Core Watch List Revised - October 2007

AAPL, ABX, ADSK, AKAM, AKS, ALXN, AMGN, AMZN, BCSI, BIDU, BIIB, BSC, CAL, CELG, CMI, CNQ, CROX, CSCO, DISH, DRYS, ESRX, FMCN, FRPT, FSLR, FWLT, GILD, GRMN, HANS, IBM, JASO, JOYG, KLAC, LRCX, MA, MDR, MNST, NIHD, NVDA, ORCL, OVTI, POT, QLGC, RIMM, RIO, SIGM, TNH, VMW, WFMI

My watch list was getting too long and unmanageable so I've cut back a bit. This is how I'm starting the month but I'm sure there will be changes as earnings come into play. RIMM is reporting on Thursday.

Mailbag

A reader asks the best way to trade SSTR.

SSTR was a flat base breakout gapper on the daily chart. The first bar is bullish on very high volume. Price then consolidates the wide gap open. An early attempt to break the ORH fails and price eases back into the rising 5 period ema on declining volume. The fifth bar is a bullish green hammer reversal bar (NR7) in close proximity to 5 ema. This is the trigger bar for price expansion. There are several ways to enter: 1. break of hammer high; 2. Break of round $ number; or 3. Break of ORH. If you wait for the break of the ORH, you have to give price room to retest the base of the ORH.

A reader asks what went wrong with this JRJC trade using the 5 min. timeframe.

Click on the chart to read my notes. Here again I would emphasize the need to allow for a retest of the base set by the ORH immediately following the breakout.

A reader asks if ANW meets the criteria for a 38% retracement.

Due to lack of specifics, I'm assuming the reader wants to know if this qualifies after the first swing high. I normally use the 38% retracement after a stock has rallied out of a base. In this case ANW rallies off of the OR and swings back down. Volume is choppy, however after retracing 50%, it slowly moves above the 38% retracement level and carves out two NR7 bars which could be used as a low risk entry point.

He also mentions JSDA. All I can say about JDSA is that it gapped after two previous MOMO days, and the third day usually loses momentum, so I don't recommend trading a stock that gaps after such big gains. I know that the Chinese plays are defying gravity at the moment but trading rules are not based on exceptions, they are based on everyday trading reality. So in this case, I would pass as per my trading rules.

How do I develop my watch list?

I did a post on that which you can find in the Intro to WSW Blog. I've also recently started scanning for inside bars on declining volume on the daily charts. I'm looking for inside bars on an established trend which implies a pause before the next leg or wave.

Reader participation - Check the comments section of the Focus and Watch List posts as many readers contribute some awesome setups.

If you are a new trader and you need a watch list, you can use the Focus Lists on this blog. However, I don't update every night due to blogging time constraints. A fresh nightly watch list is available at highchartpatterns.com. I've used the service and highly recommend it for B&B.

Dummy Gapper Trade of the Day - BIDZ.com, Inc. (Public, NASDAQ:BIDZ)

Some of the criteria I use for selecting gapper setups are:

1. Open above or below previous day's high or low. The rationale here is taking out recent support/resistance. Stocks that gap within the previous day's range have S/R to breach before expanding. So I ignore these because I have my watch list of familiar stocks for that. On any given day, at least a handful of the WL stocks gap, so I don't need more of these to clutter my focus list.

2. Volume

When I first started trading gaps, if volume was not high in the early going I would lose interest and move on to something else. Later on when I became aware of the power of NR7, I realized that there was money to be made from gappers that were slow to get going, especially if the previous day's session was NR and inside and the stock was trending. The NRIB (narrow range inside bar) in an existing trend implies a pause ahead of the next leg or wave. A gap following a NRIB will often setup a shallow rounded base as a spring board to a momo vertical move. Case in point was DISH on Thursday, following Wednesday's IB on the daily. Yesterday BIDZ from the Briefing list, gapped up from an IB on the daily and formed a shallow rounded base on low volume. It setup a perfect dummy entry after closing above R2. After taking out the daily pivot high, it retested in an orderly fashion and continued on the next leg up.

PTRY was a name I picked up off of the Trade_Ideas pre-market scanner. In the 2-3 minutes leading up to the open, PTRY showed up several times as a high quality short (quality as measured by # of days).

It had gapped down the previous day and tried to recover but could not close above the declining 20 EMA. Late in the previous session, it started ticking down and this setup is a continuation play.

