Thursday, March 31, 2011

Technical Picture - Consolidation - Markets Mixed

The markets consolidated ahead of tomorrow's jobs data and in the wake of the big move from the March lows. The DOW and S&P had minor losses whereas, the NASDAQ and Russell printed minor gains. As depicted on the chart above, we are testing the top of the congestion zone which formed prior to the correction. Normally, we would expect matching or similar congestion areas to form prior to breaking higher. If that's the case, we need to consolidate through price and not just time.

Normally, strong jobs data leads to higher interest rates and pressure on gold. The GDX chart below shows that we are on the cusp of breaking out of a symmetrical triangle. How does it work? Well, strong jobs data suggest the need for continued QE (quantitative easing) by the FED, may be coming to an end, sooner than later. Whisper numbers are always higher than consensus, so this is always tricky.

Day Trades

TSLA gapped up, and flagged into the rising 5 period EMA on the 15 min. timeframe. As we can see from the daily chart above, we had two targets, gap resistance and gap fill. I took a partial at resistance and was stopped out on balance. Eventually, formed a bearish base, which I shorted.

Early weakness in RIMM formed a bearish flag near daily support which I shorted hoping for a BO, but there was a huge buyer lurking around $56.85. The trade was aborted when price formed a base just under the flattening 5 period EMA. Just like the APOL trade from a few days back, the failure sets up a long entry. The next test of this level should break.

From the daily chart above, we see that a measured move of the bear flag pattern would bring prices down to $50.00, a solid support zone.

DECK - not a winning setup, but I was hoping that the bear flag would break and extend to the low end of the congestion zone.

VRUS was a momentum gap. Price rallied, retraced and consolidated, forming a base and setting up a low risk entry (NR7). VRUS is blue sky, but on a measured move basis, it should top out between 80 and 81, and consolidate.


Modulos Grado Superior said...

Jamie, here a long time reader of your blog from Spain. Regarding TSA and shorting the bearish "base". When looking at the chart AFTER the end of the trade, it seems very clear that shorting was THE way to go...but BEFORE the move I do not see it so clear: I would have been looking to go long instead of short...why the hell the "bearish" base couldn't be seen as a "double support" to attack the resistance?...I would have been looking for this kind of set up; yeah, it never broke the previous bar highs and then the set up to go long should have never been triggered...but I were expecting a support to be developed I would have never been prepared to short...

Jamie said...

I see your point and it was looking that way until the 12:45 bar closed on its lows, well below the 5 period EMA. Once the 5 ema fails as support, it starts to flatten. If price forms a narrow range base, and can't regain the 5 ema on a closing basis, it is a good candidate for a reversal.

RIMM did the same thing after it failed on the short side. The 5 ema flattened, so I waited for price to cross back above the 5 ema and entered long.

I'm employing this technique more often now. Before, I used to get stopped out of a trade and move on to something else, now I wait to see if a reversal sets up.

This setup works well when price is at an important support/resistance level on the daily timeframe. TSLA was testing gap resistance on the daily, so it is normal that it gets rejected on the first test.

MiFormacion said...

Just read your reply, thanks for your effort, I see your point.