Technical Picture - Technical Correction of Overbought Market

The markets are technically overextended, so a minor bounce in the dollar and some weaker than expected data, gave rise to some profit taking. Most of the selling occurred in the first hour, after which, it was a slow drift sideways as OPEX came into play.

The trendline from the 2007 highs to the May 2008 retracment as depicted on the SPY chart below, is in play ie. providing resistance.

As noted above, stocks sold off sharply in the first hour, but sort of drifted sideways thereafter. Good low risk setups were hard to find, but I did spot a nice bear flag on GS and this bearish h pattern in ESRX.

Minor setup in RIMM - Ambush play - 62% retracement of the last leg up.

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.

Technical Picture - Bearish Candlesticks

Markets notched new intraday highs on strong economic data, but failed to hold. After failing to retest the early highs, prices retraced back to session lows. This leaves the S&P with two consecutive shooting stars and possibly a tweezer top reversal pattern.

Keep an eye on economic data tomorrow - durables in pre-market, followed by new home sales at 10:00 EST and crude inventories at 10:30.



If you have POT on your focus list, we lucked out again today with a bearish h pattern. Quite similar to Jim's CME bearish flag yesterday, except the consolidation has more of a curve. Price penetrated support from 3 PDLs (red line segments) and tried to save itself through a lengthy period of price/volume contraction. But the bears were victorious on the expansion. Once support gives way, all the preset stops trigger resulting in a fast move to the next support level.

Happy Canada Day

What does this post have to do with Canada Day? Nothing, but I just wanted wish our Canadian readers a happy July 1st. Cheers! Oh, and three of the four trades below are Canadian ADRs.

If oil breaks down, DUG will break the channel to the upside.

I've been watching and trading CNQ. Yesterday it broke it's short-term trendline. Today it gapped above it, but turned into a quick fade despite a weaker dollar. Inventory build means less demand, so oil is poised to correct.

On the DUG chart, the same trade would be the reversal at the lower channel line.

The 5 minute chart of CNQ shows how it set up a perfect ambush trade. A decisive move lower after failing to hold on the trendline, followed by a quick retracement. Within the R-zone, it forms a base at the 50% level, breaks higher and stalls at 62%.

POT is another Ambush example. I didn't trade the ambush, but rather the h pattern, which took a long time to get going, but eventually delivered.


RIMM - I'm calling this the Groundhog Day setup. If you've seen the movie, you will get it, but if you haven't, I'm taking the exact same trade as yesterday, at the same price. Worked like a charm today.
PFCB was a stock I found on the TI scanner. The scan is called Stocks with the MOST Upside Momentum. I've modified the scan to meet my particular needs. On a day like today I get a reasonable amount of hits and when I see something I like, I wait for a pullback and jump in.

The stock broke out of C&H pattern and came back to retest the base. This is a shallow retracement as opposed to an ambush, so I prefer to wait for base & break. I exit as price approaches the FE and whole $ level. PFCB carved out a bearish rounded top so I couldn't resist the shorting opp. That was the best part of the trade!

Technical Picture - Bears Own It

Another distribution day for the major markets which all sold off on accelerating volume. The NASDAQ held at gap support, but the rounded top foreshadows further downside to come. Gap closure, should provide short-term support on the NAZ. The S&P tried to bounce off of support but only managed a shallow intraday retracement before the bears took over the close.

I expect prices to find a short-term bottom tomorrow, after which we fall into the OPEX trade. So I will be looking at key support levels such as POT $105-106 for long entries in early trade tomorrow morning. If POT carves out a reversal stick in my spot, I then target 108-110 as a retracement trade. Don't force it, don't chase it, and don't try to catch a falling knife.




AMGN early strength on analyst upgrade with new target of $65. Also like the daily here as a defensive sector play on potential market weakness.


RIMM was a failed BO. I should have shorted the failure but I thought with earnings out tomorrow Thursday, it might just trade sideways.

CNQ gap turned into a fade - short the h pattern.

SOHU was a HCPG target trade.

$USD Bounces - Commodities Get Crushed

We've been monitoring the $USD's slide and said that it was coming into support. Today the USD gapped up on the open and rallied all day. So, the obvious play is to short commodities. I prefer the Canadian names because the $CAD is going to take a hit on a stronger USD as well, and that sounds like a double play. Not sure if that's real or bogus, but in my mind, it all makes sense.

The first chart is CNQ 15 min. the blue lines represent S/R. CNQ was basing along the middle trend channel line yesterday and gapped lower on the open. Ideally, you want to get in as close as possible to a blue line, and above the lower trend channel line.

