Technical Picture - Modest Gains

A slightly weaker open following higher than expected initial claims (429k vs. 390k). We chopped in a narrow range for most of the session, but managed new recovery closing highs by EOD. Next short-term target is 1362.

Stocks in play for tomorrow - RIMM - Q1 earnings warning - big gap down. CAT earnings in pre-market. Since Caterpillar last reported, the stock has gained 17.5% versus the S&P 500, which is 4.8% higher. Also, since CAT last reported, it purchased Bucyrus (previously BUCY).

Biotech/Pharma ETF IBB has been one of the best performing sectors since the March correction as depicted on the chart above.

AMGN rebounded strong this week after last Friday's earnings sell-off. Now ESRX, a pharma related name, is doing the same following earnings weakness on Monday evening.

AMRN another Biotech, set up a sweet dip buy as depicted below. Also setting up a C&H pattern for tomorrow.

Two trades in AMRN. 1. Long bullish rounded bottom; and 2. Re-enter long when price corrects back to its trendline as depicted on 1 min. chart below.

Cup & Handle - BWLD

Good, low risk setups were hard to come by today. The momentum names, for the most part took a breather, and many gappers were faded.

BWLD, which I mentioned in last night's post, set up as a textbook cup & handle pattern. Price/volume contracted as the handle formed. This contraction foreshadows expansion and BWLD delivered a full measured move.

Technical Picture - Markets Mixed

A modestly weaker open was followed by a gap fill and two waves of profit taking. However, the bulls were able to recapture most of the losses into the close. The DOW and Nasdaq were able to notch fresh new recovery highs intraday, but the S&P failed to confirm. After hours, Nasdaq futures are weak following disappointing earnings from CSCO. If tech rolls tomorrow, the broader markets will follow. As noted last night, the markets are extended and a correction here would not be a big surprise.

Negative divergence in the number of stocks trading above the 50 MA vs. the SPX.

MA and V look like they will correct here.

Last week's bull flag BO in UA reached the full measured move today. The shooting star foreshadows some profit taking.

FNSR forming bull flag on daily, but this is a resistance area on the monthly chart.

Best trade of the day on break of ORH - Vertical move to resistance.

AGU earnings gap forms cup and handle for a fast move to $98.00.

JDSU was a missed ambush trade. Had planned to trade this one, but didn't want to chase on the gap up. CIEN, another planned trade turned into a scratch.

These are not recommendations to buy, sell, hold or sell short. Everyone needs to think for themselves when it comes to trading their own accounts. First, it is the only way to really learn, and secondly,you are the only one responsible for your trading decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. The plan includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios before making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.

Good Trading!

Day Trades - V, NQH1, TCK

V had been consolidating the previous week's drubbing in a narrow range under $69.00. Placed a buy stop order at $69.05 which was triggered about 5 minutes into the trading session. Price rallied up to and above the weekly R2, but couldn't hold, so I took a partial. The next rally brought us above $71.00. When that level couldn't hold, I folded the balance of my position.

After a gap down and swift move lower, the NQ e-mini futures formed a cup & handle base. Took a long entry out of the base, looking for a gap fill.

Took a partial at the gap fill and let the rest run. More upside, followed by a lengthy consolidation and I closed the trade when it failed in the mid-range of the consolidation zone.

TCK - Buy bounce from support and sell into resistance. Define your trigger when buying support because you don't want to catch a falling knife.

Ambush - Capitulation - Reversal: Cognizant Technology Solutions Corp. (Public, NASDAQ:CTSH)

CTSH was an earnings gap which was quickly faded. Price reversed and made a decisive move back to the ambush zone and stalled. I shorted CTSH as depicted on the chart above. Normally, on an ambush setup, I would target the 27% Fib. ext. and then the 62% level. But CTSH was a rip, so I decided to let the 2nd half go. It capitulated on a volume spike at $62.00 (daily support).

Ambush trades work best when the retracement into the ambush zone is decisive, but on lower volume than the preceding trend move. I look for smaller candles on the retracement than the preceding trend move to confirm it's not a trend change and a waste of time. CTSH met all of the ambush trade criteria perfectly and the result was awesome.

Capitulation signals the end of the move and can be traded for a partial retracement of the preceding move. CTSH started off slow, but eventually formed a cup & handle to which I doubled my size. As we can see from the chart below, the retracement was 62% of the entire day's range. Sweet!

I tried to do an ambush trade with AAPL, but the result was far from perfect. This brings home the point that we need a decisive move into the ambush zone in order to anticipate a really successful outcome. The only part of the AAPL move that was decisive was from $304.00 to $302.50. Anticipating this, I took a partial at $304.00. The balance of the trade was stopped out at $303.50.

It's easier for price to move through a non-congested area and that's why the criteria calls for a decisive move back to the ambush zone.

