Technical Picture - Distribution Day

Significant downside pressure in early trade gave way to stabilization and a retracement in the afternoon. Another distribution day, the third in the past week and a half. IBD will be changing its current outlook from "Market in confirmed uptrend" to "Uptrend under pressure" tonight.

After retracing 38% of the Nov.-Dec. rally, the $USD spiked this week for a retest of the rally highs.



Stocks gapped wide and swooned. Gold stocks gapped and attempted to stabilize, giving traders a chance to enter a trade.

ABX gapped below S2 on the daily pivots as depicted in the 5 min. chart above. I've recently decided to plot daily pivots on the lower timeframe and weekly pivots on the higher timeframe (15 min.) so that I have wider perspective as far as potential targets. Of course, things don't always work out as perfectly as the ABX trade. But, the weekly pivot is stable over the course of the week which is helpful when reviewing charts the night before.

Continuation Play - Cephalon, Inc. (Public, NASDAQ:CEPH)

The first chart of CEPH is the daily. We note that yesterday it broke out of a seven month base and today we filled the bearish gap. Prices closed near the highs of the day, so the gap fill didn't give rise to profit taking.

The 15 min. and 5 min. timeframes show the day trades. Two low risk entries followed each by vertical expansion. Intraday pivots used as guides for support/resistance.

The last chart is the 3 minute timeframe of the trading channel since CEPH broke out of its base. The next level of resistance is $62.50. Price is testing the lower channel into the close.

Day Trade - Amazon.com, Inc. (Public, NASDAQ:AMZN)

Thursday night we said that each time AMZN tests it's 50 SMA on the 15 minute timeframe, it results in a higher high. We also said that a lower high under weak market conditions could setup a shorting opp.

Friday's market conditions were not weak with each of the three major spiders SPY, DIA and QQQQ printing inside days on lighter volume (consolidation). AMZN set up a long when it found support in the ambush zone of the last leg up, after breaching the 50 SMA and snapping back as depicted on the 15 min. chart above.

The reversal back up was on light volume, so we suspected a short was setting up when price could not hold R2 (blue line), resulting in a lower high from the PDH. As depicted on the 5 minute chart below, we partialled out at the initial sign of weakness and after another lower high, we exit the balance of the position and shorted simultaneously. Volume on the short side wasn't enough to get past the median daily pivot P (black line) and the short trade was stopped out for a small gain.

Price moved all the way back up to the initial base on accelerating volume, so we took a long entry into the close. Once the intrday high was taken out, the shorts were in a squeeze which propels price higher at a much faster rate.

From the daily chart below, we see a flag pole (high volume)/ flag (declining volume) and BO ie. extension. The only caveat is the lack of volume on the extension. Volume increased on the BO day, but has since failed to follow through, so price is moving slowly. This looked to be setting up as a failed BO and that's why I said I would look to short on a lower high if the markets were weak. Now we adjust the strategy because if there's a big enough short float, price could move higher faster. If that pans out, we'll wait for a euphoric volume spike before we attempt to short AMZN. For now, buying pullbacks is the way to go.

Friday's Trades - Research In Motion Limited (USA) (Public, NASDAQ:RIMM)

On Thursday we said the trade idea for Friday was RIMM, which had carved out a C&H pattern in after hours trade. The bullish pattern did not follow through the next day. RIMM opened weak and couldn't hold $76.00 so I started scaling in short. I added to my position after a series of NRIBs. The obvious target is $73.00. Why $73.00? Because that is the pivot where it formed a base and rallied in after hours trade the night before. That's not to say it can't go lower, but buyers will step in at $73.00, so it will pause or reverse. Knowing that, we want to book some profit. I closed my position because the trade was orderly but slow. The smaller bars as price approached the target are spinning tops, foreshadowing the end of the move.

FUQI continued its ascent in early trade, pulled back for an ambush setup. Price couldn't hold R2 (whole $ level) so I exit and decided to short. Price eventually retraced and found support at the rising 50 MA on the 5 minute timeframe.

