NASDAQ Technical Picture - Bearish Engulfing Pattern

Anyone who read my weekend update was not surprised by today's market. All of those dojis and stars were screaming reversal. Today's lower volume is likely due to the fact that the selling did not take hold until after 2:00 EST. Is this mere profit taking or the start of a deeper corrective phase? I don't know, but the rounded top on the 60 minute chart implies that we have an over supply at this level. In the short-term I am targeting the area 2500 - 2480.

Economic calendar: ISM index at 10:00.

Companies moving in after hours trading in reaction to earnings: Trading Up: SPAN +9.5%; SVR +9.3%; CHE +8.6%; MTW +6.3%; WMGI +5.5%; AMCS +5.1%; GMRK +3.8%; DPL +3.0%; DVSA +2.4%; FMC +2.0%; FEIC +1.8%; BRKR +1.7%; TXRH +1.7%; XPRT +1.7%; FFIC +1.6%; MEDI +1.5%; BTFG +1.4%; DW +1.2%; YDNT +1.0%... Trading Down: ROCM -10.5%; IVAC -10.2%; VMC -7.9%; RCII -6.6%; RIMG -3.4%; GNW -2.2%; SMSC -2.1%; VRTX -1.4%; AUDC -1.3%; CVA -1.2%; EXAC -1.1%; CTX -1.0%...

Companies moving in reaction to news: Trading Up: EDS +3.3% (Coca-Cola FEMSA extends relationship with EDS); VASC +2.7% (announces initial sales of Thrombi-Pad 3x3 Hemostat to King Pharmaceuticals); TRY +1.9% (provides update on corporate restructuring); SKX +1.9% (wins major victory in Asics lawsuit)... Trading Down: CC -8.0% (revises FY07 results and lowers FY08 outlook); AHM -4.2% (announces public offering comprised of 4,000,000 shares of its common stock); UAUA -1.0% (United Airlines signs five-year beverage agreement with Coca-Cola).

Swing Trade Update - TODCO (Public, NYSE:THE)

My $46.00 target for this swing trade was surpassed on the OR today and I sold the balance of my position.

Dummy Trade of the Day - International Securities Exchange Hldgs (Public, NYSE:ISE)

ISE gapped up about $20.00 from Friday's close due to a merger announcement. According to Briefing.com the agreed merger price is $67.50. The significance of that can be noted on the chart above. On a base and break pattern, ISE rallied from $65.60 (base) to a high of $67.45 which is just nickel below the announced acquisition offer. Because M&A gaps are so wide, it is generally pointless to base the target on the Fibonacci extension.


These types of setups are prone to failure, so if you plan on trading these breaks, make sure you have a pre-defined stop. When the stock is about to break, the bid and ask on the market depth screen, become very thick and very tight ie. no spread. If I don't see the prerequisite market depth, I avoid these trades altogether.

Int'l Securities Exchange: Deutsche Borse AG says contemplating bid for ISE for approx. $2.8 bln cash, or $67.50 a share (45.72 ) -Update : The Supervisory Board of Deutsche Borse AG, the Supervisory Board of SWX Swiss Exchange and the ISE Board of Directors will decide on the transaction today. Further notice will be issued as soon as a decision is made.
Courtesy of Briefing.com


VLO is extended and has made a series of lower highs since topping out on Thursday. Today's break of an inverted shallow base was a low risk shorting opportunity.

NASDAQ Technical Picture - Weekly Update

Over the last two weeks all but two candles have been dojis and stars (hammers are part of the star family of candlesticks). If dojis represent indecision, and stars with no overlapping bodies, foreshadow reversals, we should expect some sort of pullback soon. At the very least I expect we will retest the breakout point this week.

Economic calendar for tomorrow: Personal income/spending and Core PCE inflation at 8:30; Chicago PMI at 9:45; and Construction spending at 10:00.

The $SOX below looks poised for a retest of the breakout point.

Dummy Trade of the Day - NutriSystem Inc. (Public, NASDAQ:NTRI)

NTRI gapped up on Thursday and pulled back sharply. It did not setup a valid retracement entry on Thursday because by the time it carved out a reversal pattern, it was too close to resistance from the morning's sideways consolidation. Friday morning price held above Thursday's low on the open and began another sideways consolidation just above its rising 50 period MA. By the time price was trading back near the ORH, it had carved out a shallow bullish base. I took a long entry on a break of the ORH. My preliminary target was Thursday's midday resistance level at $62.00. Price easily broke that level so I stayed in the trade and took a partial as price consolidated near the $63.00 level. Former resistance held as support ($62.00) and I was able to add another pt. as price pivoted off of support and rallied up to $64.00 - another congestion area from the previous day.

