Technical Picture - Modest Gains on Higher Volume to End the Month

Markets opened somewhat mixed, with the DOW outperforming on the strength of solid earnings from CAT and MRK, whereas the NASDAQ lagged following disappointing reports from RIMM and MSFT. Still, we managed to close positive across the board on higher volume. Leaders included solars, semis, coal, GLD, MOO, airlines and energy. Biotechs saw profit taking after an extended run.

Some of the companies reporting earnings the week of May 2nd-6th: Monday: ACV, AB, CPO, DISH, SATS, JKS, APC, DVA, DNDN, FMC, FST, HOLX, and NETL Tuesday: ANR, ADM, AVP, BZH, BYD, BPI, CLX, CTSH, INCY, LM, MA, PCS, MYL, OSG, CBS, CEPH, CRL, CMCSA, DENN, GNW, KNXA, MAKO, OPEN, VCLK, WWWW, and AUY. Wednesday: ASCA, AOL, CLH, GRMN, HNT, K, GAS, NUS, OIIM, PCG, SLGN, BEBE, CMO, CECO, CLWR, ERTS, GG, GDP, IPI, LEAP, PRU, SMSI, TSLA, and WFMI. Thursday: CVC, CBOE, DTV, RAIL, GM, MINI, MNTA, OWW, PXP, RDN, SHOO, TBL, THS, VNDA, VC, WNR, JOBS, NILE, CQB, DEPO, FLR, HANS, KOG, JCOM, KFT, LLNW, PWER, PCLN, RNWK, V, WBMD, and WMGI. Friday: CAS, DSX, ZEUS, PNM, UPL, WTW, and WCG.

The $USD is in a free fall versus GLD and SLV which are parabolic. We should get a technical oversold bounce in the $USD any day now. This is not likely a bottom because there's no positive divergence to indicate an imminent reversal.


By the same token, GLD is due for an overbought technical correction, similar to what we saw in SLV early last week.


Last week's correction in SLV provides us a preliminary support level.

Coal is breaking out of a tight congestion area.

Day Trades

OXY - HCPG pick - favorable earnings was the catalyst for this high volume extension. I waited for a NRB before jumping in.

DRIV - A narrow range coil triggers the short entry. Came within 5 cents of a stop out, but by EOD, my target was reached.


RIMM was a gap down on earnings warning. After the opening range, price couldn't move beyond the 50% Fib. retracement level and eventually broke the trendline for a low risk short.

I covered half when I saw some real size on the bid side at the $48.50 level.


AMRN printed NR7 on Friday. Watch for price expansion.

Overbought Profit Taking

The advance stalled when the S&P tested it's June peak. The combination of extended technicals and disappointing outlook from CAT's conference call, and the Fed Chair's outlook for a slow recovery, led to a steady but only modest slide into early afternoon trade. However, no follow through developed with the S&P stabilizing near congestion and bouncing into the close allowing the markets to extend their winning streaks (Nasdaq up 10 in a row) and all majors setting new multi-month closing highs). But the SPY carved out a red hanging man and the S&P a green one. Haning man has to be confirmed.

AAPL and SBUX rally on earnings after hours.

The H&S top in POT which I described last night was broken on the open when price gapped and tested Friday's highs. However, sellers fought back. A bull/bear battle ensued. The initial price action was like a yoyo with wide spikes up and down, but the bears had the advantage as measured by lower highs. Eventually, we reached price/volume contraction and a bearish rounded pattern took shape, leading to expansion on the down side.

MOS forming H&S top intraday at $48.00


CNQ was a NRB at base of support.

Technical Picture - Bears Step Up

Last weekend I wrote in the chart notes of the weekly chart, that I wasn't optimistic that we could hold the January highs and declare a new bull market. Since then we've pulled back, and judging from today's action, the bears are finally stepping up their game.

So, just to be clear, the rally off of the March lows was a bear market rally. The criteria for a new bull market was to clear the January reaction highs. That was tested and failed. Now, assuming the lows have been made, we now need to clear the June highs. The June highs mark the beginning of the RS, if in fact that pattern proves itself. For the time being we'll assume it will and target a retracement back to the ambush zone - 50-62% Fibonacci retracement of the March-June rally.

What's the point of all this? The key is not to get of ahead of ourselves. In order to have a new new bull market, we have to form a proper base and break out. That has not happened., which leaves the door open for a retest of the March lows. For the time being, I'm still betting on an inverse H&S bottom until the price action confirms, or proves otherwise.

FOMC on Wednesday afternoon will be interesting.

On the daily chart I'm drawing in a new down sloping trendline, and now we look to short rallies. Today's aggressive selling and late day slide keep the door open to additional short term downticks with next support at 890/888 followed by the May trading range floor at 880/878.

The NAZ looks to be forming a H&S top which will take weeks to confirm. We closed below the neckline and should see a further decline to the shoulder line soon, before the RS begins. Typically, we should see light volume on the RS to confirm the pattern.

Short-term we are approaching oversold.