Failure Leads to Fast Move - Barrick Gold Corporation (USA) (Public, NYSE:ABX)

Entered ABX long on a mini base & break. Price rallied up to R2 - whole $ level and carved out a tweezer top reversal, putting the position into a slight loss. As price exit the retracement zone, I sold twice the size for a short. Failures usually lead to fast moves and that's exactly what ABX gave us. Took a partial after 3 WRBs and exit balance at S2. ABX is a usual suspect for me and I mentioned gold in last night's technical post.

Someone requested that I explain how I use MAs. I use them for support/resistance. On the 5 minute chart below, we note that price never closed above the downsloping 5 EMA until the primary target S2 was met. Price and the EMA are like magnets, so if price gets too far ahead of the EMA, expect a retracement.

Crossovers are good indicators of the bias. If the EMAs crossover above price it is very bearish and vice versa.

Profit Taking - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

POT took out PDH and extended 50%, printed a big hanging man, retested the highs but couldn't push through R2. The second hanging man, strategically placed at R2, provided a very good clue that POT was going to come into some profit taking.

SCO and BIIB were from the gapper focus list. BIIB was a coil and move back to ORH, followed by a long, almost painful, wait for the anticipated C&H to develop.

SCO was an ORBO with extension following the gap fill consolidation.

SLB, also from the gapper list, was a good intention for a H&S BO, but I missed the entry. Hope you got involved.

The key criteria for H&S tops are big volume on LS and Head and relatively little volume on the RS. SLB meets the criteria and delivers a fast trade - gap fill and perfect measured move - 100%

Keying off the Daily

The morning action was narrow range and choppy so it was hard to find suitable setups.

CELG, printed 3 IBs after selling off all week, so I took a chance on a reversal. Once price was able to close above the downsloping 20 EMA, things picked up nicely.

AMZN and GRMN have strong daily charts as discussed in the comments last night. AMZN was a symetrical triangle waiting to BO and GRMN set up a Cup & Handle.


The XLE trade is from yesterday. From a reader:

XLE gapped down today from shooting star daily bar, which is very bearish. Which would have been a better short entry in your opinion:

1) break of IB low (2nd 15 min bar)
OR
2) break of shooting star low which is unable to closed above 5EMA on 5min (9.50am ET bar)

The first 15 min. stick is a hanging man or red hammer. Since price doesn't test the high, we conclude that it is a hanging man. However, the doji which follows is indecisive. I like the action on the 5 minute, but I would scale in until S2 (dotted red line) is taken out.

I place my fibs. on the 15 minute timeframe and intraday pivots on the 5 minute, that way I see the setup from both perspectives.

Analyzing the Trades -

A reader submitted the following four trades and asked me to analyze NOC and PHM for possible tips on how to pick good setups from mediocre setups in real time. He trades on the 10 minute timeframe, so all the charts are displayed on the 10 as opposed to the usual 15 min.


The best setup, IMO is the BTU because we have IBs, green on green, in the upper half of the ORH with the PDH holding as support, so I would rate this setup as A+.

The only thing I don't like about ANR, is the entry occurs in the R-zone (retracement zone), which is often a consolidation area. I had ANR and ACI as early leaders (outliers) on my watch list, and I decided to go with ACI (break of ORH at the whole $ level). The entry point is a good distance away from the Fib. extension (R-zone) of the PDL to the ORH . ANR had bigger relative volume, but I thought ACI had a better base and higher chance of running given the distance from the R-zone.

The opening range for NOC is very wide, so I would place my Fibs from the ORL to the ORH and extend from there. Price consolidates in the upper third of the OR and breaks out. The entry is good, but shortly after breaking, price stalls. The doji shooting star is a red flag and I would take some money off when price moves below the low of the SS. The trader in question, tightened the intial stop and was stopped out as depicted in the chart below. If the inital stop plus 2 cents had not been tightened, it would have held as support.

The only thing I could add as a secondary strategy, you might want to take half off after a shooting star and leave the balance with the original stop.

The PHM setup is my least favorite of the four trades. Not only does it execute in the R-zone, but it's also less orderly. However, it does have decidedly more volume on green bars than red, so there's a strong bias towards a continuation long.

If price moves out of the R-zone and immediately reverses back in, it's a red flag - keep it on a tight leash. In this case, PHM carved out a dark cloud cover candle and retraced quite sharply. If you're using intraday pivots, price popped above R2 and couldn't hold it, so time to take some money off to protect capital.

