Base & Break Trade - Crocs, Inc. (Public, NASDAQ:CROX)

Talked about this setup last night in the comments section. I was targeting a 100% Fib. extension of the ORL to the base (blue line), but it didn't quite happen.

Talked about DLTR in the comments a few days ago. Unfortunately for me, I wasn't able to trade in the a.m., so this one passed me by. Hope some of you got involved.

The main thing I liked about this CNQR gapper setup besides the NRIBs, was how nicely it held the ORH as support on a closing basis. I was hoping for a wider Fib. extension ie. 38% from the previous day low to the ORH, but as you can see from the daily timeframe down below, there was resistance from a pivot area.

Dummy Gapper Trade of the Day - Rambus Inc. (Public, NASDAQ:RMBS)

RMBS, from the Briefing.com gapper list was already 62% extended (Fibonacci) from the previous day low to ORH by the time it carved out 2 NRIBs. But this being RMBS, 62% is not a big deal especially when $10 billion in royalties is involved. The second inside bar, was a bullish hammer so I entered long on a break of the outside bar. My preliminary concern was the January reaction high (thin blue line), but it succumbed rather easily. My next target was the daily pivot (thick blue line) which, as highlighted in the daily timeframe, was significant resistance in Oct. -Nov. 2007. It also happens to be a nice round $ number. As soon as price approached the target, I exited the trade.

Notice the euphoric volume spikes on the last two green sticks before price retraces. Also notice how the daily pivot holds as resistance on two tests in the afternoon.

On the daily timeframe, when price finally broke through the PP in early December, it printed a WRB on higher volume. That's the magic of the daily PP BO.


BTW, I'm adding RMBS to the WL.

Dummy Gapper Trade of the Day - TBS International Limited (Public, NASDAQ:TBSI)

TBSI from the Briefing.com gapper list, retraced sharply off the open into the rising 5 period ema, followed by a snap back, bullish tweezer bottom reversal and 2 NRIBs (NR7) so I entered long above the base (easier to spot the base on the 5 minute time frame below). My preliminary target was daily resistance where I booked a partial profit. I was hoping price would hold the ORH as support, but it failed and stopped me out.

Dummy Gapper Trade of the Day - Acorda Therapeutics Inc. (Public, NASDAQ:ACOR)

ACOR from the Briefing.com gapper list had a wide opening gap and took out its all time high on 2/15. The third bar carves out a bearish tweezer top reversal and price comes back into the rising 5 period ema. It holds the 5 ema on a closing basis and starts to consolidate sideways, eventually forming a flat base. Throughout the consolidation, the lower shadows form a series of higher lows. As price becomes increasingly narrow, ACOR prints 2 NRIBs (NR7) and I go long on the break of the blue line. It started out beautifully with a WRB that closed near its high (critical success factor) and then it died. It was a nail biter until it finally took out, and closed above my entry bar. Exit as price approaches morning swing high.

NASDAQ Technical Picture - Bear Market Bounce

38% Fibonacci retracement of the NASDAQ's last leg down was a cue for profit taking. Friday's gap up due to MSFT earnings was a perfect exit strategy because it brought us all the way back to the last breakdown point. Declining volume on this week's bounce is typical of a bear market bounce. Friday's bearish engulfing bar implies further weakness ahead of the FED on Wednesday. The economic calendar is loaded this week starting with New Home sales tomorrow at 10:00.

Earnings this week from internet heavyweights - YHOO, AMZN and GOOG.

Swing Trade Update - Research In Motion Limited (Public, TSE:RIM)

RIM.TSX gapped up on the open and closed on its highs. After hours (AH) RIMM.NASDAQ is trading up! I'm using the 20EMA (blue) as my guide but expect to close the position tomorrow as the daily 20 and daily PP come into play around $97.00.

Update: Friday January 25th 9:54 EST - Sold my RIM.TSX at $99.00

Dummy Pivot Point Trade - Amgen, Inc. (Public, NASDAQ:AMGN)

The first chart is the daily time frame for AMGN EOD yesterday. The main take away here is that AMGN breached the daily pivot intraday yesterday, but managed to close on it.

The second chart is daily after today's session. AMGN reported earnings AH and price is basing near the upper daily pivot heading into tomorrow.

The next chart is the 5 min. time frame for AMGN. It gapped down on the open and retested yesterday's lows carving out a tweezer-like bottom, before reversing and setting up a low risk, dummy entry at the base of the daily pivot (blue line). Price made a vertical move to R1 where I took a partial. My next target was R2, but I settled just under $46.00 because that was feeling like a top.