The best way to get in is to move it to the lower timeframe. Using the 1 minute chart below, we see a tiny h pattern form at the base of the second blue line.


POT paused at support to consolidate the first leg down. It couldn't close above the downsloping 5 period EMA, so short as price crosses below the blue support line.

AGU formed a bear flag with lots of room to move to the next support level.

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Opening Range Breakout - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

First order of business today was to lock in my swing profit on ABX. Today's market sell-off spared no sectors, so pointless trying to pick a bottom until a clear reversal pattern develops.

POT/AGU carved out bearish h patterns.

STT from the Trade-Ideas pre-market gapper scan faked an upside move, but quickly failed, setting up a low risk short. Took a partial as price retraced to the ORL. Eventually, STT carved out an inverse C&H, but failed to extend much beyond 50% on the first swing lower.

Inverted h Pattern -Hansen Natural Corporation (Public, NASDAQ:HANS)

HANS was an earnings gap from the pre-market scanner. Price gapped slightly and made a fast move higher. Place fibs from the ORL to the early pivot high. Price found support in the R-zone and I entered long. Exit as price approaches whole $ level just below 100% fib. extension. Price doesn't always reach the full extension and it's better to exit into strength. This is an inverted h-pattern.

Biotech Blood Bath - Amgen, Inc. (Public, NASDAQ:AMGN)

I think the chart speaks for itself. Initially, I thought this was a bearish base with a perfect NRIB in the lower shadow of the outside bar (red on red). Obviously, it grew into much more than that. The h-pattern is awesome. I took a partial at $57.00 $55.00 - price stalls at whole $ number.

When I realized that the entire sector was in a race to the bottom, I ignored the fib. lines and waited for a bona fide reversal pattern. Price never closed above the downsloping 5 period EMA and never printed a red bar after consolidating $57.00 $55.00.

This was the best trade of the day, but I want to follow-up on ABX and FSLR if I have time later tonight.

Opening Range Breakout - Barrick Gold Corporation (USA) (Public, NYSE:ABX)

Both ABX and GG carved out the h short setup in the opening range. ABX filled the gap from last Thursday-Friday, but GG did not. We talked about ABX filling the gap a couple of days ago.

ABX set up a second entry - long out of an inverse H&S type pattern.

SNDK swing long as discussed over the weekend. Perfect inverse H&S on the 3 minute timeframe. I partialed ahead of the FED, swinging balance as per chart below.

It so much easier to find good setups when the markets BO. Easy setup on the Nasdaq futures.

Shorting the h

Shorting the h refers to a pattern which forms on the 1 minute chart after a weak open - usually 3 consecutive lower closes followed by a shallow retracement which has a rounded form. The pattern has a distinct h look to it. I first saw this pattern in action on Anarco's blog a few months ago. I read about it again just recently, but I can't remember where.

Today we had weak banking stocks due to some worries over BAC so I decided to have a look at GS as a sympathy play. Price quickly tested yesterday's lows so I plotted my fibs from the early pivot high (A) to the early pivot low (B). Price tried to retrace but couldn't break above the 38% level and slowly moved back to the pivot low forming an h pattern.

My primary target was $70.00 from the 15 minute chart above, but I wanted to take some off if price stalled. For a while I thought it was going straight down but after the first big volume spike I was on notice that it would soon capitulate. Took a partial 150% at exit balance at the $70.00 round number.


Susan asks in reference to yesterday's NQ futures trade:

In the Nasdaq future example of Jan. 14, it opened near the PDL and then moved downward. The fib. lines are drawn from PDH-PDL. How to draw fib. lines when price opens inside the previous day range, away from PDL and then breaks the PDL and closes weak - example: V, BUCY from Jan. 15 trade.

From the 15 minute chart below we see that the 15 minute OR opens within the previous day's trading range, but closes below it. We still plot fibs. from PDH to PDL because it's the opening tick that determines fib. placement Trader-X guidelines

The first bar is really weak and almost tags the 50% fib. level. The next bar is narrow and barely retraces the OR real body. This is very bearish.

On the 1 minute chart we also see a smaller h formation.

Volatility is much lower now than we were used to in Q4 2008. So when the S&P tested the December lows, it set off a technical bounce, but I wasn't really feeling it. Volume was lame and it took me a while to react. Anyway, I decided to take a position in the NASDAQ futures when they retested the PDL.

On a technical bounce I prefer to use intraday pivots as opposed to Fibs. The pivots are wider and I'm less likely to partial out too soon. After the partial at P, I expected price to consolidate sideways until it came back to the trendline, but it just kept chopping higher.