Rebounding

The market rebounded from the oversold condition. The SP500 bounced back up to test the 200 SMA near the 1100 level. In the short term, the SP500 most likely will attempt to reclaim the 200 SMA. However, there could be another test down in the 1065 range before the SP500 can decisively reclaim the 200 SMA and start its move back toward the 1175 level.

Tomorrow is the Friday of a Monday holiday (Memorial Day), and trading traditionally is light on a Friday before a long weekend. Therefore, depending on the market’s activity level for tomorrow, I will not read too much into it. Next week, I will be watching closely on how the SP500 reclaim the 200 SMA and how it holds up to the 1065 level if it drops down to test it. The reaction from the SP500 at these levels will give me a good picture on where is the market heading next. Until then, the current market condition still favors the short term trading strategies.

Holding On

Today the SP500 and the DJIA dropped below their February 2010 low and bounced back above it. The market rallied during the last two hours of trading and the SP500 regained all its losses and closed with a small gain while the DJIA reduced its losses from nearly 300 points to less than 23 points.

As I have mentioned previously, the February 2010 low is a key support level the market must hold to avoid forming a new down trend. So far, the market is holding on to the February low. If this level is to be a support, then I will not be surprised to see a strong rally from this level before the market pulls back to retest it. The near term resistance for the SP500 will likely be the 200 SMA near the 1100.

Sign Of Support?

After more than a week of high volatility, some signs of possible support started to appear. Scanning through my list of stocks, I am beginning to see a lot of them are near or at key technical level that could provide some supports. Last Friday’s opening dip and bounce back indicates a degree of capitulation. Of course, this one day bounce doesn’t mean the market is ready to head back up. There were certainly some bargain hunters came into the market to push the market up on Friday, and I believe there will be another shake down to get rid of the last holdout of the weak hands.

In the SP500 weekly chart I put up, one can see the level near 1000 is a key technical level. If it breaks below 1000, things can get ugly. In the coming week, we need to see some consolidation from the market and the SP500 needs to be able to hold above the Feb. 2010 low. If it breaks below the Feb. 2010 low, then a lower low will be made by the SP500 on the next bounce and this could be the beginning of the lower-low/lower-high formation for starting a new down trend.



Unless I am day trading, I will remain on the sideline and wait for this market to show its hand on which direction it is going to take (retrace to Mar. 2009 low or move above the Apr. 2010 high.) Certainly I wouldn’t be surprised to see some big oversold rallies in the coming days, but I will wait for a pull back from these rallies before considering going long.

Have Your Setups & Triggers

The equities market continues to be volatile after last Thursday’s crash. As I have mentioned before the near 1000 points dip, a new closing high for the DJIA is yet to come. I might be sounding a bit crazy, but until the market has signaled otherwise, I will continue to trade with the expectation of a new closing high for the DJIA.

In the precious metals market, Gold broke above the $1200 an ounce recently and it looks like $1300 could be the next likely target. I wrote a post back in November, 2009 on gold moving to $1300 an ounce, and a follow up post a month later. The possible catalyst I thought that will cause the price of gold to move above $1200 at the time of those writings turned out not to be the case. Instead, the catalyst turns out to be the financial crisis with the PIIGS. One thing is clear, the chart provides you with clues on what possible price level to expect in the future, but it doesn’t tell you when that price level will be reached or what will trigger the price to move toward the target level. That is why it is important to have trade setups and triggers.

Until the market has settled down, I will focus on trading cautiously with my high percentage setups only.

Click on this link to see the chart that projected the price of gold reaching $1300 an ounce, and click on the chart below to view the latest chart for the gold ETF, GLD.

GLD:

Unwinding

Today’s market action is like a huge margin call. With the US dollar rising as the result of the Greece problems and the uncertainties from other Euro zone countries, the dollar trades were finally forced to unwind, and that triggered selling from margin calls across the board, equities and commodities.

Although today’s drop raised talk about the impending correction that many traders were waiting for, but the bottom line is this market rally has not topped out. Yesterday, the DJT made another new closing high to reiterate a newer high for the DJIA is yet to come. Therefore, until the market has signaled it has topped out, I will be monitor the major market indices for possible support near their 50 days SMA or the 38% Fib retracement level. One thing for certain, the selection is narrowing and this makes it much more critical to be patient and only trade those high percentage setups.

