Technical Picture - Consolidation - Markets Mixed

We had little in the way of catalysts during the trading session, to move the markets, hence we printed inside days. After hours TXN announced bid for NSM at 70% premium over closing price. This prompted buying in SMH and more specifically in names similar to NSM such ADI, MXIM, ISIL, and LLTC.

We'll see if the euphoria carries over into tomorrow's session. At the moment, the S&P futures are ticking down as depicted below. Support in the 1320-21 area looks good and I would be a buyer, notwithstanding negative news.

QCOM forming bearish wedge. Prelim. target $50.00. QCOM popped after hours on TXN/NSM news, but I doubt it will hold for long.

Day Trades

ALXN - Fib. retracement trade

TCK - Traded in my swing account. TCK is on my short WL of Canadian stocks (mostly commodities). TCK formed a bullish flag on 5 min. timeframe. I took a partial at full extension and swinging the rest. From the daily chart above, we see an inverse H&S pattern basing for a BO. Full measured move will bring us back to highs and beyond.

RHT formed a nice flag pattern (tweeted by Independant trader). Exit after it formed a bearish tweezer top, because it just didn't have enough profit at that point to partial and ride it through.


RIMM - shorted break of PDL and it snapped back. What else is new? I keep trying the same bear flag BO trade and keep getting the same result. I was getting a little discouraged, but deep down, I knew it was going to break eventually. So I sat back and placed my Fibs from Friday closing handle to opening swing low and waited to see if anything developed. Price rallied to 1.27 FE, carved out some bearish long upper shadows, and fell back into the retracement zone. So I decided to short again as price broke out of the Rzone. Finally, lower prices. Took a partial at weekly S2 (1.62 FE). Price then retraced sharply, sort of forming a triangle into the close.

Not sure what to expect tomorrow. Felt there wasn't enough volume on this move lower, to risk a swing on the second half, but I will get back in if we break $53.85.

Technical Picture - Broad Based Selling

We were expecting weakness in the ambush zone as the markets were technically overbought and last week's advance came on light volume. The 10:00 consumer confidence data was so far below expectation (46.0 vs. 55.0) that the bottom fell out leading to a broad based retreat into midday. Attempts to rally from there were lame, with the bears firmly in control.

POT and MA printed inside bars with long upper tails foreshadowing weakness. Both trades triggered at 10:00.

Gap Fade - Caterpillar Inc. (Public, NYSE:CAT)

CAT gapped wide on earnings and immediately started to fade. Support from the rising 5 EMA initially looked promising, but price got stuck inside the second 15 min. stick. After NR7 completed, it started to look like a bearish h pattern was developing, so I shorted the break of NR7.

Took a partial at the 50% extension and rising 20 ema. I covered the balance as price crossed back above the 20 ema.

CNQ - Sell break of support as oil stocks finally succumb to some profit taking.

Shanda Interactive Entertainment Ltd ADR (Public, NASDAQ:SNDA)

The first chart is the daily EOD Friday. I was looking to short SNDA below the middle blue line around $55.00.

SNDA gapped down on the open and carved out a hanging man (sort of - long lower shadow). The next stick was an IB in the lower shadow of the HM. The only caveat was the distance of the down sloping 5 period EMA (pink). I decided to take the trade anyway with a stop at PDL. If the distance from 5 ema too wide, stop has to be placed accordingly.

After my entry SNDA printed a doji with long lower shadow, which looked like it wanted to retrace and it did, but it held S1 as resistance and came back down for a fast move to the 50% FE of the late day swing high to the ORL. My target on the second half was eventually reached.

The daily has now carved out a base at $50.00 from a double top. Today's selling on high volume. So we have three consecutive lower closes on accelerating volume - looking for consolidation at the base, prior to BO.

Chinese internet ADRs, as a group were weak today - SOHU, SINA, NTES.

Box Trade - Apple Inc. (Public, NASDAQ:AAPL)

A reader asked what is the easiest setup to master. I would have to say that basic chart patterns such as C&H, flags, and H&S along with the box trade are relatively simple setups to execute. I usually look for box trades from my watch list. I look for stocks basing in a narrow range over a period of three days or more. The longer and narrower the box, the more powerful the setup.

