Technical Picture - Markets Mixed

Lackluster trade until the FOMC statement was released at 2:15. As expected rates are unchanged and, current economic conditions dictate exceptionally low rates for an extended period. FED is also prepared to provide additional accommodation if required. How did the market react? Stocks, gold, and treasuries rose and the dollar sank. All but stocks managed to hold those moves into the close.

TLT has regained its broken trendline, UUP looks really ugly, GLD notched new closing high and the S&P looks somewhat bearish intraday, but it has a lot of support from the BO base. If it forms a right shoulder intraday, the technical picture will become clearer.

Doji flags are bearish. GS rips to resistance zone, carves out a doji flag on the 15 min. timeframe above, and sets up a reversal. Short as depicted on the lower timeframe below.

Post FOMC, short the trendline break.

Gold rips post FOMC. Using ABX as a proxy for gold, wait for retracement of initial spike, and go long.

Bullish Morning Star Reversal - QUALCOMM, Inc. (Public, NASDAQ:QCOM)

Bullish Morning Star Reversal Pattern

A morning star or doji morning star is a three candlestick reversal pattern. It signals a bottom reversal after a downtrend or gap down. The first candle is a WR red bar. The second candle is a star or doji, the real body of which does not overlap with the previous red bar. The third and concluding candle in the pattern is green and it closes at least 50% of the length the first red stick.

As you can see from the 15 min. QCOM chart above, the first three bars of Friday's session carved out a bullish doji morning star. Because the third bar was so wide (bullish), I decided to trade it off of the 5 min. time frame below.

The 15 minute FFIV chart below is a good example because it has two morning star patterns. The first one midday, did not satisfy the criteria 100% because the third bar did not close at least 50% of the length of the WR red bar. Ultimately, the pattern was a head fake, because after testing the high of the WR red bar, it continued the downtrend.

The second morning star reversal pattern later in the session meets the criteria 100% and sets off a momo move to the upside.

Lowering the time frame to the 5 minute view, we see exactly what is happening as the morning star develops and it's interesting to note that we have 3 inside bars at the base of the PP (green line).

The evening star is the exact opposite of the morning star and it marks the reversal of an uptrend. The patterns are quite reliable when all of the criteria are met. Generally speaking, the wider the third bar, the higher the likelihood of a generous move in the direction of the reversal.

A Powerful Reversal Pattern - Stocks and Commodities - Sept. 2004

Dummy Gapper Trade of the Day - McDermott International (Public, NYSE:MDR)

The first two charts are dailies of MDR before and after yesterday's gap open and new all time high. The first thing to notice is that after a big run up leading to the July 6th all time high, MDR had a normal retracement (just less than 38%) of the last leg up, and had carved out two NRBs, the last of which closed on its highs.

Friday's gap up and early break above the ORH put MDR in the sweet spot with potential to take out, or at least test the July 6th high.

The chart above is the 15 minute chart of my entry, exits and trade management. I liked the strong open - WR green bar. The second bar was a consolidation bar which closed at the base. I entered a dummy long as the third bar took out the OR highs. I took a 30% partial at the 50% Fibonacci extension of the previous day low to the ORH. I then monitored the retracement on the lower timeframe below. It was very orderly and did not breach the 38% retracement level. The red line segments on the 15 min. view, mark my stops. I place my stops two ticks below the last WR green bar.

After retracing 38% of the move from the ORL to the first swing high, MDR rallied towards the all time high (thick blue line). On the first test, it easily broke through. The next bar started printing red and I took another 30% partial to lock in more gains. Upon completion, the red bar looks like a hanging man but the lower shadow is less than twice the length of the body, so it doesn't qualify as a true hanging man. That's me talking to myself, trying to convince myself to stay in the trade. I had a good feeling from the run so far that it wasn't over. This time the stock retraced 50% of the last leg up and found support at the morning swing high as depicted by the black arrows on the 5 minute chart below.

MDR slowly moved up towards the previous high and then spiked above it, topping the 100% extension level. It carved out a star with a long upper shadow signaling the end of the move, followed by a bearish doji spinning top. I raised my stop to this level and was taken out on the balance.

The key take-away here is that stocks trading in the sweet spot can keep moving higher. Check the daily timeframe of your gapper stocks to see if you have potential to take it higher and monitor the retracements. Look for topping reversal type candlesticks to indicate when the move is finally over.