Here are the updated charts:

SP500:



DJIA:



DJT:



Nasdaq 100:



Russell 2000:

It Doesn't Make Sense

This rally doesn't make any sense, but who say the market has to be sensible. As long as there is a high level of skepticism on this rally, the market will continue to move higher. Look at the DJT, it made another new closing high. The tech heavy Nasdaq 100 also made a new closing high today. And look at these indices price patterns; these are not the pattern one would find at the top. These are more of the continuation pattern, so expect further high to come. The new closing high from the DJT is telling us the DJIA will make a newer high, so 'buy the dip' is the strategy to trade with.

Here are the updated charts, click on them to get a larger view and to read the commentary embedded in these charts.

DJT:



Nasdaq 100:



DJIA:



SP500:

Here's When It Got Started ... SP500 1250

The market is telling us higher high is yet to come and the inverted head & shoulder measure move target will be hit. Therefore, look for the DJI to reach the 11500 level, and the SP500 to reach the 1250 level. Here are the links for the post where the inverted head & shoulder move was put on the alert: the beginning, the reminder.

Not ‘If’ But ‘When’

During the last few minutes of trading on Friday, the DJI moved fractionally above the 11,000 mark for a brief moment, not long enough for one to count to ten. At the close, the DJI ended at less than 3 points shy of 11,000. I believe this is fortunate for the bulls and unfortunate for the bears. If the DJI have closed fractionally above the 11,000 level, this will only give the bears courage to pound on the market come next Monday since the DJI would have breached the 11,000 without momentum and without a catalyst. Whenever a technical or psychological level has been breached, it must have a catalyst accompanied with momentum in order to be relevant or it is just a head fake.

Will the DJI move above 11,000? The answer is a resounding ‘yes.' It is not a matter of ‘if’ but a matter of ‘when’ the DJI will cross the 11,000 mark. By looking at the DJT’s performance, it clearly indicates the DJI will move above the 11,000 level. Today the DJT closed at another closing high, and this time the DJI also closed with a new closing high. Based on the Dow Theory, the DJI will not terminate its advance until a non-confirming closing high has been made. Therefore, with less than 3 points away from the 11,000, it is inevitable the DJI will crossover the 11,000 before this rally end.

I will be watching the market closely next week as first quarter earnings reports start to flow. The market will likely attach itself with the positive earnings reports and use them as a catalyst to propel the DJI above 11,000. How high will it go? We won’t know until it gets there, but keep watching. The market will give us the signs just as it is giving us signs that the DJI will see higher high.

Check out the charts...

DJI:



DJT:



SPX:

One More Time

The Dow Jones Transportation index is tipping its hat one more time to tell us the Dow Jones Industrial will make a new closing high. Can this new closing high be above the elusive 11,000 that everyone bulls and bears been waiting for? We’ll see.

The DJT closed at a new closing high today while the DJI only made up a small amount of its recent loss. Similarly for the SP500, it also is struggling to move toward the 1200 level.

The DJI and the SP500 index are showing signs of weakness. But the market is still locked in a game of cat and mouse. The bears have been burned numerous times recently by the dip buyers, and the bulls have been beaten back whenever the DJI appears to get close to the 11,000 level. These market actions have made it very frustrating and agonizing for the bulls and the bears. Having the DJT closed at another new high without the confirmation from DJI lend further signs that this cat and mouse game will continue until a new non-confirmed high from the DJI is made. Until DJI breached a major milestone, such as DJI break above 11,000, the least resistance for the DJI is up. Near term support for DJI is 10,800, and 1175/1160 for the SP500. Upside for the DJI is 11,000 and 1200 for SP500.

Here are the charts for DJI, DJT and SP500.

DJI:



DJT:



SP500:

It Did Not Disappoint

From my previous post, I have indicated the Dow Jones Transportation index told us the Dow Jones Industrial will move to its January 2009 high, and true to its form, the DJIA did not disappoint those Dow Theory watchers. Not only it has reached the January 2009 high, the DJIA surpassed it and moved to the bull flag measured move level of 10,800 intraday on Friday.