Today's trades - short SPY and CME. The entries are key because we don't want to get in too soon. The SPY couldn't catch a bid at support and CME filled a bullish gap and consolidated in the low end of the range with NRBs. Both trades were executed on the 5 minute timeframe.

Need some help with short selling? Try this post by John Lee - a good primer on bearish patterns.

Inter-Market Relationships - Barrick Gold Corporation (USA) (Public, NYSE:ABX)

A strong dollar means weak gold. Take advantage of inter-market relationships to find trading opportunities. ABX from the WL set up a low risk short today. Friday I shorted GOLD from the pre-market gapper list.

Anarco had a great day today. Check out his trades here.

Base & Break - Reasearch In Motion Ltd. (USA) (Public NASDAQ: RIMM)

Today my trading strategy was to look for solid base and break setups based on a relief rally following last weeks' sell-off. As noted in my NASDAQ post, I'm looking at a possible right shoulder as part of a mini H&S top formation. The right shoulder generally has much less volume and can be quite choppy, so the need for solid setups is a must.

I stuck to my usual suspects list. Most trades didn't reach the full extension, but there were no losses.


The best trade was RIMM off of a near perfect three pivot base. I took a partial at the 100% Fib. extension of the reaction swing low to the base. This also matched up with 3 consecutive WRBs 15 min.

The second half extended to 1.62%. Sweet!

ESRX was a base within a base. The trade was very slow and didn't reach the full extension.

GRMN was a low risk setup at the same level as Friday's base, but it didn't do much until the last minutes of the session, but I had previously exited the trade.

FWLT was a NR base in line with Friday's C&H base. I was looking for a gap fill but time ran out.

Dummy Trade of the Day - TBS International Limited (Public, NASDAQ:TBSI)

TBSI set up a NRIB (NR7) at the base of the ORH in close proximity to the rising 5 period ema. I took a partial at R1 and exited the balance as price approached the whole $ number $36.00.

NVDA carved out 2 inside bars on declining volume at the base of yesterday's pivot high. Long on a break of the second bar high. Sometimes when I trade lower dollar value stocks I lose perspective with respect to candlestick range. The second inside bar has a range of 20 cents and I'm thinking NRIB, but it's not. The point is a NRIB is much more powerful than a regular inside bar, everything else being equal.

Eventually NVDA carved out a C&H pattern and I used the Fib extension of the ORL to the base of the handle to gauge my target. Again, after the C&H BO, it prints 3 NRBs as the 5 ema catches up to price and that seems to provide the coiled spring effect to boost this thing into price expansion. I took a partial as price approached R2 and exited the balance near the 100% Fib. extension.

Trade of the Day - LKQ Corporation (NASDAQ: LKQX)

The pre-market mood was deceptive given the bullish tech M&A (MSFT/YHOO) story versus the disappointing jobs data. I didn't want to chase stocks that already had been in bounce mode prior to this morning à la CROX and CELG, both of which gapped and produced wide, green OR bars on the 15 minute time frame. The usual suspects and last year's big tech leaders were weak again off the open (AAPL, AMZN, RIMM, BIDU, GRMN).

So I decided to take my time and look at all the WL stocks. The setup taking shape on the LKQX 15 min. chart reminded of something I read yesterday on Tom C's blog. A long upper shadow can be bullish if it is followed by a bullish inside bar.

Basically, LKQX opened strong, tested gap resistance from Wednesday, and retraced, resulting in a long upper shadow. The next bar moves towards R1 and, as we can see on the 5 min. time frame below, carves out 2 NRBs, so I decide to go long. Price easily breaks through gap resistance and R2 on 3/15.

A quick look at the daily time frame and I map out my daily spots, the first of which is $19.00, a strong former support area, and now, a likely resistance area. As price approaches that level, I lock in some profit. There's not much else to say except, following a tight midday consolidation, it just continued up, closing just above the 50 DMA, halfway up to the next daily PP. Sweet!

My next trade was a low risk, B&B off of a NRIB in NVDA. The SOX was in the midst of a momo bottom reversal and this is my favorite semi stock.

Watch List Trade of the Day - ArthroCare Corporation (Public, NASDAQ:ARTC)

ARTC was setting up as a short on the daily timeframe above. We had two NRBs under the 5/20 MAs and a crossover was imminent. Price tried to rally on the open but failed and quickly fell below the MAs on the 15 min. timeframe. After that it was just a matter of waiting for a dummy entry. Around midday, ARTC carved out a NR inside bar - NR7 at the base of S1. My target was the daily pivot (green line). The BO bar had high volume and closed near its lows, so no need to partial out at R2. The target was reached by early afternoon and closed on big volume which usually foreshadows the end of the move is near.

I ran a daily scan last night for 2 inside bars on declining volume and found two charts - CREE, and MCD. CREE is always interesting because it has such a high short float. Every time it takes out resistance the short squeeze comes into play. I messed up my alert and missed the early move, but I was able to jump in after an orderly 50% retracement.

I ran the scan again tonight but didn't get any interesting hits.

