Day Trades - TCK, CLF, TBL

Bear flags have been hit and miss in this market. Mostly they've been fake outs. So why was TCK a good short? From the daily chart above, we noted a huge volume spike on the Feb. 9th drubbing. So we see a huge red stick with volume, plus bear flag with NRIB observing the downsloping 5 ema as resistance closing at the base of support. This bear flag felt like it could work.

Small size on break of $58.00 and added at the first consolidation BO. Took a partial after 3 consecutive WRBs on 15 min. timeframe (not depicted). Got stopped on balance as price capitulated into $56.00 and bounced.

CLF gapped up on earnings. Price chopped around in the first hour and then started basing in an increasingly narrow range, forming a flat base at $99.50, and setting up a gap fade.

Price breaks down, retests the base and runs lower for 3 consecutive 15 minute bars. Take a partial as price approaches $98.00. CLF snapped back sharply. I thought the second half was going to get stopped out at BE, but, it came back down and I was able to salvage a decent profit on the second half.

Looking back at the 15 minute chart, there just wasn't enough volume expansion on the initial leg lower to expect continuation.

TBL was another earnings gap from the Trade-Ideas scanner - gap up min. $1.00, RSI on 15 minute timeframe minimum 60.

TBL gapped and ripped then spent most of the rest of the session in a tight narrow range. Normally, I like to buy the BO of the upper range, but time was of the essence, so I decided to buy the bounce off of the bottom of the range, then if the BO failed, I would have some profit from the trade. Turned out to be a good strategy as price/volume expanded into the close. The base BO also set up perfectly with a low risk NRB on the 15 min. timeframe.

Entry and exits depicted on 1 minute chart below.

Inverse Cup & Handle - Agnico-Eagle Mines Limited (USA) (Public, NYSE:AEM)

In early trade, AEM and ABX, my two gold watch list stocks rose to the top of the % gainers list on a weaker dollar. I was waiting for AEM to retrace or form some NRIBs at the base of resistance (blue line). The dollar ended up being a fade and gold pulled back in. However, I noticed that AEM was halted pending news. Briefing.com reported that AEM announced a $252 mln private placement; or 8 mln stock dilution.

I tried to short when it resumed trading at noon but price went right through my limit price. So I waited and eventually it carved out a handle at the base of the round $ number. Notice how it never took out the previous bar high all the way down. I exited after a 3 pt. gain, but you could stayed in the trade textbook style till EOD.

In general the measured move of a C&H pattern is 100% from the low/high of the cup to the base of the handle, but AEM's cup was unusually deep, so the target wasn't achieved. Still a sweet trade at 62%.

I added the 5 day SMA (orange line) to my charts as per Brian Shannon at Alpha Trends. I'm only adding it my 15 minute timeframe because it's a static number. For 15 min. it works out to 130 periods over a 5 day trading week or 32.5 trading hours. On the 5 min. use 390 and 1 min. 1950.

RIMM is the only WL stock trading above the 5 day SMA.

As you can see from the Nasdaq E-mini futures chart below, price rose towards the 5 day SMA on early strength and fell back down. A good indicator to help monitor the strength of the markets as well as focus list stocks. I shorted the NQ for part of that morning swoon, but exited long before the afternoon chop and didn't bother with the close.

OPEX - options expiration is the third Friday of every month, but usually around midday on the preceding Wednesday, things start to get messy. Best to stick with story stocks when this phenomenon takes over.

Watch List - April 2008

My Watch List of Usual Suspects:

AAPL, ABX, ACI, AKAM, ALXN, AMZN, ANR
BIDU,
CAL, CELG, CEPH, CF, CNQ, COG, CREE, CROX, CY
DRYS
ESRX
FAST, FLS, FSLR, FWLT
GRMN
HANS
JASO, JOYG
LEH, LRCX
MANT
NIKE, NVDA
PCLN, POT, PRGO
RIMM,
SIGM, SNDK, SOHU
TBSI
V
X

Charts of Interest for Friday - ESRX, FAST, and GRMN. Click on the charts to enlarge. BO price is on the blue base. ESRX and GRMN look the best. FAST is quite extended, but if it sets up a low risk entry at the base, I'll take it.