AAPL had been basing for 6 days between $84.75 and $88.00. Today it moved out of the R-zone and stair stepped towards the base at $88.00. I usually set an alert inside the base so that I know when to start focusing on the setup. If price moves sharply into the base, it needs to consolidate that move before breaking out, so patience is required to spot the correct entry. AAPL carved out an inside bar (NR7), green on green, which is my favorite for longs.

FWLT had developed a box over the minimum three days. It moved sharply towards the base and retraced 50% allowing for a scaling in, ambush setup followed by additional size after it moved back into the base and printed a tight, narrow handle at $24.00 on the 1 minute chart.

Use Fibonacci as opposed to pivot levels to help plan the exit strategy. The pivot levels are usually tight after a stock has been in a narrow box over several days, so the R2/S2 levels are usually easily taken out.

CELG was a failed C&H pattern. I set my initial stop 2 pennies below the previous (outside) bar low. I eventually tightened the stop as depicted by the red line segment because the setup looked hopeless and I was stopped out. My initial stop would have been been taken out by 1 cent, followed by a reversal and full extension of the measured move of the pattern. Once a pattern fails, it's hard to get back in because you don't trust it anymore.

Inside Bars - ETF vs. Stock

The first chart is a short (gold) AEM I did in my trading account and the second chart is the Betapro (bear) ETF which I traded in my retirement account. Both charts are mirror images of each other. The inside bar is the trigger bar, but I use the outside bar as my stop. I tried to trade them in the same manner, but with a futures short on at the same time, it was hard to manage. I wanted to take a partial at the morning swing high/low because I was expecting a C&H pattern to develop. Instead prices ripped straight through and exited the balance at the 100% extension.

I did a fast calculation of AEM-TSX vs. the Beta proshares and there's only a 28% premium on the proshares for the same amount of capital risked over the same period of time (excluding a partial).

Inside Bars - Canadian Natural Resource Ltd (USA) (Public, NYSE:CNQ)

After two narrow range days, CNQ tested support in the OR and carved out 3 IBs on declining volume - contraction before expansion on the 15 min. Using multiple time frames to time the entry, I put in a trend line using the ray line tool in Esignal which extends forever. I don't want to stay in the trade if the trend line is breached on a closing basis - refer to 1 min. chart below.

The entry sets up at P so it looks almost perfect. Price consolidates at P with a series of higher lows within the initial trend line. After breaking out, price makes a vertical move higher on accelerating volume = expansion. At first I was thinking flag pole, but the tweezer top foreshadows a reversal, so I take a partial to lock in some profits. The trend line should hold as support, but I draw in my Fib. retacement lines just in case. The retracement takes place on declining volume and stops at the 50% retacement level.

Once price makes a higher high, I start tightening the stop. Eventually I have to draw in an accelerated trend line because price moves too far, too fast. Once the accelerated trend line is breached, you can exit the second half. I missed it and ended up staying in the trade until the original trend line was breached after one final test of resistance at $78.50


Once LEH broke its early trend line and closed below S2, it was safe to short. LEH is now a $14.00 stock so half $ levels are important in addition to whole $ levels so if price stalls at these levels, book some profits.

Gapper Dummy Trade - ArthroCare Corporation (Public, NASDAQ:ARTC)

ARTC was a pre-market gapper with momentum after announcing they were restating financial statements. This kind of news is deadly, so you want to get in as soon as reasonably possible. Markets don't like the unknown and restatements inevitably lead to write-offs or write-downs. A great example is NT which restated at least ten times over the past seven years. Still not sure these guys ever got it right.

My second attempt to get in was not in the cards as the stock became unavailable for shorting. No surprise there.


As I mentioned in pre-market, I was expecting some backing and filling after last week's big thrust. LEH played into that scenario perfectly. After taking out resistance in early trade, it couldn't sustain the higher prices. It carved out an IB at support which closed on its lows, setting up an easy short back to the next level of support.

Adjusting the Expectation in Choppy Markets

I missed the open and a good part of the morning. The markets were bottoming by the time I got to my desk, but it was difficult to assess how much we might retrace. No point looking for shorts after the sell-off, so I concentrated on B&B longs.

JRCC set up a dummy long B&B off of an IB. After the initial thrust out of the base, it printed an ominous looking red stick with long upper shadow, so I decided to take half off in case of a failure. The initial stop held and JRCC eventually rallied up to the 50% Fib extension of the ORL to the base. I exited on the first sign of weakness.

