bar (bullish engulfing pattern) and the positive divergence of RSI to lower prices, foreshadows a reversal. Inversely, the EURO confirms this analysis with a bearish evening star reversal pattern and negative divergence of the RSI to higher prices.

If the $USD bounces here, look for energy, commodities to correct. Also, look for sector rotation with financials set to lead on the upside after finally breaking out of the doldrums.

Technical Setups

LVS extended beyond 100% of the previous impulse leg (A to B) after a minor correction to C. It carved out a bearish shooting star reversal pattern on Friday at point D.

We note that there is no consolidation beyond the earnings gap up day and expect a decisive move back to the 50% retracement level of the last impulse leg up (C to D).

LVS got ahead of itself as we can see from the 15 timeframe below. Price surged out of the channel in morning trade, retested and surged higher still. The last thrust higher saw negative divergence of the RSI signaling the end of the move. The high volume for the day was more on the sell side than the buy side.

SOHU is flagging and looks poised to break higher very soon. Friday's price/volume action was NR7.

BIIB is also flagging and could benefit from some sector rotation.

Technical Picture - Broad Based Accumulation

The markets gapped up in the wake of the post QE2 push. Gold and commodities were the leaders on a much weaker dollar, but overall the rally was broad based with few laggards (biotechs and education). In the final hour, financials broke out of a multi-month base.

However, as we can see from the chart of the S&P, we've breached the top of the Bollinger Bands and will consolidate/correct soon. Momentum is strong and the jobs data would have to be really bad in order to spoil the week IMO.

DW mentioned VMC in the comments a couple of days ago as a short squeeze play. Today, VMC gapped up, consolidated and extended a full measured move of the previous day's range. Good call!

Using the Trade-Ideas scanner - pre-defined scan entitled "Down 50 cents in last 5 min. on big volume", I found two perfect RSI divergence candidates. MUR ripped lower, bounced and then made a slightly lower low with positive divergence of the RSI, setting up a retracement long.

DLR had daily support at $55.00, so it was just a matter of waiting for price to hit the number. As depicted below, the positive RSI divergence, signals a buy at that level.

Technical Picture - New Multi-Month Closing Highs Post FOMC

Early weakness post election was followed by erratic trade in the initial 20-30 minutes following the FED QE2 announcement. The announcement was roughly in-line and slightly better than expectation, which helped push equities to multi-month closing highs (52 week highs for the Compq.) Bonds,as measured by TLT, were crushed.

However, the $USD held up better than expected and GLD wasn't able to fully recover from high volume weakness earlier in the session. A bit of a red flag.

After hours, the Canadian gov't rejected BHP's bid for POT. POT sold off and should be a good buy the dip candidate. Earnings winners QCOM and WFMI will be on my focus list tomorrow as well.

Today's trades started with BO longs - MYGN, FFIV (HCPG pick), followed by support long - AGU and RIMM. Long ABX twice post FOMC, but it didn't rally as much as anticipated.

Chart Request - MasterCard Incorporated (Public, NYSE:MA)

MA has rallied 100% from its base (lower blue line). It has recently printed two distribution days, today and Thursday. Today's close breached the trendline. Preliminary support is the 20 EMA, followed by $230.00 (former resistance). Major resistance is $250.00.

The trendline is too steep to be maintained. Corrective trade into the two immediate support levels noted above would be constructive over the near-term.

Ambush - Capitulation - Reversal: Cognizant Technology Solutions Corp. (Public, NASDAQ:CTSH)

CTSH was an earnings gap which was quickly faded. Price reversed and made a decisive move back to the ambush zone and stalled. I shorted CTSH as depicted on the chart above. Normally, on an ambush setup, I would target the 27% Fib. ext. and then the 62% level. But CTSH was a rip, so I decided to let the 2nd half go. It capitulated on a volume spike at $62.00 (daily support).

Ambush trades work best when the retracement into the ambush zone is decisive, but on lower volume than the preceding trend move. I look for smaller candles on the retracement than the preceding trend move to confirm it's not a trend change and a waste of time. CTSH met all of the ambush trade criteria perfectly and the result was awesome.

Capitulation signals the end of the move and can be traded for a partial retracement of the preceding move. CTSH started off slow, but eventually formed a cup & handle to which I doubled my size. As we can see from the chart below, the retracement was 62% of the entire day's range. Sweet!

I tried to do an ambush trade with AAPL, but the result was far from perfect. This brings home the point that we need a decisive move into the ambush zone in order to anticipate a really successful outcome. The only part of the AAPL move that was decisive was from $304.00 to $302.50. Anticipating this, I took a partial at $304.00. The balance of the trade was stopped out at $303.50.

It's easier for price to move through a non-congested area and that's why the criteria calls for a decisive move back to the ambush zone.