I traded this one Trader-X style using a combination of the 15 and 5 minute for confirmation. A weak open followed by a red inverted hammer inside bar. The 5 ema was still trailing price, so I needed the 5 to confirm the setup. I used the Fib. extension of the previous day high to the ORL to set my target. Initially, I was going to partial at the 38% extension, but when we got there, I thought it was going lower. After coming a penny shy of the half $ number, buyers started stepping in so I covered.

The only caveat in this setup was proximity to R2 which lined up with the ORL, so I watched closely to make sure that price took out R2 otherwise, it could setup a reversal.

Focus List for Friday September 28th

POT - 3 inside bars on declining volume

AAPL - 2 day NR consolidation similar to WYNN yesterday - Good call Alex.

SIGM - pullback into gap support

IBM, JOYG, STR, AKS, ESRX, NIHD, NTAP, QLGC - B&B long

RVBD - Breaking down; AKAM broke down nicely today - any intraday rally with topping formation could be another shorting opp. FMCN - bearish engulfing and down AH.


Thanks to all who contributed comments and stock picks following last night's post.

Dummy Gapper Trade of the Day - EchoStar Communications (Public, NASDAQ:DISH)

DISH gapped up and retraced back to R1, where it formed a shallow rounded base on low volume. The perfect entry is a break of the 6th bar high. However, I was away due to personal business and missed it. I was back at my trading desk at 11:00 and was able to catch the second wave after DISH carved out 2 inside bars on declining volume.

FSLR didn't really gap open much, but it was on the focus list and delivered a momo move after recovering from early weakness. It paused between R1 and R2 and carved out 3 inside bars on declining volume. This created a coiled spring effect and the move off of the 3rd inside - NR7 bar was quick and reached the target in a matter of minutes.

Focus List for Thursday Sept. 27th

AMLN B&B on daily.

FFIV looks like C&H pattern forming on 15 min.

FSLR - 3 day consolidation could BO anytime.

MNST daily could break down anytime.

NDAQ 15 min. C&H pattern could extend tomorrow.

BTW, WFMI daily PP breakout today at $46.00. I missed it because it wasn't on my watch list. :( Check it out, it was a beaut.

NASDAQ Technical Picture - Another Bullish Gap and Doji Star

Yesterday we closed above the lower red line which represents the base just prior to the July meltdown. Now, we are in a position to retest the July highs and form a double top. The NASDAQ is still not overbought. Cautious trading is in order because all of these dojis and stars means many choppy sessions.

Companies moving in after hours trading in reaction to earnings: Trading Up: BBBY +2.5%... Trading Down: XRTX -5.6%; PAYX -2.7%... Trading Up: SIGA +12.2% (ST-246 completely prevents mortality in Symptomatic Orthopox Virus infected primates); GSIG +8.4% (raises Q3 guidance); SLM +5.5% (Flowers Group open to renegotiating Sallie Mae deal, according to source -- DJ); SWSI +5.0% (Superior Well Services will replace Neoware in the S&P SmallCap 600); GYI +3.4% (Getty Images will replace Greater Bay Bancorp in the S&P MidCap 400); DRE +2.7% (S&P REIT Composite constituent Duke Realty will replace AG Edwards in the S&P MidCap 400); CPO +2.6% (Corn Products International will replace Catalina Marketing in the S&P MidCap 400); GLS +1.9% (signs agreement to acquire eight narrow-body aircraft); AVAV +1.9% (reaffirms FY08 revs guidance, below consensus; Co also awarded contract valued at ~$57 mln); WOR +1.7% (Announces 10 mln share repurchase authorization); ISTA +1.3% (expands its pipeline in allergy treatments; acquires exclusive N. American rights to bepotastine for nasal allergy); TEC +1.1% (announces sale of a portion of its Piceance Basin Asset for $33 mln in cash plus DJ Basin production and acreage); SAM +1.0% (Beer will replace Playtex Products in the S&P SmallCap 600).

Cup & Handle - Celgene Corporation (Public, NASDAQ:CELG)

Only one trade for me today as the market has become extremely choppy. CELG was a C&H BO at the base of R1. It took a while to get going, but eventually got the job done, extending 100% from the low of the cup to the base. The two big volume spikes foreshadow the end of the move so there's no point in trying to get more out of this trade.