Technical Picture - Broad Based Rally

Last night's post was entitled "Broad Based Selling" and today we had the complete opposite. S&P futures perked up in pre-market on news that the BOJ was cutting interest rates to zero and planning to stimulate through the purchase of gov't bonds. The speculation is that the U.S. will follow. Okay, we'll take it, but I'm not sure what it all means for future market strength. The dollar got crushed sending gold, oil, and commodities higher. By the end of the day all three major indices - SPX, Comp, and INDU had closed above last week's failed BO. My only regret is that the momo move occurred on my birthday which was a real distraction of constant interruptions.

HCPG picks GS, NUS and SU fueled the session's best trades. My mindset was so bearish after yesterday's session that I had not planned on the long side. BTW, good post about trading strategy on HCPG blog tonight.

GS formed a nice base within the OR. I took a partial at the daily spot and let the rest run. Price stalled at the 50% extension of the previous day's range.

NUS formed a mini C&H within the daily base allowing for a low risk entry.

SU was already in my swing account so I just added more on the BO. Resistance at top of triangle where I plan to lock some in.

AGU and MON shorts were aborted. AGU short at $76.00, locked in half a point, after which price reversed and carved out a handle, so I had to get out.

MON short worked for about 30 cents and then also carved out a base. So I was stopped out.

Technical Picture - Markets Extend Recovery Rally

The weekly S&P chart above shows a bullish tweezer reversal and bullish engulfing bar following three consecutive higher closes Wednesday through Friday, not unlike the July low reversal.

Narrowing the view to the daily using the SPY, we see that last week's trend reversal was accompanied by two bullish gaps in response to better than expected economic data. Friday's jobs data was the first respectable report in four months. Price gapped up and rallied into the 10:00 hour, reversed for a half gap fill fill, before trending near the opening range highs in afternoon trade.

Looking ahead, initial resistance is the unfilled portion of the August 11th bearish gap, highlighted in pink, followed by the congestion zone at resistance in the $113.00 area. A healthy market needs the time to digest last week's gains before attempting to break higher.

$USD weakened as stocks strengthened. Testing first level support.

Financials rallied off their lows last week. GS finally decided to participate on Friday. GS rose to the top of the leader board in early trade. Using the RSI price bars helps pinpoint the best entry as depicted below. Unfortunately, the trade was stopped out on a sudden sharp retracement, well ahead of the target.

Continued strength in the Agchem sector approaching major resistance.

MON one of the weaker names in the Agchem sector, reversed in the ambush zone. As we can see from the 15 min. chart below, MON carved out an intraday C&H pattern. After gapping up Friday, it retested the base and rallied into the close.

I'm following this one closely, to see if it will break the downsloping trendline and participate in the sector rally.

AGCO (farm machinery) has carved out a C&H on the daily. It needs to consolidate last week's move before breaking out. Keep it on the Focus list.

C&H Day Trade - Genzyme Corporation (Public, NASDAQ:GENZ)

From the daily timeframe (above) we see that GENZ has a base of resistance at $54.72 -$54.75.

On the 15 minute chart below, GENZ carved out a C&H pattern at the base of the ORH. Place Fibs from the low of the cup to the base of the handle and target a full measured move of 100%. In this case the daily resistance is just 10 -12 cents above the full move, so I let it run a bit higher. Once the extension is underway, volume should expand with price as it moves towards the target.

Technical Picture - Former Support Acts as Resistance

The first chart is the 15 min. timeframe of the E-mini futures. The E-minis formed a bullish cup&handle overnight. The pattern reached full (100%) extension in pre-market. Despite the big move, it managed to rip an additional 50% in early trade.

That turned out to be the end of the move, because former support from the May and early June lows came into play. The bears stepped in, slowly at first, but eventually managed to push prices all the way back to the base of the C&H pattern.

So, the first test of resistance (former support) holds. Now SPY prices are trading in a narrow range between today's high and Thursday's low, which marks the 38% retracement of the March 2009 low to the April 2010 recovery highs.


The $USD is testing its trendline as support.

Gold fell sharply last Thursday. The $USD and gold were strong versus the Euro, but now that the Euro has bounced, the gold hedge is out of favor. The Euro will likely consolidate and retrace some of the move soon.



ABX testing its trendline. Bear flag developing.

AMZN - Bear flag forming.

Base & Break - Research In Motion Limited (USA) Public, NASDAQ:RIMM); Google Inc. (Public, NASDAQ:GOOG)

Using the daily timeframe as your anchor, find a few good setups for the next day. RIMM formed a mini C&H pattern on the daily and fired off long early in the session as depicted below on the 15 minute timeframe.

RIMM has room to run on the daily chart pattern, so keep it on the focus list.

GOOG was a HCPG pick from last night's news letter.

It fired off on the open, but I waited for price to consolidate the early move. Eventually, GOOG formed a bullish flag on the 15 min. for a full extension.