PHM eventually carved out an ascending triangle with a low risk entry and had a nice run.

In summary, I would say that the trader had a good day, despite a 50% stop out rate on the morning trades, the winners both reached the 100% Fib. extensions and the stop outs were managed for minor losses. The only caution I would stress is picking spots away from the R-zone unless the setup is otherwise perfect like ANR.

Related Post: Understanding Fibonacci

Trendline Break - Canadian Natural Resource Ltd (USA) (Public, NYSE:CNQ)

As noted in last night's technical picture post, the market had 4 consecutive higher closes, and I was looking for some pullback as many watchlist stocks were extended. So my strategy was to look for gappers on the open and trendline breaks if they setup in an orderly fashion.

The trick with trendline breaks is to wait for price to test the trendline as support, then if price doesn't bounce from the trendline, look for NR shorting opportunities as close to the trendline as possible. In other words, don't jump the gun, otherwise, you might find yourself in a losing trade. V and CNQ (charts below), stocks I traded long last week, setup perfectly.

The first trade was HIG (chart above), a gapper which I found on the Trade-Ideas scanner and Briefing.com gap up list. Notice the consolidation/congestion where price broke down last Thursday. That area acts as resistance, so you want to enter when price moves into that zone, above the blue line.
I took a partial , but eventually after a shallow pullback, HIG extended 100% from the previous day low to the ORH.

AMP, a stock I traded Friday, is setting up a C&H over the past few sessions. $22.00 is the pivot point. Keep it on the focus list.

Earnings Gap Trade - Amgen, Inc. (Public, NASDAQ:AMGN)

AMGN was an earnings gap with a wide opening range, followed by a bullish inside bar. I entered on break of ORH. Place the Fibonacci extension from the previous day low (blue line) to the 15 min. ORH. Price rallied to the 62% extension where I partialed out. The inside doji bar had a bearish feel and I folded.

CELG, another biotech looks like it wants to breakout at $58.00. Notice the frequency of the pivots into that price level as indicated by the blue arrows. Keep it on the WL for tomorrow. I see a prelim. target at the round number $60.00.

FFIV gapped up and looked like it was getting ready to move above the blue line segment after a NRIB, but it rolled over, setting up a low risk short. Here I place the Fib. retracement lines from the previous day low to the ORH. Look for setups near the the Fib. lines in conjunction with proximity to the 5 period EMA. I exited the short as price approached the 50% retracement level.

Retracement Trade - Canadian Natural Resource Ltd (USA) (Public, NYSE:CNQ)

CNQ was a retracement trade following a gap down. Despite the bullish OR candlestick, volume was declining and much weaker than the previous day's sell-off. I was looking for a normal retracement around 38% and continued weakness thereafter.

Price retraced a bit more than 38% and printed a long upper shadow. The next bar was weak and inside. I confirmed the bearish reversal pattern on the 5 minute and shorted as depicted below. I took half off near the round $ number and held the rest for a full retracement to the ORL and R2.

A similar entry was taken on the Qs, this time using the intraday pivot points as my guide. Price rallied to P and carved out a bearish topping pattern. After confirmation, I shorted.

Watch List Trades - Energy Conversion Devices, Inc. (Public, NASDAQ:ENER)

ENER set up a perfect bear flag on weaker oil this morning. I took a partial as price started to retrace and covered the balance as price approached the round $ number $70.


AAPL is a trade from Friday. I had previously mentioned AAPL as a focus list stock at the intraday pivot point $172.00 as significant. Hope you guys had your alerts on. It set up perfectly and my alert warned me that price was in play. I missed the big move today because of a power failure. The power went off some time between 1:15 and 1:30. By the time it came back on and I was up and running again it was almost 2:30 EST and the big moves were in, so I called it a day.

FLS - I've been trading this one daily for a week or so.


CNQ - another oil play, had nice volume on the BO bar, but no follow through.

Gap Scan Trades - DELL and PETM on Friday were both more or less scratches. LOW was released as a buy stop at $26.64 just as power failure occurred. Happily, price never triggered as markets headed south.