Apple iPod nano - Feist - 1 2 3 4

Apple's new iPod nano commerial features Canadian artist Feist

Keying Off of Daily Charts - Autodesk, Inc. (Public, NASDAQ:ADSK) & ArthroCare Corporation (Public, NASDAQ:ARTC)

Both of these setups are from the watch list. ADSK - Break of ORH which was above yesterday's hammer high.

ARTC - Break of yesterday's high. Stop set just below my entry bar.

NASDAQ Technical Picture - Doji Star - Short-term Top

Doji Star confirms my feelings regarding a short-term top. If networking and semis are selling off, it won't be long before the rest follow. Biotech still my favorite on the long side.

Companies moving in after hours trading in reaction to earnings: Trading Up: FIF +7.0%... Trading Down: LTRE -5.1%; SNX -2.8%... Trading Up: SCON +20.5% (signs term sheet for joint venture with Hunchun BaoLi Communication); DDSS +11.8% (provides update on U.S. regulatory process for once-daily Tr amadol; Co believes that it has demonstrated the efficacy and safety); KEX +10.2% (sees Q3 EPS above consensus); AKNS +9.7% (partners with Suntech to manufacture new solar panel)... Trading Down: LOW -5.9% (guides FY07 EPS to low end or slightly below prior guidance); PANC -4.8% (announces resignation of Peyton Marshall as Executive Vice President and CFO); TGT -4.4% (lowers September Comp Guidance); HD -2.0% (in after-hours following cautious LOW comments/guidance); BKRS -1.4% (lowers September comp guidance); CNQR -1.2% (4.7 mln share secondary offering priced at $28.50 share - DJ ).

Dummy Retracement Trade of the Day - Garmin Ltd. (Public, NASDAQ:GRMN)

I was away for most of the day, arriving back to my trading desk just before 2:00 p.m. EST. I noticed that a few of the watch list stocks had a bullish run in the morning and were now retracing. GRMN set up a bullish reversal pattern after retracing 38% of the last leg up from Friday's low to the midday swing high. It carved out out a bullish tweezer bottom, the second bar of which was a green hammer on the 15 minute time frame. This pattern closed at the base of the intraday pivot point.

I waited until price moved above the intraday PP and took a dummy long entry. My prelim. target was a retest of the swing high. Since GRMN had taken out the daily PP and was trading at all time highs on the day, this setup had a very good chance of being successful.

N.B. - Normally for stocks that gap up, I calculate the Fib. retracement from the ORL to the swing high. Since GRMN did not gap up, I used the previous day low to calculate my Fib. retracement level.

The 5 minute chart below shows the precise entry.

NASDAQ Technical Picture - Topping Stars as Markets Consolidate Post Fed

I'm watching for signs of a potential double top as price approaches July highs. The NDX has formed a bearish rising wedge pattern. Furthermore, the ADX line (momentum indicator) has been declining throughout most of the bounce from the August lows. It is just now starting to rise, post FED. A sleepy ADX on such a recovery could be a sign that momentum has been lost.

Looking at the NASDAQ comp, I would like to see it hold Thursday's lows as support, otherwise it opens the door for corrective action and the loss of the Fed day gains.

Dummy Trade of the Day - McDermott International (Public NYSE:MDR)

From the watch list - MDR trading in blue sky again. My Esignal charts died around midday and for most of the afternoon only showed data from 12:00 noon. I guess the quarterly options expiration was too much for them to handle.

As per the comments below, here is the 5 minute timeframe of the MDR trade which adds much more precision. We can clearly see the C&H formation at the base of the daily pivot high (green line). After breaking out, MDR has a momo vertical move, much higher than the expectation for a C&H pattern. The norm is 100%, but MDR is trading in the daily spot - blue sky zone, so we let it run.

I don't short strong stocks like this one because I'm not good at picking tops and stocks making new highs usually retrace, setting up the next wave. So from experience, I look for a normal retracement which I define as 38%, on declining volume. From there I look for a bullish candlestick reversal or a some higher lows, to firm up my theory of the next leg up.

In the case of MDR we got a bullish hammer at the cusp of the 38% fib. retracement level. This coincided with a consolidation zone from the morning rally, so I entered on the next candle as price took out the hammer high.

