Sunday, November 07, 2010

Technical Picture - Best Week Since Sept. Surge

Jobs data reported significantly better than expected, but the upside was somewhat limited in the wake of the surge and the rebound in the dollar.

As we can see from the weekly chart of the S&P above, we have cleared the 200 week MA and retraced 61.8% of the 2007-2009 crash ie. ambush zone. We are likely due for some consolidation/corrective action prior to moving to the next resistance level.

Despite extended technicals, there are no short-term reversal signals for the S&P yet.

The USD carved out a lower low on Thursday in the wake of QE2, but Friday's shakeout bar (bullish engulfing pattern) and the positive divergence of RSI to lower prices, foreshadows a reversal. Inversely, the EURO confirms this analysis with a bearish evening star reversal pattern and negative divergence of the RSI to higher prices.

If the $USD bounces here, look for energy, commodities to correct. Also, look for sector rotation with financials set to lead on the upside after finally breaking out of the doldrums.

Technical Setups

LVS extended beyond 100% of the previous impulse leg (A to B) after a minor correction to C. It carved out a bearish shooting star reversal pattern on Friday at point D.

We note that there is no consolidation beyond the earnings gap up day and expect a decisive move back to the 50% retracement level of the last impulse leg up (C to D).

LVS got ahead of itself as we can see from the 15 timeframe below. Price surged out of the channel in morning trade, retested and surged higher still. The last thrust higher saw negative divergence of the RSI signaling the end of the move. The high volume for the day was more on the sell side than the buy side.

SOHU is flagging and looks poised to break higher very soon. Friday's price/volume action was NR7.

BIIB is also flagging and could benefit from some sector rotation.


chin said...

Good morning Jamie,

What are your thoughts on GS and AAPL ?
Is it worth looking at these for the last qtr of 2010 since they are both quite high.

I read somewhere that covered call options for GS - Jan 170 is a good strategy. Not sure how to play this with the stock price movement.


Ken said...

Hey Jamie,

I liked that SOHU daily a lot too. Hope you caught some of the explosion! Went too fast for me to get any.


mcclin said...

Jamie said...

Hi Chin,

I really have no opinion on options strategies, because I don't trade options and don't understand them well enough.

As far as AAPL and GS are concerned, they are too high to go long on breakouts at this stage of the rally. If you want to buy stocks or options on the long side, wait for a pullback.

Jamie said...

Hey Ken,

SOHU was my best trade today. Picked it up at $75.00. Sweet!

Ken said...

Very nice! You really had to get in at 75 or forget it. Totally vertical by the time it got to 76...
My best today was SINA in the afternoon, so at least I got some Chinese money today!

Jamie said...

Yeah, SINA set up a nice handle at $61.00. Nice work!