SGR and JOYG were failures. Similar setups off of NRBs near R2 base. SGR still looks good on the daily, so we'll see what tomorrow brings.

Updating the watch list - removing AFFX, FTEK, NTRI, EMC, TECD., and adding SPWR, QCOM, UAUA, and CREE.

NASDAQ Technical Picture - Low Volume, Narrow Range Day

A clear loss of momentum as most major tech sectors ended the session in the red. Hardware was strong and finally broke out of an ascending base on the strength of AAPL. Expect more of the same as there is little in the way of economic data until the FOMC policy statement on Wednesday. CSCO reports tomorrow AH.

Companies moving in after hours trading in reaction to earnings: Trading Up: ADAM +11.2%; MDR +9.3%; HAYN +9.1%; WCG +8.1%; GTRC +8.0%; SONS +3.8%; BITS +3.3%; CENT +3.3%; VOLC +3.2%; WYNN +2.9%; MIVA +2.7%; TLEO +2.6%; STLW +2.5%; DGIT +2.3%; MCK +2.1%; ACMR +2.0%; DCEL +1.7%; TIE +1.4%; AMIE +1.3%; ECLG +1.1%; SQNM +1.1%; PKY +1.0%... Trading Down: CUTR -23.8%; ANSW -22.2%; HLYS -13.6%; PWAV -8.5%; EGLE -7.2%; PHTN -6.7%; FLR -3.9%; DOC -2.6%; SYKE -2.3%; MXWL -2.2%; JCOM -2.0%; WEL -1.9%; SBAC -1.6%; HGR -1.5%; QGEN -1.2%...

Companies moving in reaction to news: Trading Up: TRIS +18.8% (awarded $30.0 mln contract to provide security services for federal facilities in Washington state); ASTM +12.5% (announces FDA approves Aastrom Phase III IND for treatment of osteonecrosis of the femoral head); PDLI +2.1% (Cofounder announces support for refocusing of PDLI)... Trading Down: CYBX -14.2% (announces CMS decision for VNS therapy; CMS confirmed its preliminary determination not to provide national coverage for VNS); AW -3.5% (announces secondary offering of 32.8 mln shares; shares to come from Apollo Mgmt); TRXI -2.4% (acknowledgement regarding Nasdaq rule 4350(D)(2)); KTCC -1.4% (wins new business with Imation); LGCY -1.3% (acquire oil and natural gas producing properties for $12.9 mln).

Dummy Trade of the Day - Force Protection, Inc. (Public, NASDAQ:FRPT)

FRPT was a failed gapper dummy setup. FRPT gapped up and carved out a bullish WRB. The second bar was bearish but held $20.00 as support. The third bar was NR and printed a higher low ($20.01). I took a dummy long entry on a break of the third bar high with the rising 5 period EMA comfortably close as support. I anticipated that FRPT would setup a u-shaped base and breakout for a vertical momo move. It did breakout, but unfortunately the momo quickly dissipated and it started to come back in. I reacted immediately to the failure by moving up my stop to $20.50 and was taken out.

Why did it fail? I usually check the daily timeframe before taking a position, but today I was too busy and neglected to do so. After exiting the position, I pulled up the daily and noticed that there was a clear line of resistance at $20.80. Had I checked this before, I could have at least taken a partial as price approached resistance. Notice how price did take out resistance briefly in the afternoon but quickly reversed.

Some readers have expressed the view that they can learn from bad trades, so this post is for your learning pleasure. Your critiques are welcome.

Dummy Trade of the Day - Red Hat, Inc. (Public, NYSE:RHT)

My strategy today was focused on low risk because of the holiday reduced volume. RHT gapped up on earnings and volume was very bullish. Still the gap was so wide, I decided to wait for a consolidation before going long. Patience finally paid off around 1:30 EST when price met up with the rising 10 period MA. Shortly thereafter price broke the narrow channel on an uptick in volume.

NT was another very low risk entry I found in early afternoon. Nortel Networks (NYSE:NT) has had quite a run since its reverse stock split. It showed up on a gapper scan last week and at first I ignored it but I like the volume and I'm adding it to my list of momo stocks.

NASDAQ Technical Picture - Narrow Range Trading Ahead of the FED

A weak open was quickly reversed and followed by a sharp rally. Unfortunately, by 10:15 EST it was all over and the market settled into a NR snooze fest. Typical fare ahead of a FED policy statement. Tech sectors were mixed but very little was gained or lost. Tomorrow's economic data includes the Trade balance at 8:30 and the FOMC policy at 2:15.

Trade of the Day - Akamai Technologies Inc. NASDAQ (AKAM)

I took a low risk entry on AKAM after it successfully retested breakout support and I held on until the close. A successful retest of support is often an indication that the stock has digested the break and is ready to move higher.

I took a low risk, long entry on NVIDIA Corporation (NASDAQ: NVDA) and it moved against me shortly after I got in. I had set a strategic stop just pennies below the low of the sixth bar hammer. Luckily, I did not get stopped out because the stock reversed and rallied on high volume. My position was stopped out just above $32.60 for a $0.60 gain.