Thursday, February 25, 2010

Technical Picture - Bulls Defend Support

Unfavorable data (Initial Claims 496k vs. 460k consensus; Continuous Claims 4617k vs. 4570k consensus) set the stage for the early slide. But no follow through developed as buyers stepped in to defend the support zone.

Dollar weakness also contributed to strength in Gold and commodities. I'm expecting the greenback to continue to consolidate, gently moving towards its trendline.


The 15 minute chart of CLF above is a good example of buying the 2nd test of support. Point A was a long entry last week. Point B was the first test of support of the solid base which formed a point A. Today's opening breach of support (point C) triggered some shorts, but the snap back led to short covering which propelled the stock in a decisive move back up to PDH.

I like to fade the second test of support/resistance (turtle soup setup). The third test is usually the BO.

4 comments:

Jim said...

Hey Jamie,

Nice points on buying support. IMO, subtle changes in the market over the last 6-9 months have made buying support and selling resistance more attractive - versus BO plays.

DW said...

Dear Jim and Jamie,

Very appreciate for your blog. I have learned alot from your posts.

I have some problems recently when identify patterns.For example,in the post on May 20, 2008, you trade BHP as a Bearish flag and it was a great trade hindsight. However if I saw this pattern at 10:40 that day, I would expect it was a Cup & Handle pattern to fill the gap.I would long a breakout of $91.00. Can you give me some suggestion? Thanks a lot!

Best wishes
Dongbo

http://2.bp.blogspot.com/_LsWQWmRqnWY/SDNrQGZ8-NI/AAAAAAAAD5U/H3Ms-vb1rOM/s1600-h/bhp1.png

Jamie said...

Hey Jim,

Good point, but I still prefer the BO plays when I can find them. Buying support is a much tougher trade. The only reason I felt confident in this one is because CLF is in an uptrend and the selling was exhausted as most of it took place in pre-market.

Jamie said...

DW,

Cup & handle patterns should have considerably less volume as the handle forms. BHP didn't distinguish itself in that regard. The 5 period ema is one of the most important factors in the gap/momentum setup on the 15 minute timeframe. If it acts as support/resistance, proximity to it is a good entry point on these gap trades.