Technical Picture - Overbought

Day Trades - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

Yesterday in the comments to the prior AMZN post, I mentioned a handful of stocks on my focus list. POT was on the list. It was also a long pick in the HCPG newsletter last night. Hope you guys caught this one today.

On the daily we see 2 NRIBs at the base $105.00. Today it was a runner.

The AMZN trade below is from yesterday. Early strength did not extend after the retest of the base. Eventually, it carved out a 3 PP base with NR7 trigger bar for a gap fill. AMZN was downgraded today and traded lock step with the retail sector XRT - leading the laggards on weak retail sales data.

Technical Picture - Waiting for the $USD to Find Support

Now that the laggard DIA has finally filled the Lehman gap, we just need to wait for the $USD to find support and reverse in order for the markets to begin the anticipated correction.

Despite higher highs again this week, the markets are moving on lower volume which means that institutional players are not enthusiastic at these levels and the bears are side lined (no market squeezes). Good daytrading opps are few and the focus list is slim. OPEX this Friday and Thanksgiving next week will put trading in slow gear, notwithstanding a catalyst.

Day Trade - Amazon.com, Inc. (Public, NASDAQ:AMZN)

Thursday night we said that each time AMZN tests it's 50 SMA on the 15 minute timeframe, it results in a higher high. We also said that a lower high under weak market conditions could setup a shorting opp.

Friday's market conditions were not weak with each of the three major spiders SPY, DIA and QQQQ printing inside days on lighter volume (consolidation). AMZN set up a long when it found support in the ambush zone of the last leg up, after breaching the 50 SMA and snapping back as depicted on the 15 min. chart above.

The reversal back up was on light volume, so we suspected a short was setting up when price could not hold R2 (blue line), resulting in a lower high from the PDH. As depicted on the 5 minute chart below, we partialled out at the initial sign of weakness and after another lower high, we exit the balance of the position and shorted simultaneously. Volume on the short side wasn't enough to get past the median daily pivot P (black line) and the short trade was stopped out for a small gain.

Price moved all the way back up to the initial base on accelerating volume, so we took a long entry into the close. Once the intrday high was taken out, the shorts were in a squeeze which propels price higher at a much faster rate.

From the daily chart below, we see a flag pole (high volume)/ flag (declining volume) and BO ie. extension. The only caveat is the lack of volume on the extension. Volume increased on the BO day, but has since failed to follow through, so price is moving slowly. This looked to be setting up as a failed BO and that's why I said I would look to short on a lower high if the markets were weak. Now we adjust the strategy because if there's a big enough short float, price could move higher faster. If that pans out, we'll wait for a euphoric volume spike before we attempt to short AMZN. For now, buying pullbacks is the way to go.

Technical Picture - Resistance Lehman Gap Range Top

The SPY printed a new recovery high yesterday but the Lehman gap top held as resistance on a closing basis. Today the QQQQs carved out yet another higher high in early trade, but was not confirmed by either the SPY or the DIA. Non-confirmation at support/resistance levels, usually foreshadows a reversal.

So we try to incorporate this into our day-trading strategy. After the initial retracement, draw in a trendline and extend off of the first two points. Short the trendline breach.

On the 15 min. AMZN chart below, we observe that each test o the 50 SMA (green MA), is followed by a higher high. If we get a lower high tomorrow and weak market conditions, we'll be looking to short AMZN.

Key Questions at Decision Point

Q1: What price and volume pattern(s) do you see in this chart?
Q2: How many times has this stock tested the intra-day support level (dashed line)?
Q3: Does current price action appear to be consolidating at support?
Q4: What would you expect to happen if it breaks support?
Q5: Can you see/define a tight stop level that might give a good reward-to-risk ratio?


EDIT: There are several good responses to the above questions in the comments. I agree with JTT that multiple timeframes help. In this case, the BIDU daily gave me confidence on the short side - it was testing an upside daily PP zone following a big gap down on Oct 27, 2009.

Review this FUQI chart from a June 30, 2009 post by Jamie where he stated - "Not sure what to call the FUQI setup other than inverse C&H. But if you see a big thrust higher, consolidation, and a big move back down, just draw in the lines and wait for the handle to form. [Target] approx. 100% measured move down...". Note that Jamie drew trendlines around the entire inverse C&H in FUQI whereas I have trendlines on the handle portion only. There are a lot of similarities.


So, what did I see in the BIDU intra-day chart? I saw a gap up, consolidation in the first 20 mins, a big thrust up with volume, small consolidation at the top, a big thrust down with volume - all of the preceding forms the inverted cup - then the handle started to form. The handle (lower volume) turned into a nice 3 PP base (inverted) with lower highs. The target was a 100% extension of the entire C&H pattern - about 6 grid line blocks. I exited half on either side of the target zone.


Today (Thursday 11/12), BIDU formed an IB on the daily - interesting.

Oversold Bounce - Research In Motion Limited (USA) (Public, NASDAQ:RIMM)

Last night we said that yesterday's downgrade resulted in a mini capitulation for RIMM. Today, the stock was bid up sharply on an oversold technical bounce.

I started scaling in as price crossed the base, and added to the position as price broke its consolidation zone after the first leg up. Set the stop just below the lowest point of the consolidation zone. Trending stocks will make higher highs and higher lows, so the stop placement allows you to stay in the trade as long as the trend continues.

On the daily we have a WRB with volume. I'm placing my fib retracment lines from the earnings gap to yesterday's low and looking for an ambush type bounce back up to the 50-62% level.


We talked about gold maintaining its bullish bias over the weekend. Today GLD broke above its trading range and most gold stocks participated. I'm staying away from AEM after recent weakness, but GG and ABX traded sharply higher.