Sunday, August 08, 2010

Technical Picture - Late Day Rally Pares Losses from Weak Jobs Report

A firmly negative start on Friday in the wake of the worse than expected non-farm payroll and private payroll numbers (previous month revised lower as well). As we can see from the SPY chart below, price held initially at this week's narrow trading range floor, but the rebound stalled 30 minutes into the day. A second wave of selling accelerated into mid-morning with the SPY unable to stabilize until it almost completely filled Monday's gap. To make matters worse, Goldman cut their 2001 GDP forecast. This left prices trading in a tight, narrow range for several hours. Eventually all that coiling, produced a breakout to the upside as prices rallied in the last 90 minutes leaving the indices with only minor losses.

On the daily we have a either a hammer or hanging man. Keep a close watch on the trendline for a potential breach and some retracement.

If the market weakens, play defense with biotech/healthcare sector. Large caps biotechs such as CELG and AMGN look poised to move higher.

Swing Trade Update

From the RIMM chart above, we see that Friday's strength (bullish engulfing bar) sets up a perfect ambush long. I trimmed my short position by another 25% and tightened the stop as depicted above. Barron's unfavorable article this weekend may help tomorrow.

Day Trade

As mentioned Thursday night, Cramer's ill-timed Mad Money recommendation to buy POT and other sector names, after such a huge move, could provide the perfect storm for a shorting opp. The sector gapped up Friday morning as his disciples blindly jumped in. As soon as prices fell below the PDH, I shorted POT for a nice swoon to fill Thursday's gap. Notice the negative divergence of the RSI to higher prices on the 15 minute chart above.