Technical Picture - U.S. Markets Rebound from Japan Meltdown

The U.S. markets gapped aggressively lower on the Japanese meltdown overnight following nuclear power plant fires. Buyers stepped in as the S&P came close to 1260 support, a key level I noted in my last post. This level corresponds to the 2010 highs, an area we based at for the last seven sessions of 2010. Volatility spiked as depicted below.

Swing Trades

Buying support on the open isn't easy, so I decided to to take some of the nail biting out of my support strategy by trading from my swing account rather than my day-trading account.

HCPG gave us POT $51.00 and I also liked POT $50.00, so I wanted to buy somewhere in between.

In the end, I hesitated and decided to go long weekly S1 which is much closer to $51.00. I took a partial midday.

I was looking to hold my partial swings overnight if we made a higher high than yesterday on decent volume, otherwise we're just on a path of lower lows and there's no point in taking the extra risk of a swing. So POT took out yesterday's high intraday, and we'll see what happens tomorrow.

I'm three for three with SU, but still not holding overnight because we keep printing lower highs and/or lack of volume.

TCK breached my initial, narrow support target on the open, so I decided to put this name aside and wait to see how things develop.

I took TCK long on a NRB, low risk, entry as depicted below. I took a partial at resistance, but it just kept on going on accelerating volume, which was perfect for my swing strategy.

Dummy Day Trades

For daytrades, I've been trading the old standby - low risk, dummy trades over the last two days. I look for stocks that gap with volume. Not too hard to find these days.

SHAW is a contractor with several nuclear power plant contracts set to begin in the U.S. and China. Following news of the Japanese nuclear disaster is gapped down wide on Monday. Two really nice trades yesterday and one today as depicted below.

I take all the high volume pre-market gappers and first hour pt. gainers/losers that catch my attention and create a symbol list in my Trade-Ideas scanner which I run the 15 min. NR7 scan. NR7 signifies price/volume contraction (narrowest price bar over last 7 bars) and foreshadows expansion. For longs I want price, to close above 5 EMA (pink line) and for shorts, below 5 EMA.

MCP printed a few NR7s and carved out a NRIB (narrow range inside bar). Took it long on break of small handle or base. My target was a retest of the intraday high. Not very fond of MCP as it can get really erratic at times, so just take the money and run.

Also traded PEP ( not pictured) NR7 plus hammer, but it went nowhere for a scratch.

Technical Picture - Markets Pare Back Losses on Softer Volume

On the wide range view of the daily $SPX chart above, we see that price is testing the summer 2008 highs that formed a bear flag before the big plunge into darkness. This could serve as a support area however, we've yet to see any conviction on the part of buyers since the correction started. Major support levels on the $SPX (blue lines) 1275, 1260, 1220, and 1175.

Friday's bounce was no different, as we bounced on below average volume on the $SPX. The SPY chart below shows above average volume on the gap support bounce, however, still far less than on distribution days.

I'll be interested in semis again, when test the support zone. The current sell-off has a lot of conviction, and I don't want to get in the way of angry bears. The handle that formed in the support zone looks solid as to time and price coiling, so I suspect we could get a good bounce once it comes into play.

MOO gapped into the support zone and bounced. No position yet, lacks volume.

Oil printing a series of dojis as it pulls back. The doji signifies indecision. The Japan earthquake/tsunami will see lower demand from that country and the Saudi protest that wasn't = another doji.

CNQ bounced from its 50 DMA and trendline support, but here again, the low volume signals a lack of conviction on the part of buyers.

Copper looks good here. I expect a rally back up to the broken trendline. Looking at FCX, SCCO and TCK.

SU was a HCPG pick for Friday, and it played out as expected. Decided not to hold for a swing based on volume, however, SU carved out a bullish engulfing on the daily. Tomorrow, I'll look for a retracement zone trade, keying off of Friday's WRB.

Traded the ranges on low priced optical names CIEN and JDSU.

I also like the ARMH range below the gap and the potential for a gap fill.

SBUX was a failed trade on Friday, but I still think this name looks well positioned for gap fill.

Technical Picture - Bears Own It

The index futures rolled over night amid disappointing data from Japan and China, as well a debt downgrade in Spain. Above consensus initial claims exacerbated the situation and we opened with a huge gap down. The first hour pushed prices low and the next hour established a floor, from which some buyers stepped in. Prices slowly recaptured the ORH and then we fell back down as the afternoon headlines - Saudi violence, spiked oil prices. We closed near the LOD and below the 50 day SMA, something we haven't done since last September.

Looking forward, we have gap support coming into play as depicted on the SPY chart below.

QQQQ filled the remaining portion of the gap and held today.

The $USD finally got a bounce.

I see a lot of gaps above and below price which can be very constructive in establishing support and resistance. I also see a lot of commodity play breaking below their lower BB as we can clearly see on the POT chart above. The MOO chart below is coming into support from the Nov. - Dec. base. We can see that many charts are technically oversold and want to look for key areas of support.

As a side note, Cramer advised one of his lightning round callers to hang on to POT despite the house of pain he's in, and add to the position after POT corrects an additional 10% from today's close. Ouch!

Reports of high inventory levels in the semi space have investors bailing on high volume.



JDSU briefly breached gap support on the open and reversed just above the 50 day SMA.

