Technical Picture - Markets Extend Gains

Futures held their Fib levels in overnight trade and the markets opened near the PDH. On the US market open we had early consolidation in the upper range, which was followed by further extensions long. We ended the session near our Fib targets. Volume was lighter than yesterday. After hours, news of the death of Steve Jobs put pressure on NQ futures. ES futures still holding Fib retracement levels.

So sad to hear about the passing of Steve Jobs. He was such an important innovator. RIP


Initial claims and ECB conference in pre-market.

Since we were able to hold our gains overnight, it was safe to trade stocks on the long side today. I traded POT and TCK. Both trades were executed in the same manner except that TCK reached its target by mid-morning.

Technical Picture - Short Squeeze on Breach of August Lows

As discussed in my last post, we were expecting a rip your face off, bear market rally on the retest of the August lows. That's exactly what we got this afternoon.

We took the August lows out overnight on the ES mini futures, gapped wide, and after bottoming on the 10:00 turn, we managed a half way back into the ambush zone of yesterday's break down lows to lows. Initially, I thought we might base and break from there, but the bears didn't want, so I got a signal to short again. After retracing most of the morning run up, I noticed the NQ futures were printing new lows on AAPL weakness. The new lows on the NQ and QQQ were not confirmed by the broader markets and that was the tell that we might get the much anticipated short squeeze, if AAPL could just capitulate and reverse.



Bear market rallies are usually very short in duration, so I'm not expecting much follow through. The maximum expectation is the ambush zone of the last leg down as depicted on the 15 min. chart below. But don't be disappointed if we don't even get that far. Don't fight the tape on the squeezes, but don't forget that the overriding trend is still to the downside. If we gap down tomorrow morning, look for support in the ambush zone of today's range.

Technical Picture - Very Bearish

On Sept. 22 we broke out of H&S pattern on decisive volume. From Sept. 23-27 we had a dead cat bounce on lower volume. Since then we have been pushing back down, ending last week on lows.

To calculate the measured move of the H&S pattern, we take the distance from the top of the head to the neckline (blue line) which is approx. 10 points and extend from the breakout point - approx. $116 and subtract to arrive at our target of $106. The August low is a psychologically significant level and its retest could produce a rip your face off, bear market rally (day trade).

Reading the stream this weekend I saw a lot outrageous predictions of gloom and doom based on the H&S pattern and the top that preceded it. I think some people are incorrectly drawing the neckline. We don't move a trendline unless we make a higher high, so the way I've drawn the neckline is technically correct.

Technical Picture - Bears Follow Through

Price stalled at the 62% Fib retracement of yesterday's range and the bears ambushed. Initially, the PDL held as support, but after the midday doldrums, the bears came back in pursuit, pushing price beyond yesterday's gap fill. We came back for a retest of morning support and it held as resistance, forming a bear flag, which broke into the close.

As depicted below, bulls are trapped and need to hold the 61.8% Fib retracement of the last leg up, if it doesn't give way overnight.

Technical Picture - Gap, Chop and Fade

The big moves took place during the overnight session and we were left with scraps. EOD, we have a bearish black candle which closed in the ambush zone and below the daily 20 SMA. Is this the end of the dead cat bounce? I don't know, I'm waiting for a close below the ambush zone.

As depicted on the 5 min. chart below, we gapped up wide, and chopped around a narrow range for most of the session.

As noted last week, when price is extended and choppy and we want to fade the market, we look for either

1. A failed BO, or
2. The 50 SMA to cross above the 20 EMA on the 5 min. timeframe (MA kisses and air kisses don't count).
   

We short, on a first come basis.

Today, we had a failed BO, which set up a short into the close as depicted below.

Last Tuesday (Sept. 20th) we had a 20/50 MA cross for a short into the close.

Technical Picture - Waiting for Capitulation

Markets consolidated on Friday after a week of sharp declines. On the SPY chart above, we have gap resistance above price and a retest of the August 9th lows just below. Headline risk related to tenuous global economic conditions and precarious financial conditions in Europe will continue to dominate.

CME will be raising metal margin requirements by EOD tomorrow on gold (21%), silver (16%) and copper (18%). Expect more forced selling.

The good news is, we should get a robust relief rally when capitulation finally occurs!

Technical Picture - H&S Breakout

Markets traded lower overnight following a disappointing FOMC statement yesterday. We gapped wide and grinded lower for much of the session. From the daily chart of the SPY above we see that our H&S pattern has finally broken out successfully with volume. We are oversold and I am expecting a dead cat bounce soon.

Big picture, if we fail to hold the 61.8% Fib retracement of the 2010 low to the 2011 breakdown low as depicted on the SPX chart below, a full retracement is likely.


Update on the copper futures chart I posted over the weekend. H&S top within a big double top. The H&S measured move is close to target. Here again, I would expect dead cat bounce soon.