NASDAQ Technical Picture - High Volume Shake Out

The five yr. weekly chart shows that we have a 38% Fibonacci retracement of the 2002 lows to the 2007 highs.

Today marks the best day of the year (not hard to do). Technically we finally got a daily reversal bar (outside day/higher close) amid heavy volume. Nice short covering rally in the afternoon.

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

AAPL - wide earnings gap. The setup felt similar to my RIM.TSX trade from Monday. After gapping lower, price carves out a tight sideways pattern until the down sloping 5 period ema catches up. We had two NRIBs, the second of which was NR7 leading into price expansion. The BO bar (7/15) closes near its low which is one of my critical success factors in this type of setup. I took a partial as price approached the round $ number on the 3rd WRB.

JOYG was not a wide gap, but it carved out a number of long upper shadows and could not close above the down sloping 5 period ema. Short the break of red inverted hammer. Again, the BO bar closes near its low signalling a great start. I missed my partial on the third WRB, so I tightened my stop, but I was rewarded with a hanging man and price broke through yesterday's pivot low at the $50.00 pt. I tightened the stop again as price consolidated at $50.00 and was stopped out on a partial. Shortly after, price swooned down to S2 (red line) on a huge volume spike and that was the end of the move.

Today was the flushing out day that we've all been waiting for. I took two longs this afternoon AAPL and RIM.TSX. Here's a picture of the AAPL trade. The bullish rounded bottom is a great long signal because it shows that demand exceeds supply. Everytime bears try to push price lower, more buyers step up. I'm holding a partial on RIM.TSX for a swing with a BE stop.

"Not a Dummy Setup" Gap Fade - PowerShares QQQ Trust, Series 1 (ETF) (Public, NASDAQ:QQQQ)

The first chart is the 5 min. open of QQQQs. The distance between the price and the down sloping 5 period ema is extremely wide. The first 5 min. stick closes on its highs, so I'm going long with a partial gap fill target of $44.50 (middle blue line).

I took a partial when price couldn't close above 5 ema and carved out a bearish star with long upper shadow. Moved stop to BE and exited when price approached the target on the next upswing.

I was hoping AAPL would rally ahead of earnings. Long on break of 2 inside bars. Move stop to BE after partial. AAPL carved out a tweezer top reversal at pivot high, followed by a bearish looking inside bar so I tightened the stop.

Dummy Gapper Trade of the Day - Research In Motion Limited (Public, TSE:RIM)

This is the Canadian chart for RIMM. It gapped down on the open and carved out two inside bars (3 & 4) with bearish upper shadows. However, the down sloping 5 period ema was too far away. The 5th bar was narrow, red, and closed on its lows, setting up a perfect dummy short. I took a partial as price bounced back up towards the 25% Fibonacci extension of the previous day high to the ORL. That bar closed as a perfect hammer followed by a NRIB so it was time for me to tighten my stop.

Financial Armageddon

While U.S. Markets are closed for the holiday, the rest of the world panics.

Canadian TSX down 550 pts. or 4.3%
European stocks in massive sell-off
U.S. Recession fears spark heavy selling in Asian Markets

Watch List January 20, 2008

The usual suspects of tired leaders - solar, shipping, and to a lessor degree agri/fertilizer needs to be refreshed. So far this year the only sector I really like as a potential new leader is medical supplies $DJUSMS. My short list of medical supplies stocks are BAX, BCR, and BDX. Other names in the sector include OMI, IDXX, PSSI, XRAY PDCO ACL and IMA.



Here's my new watch list for the next few weeks. Earnings season is a good time to find new leaders and losers so I'm sure we'll have fresh names very soon.

AAPL, ABX, ADSK, AKAM, ALXN, AMZN, ARTC, BAX, BCR, BDX, BIDU, BMRN, CAL, CELG, CNQ, CPHD, CREE, CROX, CSIQ, DO, DRYS, ESRX, FFIV, FSLR, FWLT, GRMN, HANS, HUM, ILMN, IMCL, INTC, JASO, JOYG, LKQX, LRCX, MDR, N, NVDA, OTEX, POT, PPDI, RIMM, SIGM, TNH, VMW

Reader Picks: TEVA

Mailbag

Hi Jamie.