Easy trade if you were watching because last night I discussed the importance of the $21 and $22 price levels. Long above $21 to target $22.00. After that it formed a handle and I went long again as it broke $22.00, but that trade stalled at the exact level I shorted it yesterday and the trade was scratched.

Also note the wide gaps above and below price on the daily. These gaps are in play and we want to be in on the action.

GMCR was at the top of the Esignal hot list and I wanted to get in rather than try to catch the falling knives from the usual suspects list. I hesitated when it printed a hammer reversal stick right above the rising 5 EMA and decided to wait for NR7 or NRIB. Exited too soon at the round $ level $60.00. Looks like GMCR wants to run higher. The huge volume foreshadows higher prices - add to momo focus list.

Technical Picture - Inside Day

Another inside day amid choppy trade. The Nasdaq is still under-performing. Today's weakness was due mainly to TXN FNSR earnings which pummeled semi-holders and optical fiber stocks. As depicted on the chart below, the SMH broke its trendline with a spike in volume.

Now is a good time to be thinking about hedging the portfolio with something like the QID (inverse ETF) which is basing nicely with Two inside bars.

Futures are weak with the NQ e-minis trading 10 pts. below today's cash market lows.

As discussed last night, I wanted to trade the optical space on the heels of FNSR's disastrous guidance. JDSU had the cleanest chart. As we can see from the daily chart above, $22.00 was the gap open on 02/04/2011 and $21.00 was the gap day low, give or take a few pennies. So I was looking for a narrow setup at $22.00 with a 1 point target.

It set up almost perfectly, but stalled at the ORL, so I had take a partial.

URBN was a gap down continuation play from yesterday.

IBM was a missed trade, but I did manage to trade a couple of scalps within the upper range.

My stock focus list includes three biotech bull flags ALXN basing at $100.00 and printed NR7 today; ITMN NRIB; BIIB regular bull flag. I also like TBL and EL for longs. APOL looks very weak - also NR7 today; AKAM 2 inside, could go lower.

Technical Picture - Low Volume Bounce

The markets bounced today as BAC raised hopes for higher dividends from large commercial banks and oil consolidated. The DOW and S&P outperformed. Technology, as depicted on the Nasdaq chart, bounced on much lower volume which shows a lack of conviction.

Good setups were hard to find and the best trade for me today was the consolidation short in APOL depicted below.

After hours FNSR just met its earnings consensus and lowered guidance. The entire optical space fell in sympathy - JDSU, CIEN, OPLK, ALU, OCLR.

Many of these names have been riding high following JDSU's $0.10 beat on 02/04/2011, But since then CIEN earnings disappointed a few days ago, and now with FNSR's disappointing guidance, investors are bailing out of the sector.

Should make for some interesting trading tomorrow.

On the bright side, FMCN is trading higher on earnings after hours.

Technical Picture - Market in Correction

According to IBD, tomorrow's Big Picture column will change from Market Under Pressure to Market in Correction based on yet another distribution day for the Nasdaq as depicted above. A distribution day occurs when institutional selling weighs on market ie. volume is higher than the previous session and we close significantly lower. The Nasdaq shed 39 pts. or 1.4% on faster trade when the semis, as a whole, were downgraded. CIEN earnings also weighed.

Using the SPY chart below, we see the NYSE TICK indicator versus SPY price. We note that the opening gap and go scenario was not confirmed by the TICK readings. Prices were higher than Friday's close, and yet the TICK stayed in the neutral zone and notched lower and lower lows.

The NYSE TICK measures the number of stocks trading at the offer minus the number trading at the bids. When buyers hit the offer, stocks rise, and when sellers hit the bid, stocks decline. So, a declining TICK reading cannot sustain higher market prices, hence a good shorting opp presented itself very early in the trading session.

Yesterday, I posted the IDCC chart above (bear flag) on Chart.ly and this morning I posted the chart below, as price reached the prelim. target.

The chart below is my trade. The trade triggered at $46.00 and since I didn't have a NRB, I gave it a $0.50 stop.

Technical Picture - Accumulation Day

The markets gapped higher on better than expected initial claims in anticipation of a good jobs report tomorrow. We had broad based buying (accumulation) across most sectors except precious metals which are affected negatively on good jobs data due to higher interest rates. Subsequent downticks in oil off of overnight highs also contributed to the bullish tone. Bullish price action persisted until late afternoon. Small and midcaps outperformed today.

In reviewing my usual suspects charts EOD, I don't see a lot names that hit it out of the park today, the exception being momo stocks which had big Q1 earnings gaps and maintained relative strength throughout the recent pullback. Names such as ARUN, PNRA, TUP, TBL, PCLN...

A weak jobs report could set the tone for some early downticks, however, it's how we close that's more important - how we close the session and the week. I'm not saying that investors will be indifferent to a lousy jobs report, I'm just wondering if today's momentum will carry-over into the end of the week despite a weak jobs report. The bears have made their presence known over the past two weeks and until we make a higher high, I'm still leaning bearish.

ARUN formed a bullish handle at the base of resistance and pushed through to the next resistance by midday.

AGU formed a C&H with a very tight handle for a rally into the close.

JDSU printed NR7 NRIB on the daily. I'll be watching for expansion tomorrow.