LEH is an example from today. We had a shallow rounded base at the cusp of the three month trend line. I was looking for a setup at $42.00.

Placed an alert on the inside of both of the blue lines.

I didn't like the initial break because the bars were too wide and there was no real setup, so I passed. Eventually, LEH carved out a bullish pennant and I took it long. It was a bit choppy so I didn't go overboard on risk and size. It worked well and I even added more as it paused to consolidate.


These are base & break setups. High Chart Patterns are the experts in B&B. Their service is very affordable and I highly recommend it.

Chart Watch - CELG, HANS

A full extension on the CELG C&H pattern would take out all time highs.

HANS was 2nd last on the NASDAQ 100 today. Feels like the next test of support will fail.

Cup & Handle - Express Scripts, Inc. (Public, NASDAQ:ESRX)

ESRX from the WL is good for C&H patterns lately. This is not a perfect C&H because the handle forms above the base of the rim and the volume pattern is not great, but the IB followed by the NRB was too good to pass up.

I took a partial when the third BO bar closed just under the 100% Fib extension from the low of the cup to the base of the handle. I closed the balance as price tagged the blue resistance line.


ESRX did not lose its composure after the Fed rate cut. It was orderly and seemed to be setting up for another move so I stuck with it.

Dummy Trade of the Day - Hansen Natural Corporation (Public, NASDAQ:HANS)

HANS from the WL, gapped up and carved out a mini C&H pattern on the 5 min. timeframe. An uptick in volume as price broke out soon waned and gave way to higher volume on red bars. I had a feeling that it would fail due to lack of follow-thru and tightened the stop to avoid a bigger loss.

From failures come fast moves in the opposite direction, or so they say. This failure resulted in a slow move, which eventually set up a B&B short below the blue line and under all three MAs. If you missed that move, you could have easily entered on the bear flag pattern which formed near the ORL. The red line segments are how I trailed my stop. I exited the trade as price approached $41.00 on a surge in volume which foreshadowed the end of the move. I also took a long entry near the end of the session.

Dummy Gapper Trade of the Day - Canadian Solar Inc. (NASDAQ:CSIQ)

CSIQ, from the watch list, gapped up on higher oil. On the 15 min. time frame we see that 2/15 carved out a bullish hammer at the base of the ORH. It's not a wide gap so the the rising 5 period ema is in close proximity. When price takes out a green hammer at the base of the ORH, it usually means instant gratification.



And why not, look at the beautiful base on the lower time frame below. Notice how price retests the pp (second blue line) after taking it out. A successful retest is a sign of strength and adds to confidence in the trading plan.

The next chart is a wide view of the 30 minute chart to show how I determine the pivot points (blue lines).
Going back to the 15 minute chart, my exit strategy is a partial after three WRBs or the upper pivot point, which ever comes first. The thinking behind 3 WRBs is that it is unlikely that price can maintain a vertical move beyond 3 WRBs without pausing for a period of consolidation or retracement. If the PP is near a whole dollar figure, I usually exit as price approaches the whole number as I did here.

After taking a partial I waited and tightened my stop just below the next consolidation, inside bar. It held for a long time.

Other non-gap trades:

RMBS - 2 NRIBs on daily - failed ahead of earnings.

VMW - rallied up to gap resistance, attempted to start a gap fill but failed. I was hoping for a short squeeze on a partial gap fill.

HANS - misguided attempt at bottom fishing on the daily time frame.

Watch List January 20, 2008

The usual suspects of tired leaders - solar, shipping, and to a lessor degree agri/fertilizer needs to be refreshed. So far this year the only sector I really like as a potential new leader is medical supplies $DJUSMS. My short list of medical supplies stocks are BAX, BCR, and BDX. Other names in the sector include OMI, IDXX, PSSI, XRAY PDCO ACL and IMA.



Here's my new watch list for the next few weeks. Earnings season is a good time to find new leaders and losers so I'm sure we'll have fresh names very soon.