BTW, MDR is a watchlist stock. I added it to the list last week along with SGR after Marco-MH497 left a comment on my watchlist post with reference to FWLT. Thanks Marco! Oh, and notice the move on SGR yesterday as well (unfortunately, it moved too quickly out of the gate for me).

This last chart (AMGN) is another gapper trade I took yesterday. I liked the late day strength on Thursday and took this as a momentum continuation play. However, after consolidating a full hour after the OR, it had a nice break and then started to consolidate midway to the 25% extension level. I tightened my stop and booked a small gain. The reasoning here was that AMGN, being a gutter stock was running into too much resistance and would not reach the primary target. IMO, if a stock consolidates for a lengthy period before the break of the ORH, it shouldn't require more than a brief consolidation on the way up to the next extension level. After moving more than 50% of the distance between the ORH and the 25% extension level, it's too late for a retest of the base. A retest should occur immediately following the break. So, when the red bar closed near its low, I made a quick decision to tightened the stop.

NASDAQ Technical Picture - NR, Low Volume Fed Session

It was a narrow range quiet session leading into the FOMC policy statement at 2:15. The statement itself failed to provide direction and we just chopped around afterwards. At the end of the session we are left with a doji (indecision) with a long upper shadow (bearish).

RIMM came through with a very bullish earnings report and the stock tagged $194.00 in AH trade.

Companies moving in after hours trading in reaction to earnings: Trading Up: RIMM +16.18%; RBN +8.88%; BBOX +6.0%; MU +1.93%; FINL +1.25%...Trading Down: CBK -8.65%; TIBX -3.65%; ARRO -3.65%; COMS -3.55%; EGLS -2.80%; PALM -2.48%...Companies moving in reaction to news: Trading Up: CRYO +28.48% (Co and Boston Scientific announce strategic collaboration in atrial fibrillation; BSX purchased shares of CRYO); HLYS +9.27% (announces the withdrawal of its registration statement with SEC); APOL +7.92% (Board of directors approves up to $500 million in share repurchase); KOMG +7.64% (Western Digital to acquire Komag; $32.25/share in cash); COLY +4.23% (grants Dynavax license for commercialization of HEPLISAV) ACN +1.59% (raises FY07 EPS to $1.94-1.96 vs $1.93 Reuters consensus, up from $1.88-1.93); CYTK +1.46% (anti-cancer activity supports further development of Ispinesib in additional breast cancer trial); ROY +1.29% (updates investors on significant Development, Exploration and Pre-Feasability projects) ... Trading Down: AHM -10.86% (withdraws 2007 earnings guidance; Q2 loss will be limited); PPHM -10.65%.

Economic Calendar: Personal income/spending and Core PCE inflation at 8:30; Chicago PMI at 9:45; Construction spending and Michigam sentiment at 10:00.

NASDAQ Technical Picture - Weekly Update

As expected, Friday's action was narrow range on much lower, pre-holiday volume. Nonetheless, we did manage to recapture the trendline on the opening gap up. The remainder of the day was contained within two intraday pivot points. It was a stock pickers trading environment as most stocks just chopped around in snooze fest range.


The weekly timeframe is still relatively bullish as we continue to consolidate in a tight range on declining volume. Thus, the three hammer/hanging men candlesticks were not resolved yet again as we only managed to add to the unknown by carving out an ambiguous, red doji stick.

As you can see from the McClellan oscillator below, despite heavy selling midweek, we are in the neutral zone with respect to oversold/overbought market bias.

Charts courtesy of stockcharts.com

Trade of the Day - Valero Energy Corporation (Public, NYSE:VLO)

When VLO tried to challenge its morning high, it failed and carved out a doji reversal bar with a long upper shadow. I shorted VLO as price fell below the low of the doji stick. I placed my stop 5 cents above the star prior to the doji because the doji was too wide. I took a partial when my preliminary pivot point target was met. The next target is gap support and I suspect it will reach that target tomorrow. It should bounce either at gap open or gap close. At the moment gap close lines up with the 200 MA.

NASDAQ Technical Picture - January High Tested as Support

After gapping higher on the open, the NASDAQ spent most of the morning in a free fall. It successfully retested the January high as support late in the morning and after a lengthy chop-fest, it managed to rally into the close. In so doing, it carved out a doji-like candlestick which is indecisive. I wouldn't be surprised to see some range trading between 2510 and 2530 over the next few sessions as the market consolidates its recent gains. However, at certain points in today's session, it felt like there was some programmed selling taking over. Just a reminder to be cautious with the doji stick in play!