N.B. Some gappers don't setup a good entry until the day following the gap so I am making a point of checking yesterday's gapper list for any obvious dummy type entries.

NASDAQ Technical Picture - Choppy Extension

A choppy session following Wednesday's breakout and ahead of tomorrow's GDP data at 8:30.

Earnings were mixed AH but the internet sector is still momo judging from reaction to BIDU's results.

Companies moving in after hours trading in reaction to earnings: Trading Up: BIDU +22.5%; NMSS +16.3%; VSEA +15.8%; SWIR +14.8%; SIMO +12.4%; IM +11.5%; NETL +10.8%; MEE +10.2%; GB +7.8%; QDEL +6.3%; INTL +5.7%; CTV +5.6%; CLRK +4.9%; MSFT +4.1%; MFE +3.9%; INSP +3.8%; OPLK +3.6%; FLEX +3.5%; MCHP +3.2%; OSIP +2.7%; EVST +2.6%; ABAX +2.2%; NFLD +2.2%; AMIS +2.0%; SNCR +1.8%; SPF +1.7%; NATI +1.5%; HITT +1.4%; TUNE +1.3%; SCRX +1.2%; CW +1.2%; VLCM +1.0%; ELX +1.0%; SPRT +1.0%...

Trading Down: WFR -10.7%; BOOM -9.7%; AVID -9.5%; INTV -9.2%; VPRT -8.1%; PSYS -7.2%; BRCM -6.6%; CNET -6.4%; YRCW -6.0%; CLDN -5.4%; ACTU -5.3%; CALD -5.3%; MSCC -5.1%; BLG -5.0%; RACK -4.6%; FALC -4.6%; IDTI -4.5%; XXIA -4.5%; SNDK -4.4%; FMD -4.4%; CNXT -4.0%; DOX -3.7%; SCUR -3.7%; CENX -3.2%; OPWV -3.0%; ZIGO -2.9%; CF -2.9%; EMN -2.3%; TRID -2.2%; KYPH -2.1%; COHU -2.1%; LSCC -2.1%; MRCY -2.1%; NEWP -2.0%; RSYS -1.8%; WBSN -1.8%; DECK -1.4%; CKH -1.2%; ONNN -1.2%; JJSF -1.0%...

Companies moving in reaction to news: Trading Up: MDII +11.7% (receives first order for strategic U.S. naval support center project in Europe); IPCS +8.7% (Declares $11.00 per share special cash dividend); IMAX +1.7% (provides status update in connection with delayed filing); AVA +1.1% (files for electric and natural gas rate adjustments in Washington)... Trading Down: PMACA -1.0% (announces approval of extraordinary dividend from its run-off reinsurance business).

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

I should have entitled this the trade of week as opposed to the trade of the day. I am exploring a new trading strategy as I have noticed that several gapper stocks that trade at extreme volume levels and close at or near the high of the day, have a continuation play the following day which is often better than the initial gap trade. A good example is CMI which closed on its high Friday and opened strong on Monday.

AMZN held the afternoon low as support on the open and offered a low risk entry above the second bar high. It rallied a bit and came back in for a retest of yesterday's high as support. When support held, I added to my position as this retest was confirmation that AMZN was strong. In the last hour a short squeeze took hold - sweet!

Last night I noted a couple of high volume gapper stocks closing on their highs in addition to AMZN. I did not trade them but you can take a look at the charts of SEPR and HHH on your own.

Tonight, a quick review of high volume gappers, shows three interesting candidates for tomorrow - FFIV, SWKS, VDSI.