NASDAQ Technical Picture - Range Bound Trade

If you had difficulty finding good setups outside of gappers today, you're not alone. Notice how the Qs traded in a NR, half the size of yesterday's already narrow range. One way to avoid the chop fest is to focus on stocks that trade outside of yesterday's range. I usually can find a few good candidates by sorting my watch list on % change. Then I focus on those stocks with the highest % change on either end of the list, winners and losers.

Tomorrow is the quarterly options expiration. Many options listed stocks will gravitate to their strike price, so again, we could be in for more NR trade.

Companies moving in after hours trading in reaction to earnings: Trading Up: OPTM +13.6%; IHS +4.2%; NKE +1.5%; ORCL +0.10%... Trading Down: TEK -7.7%; DMND -6.6%; COMS -4.6%... Trading Up: GAP +1.7% (A&P, Pathmark enter into extension of timing agreement with the FTC); NDAQ +1.3% (John Eckel Joins Alliance as President and CEO)... Trading Down: JASO -3.9% (registration statement for proposed public offering of 4 mln ADSs; appoints President and Chief Operating Officer); EMIS -1.0% (files a $29.6 mln mixed shelf securities offering in an S-3); HAIN -0.9% (receives notice from NASDAQ due to delay in filing of Form 10-K); LEH -0.10% (Lehman's O'Meara to leave CFO spot - Reuters.com).

Dummy Gapper Trade of the Day - Syntax-Brillian Corp. (Public, NASDAQ:BRLC)

The BRLC chart speaks for itself. Just click on the chart to enlarge and read my notes. NR inside bar at the base of the ORH - Sweet! I took a partial after three WRBs because that's one of my trading rules. The euphoric volume spike on the 4th WRB, was a big hint that the move was over. Plus the fact that price had extended 100% from the previous day low to the ORH.

The NDAQ is less obvious because it's a fade. My rationale here was the loss of the round $ number $38.00 at a low risk entry point. The preliminary target was R2 (red dotted line). Once it closed below R1, I thought we could go to P, but then it recovered R1 and I folded.

Focus List for Thursday Sept. 20th

Testing PP - BIIB, QCOM, SGR, UAUA

NRB inside on lower volume - AMZN, ALXN

Bearish engulfing - CROX, BCSI, FFIV (another offset), and MRVL

Gravestone Doji or variation thereof - JOYG, VSEA, FMCN, DLTR, and AKS

NASDAQ Technical Picture - QQQQ Tests July Highs Post Fed

Carryover bullish momentum in the morning followed by a slow fade in the afternoon. We could get more post Fed profit taking tomorrow to help work off this overbought bias. Expect to see more volatility leading into Friday's quarterly OPEX.

Companies moving in after hours trading in reaction to earnings: Trading Up: APOG +5.8%; CMTL +1.5%; CHNR +1.1%... Trading Down: CLC -7.4%; MLHR -4.4%; DDMX -2.8%... Trading Up: MPWR +5.9% (raises Q3 revs guidance above consensus); RDN +3.6% (sells portion of investment in Sherman Financial for $278 mln); NLY +2.1% (announces 3rd quarter dividend of $0.26 per share); SPCHA +1.8% (guides Q2 EPS and revs below consensus); MTG +1.1% (sells portion of Sherman joint venture)... Trading Down: BCRX -30.1% (reports preliminary results from a phase II clinical trial of Peramivir in subjects with Acute Influenza, the improvement was not statistically significant); NPSP -3.4% (PREOS granted U.S. orphan drug status for treatment of hypoparathyroidism); PALM -1.8% (issues in-line EPS guidance for Q1; revenue guidance slightly below consensus).

Watch List Trade of the Day - ArthroCare Corporation (Public, NASDAQ:ARTC)

ARTC was setting up as a short on the daily timeframe above. We had two NRBs under the 5/20 MAs and a crossover was imminent. Price tried to rally on the open but failed and quickly fell below the MAs on the 15 min. timeframe. After that it was just a matter of waiting for a dummy entry. Around midday, ARTC carved out a NR inside bar - NR7 at the base of S1. My target was the daily pivot (green line). The BO bar had high volume and closed near its lows, so no need to partial out at R2. The target was reached by early afternoon and closed on big volume which usually foreshadows the end of the move is near.

I ran a daily scan last night for 2 inside bars on declining volume and found two charts - CREE, and MCD. CREE is always interesting because it has such a high short float. Every time it takes out resistance the short squeeze comes into play. I messed up my alert and missed the early move, but I was able to jump in after an orderly 50% retracement.