AAPL, ABX, ADSK, AKAM, ALXN, AMZN, ARTC, BAX, BCR, BDX, BIDU, BMRN, CAL, CELG, CNQ, CPHD, CREE, CROX, CSIQ, DO, DRYS, ESRX, FFIV, FSLR, FWLT, GRMN, HANS, HUM, ILMN, IMCL, INTC, JASO, JOYG, LKQX, LRCX, MDR, N, NVDA, OTEX, POT, PPDI, RIMM, SIGM, TNH, VMW

Reader Picks: TEVA

Dummy Gapper Trade of the Day - Continental Airlines, Inc. (Public, NYSE:CAL)

CAL, a watch list stock gapped up on a combination of factors including lower oil, and an extremely oversold sector, and possibly the UAUA upgrade. The second bar was inside and the third almost inside in the upper portion of the OR at the base of R2. I entered long on a break of the third bar high. This was followed by tight NR trade until resistance (blue line was taken out and retested). The final thrust was vertical, extending up 100% from the previous day low to the ORH.

Pre-Market - ATHN

I mentioned that I was adding ATHN to my watch list on November 2nd. It had a flat base BO EOD yesterday and looks poised to BO of this triangle pattern on the daily.

Dummy Gapper Trade of the Day - Countrywide Financial Corporation (Public, NYSE:CFC)

CFC was a Briefing.com gapper. After initial weakness, it started consolidating sideways, eventually carving out a flat, narrow base. I entered long after price closed above the base. I placed the Fib extension from the previous day low to the base. As expected price consolidated as it tested the ORH. The consolidation was orderly and price moved higher. I took a partial at the 50% extension and closed the balance when price stalled at the 62% level.

RIO, a gapper from the WL, carved out an orderly base with NR7 trigger bar. I took a partial at the 38% Fib extension of the previous day low to the base as price was close to daily pivot. The next bar was a star so I tightened the stop.

Core Watch List Revised - October 2007

AAPL, ABX, ADSK, AKAM, AKS, ALXN, AMGN, AMZN, BCSI, BIDU, BIIB, BSC, CAL, CELG, CMI, CNQ, CROX, CSCO, DISH, DRYS, ESRX, FMCN, FRPT, FSLR, FWLT, GILD, GRMN, HANS, IBM, JASO, JOYG, KLAC, LRCX, MA, MDR, MNST, NIHD, NVDA, ORCL, OVTI, POT, QLGC, RIMM, RIO, SIGM, TNH, VMW, WFMI

My watch list was getting too long and unmanageable so I've cut back a bit. This is how I'm starting the month but I'm sure there will be changes as earnings come into play. RIMM is reporting on Thursday.

Mailbag

A reader asks the best way to trade SSTR.

SSTR was a flat base breakout gapper on the daily chart. The first bar is bullish on very high volume. Price then consolidates the wide gap open. An early attempt to break the ORH fails and price eases back into the rising 5 period ema on declining volume. The fifth bar is a bullish green hammer reversal bar (NR7) in close proximity to 5 ema. This is the trigger bar for price expansion. There are several ways to enter: 1. break of hammer high; 2. Break of round $ number; or 3. Break of ORH. If you wait for the break of the ORH, you have to give price room to retest the base of the ORH.

A reader asks what went wrong with this JRJC trade using the 5 min. timeframe.

Click on the chart to read my notes. Here again I would emphasize the need to allow for a retest of the base set by the ORH immediately following the breakout.

A reader asks if ANW meets the criteria for a 38% retracement.

Due to lack of specifics, I'm assuming the reader wants to know if this qualifies after the first swing high. I normally use the 38% retracement after a stock has rallied out of a base. In this case ANW rallies off of the OR and swings back down. Volume is choppy, however after retracing 50%, it slowly moves above the 38% retracement level and carves out two NR7 bars which could be used as a low risk entry point.

