Technical Picture - Low Volume Contraction Precedes Expansion

This week's price/volume contraction pales in comparison to last week's wide range, interim bottoming formation. However, contraction precedes expansion, and after three days in a tight consolidation, I am expecting expansion very soon. Tomorrow's loaded economic calendar might propel price expansion one way or the other, or not. Watch for reaction to initial claims and CPI in pre-market as well as, existing home sales and Philly Fed at 10:00.



From the two 60 minutes charts of the SPY (above) and the QQQ (below), we note that the price action is constructive - basically base on base. As long as the RSI holds 40 as support, we can look forward to continued recovery - target the ambush zone 62% fib. retracement and bearish gap resistance.

Technical Picture - H&S Top Bears Fruit

Today's price/volume action was due to forced selling from margin calls. All sectors were hit, commodities and precious metals led the way down. Concerns about the global economy - contagion fears in Europe spread to Italy and Japan's central bank opted to to expand its asset purchase plan. As deleveraging takes place, highly-liquid equity markets become the victim, as they offer the most convenient place to raise cash.

Technical Picture - Neckline Break on High Volume

Neckline break of H&S top on high volume. On a measured move basis, target SPY 116.

TUP bear flagging. Looks ready to go tomorrow.

Technical Picture - Few Setups as Markets Await Debt Deal

Markets are paused after an extended run from the 2009 lows. We are in a time correction as markets consolidate sideways. If we make higher highs we can adjust the trendline, but for now we wait and see.

CPC approaching top of bearish sentiment zone.

Stocks I'm watching include DML on TSX (symbol DNN in US.) Positive divergence looks promising.
RENN coiling
AMRN looks promising following Friday's hammer reversal stick.

Watch List - AMRN

Market Tell - Confirmation vs. Non-Confirmation Between Indices

Non-confirmation of the NASDAQ versus the broader market, leads to late session sell-off. The S&P futures easily took out the PDH and continued to trend higher, almost reaching a full retracement of the last leg lower as depicted on the ES chart below.

The NASDAQ futures, on the other hand, stalled at the test of the PDH. When the NASDAQ failed to confirm the price action of the broader market, it was a tell. The bears stepped in on the non-confirmation leading to a late session sell-off.

Technical Picture - Bulls Get Ambushed

Yesterday, IBD changed their current outlook from "Market in correction" to "Market in confirmed uptrend" based on a high volume follow through day on the NASDAQ as depicted above. Today, they are saying that the rally is in its third year and any new uptrends can fail because the rally is tired. So what observation can we make from this? Just looking at the NASDAQ chart above, two observations can be made:

1. It took four consecutive higher closes to get a confirmed follow through off the reversal last week. That's a long time and should be considered suspect.
2. The follow through day occurred in the ambush zone (50-62% Fibonacci retracement level).

Overall economic data has been soft in recent weeks and today's ADP private sector jobs was even softer, ie. dismal. Top that off with a lower than expected ISM and we had the makings of a real market drubbing.

The 60 minute SPY chart below highlights the double top in the ambush zone. Two trendlines were broken as the bears took over with a vengeance.

There's lots more economic data over the next two days, including the real jobs data on Friday.

The $USD held minor support and bounced.

In my last post, I highlighted a number of stocks setting up. Most of those daily charts are broken after today's session, but we did manage to get some good day trading action.

ERTS broke out of a daily bull flag yesterday.

NVLS set up a long above yesterday's lower base. Took a partial at $37.00 and was stopped out on balance.

MELI, which was my favorite long setup (also included in HCPG newsletter last night), had a beautiful rip after consolidating the opening range and forming a C&H pattern overlapping with the previous session. Euphoric volume spike foreshadows the end of the move.

As we can see from the daily, the BO failed and we have a bearish shooting star.

In my last post, I said that RIMM was a box play. The box was breached in pre-market, so I placed a sell stop just below the pre-market low. Took a partial after three consecutive WRBs.