Strength in steel led me to SCHN and X. After gapping up, SCHN carved out a 3 pivot point base and a low risk entry. Again, I don't want to stay in these positions too long and give it all back, so I'm adjusting my expectations in the weaker market environment and the OPEX chop.

X set up an entry at the blue line which I had drawn in a few days back. After retesting the entry point, it moved with vertical speed, all the way back up to yesterday's high.

Dummy Pre-FED Trades - Short All Round

RSTI showed up on the TI pre-market scan - very active just ahead of the open on this wide gap. I almost gave up on this one after the wide 5th bar, but then I noticed 2 NRIBs and a nice NR setup taking shape on the 5 minute time frame below.

If it wasn't for the FED, I could have stayed in this one all the way back down to the ORL, but my rules don't permit any open trades when the statement is issued.

FWLT, from the WL - continued weakness from yesterday. 3 IBs below yesterday's lower range sets up the entry.

SOHU, from the WL gapped down and set up 2 IBs just below yesterday's trading range. My sell stop didn't trigger and I forgot about it until I heard the beep as the trade executed much later. By the time I got to it, it was well in the money.

5 Minute Inside Bar - QUALCOMM, Inc. (Public, NASDAQ:QCOM)

I'm replacing SIGM with QCOM in the WL. 5 minute IB (I like it when it's inside the shadow of the previous bar). Long break of outside bar resulted in a vertical move up to daily resistance at $44.00.

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

AMZN, from the WL got a nice boost from GOOG earnings. The lengthy base that formed at $79.00 acted as support during the afternoon retracement and offered a low risk, tweezer bottom reversal for a late day pop.

ALTR, a gapper I traded on Thursday, gapped up and retraced back to Thurs. afternoon resistance (former resistance acts as support) which held as support for a second trade.

GRMN, from my focus list gapped up, retraced to Thursday afternoon resistance, which now acted as support. A perfect IB hammer set up a long entry. I got stopped out prematurely as this one was a short covering rally.


ESRX, from the focus list also found support near previous day high, and set up a low risk entry at my number $68.00. Was hoping it would set up a C&H later in the session, but R2 held as resistance,

High Chart Patterns Picks - CONSOL Energy Inc. (Public, NYSE:CNX)

Hats off to the team at High Chart Patterns for some great picks. HCPG's nightly newsletter includes a chart and a target entry price (blue line on my charts) for each pick. Both CNX and SID were on today's trading list along with some other winners that I didn't get to (FTEK, CSX).

The CNX number was $82, but I saw an opportunity just above $81. Exit as price approaches R2. The SID number was $42 and set up very early. Nice IB on 5 min. Once price closes above a whole $ amount, I don't like to give it back.

HANS is one of my usual suspects. The number was yesterday's low. After taking a partial I was stopped out. But if you stuck with it, you could have made much more money.

BG is a HCPG usual suspect. The third test of $116 finally succeeded. I had to leave for a dentist appointment so I missed most of the move.

It's so much easier to work with a short focus list. If the intraday chart is orderly going into the trade, it's more likely to result in an orderly trade. A choppy setup is riskier than an orderly setup, everything else being equal.

Consolidation Day - Apple Inc. (Public NASDAQ: AAPL)

RIMM was the first trade of the day. I saw an IB on declining volume with no overlapping bodies in close proximity to the rising 5 period ema. The only caveat was R2 and the round number $120.00 just overhead. The real reason this trade failed was Fed speak - Bernanke telling congress that the U.S. would fall into recession later in the year. I had contemplated not trading during the congress economic session. Should listen to my inner voice next time.

HANS - An obvious setup - morning star reversal pattern at the base of the early swing low and yesterday's ORH.

The first AAPL chart is the 5 minute timeframe. There was early strength followed by an inverse C&H. The handle was choppy and I was still stinging from the RIMM loss, so I decided to pass on the setup. Too Bad.

About two hours later, I got a second chance in the form of a bear flag. Price quickly fell back to support at $146.00. Price has a memory and so do I, $146.00 is where I went long yesterday. I covered and went long. At first price started going against me ( oh, where's my stop? - decided to give it 30 cents), but quickly snapped back (whew). Took a partial after a 1 pt. gain.

The 15 min. chart shows a wider view of the base at $146.00.

AH both RIMM and AAPL are trading up on RIMM's earnings beat and guidance.