Base & Break - Arch Coal, Inc. (Public, NYSE:ACI)

Yesterday we said that ACI looked like a C&H waiting to BO. The first chart highlights the C&H pattern and expected Fib. extension of 100% from the ideal BO point. The blue lines represent pivot points and basing areas. Whenever we execute a planned trade, we want to find a low risk entry point near a pivot point, targeting the next level pivot as a possible exit. On a measured move basis, chart patterns such as a C&H usually extend 100%. That's the norm, but sometimes they surprise us with bigger or smaller moves. It depends on the market and momentum. In our case the 100% extension of the pattern lined up almost perfectly with the next level PP, so this added an extra element of confidence in the setup.

Today ACI gapped open and retraced approx. 50% of the move from yesterday's closing lows to today's ORH. It breached the blue line in early trade, retraced sharply and began forming a base at the PP through a couple of higher lows. The best time to enter is after price settles into narrow range trade at the base to of the PP, or wait for the retest of the base after the BO. Don't buy if price runs up quite a distance to reach the PP, wait for price and volume to contract just prior to BO. I know that this is not as easy as it sounds, but it helps to put you in a winning trade much more quickly rather than sitting through all the backing and filling.

As you can see from the chart below, once price successfully retested the base, it took off nicely reaching the target in an orderly fashion.

We also mentioned that we would like to short LEH if it pulled back to the broken trend line or 50 SMA on the 15 minute time frame. Neither of those two things happened as LEH opened weak and spent most of the session chopping around. There was little opportunity for a decent size profit because price was so close to the $17.00 target anyway. Don't force a trade if the risk:reward ratio is less than 1:2 or ideally 1:3.

Target Trade (Base & Break) - Fording Canadian Coal Trust (USA) (Public, NYSE:FDG)

The objective of this blog is to identify day trading strategies that deliver based on sound risk:reward principles. It's not a day trading journal. I do take my share of boredom trades like everybody else. But, I see no point in publishing the latter because it doesn't fit with the objective of the blog. Moreover, I generally post three times daily which is a huge commitment and I don't want to waste time on items that may have little interest to most readers.

Thanks to all those who submitted feedback over the last few days either through posting (Thanks Jim!), comments, and/or emails. I've got a backlog of emails so it will take a few days to answer everyone. I plan to get back to regular postings after the long weekend.

Tonight, I'm focusing on a single trade. The midday reversal on GM's sales news probably caught many of you covering shorts as this trade did for me.

The first chart is the daily chart and it highlights a target trade - trading to the pivot point as opposed to trading from the PP. Basically, I was looking for a break of yesterday's low to take me back to the PP base which lined up nicely with the rising daily 20 EMA. Target Trading is something I learned from HCPG.

The 15 minute time frame looked somewhat like a H&S top. On a measured move basis, the 100% Fib. extension from the top of the head to base lined up perfectly with the daily PP target.

The 15 minute chart shows how price broke out of the base and carved out a WRB which closed on its lows. When the BO bar prints wide and closes weak, we know we have an excellent chance of success. There's one caveat though, and that is the lack of a dicernable volume increase on the BO bar. The volume is easier to see on the 1 minute timeframe below. I took a partial at the next support level because normally, this is where price starts to consolidate the last leg down. There wasn't much of a consolidation, before price continued lower. I was almost certain of reaching my target when the second WRB closed on its lows, but I was expecting a consolidation because now price was so far away from the down sloping 5 period ema. Price and the 5 period EMA are like magnets, eventually they always come together.

As you can see from the chart, they decided to get back together sooner than I would have liked. Consolidations can take place through price or through time, or a combination of both. Usually it's a combo and price and the ema share the workload, but in this case price did all the work and the 5 period ema just sat back and waited.

Rule of thumb if there's no reversal stick to foreshadow a retracement or reversal and nothing else to key off of, don't give back more than 38%. 38% is a normal retracement, anything more than that could turn into a reversal.


There was no NRIB, NRB or NR7 on the 15 minute timeframe to setup the trade properly, but this does not deter me from taking the trade if I see an orderly three PP base on the lower timeframe.

Click on the chart to read my notes. I like to see price consolidate in a narrow range before breaking out. If this doesn't look like it's going to happen, I wait for the BO and the retest before committing money to the trade. This avoids getting caught in a head fake which can be quite costly if you are using Point A as your stop.