NASDAQ Technical Picture - High Volume Breakout

Today's high volume breakout was led by AMZN (great earnings) and the internet sector, as well as solid continuation in the semiconductor sector. Yesterday's hammer/hanging man resolved itself in favor of a bullish hammer. Initial claims tomorrow at 8:30 and here is tonight's post market gapper's list courtesy of Briefing.com

Companies moving in after hours trading in reaction to earnings: Trading Up: OI +17.9%; FFIV +16.0%; NTRI +13.1%; WEN +12.6%; GDI +10.3%; DBTK +9.5%; MTH +8.1%; PLXS +7.7%; AAPL +7.5%; RKT +7.4%; TUP +7.3%; SORC +6.7%; SWKS +6.3%; PDFS +6.2%; XLNX +5.0%; SWK +4.9%; ISIG +4.6%; NUVA +4.5%; MRH +4.2%; ZMH +3.9%; MXIM +3.3%; AEIS +2.8%; DAC +2.5%; TGIS +2.4%; GRA +2.3%; GSIC +2.2%; DSCM +2.1%; TEX +2.0%; QI +2.0%; AV +1.8%; LOOP +1.6%; MIPS +1.3%; NANO +1.2%...

Trading Down: ISLN -21.2%; DVW -11.8%; SMMX -10.4%; BLDR -7.4%; ARBA -6.5%; HLIT -6.4%; CYBE -6.3%; LSI -5.5%; VAR -5.2%; SKX -5.0%; EMKR -4.1%; SCSS -4.0%; AB -3.7%; RMBS -2.9%; FORM -2.9%; RYL -2.5%; MUR -2.2%; NLS -2.0%; STR -1.9%; RARE -1.9%; IRBT -1.8%; KOMG -1.7%; TSCO -1.5%; PHM -1.4%; CTXS -1.3%; MRVC -1.1%; WSH -1.0%...

Companies moving in reaction to news: Trading Up: PSAI +14.0% (to become private company); MATW +5.1% (will replace Swift Transportation in the S&P MidCap 400 index); GGBM +3.0% (complies with NASDAQ requirement regarding disclosure of auditor opinion qualification); HLF +2.4% (raises Q1 guidance; issues Q2 guidance and raises FY07 guidance); DSCM +2.1% (expands product selection with launch of drop ship); ULTR +1.3% (completes successful follow-on offering of common stock priced at $19.00/share); SNDK +1.2% (and Qimonda to jointly develop and manufacture mobile storage solutions for the multichip mkt for mobile handset vendors); NANO +1.2% (announces CFO Douglas J. McCutcheon has resigned)...

Trading Down: AFFX -11.2%; EEE -5.1% (Kevin Collins named Interim President and CEO replacing Mark Sexton); LGBT -3.3% (sees Q1 revs of $16-17 mln vs $18.33 mln Reuters consensus); FORM -2.9% (Guiding Q2 EPS at $0.32-35 vs. 0.36 consensus on GAAP basis. Revs at $107-$111 mln vs. $108.6 mln consensus).

Dummy Trade of the Day - Riverbed Technology, Inc. (Public, NASDAQ:RVBD)

This setup is starting to be my bread and butter gapper trade. I look for stocks that gap up and retrace up to 38% of the move from the previous day low to the early morning high. In the case of RVBD and TFSM, the early morning high = the ORH. I then look for a base or reversal to form near the rising 5 period EMA. I prefer if there is sufficient room to move before hitting the ORH, so that if a failure occurs, I can still generate a profit. Extremely high volume (2-4 times recent range) is essential when stocks gap up more than 5% and both of these stocks met that criteria.

NASDAQ Technical Picture - Another Consolidation Day

A heavy volume selloff early in the session due to continued weakness in the economic stats for housing was offset by renewed confidence in semiconductors on TXN and ALTR earnings. The $SOX broke out of a five month base today and if this break holds, we might be in for some more upside. However, it should be noted that today's higher volume can be attributed to the early selloff. The NASDAQ continues to consolidate near resistance highs, but today's candlestick could be either a bullish hammer after a very small decline since Friday's high, or a hanging man signaling the beginning of a pullback. A hanging man needs confirmation so we'll see tomorrow.

Economic calendar - Durable orders at 8:30, new home sales at 9:00, crude inventories at 10:30, and Fed's Beige book at 2:00 EST.

AKAM, AAPL, and QCOM report earnings tomorrow AH.

Watch List Update - TODCO (Public, NYSE:THE)

A follow up to my April 16th watch list. As noted at the time, THE was my strongest candidate. It was also the slowest to take flight, but it was worth the wait. The first chart is a weekly view with the pivot point target. The second chart is the daily timeframe, which shows the ascending base and break, and the third chart in the 15 minute, intraday view of my trade so far.