Say you are looking for a set-up and plan to enter on a break of the high of the entry candle and place your stop one cent below the low of the entry candle. As you flip through your watch list, you come across a great set-up that just formed and price action is currently on the next candle. What if price had broke the high of the entry candle before you noticed it and is now down below the entry point, but still above where your stop would have been?

Example.

High of entry candle: $20.35
Low of entry candle: $20.00

Next candle has gone up to $20.39 but is now at $20.25.

If you would have had your buy stop order @ $20.36 entered on time, you would already be in the trade. But considering you aren't, would you enter at $20.25 anyway and be happy that you are following your rules but are getting an even lower risk entry? Perhaps you would even buy more shares than planned with the lower risk? Or would you recommend placing a buy stop at $20.36 and wait for the price to climb back up to the intended entry point?

I often am busy looking at other charts and find myself in this situation when I load the chart with the good set-up. Half of me thinks I should wait until the price climbs back up, whereas the other half thinks I should get into the trade at a bargain price.

Thank-you for any advice.

-Nathan

Hi Nathan,

Here is an example of ADS (15 min.) which gapped up on Friday. After failing to take out the ORH, it retraced and made a move back up. At point A it started forming a solid base above the rising 5 period ema. At point B it attempted to BO but failed and pulled back.

If we drill down to the 5 min. time frame, I would not recommend buying in the area of point C at a better price. Once price pulls back, there's no guarantee that it will recover. The best place to enter is point D at the original buy stop price. In the ADS example we have a solid trigger bar at the original intended entry price. If this is not the case, for example, if the base is choppy, it might be better to wait until the high at point B is taken out.

If I miss an intended entry, I like to see how the next candle closes on the lower time frame. This usually gives me a good idea if the BO is a failure, or just a false start. If we look at my ESRX trade from Friday (5 min. chart below) and assume I missed my intended entry at the red arrow. We see that the next bar retraces above the PP (blue line). We also see that my stop is not taken out and that the next two candles print long bearish upper shadows. These two inside bars are weak so it is safe to enter on a break of the pink line, which is basically the intended entry point, or we can again wait until the green line segment is taken out. Either rule would get the job done. The bear flag above the pink line implies lower prices to come.


Hope this answers your question.

Trade of the Day - Express Scripts, Inc. (Public, NASDAQ:ESRX)

ESRX was downgraded from Buy to Hold at Citigroup in pre-market. It gapped lower on the open but managed to fill the gap in the 15 min. OR. Despite early strength, it could not close above the 20 EMA. That failure was followed by two red inside bars at the base of PP support (blue line). The second inside bar was NR7. I shorted a break of the first inside bar just below the PP. My target was a full retracement back to the ORL at R2. Price stalled at the 75% retracement level and started to reverse. I quickly booked a partial and watched closely to see if price would consolidate or reverse.

As you can see from the 5 minute chart below, as price moved from the 75% retracement level back up towards the 50% level, it carved out two doji-like sticks with long upper shadows and it could not close above the down sloping 5 period ema. This signaled further weakness ahead. The target was reached shortly after as price resumed in my direction.

NASDAQ Technical Picture - Testing 52 Week Lows

Click on chart to enlarge

Things are pretty ugly but at these levels, we're due for a technical bounce. However, OPEX and the long weekend should keep bulls at bay until next week.

Acronyms and Abbreviations

In response to reader mail, here is a list of my blog's most commonly used acronyms and abbreviations:

NRB - Narrow Range Bar
WRB - Wide range Bar
ORH (L) - Opening Range High (Low)
NRIB - Narrow Range Inside Bar
ORBO - Opening Range Breakout
C&H - Cup and Handle
H&S - Head and Shoulders
BO - Breakout
BE - Break even
EOD - End of Day
B&B - Base and Break
PP - Pivot Point
R2 - Pivot point resistance level 2
S2 - Pivot point support level 2
NR7 - Narrowest price/volume bar in the last 7 bars. Price/volume contraction ahead of expansion.
4/15 - 4th bar on the 15 minute time frame.
SS - Short squeeze
SMA - Simple moving average
EMA - Exponential moving average
5 EMA - 5 period EMA
S/R - Support/Resistance
R:R - Risk: Reward Ratio. If the trade generates 3.0R, the return is three times the amount risked.
WL - Watch list
TI - Trade_Ideas Scanner
PDH(L) - Previous day high (low)
R-zone - Fibonacci retracement zone

If you need help understanding my underlying trading methodology, read the Intro to WSW Blog under Key Posts in the side panel. It's not complete by any means, but it's a good start.