I ran the scan again tonight but didn't get any interesting hits.

SGR and JOYG were failures. Similar setups off of NRBs near R2 base. SGR still looks good on the daily, so we'll see what tomorrow brings.

Updating the watch list - removing AFFX, FTEK, NTRI, EMC, TECD., and adding SPWR, QCOM, UAUA, and CREE.

Watch List Trade of the Day - Cummins Inc. (Public, NYSE:CMI)

CMI, from last night's focus list, opened strong so I looked at the lower timeframes to plan an entry. The second 5 min. bar was inside at the base of the daily pivot and R1, so I took a dummy long. Did not re-enter after the FED because it popped up over 2 pts. immediately at 2:15. What a move!

Dummy Gapper Trade of the Day - Sigma Designs, Inc. (Public NASDAQ: SIGM)

SIGM gapped up on the open and based sideways on R1 for two hours before extending. B&B and exit before the FED. SIGM didn't immediately pop after the FED announcement but it did hold support at the base of R2 so I had time to take another entry for a nice post Fed extension. SIGM is trading at all time highs - my favorite type of gapper - blue sky.

Late Postings Tonight

Late postings tonight, if at all, as I have personal business.

My gapper trade was SIGM. My WL trades were JOYG and CMI from last night's focus list.

NASDAQ Technical Picture - Cautious Chop Ahead of the FED

The economic calendar is key tomorrow with PPI in pre-market and the Fed policy statement at 2:15 EST. I won't have any open positions when the FED speaks.

The funds futures market is pricing in a 50 bp ease from the 5.25% target but most experts expect 25 bp and still others expect the Fed to sit on its hands until the economy shows clearer signs of softening or inflation cooling. Higher oil, slowing employment growth, the risk of defaulting sub-prime mortgages, Greenspan and several other factors will influence the decision. Stay tuned.

And speaking of Greenspan, here's an excerpt from his new book entitled THE AGE OF TURBULENCE
Adventures in a New World

I made no secret of my view that President Bush ought to reject a few bills. It would send a message to Congress that it did not have carte blanche on spending. But the answer I received from a senior White House official was that the president didn't want to challenge House Speaker Dennis Hastert. 'He thinks he can control him better by not antagonizing him,' the official said… And indeed not exercising veto power became a hallmark of the Bush Presidency: In his first six years in the White House, he did not throw out a single bill. This was without historical precedent. Johnson, Nixon, Carter, George H.W. Bush, Clinton-they all had vetoed an average of dozens of bills. And Jerry Ford had vetoed everything in sight-more than sixty bills in less than three years. This enabled him, even though faced with large Democratic majorities in both houses of Congress, to assert a great deal of power and steer the lawmakers in directions he thought important. To my mind, Bush's collaborate-don't-confront approach was a major mistake-it cost the nation a check-and-balance mechanism essential to fiscal discipline. Pp. 234-235

Companies moving in after hours trading in reaction to earnings: Trading Up: ADBE +4.2%; FREE +1.3%... Trading Up: TLG +28.4% (agrees to be acquired by Mainfreight Limited); MOVE +13.6% (authorizes $50 mln stock repurchase program); NGEN +8.6% (undertakes evaluation of strategic alternatives for microarray business); GMTC +2.9% (announces European wireless gaming); UTSI +2.6% (provides update on independent investigation of sales contracts in China); RTI +2.0% (announces additional long-term Airbus contract valued in excess of $1.1 bln over eleven-year term); TGEN +1.6% (reports on recombinant DNA advisory committee review of its phase 1/2 trial of tgAAC94 for rheumatoid arthritis); MSSR +1.4% (announces entrance into Cleveland market); PRX +1.3% (Wockhardt, Lupin in race for US firm- The Times of India.com)... Trading Down: NFI -18.5% (will not distribute REIT dividend after market changes make new issue of preferred securities not possible); MEND -14.1% (lowers FY08 revs below consensus); ETFC -5.1% (announces strategic plan, exits wholesale mortgage business, guides lower); HF -1.2% (secures $200 mln credit facility for Abacus Capital Group).

Focus List for Tuesday Sept.18th

Pivot Point Setups:
NTAP,SNDK short
JOYG, NTRI, CMI long