I will be posting future watch lists after tax season is over.

If you are interested in nightly watch lists with these types of base and break patterns, please check out highchartpatterns. In February, I took the free, one month trial and I was really impressed with the stock picks and the timeliness of the nightly newsletter. Oh, and most importantly, I did have several very successful trades over the course of the trial that came directly from their picks.

Dummy Trade of the Day - CDW Corporation (Public, NASDAQ:CDWC)

CDWC gapped up on high volume this morning. It managed to take out the ORH on the third bar. The fourth bar carved out a tweezer top reversal pattern and the stock failed to hold the ORH as support. The failure resulted in a fast move to the downside. After retracing almost 38% of the move from yesterday's low to the morning high, it printed a bullish reversal bar and regained its 5 period EMA in the process. I took a long entry on the next bar. My target was a full retracement to the morning high, but I was prepared to bail if it stalled at the ORH. As you can see from the chart, when the target was reached, CDWC still looked strong so I took a partial. Shortly after taking out the morning high, it started carving out a bearish evening star, so I folded.

One That Didn't Work - Hansen Natural Corp. (Public, NASDAQ:HANS)

Here's another dummy entry I took today. HANS gapped up and retraced 25% of the move from Friday's low to the ORH. It setup a low risk long below the ORH and broke the ORH decisively on the 6th bar. After the break it came back in for a retest but failed. I exited the trade immediately. No point in staying in a trade that can't hold the ORH after such a decisive break. The trade was profitable despite the failure, however, it could have easily turned into a scratch or a small loss if I had not applied my trading rule.

Dummy Trade of the Day - Apple Inc. (Public, NASDAQ:AAPL)

AAPL gapped up on high volume and carved out two bullish bars before reversing and consolidating the first leg up. It retraced 25% of the move from Friday's low to the 10:00 high and held the ORH as support. As price broke the fourth bar high, I took a dummy long entry. I took a partial on weakness midday. Price pulled back towards its rising 20 MA and reversed for a more bullish afternoon rally which almost reached the 100% Fibonacci extension.

NASDAQ Technical Picture - Weekly Update

The bullish volume on Friday is likely due to Options expiration. Friday's gap up resulted in a full retracement of the Feb. - March meltdown. Still the ADX shows that it was achieved on declining momentum, confirmed by the volume trend lower. Continued favorable earnings will determine if we can maintain the bullish bias and move higher.

No economic data tomorrow. AMGN and JNPR report AH.

Dummy Trade of the Day - Abercrombie & Fitch Co. (Public, NYSE:ANF)

The whole market gapped up this morning so I fine tuned my gapper scan to stocks over $50.00 in order to make the list more manageable. This is classic Trader-X style - break of ORH preceded by a strong bullish candle which closes on its high supported closely by the rising 5 period EMA. It did not quite reach the 38% Fibonacci level, but only because time ran out.

Dummy Trade of the Day - Reliance Steel & Aluminum (Public, NYSE:RS)

RS is very similar to OSG yesterday. I found RS on my 10:00 gapper scan. The wide OR which took out yesterday's low made it difficult to map out the Fibonacci extension, so I used today's low and the 10:15 high as my end points. I exited as price approached the 38% extension. I also took a second low risk entry in late afternoon.

I did not run a gap down scan because when the whole market opens lower, I find the gap down scan unmanageable. SMSI is one of my usual suspects and it set up a dummy short just below the OR low.

Dummy Trade of the Day - Overseas Shipholding Group Inc. (Public, NYSE:OSG)

OSG gapped up on the open and carved out a WRB, followed immediately by an orderly pullback. It printed a three bar bullish morning star reversal pattern just above the rising 5 period EMA, followed by a NR7 as volume contracted to its morning low. I waited until price took out the high of the morning star pattern before entering long. I estimated at least 2R even if the pattern failed at the OR high. That did not happen and as you can see from my two exit points. It doesn't get much better than this. I took a partial at the 38% Fibonacci extension and exited the balance at $67.00. The volume pattern is picture perfect - declining volume on the pullback and progressively increasing volume on the rally. On a daily basis, today's volume is about 5 times average.

Trader-X also traded OSG - read his post for more insights - also check his archives for similar trades to OSG.

MEDI was a midday pullback reversal setup. It met most of my criteria for this setup except the increasing volume on the rally.