Pivot Point Trade - Continental Airlines, Inc. (Public, NYSE:CAL)

The 15 minute chart above highlights the pivot point base developing intraday. I mapped out my Fibonacci extension lines last night (from yesterday's low to the PP base), and set my target at the daily down sloping 50 day SMA. Oil opened sharply lower this morning so I used the lower time frame (3 min.) to pick my spot. I was lucky enough to get 2 inside bars in the upper portion of the 3 min. OR (opening range). Long on a break of the second bar high. I took a partial after 3 WRBs (wide range bars) and exited the balance as price approached my target.

As you can see from the chart below, price extended 1.38% of the distance from yesterday's low to the PP base in just one hour. A nice way to start the trading day!

The daily chart below shows how nicely synchronized the setup was with the 50 SMA and November pivot lows in perfect harmony.

Dummy Gapper Trade of the Day - WellCare Health Plans, Inc. (Public, NYSE:WCG)

WCG gapped open and broke out of a C&H pattern on the daily chart below. After taking out the ORH it extended 38% and retraced back to the base of the ORH. The ORH held as support through a lengthy sideways consolidation. Finally, it regained the 5 period ema and carved out 2 NRIB (inside the previous WRB, but 2nd inside bar is not inside the first). The price/volume contraction set off a parabolic move (easier to see on 5 minute time frame).

I'm going to follow-up on this one to see if we get 100% fib ext. on the daily C&H pattern.

VCLK, another gapper from the Briefing list, set up a C&H pattern and extended 100% from the low of the cup to the base of the handle.

Dummy Gapper Trade of the Day - USANA Health Sciences, Inc. (Public, NASDAQ:USNA)

USNA gapped up on high volume and rallied up to daily resistance before giving most of the OR back in a long upper shadow. It retraced 62% of the move from the pre-market low to the ORH and carved out a tweezer bottom. The seventh 15 min. bar was NR7 and the next bar was a bullish hammer with support from the rising 5 period ema. I entered long on the next bar at $45.00. My target was the ORH. Price rallied up to the 62% Fib retracement level of the morning swing low to the ORH before stalling and printing a red star which was my cue to exit the trade.

Late in the session USNA carved out a perfect C&H base. My experience with C&H patterns that set up EOD is a high failure rate so I didn't put a lot of money to work here. Too bad.

Dummy Gapper Trade of the Day - Continental Airlines, Inc. (Public, NYSE:CAL)

CAL, a watch list stock gapped up on a combination of factors including lower oil, and an extremely oversold sector, and possibly the UAUA upgrade. The second bar was inside and the third almost inside in the upper portion of the OR at the base of R2. I entered long on a break of the third bar high. This was followed by tight NR trade until resistance (blue line was taken out and retested). The final thrust was vertical, extending up 100% from the previous day low to the ORH.

NASDAQ Technical Picture - Late Day Reversal and Short Covering Rally

The late day reversal rally was broad based. Aided by short covering, we managed to rally all the way back to Monday's lows which is our next resistance level as depicted on the 15 minute time frame.

The medical supplies sector which I highlighted a few days ago, was a big winner today.

Mail Bag

Trader Feedback

Hi Jamie,
Just to let you know how I've been doing. For the three month period
ending December 31, with 39 trades taken, my expectancy is 0.61, win
rate 44 percent, and a profit of 23.9R.
I continue to read your blog faithfully everyday which you post.
I have recently identified a weekly goal of attempting to achieve a 5R
profit. I plan on incorporating your pivot point method into my
trading plan.
Again, thank you for your help and the service you are providing with
your blog. Gary

Thanks for sharing Gary.  Your doing great which is an inspiration for
other traders and good for my ego as well!


 

Bear Trap - Research In Motion Limited (USA) (Public, NASDAQ:RIMM)

RIMM set up a bear trap reversal this afternoon after taking out its ORL. After an almost 2 pt. swoon, price reversed on high volume, returned to the morning pivot low and broke out. The 5 minute chart below is how I traded it. It might be better to wait for the retest on the entry, but I was a little too anxious. If price stalls in the PP zones marked by the blue lines, start to partial out. I took a partial as price approached the morning swing high and folded when my target was met. Notice how the middle PP holds as support after price tags the green line and consolidates.
These bear traps or head fakes usually occur after an extended slide at technically oversold levels.