Saturday, April 02, 2011

Technical Picture - Modest Gains on Favorable Jobs Report

INDU is testing February highs. I'd like to see a retracement here so that we can carve out an inverse H&S pattern, before attempting to move towards the top of the channel.

Small caps are testing 2007 highs.

The SPY gapped up on the favorable jobs data, but a mid-afternoon swoon brought us back to the base. Black candles can be bearish as they highlight gap fades. I'm interested to see if new money will come into the market as we begin a new month, or if we get some sort of constructive retracment before attempting to make new ground.

My main concern is the NASDAQ which has yet to confirm the price action of the other major US markets. We saw late day selling in AAPL (20% of the QQQ), weakness in a number of cloud names, and the SMH appears to be falling out of bearish rising wedge with volume (see SMH chart below COMPQ). Also, copper, a leading indicator, is printing lower highs. These are red flags. The broader markets can't continue higher if the COMPQ fails to confirm and pulls back.

Watch List Stocks

AAPL looks vulnerable to further selling. Friday's late day sell-off had volume. If it fails to hold the retracement zone as support, it will likely retest the base (blue line).

ALXN is testing $100.00 resistance again. Large scale buying into the close, pushed the stock just above $100.00. I would prefer to go back and fill the gap before breaking out, but ALXN might not wait.

ISRG attempting a big level here. Breaking out on good volume. I'd like to see a few days consolidation (coiling) in the upper shadow of Friday's stick, before moving above $350.00.

RIMM bear flagging, closed near lows on Friday. If the BO closes below next support at $54.60, I'll hold for a swing. There's virtually no support between $54.60 and $50.00 as we had two WRBs on the BO of the base back in October. That's why I find this setup so compelling.

AKAM setting up a mini inverse H&S pattern. Measured move target 100%.

RVBD looks like it might be forming a H&S top.

FFIV - The Fibonacci symmetry on this chart is a thing of beauty. After gapping down on earnings, price retraced to the ambush zone and the downsloping 50 SMA and extended to the Fib 1.27 level. We retraced to Fib 1.0 and now it looks poised to extend further. $80.00 seems like a realistic target, if FFIV fails to hold the 1.27 level.

Day Trades

GES caught my eye on the open because of the gap up. I placed my fibs from the late day handle to the opening swing high and waited to see if it would set up a reversal in the ambush zone. It did, so I took it for a long. My target was the high of the earnings gap down bar on the daily (blue line) on the chart above.

VRUS was a gap continuation play. If we ignore the opening range, we see an orderly base on base setup. My target was $81.00 which represents a full measured move on the daily. (See Thursday's post).

I thought the third test of the support zone on RIMM would finally break, but there some large buyers sitting on support and I took a small loss. Price rallied back towards the 5 day EMA, carved out some bearish looking upper shadows, formed a base and broke back down, so I shorted it.


Ashish said...

Hi Jamie,

OVTI and TIF formed bases on Friday morning, and I was planning to get in, but felt that the volume didn't thin out in the base. So I passed, only to my disappointment later.

Would you have considered trading these bases?

Thanks, and as always, I really appreciate the time and effort you put into the blog posts and replies.


Jamie said...

Hi Ash,

Volume peaks in the first and last hour of the trading session. Sometimes volume doesn't thin out much if the base forms in the first hour.

I like the OVTI base because it forms at the whole dollar level. I'm sure I would have traded it had it been on my radar. The TIF setup is a shallow 38% Fib. retracement, which is a little harder to gauge.

James said...
This comment has been removed by the author.
James said...

Hello Jamie,

I took a long trade today in SLW (4/4) on the 8th bar (15 min chart) with support from the 5 MA. It promptly fell back and took out my stop.

In hindsight it looked like a great trade that didnt work out, do you see something here that made it a bad trade?

James said...

This is a somewhat related question to the previous post. I feel like when i get stopped out I'm doing something wrong. I'm trying not to take any losses but when I do it feels like my strategy is flawed so I try to tweak my system so I dont take anymore losses.

What is your mental process when it comes to trading or even when you take a loss?

II said...

You have to understand that nothing is for sure in the market. If you do it all right, you are god. Jamie must had lots of trades that didn't work out. Just remember when you got it right, make it huge.
For SLW today, you need to look at the daily, some resistances ahead.

Jamie said...


SLW is consolidating in a range between $42.00 and $45.00 on the daily timeframe. Until it breaks above $45.00 you might want to target trade from a lower price if it sets up a proper base intraday.

You might also want to confirm your setups on another timeframe in addition to the 15 min. and daily. For example, you might want to confirm your setup on the 5 minute. If I look at the 5 minute chart, I don't see an entry for SLW. I would have waited for a flat base BO.

There's no way to avoid losses. The only time I get upset over a loss is when the stock gives me a second chance and I ignore it. I took a long entry in RHT similar to your trade - 8th 15 min. bar. It started to go in my favor, then retested and popped for a slightly higher high which closed with a bearish long upper shadow. If I hadn't folded the trade for a small gain, it would have turned into a loss, and I would have been upset for ignoring the tell.

Another example, I shorted RIMM on the open based on my bear flag daily timeframe strategy and pre-market price action and it promptly failed. I had to scratch the trade. In my heart I knew RIMM was going down, but I was becoming increasingly perplexed about how to take the trade as I've been trying this over and over and I keep getting the same result. So I decided to look at it from a slightly different perspective. I placed my fibs from the opening swing low to swing high and decided to trade it only if it printed a NRB at the base of the retracement zone. Finally, I got success.

Hope that this is helpful.