He also mentions JSDA. All I can say about JDSA is that it gapped after two previous MOMO days, and the third day usually loses momentum, so I don't recommend trading a stock that gaps after such big gains. I know that the Chinese plays are defying gravity at the moment but trading rules are not based on exceptions, they are based on everyday trading reality. So in this case, I would pass as per my trading rules.

How do I develop my watch list?

I did a post on that which you can find in the Intro to WSW Blog. I've also recently started scanning for inside bars on declining volume on the daily charts. I'm looking for inside bars on an established trend which implies a pause before the next leg or wave.

Reader participation - Check the comments section of the Focus and Watch List posts as many readers contribute some awesome setups.

If you are a new trader and you need a watch list, you can use the Focus Lists on this blog. However, I don't update every night due to blogging time constraints. A fresh nightly watch list is available at highchartpatterns.com. I've used the service and highly recommend it for B&B.

Keying Off of Daily Charts - Autodesk, Inc. (Public, NASDAQ:ADSK) & ArthroCare Corporation (Public, NASDAQ:ARTC)

Both of these setups are from the watch list. ADSK - Break of ORH which was above yesterday's hammer high.

ARTC - Break of yesterday's high. Stop set just below my entry bar.

Focus List for Thursday Sept. 20th

Testing PP - BIIB, QCOM, SGR, UAUA

NRB inside on lower volume - AMZN, ALXN

Bearish engulfing - CROX, BCSI, FFIV (another offset), and MRVL

Gravestone Doji or variation thereof - JOYG, VSEA, FMCN, DLTR, and AKS

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.

Watch List Trade of the Day - Cummins Inc. (Public, NYSE:CMI)

CMI, from last night's focus list, opened strong so I looked at the lower timeframes to plan an entry. The second 5 min. bar was inside at the base of the daily pivot and R1, so I took a dummy long. Did not re-enter after the FED because it popped up over 2 pts. immediately at 2:15. What a move!

Watch List Trade of the Day - Focus Media Holding Limited (ADR) (Public, NASDAQ:FMCN)

FMCN broke out again on the open with a WRB. Initially, it looked like it might carve out two inside bars but instead we got a bearish tweezer top reversal (two consecutive candles with the same highs, the second of which is bearish - this is a minor candlestick pattern which requires confirmation) on bars 3 and 4 and price retraced in an orderly fashion back to the 38% Fib retracement of Friday's ORL to today's morning swing high.

The difference between a retracement and a reversal is volume. This retracement took place on fairly light volume so I kept coming back to it to see if it would set up another long entry. After pausing at the 38% level, it carved out a series of lower highs and I waited for price to consolidate that initial bounce before going long. As usual I took a partial when price approached the morning swing high. EOD it almost tagged R2.

RVBD carved out 2 inside bars (4&5) at the base of R2 but did not meet the declining volume criteria on the second inside bar so I passed. Eventually, it printed NR7 at a B&B level so I took the dummy long. It was very choppy and I took a partial out of fear of losing it all on lack of momentum.

Dummy 2 Inside Bars - Focus Media Holding Limited (ADR) (Public, NASDAQ:FMCN)

I was interested to see if we would get some follow through on the FMCN PP break from the previous day. From the daily chart above, we see that the PP break stalled at resistance marked by the red line.

FMCN tested the rising 50 period SMA on the open and bounced from there. After taking out the previous day highs, it consolidated, carving out two inside bars on declining volume. The only caveat was the long upper shadows on bars 3 and 4. However, bar 5 (2nd inside bar) closed strong, just edging above R1 (pale blue line). I took a dummy long on break of second inside bar. My target was R2 and it was met on the second bar. Since this is the second day of the move and the markets were down, I determined that R2 was probably the maximum attainable target under the circumstances, so I closed the entire position as price approached that level.

Two inside bars on declining volume works well on the 5 minute timeframe as well. A good example is CROX late in yesterday's session.

I ran a scan to find similar setups on the daily timeframe. The scan generated about 20 names. The best ones are ARBA, COG, FMD, NDAQ - long, and DSX short. I'll be adding these to my WL for the beginning of next week to see if anything pans out.

Related Posts: Dummy Trading Tip - Two Inside Bars