Watch List - CKFR, ERTS

CKFR gapped down last week and has since closed the gap. Now its heading lower and looks ready to fall below $36.00. Support levels are indicated by the blue lines where we can expect some consolidation. Review the 15 minute timeframe below.

ERTS has carved out a multi-month base and looks ready to breakout above the pivot point - $54.48.

Trade of the Day - ACADIA Pharmaceuticals Inc. (Public, NASDAQ:ACAD)

ACAD carved out a NR7 bar yesterday and based on yesterday's late day price action, I indicated in last night's watch list that I thought it would break to the upside. It did and this is how I traded it. Very choppy, I might add. A better NR7 play would have been SMSI, but I did not pick up on it in last night's review.

JCOM was a continuation play from Sunday's watch list. I think it needs to pull back here because it has had an extended run.

AKAM and GSIC did not trigger an entry. NVDA took out its pivot point in pre-market and I tried to pick some up on a pullback, but did not get a fill. I did, however, buy on a break of the pre-market high for a quick 50 cent scalp on the open. NVDA was not low risk and I do not recommend that tactic to new traders. VRSN swing was stopped out.

Watch List - AKAM, GSIC, ACAD

NASDAQ Technical Picture - Bearish Gap Filled

Firmly bullish price action despite the lacklustre volume. As we approach the February's highs and an overbought posture, don't be surprised if we pause or retrace some of this last leg up on very short notice. This afternoon's particularly low volume is an early warning sign.

Economic Calendar: CPI, Housing starts and building permits at 8:30; Industrial production and capacity utilization at 9:15.

Dummy Trade of the Day - Downey Financial Corp. (Public, NYSE:DSL)

DSL gapped up on high volume and reached the 38% Fibonacci extension shortly before noon. During lunch it carved out a bearish evening star reversal pattern and proceeded to pullback in an orderly fashion. The 16th bar had a volume spike which foreshadowed the end of the pullback. Three bars later we had a bullish engulfing pattern just above the the rising 20 period ema which allowed for a low risk entry. Price climbed back up to the morning highs on increasing volume and eventually surpassed the 50% Fib. extension before coming back in at the close.

These types of pullbacks are fairly easy to spot from the gappers. In my experience they work best when all of these elements are in play:
1. volume spike just before the completion of the pullback;
2. price stays above the rising 20 period ema on a closing basis.
3. common bullish reversal pattern marks a change in direction - hammer/inverted hammer, bullish engulfing bar, tweezer bottom, piercing line...etc.
4. declining volume on the pullback and increasing volume on the reversal rally.

I also prefer smaller, tighter candles with small shadows.

Watch List Trades - JCOM, NVDA, THE, VRSN

j2 Global Communications, Inc. (Public, NASDAQ:JCOM) was a pivot point base and break pattern from last night's watch list. I entered long on a break of the ORH instead of waiting for the pivot point to be taken out. Either way, it was a winner.

NVIDIA Corporation (Public, NASDAQ:NVDA) was a pivot point setup on the 15 minute timeframe. The OR failed to hold the pivot point on a closing basis, so I tried to get in on the first tradable pullback. It failed again on the retest, with the result - we'll call it a scratch. The chart above is a 5 minute timeframe. This setup remains in play, we just need a little more strength in the $SOX.

TODCO (Public, NYSE:THE) which was my strongest pick from the watchlist, pulled back to support of the rising 50 period MA and setup a low risk entry. Initially it took out the pivot point but failed the retest, so I was stopped out. It did manage to regain the PP into the close and remains in play for tomorrow.

CREE gapped down and did nothing all day so we'll come back to later, maybe.

VeriSign, Inc. (Public, NASDAQ:VRSN) is a trade idea from Brian Shannon at Alpha Trends

The first chart is the daily timeframe. The blue line is the breakout point and the red line is potential resistance from February's long upper shadow. The second chart is the 15 minute timeframe, which shows my buy stop entry above the breakout point. I took a partial when price dipped under the red line and I'm holding the balance for a swing. My stop will be about 10 cents below the afternoon low.

Watch List - CREE, JCOM, THE, NVDA

These are all daily charts except NVDA which is a 15 minute timeframe. THE is the best setup because the base has been building for a long time. Check out the weekly timeframe of THE and you will see what I mean.