DJIA:




With the quadruple witching away, now the focus will be back to watching the price actions and listening to what the market has to say. The three primary sectors I am monitoring for signs on where the market is heading are; financial, energy, and the technology. The latest price actions from the XLF, XLE, and XLK, ETF for the financial, energy, and technology respectively are telling me a pullback is on its way. These ETFs along with many stocks have reached their price target level and started to weaken.

XLF:



XLE:



XLK:



Does this pullback signal the end of the rally? From the noise in the market about 1250 for the SP500, I doubt this pullback will put an end to this rally. If you have been following this blog for a while, you would have known this 1250 level is the measured move of the inverted head & shoulder pattern formed last year. Having many traders talking about this 1250 level, this level has become a target (we know what happen to targets…they get hit.)

SP500:



Before the SP500 will make a move toward this 1250 level, it has to complete the pullback it has started last week. The level of support for the SP500 in the near term is the 1115-1130. Look for this level to show some reactions. If it fails to find support at this level, then look for next potential support near 1085. For the near term, a lot of profits need to be shaken out. Therefore, I am taking the short side.

No Surprises

There were no surprises from last week’s market performance. All the major market indices except DJIA hit their mark. The SP500 was nudged into a new closing high by exceeding the January closing high with 0.01 of a point at the closing bell. Believe what you want, manufactured or coincidence.

Next week is options expiration week and with so many stocks extended, I will be prepared for a potential pullback.

Here are the updated charts:

SP500:



DJIA:



DJT:



Nasdaq 100:



Russell 2000:

One Price Break, Many Trading Opportunities

When RIMM broke out of the $72 resistance level on Monday, 3/8/2010, it has triggered a number of trading patterns for different trading strategy and I thought it might be interesting to identify them for suitable trading strategy.

(click on the chart for a larger image)




Starting with the blue color and letter code ‘A’, this pattern is a ‘bullish triangle’. This ‘bullish triangle’ pattern has a measured move price target near the $88 level, which is the same price target level from a recent analyst upgrade. This type of pattern is more of a medium term trading strategy and most likely be traded by medium term swing traders that primary trade breakouts.

The next pattern is a ‘gap fill’ pattern, depicted by the color aqua and letter code ‘B’. This gap is approximately $10 wide and most likely be traded by short term and medium term swing traders that trade gaps. It is reasonable to expect RIMM to fill a $10 gap within days since it has a high volatility.

Next is the ‘cup & handle’ pattern colored in green and marked by letter code ‘E’. This is another breakout pattern play for medium term swing traders. This ‘cup & handle’ pattern has a measured move price level near $82.50, which also coincide with the upper gap level.

Finally, the ‘trendline breakout’ colored in black with letter code ‘F’. This pattern is for day-traders or short-term traders with holding period of no more than a few days.

The chart is highlighted with two additional patterns that were not triggered by the recent price breakout. I have highlighted them to illustrate the trading patterns prior to the breakout.

The pattern marked by the color of red and letter code ‘C’ is a ‘bull flag’ pattern. The measured moved place it near $74, a price level that was reached after it has broken out of $72. This is another trading pattern for medium term swing traders.

The price channel pattern highlighted in purple and letter code ‘F’. Medium term swing traders that buy on weakness and sell on strength will likely trade these price channel patterns.

So depends on what type of trading strategy you are trading, the recent breakout from RIMM provides trading opportunity to many different strategies. It is rare for so many trading patterns triggered by a single price breakout.

Caveat: Although these trading patterns have a measured price target, but it doesn't mean the target will be hit. All it means is there is a potential for the price to reach the target level and we still need to use our trading plan to trade these patterns.

Back In Play

The market finished the week strongly with a convincing move above its resistance level. The SP500 moved above its resistance level of 1115 and it is heading toward the January high near the 1150. Similarly for the DJIA, NASDAQ 100, and the Russell 2000, they have also moved above their resistance level. The Russell 2000 has broken above its January high. But look at what is back in play, the measure move from the inverted head & shoulder pattern that was formed between October 2008 and August 2009 for the SP500, DJIA, and the Russell 2000.

Here are the updated weekly charts with the inverted head & shoulder pattern highlighted and the measure move target from the inverted head & shoulder pattern.

SP500:



DJIA:



Nasdaq 100:



Russell 200:




Although the market has signaled it wants to go higher, but there are lot of stocks near intermediate resistance level. I will be watching how these resistance levels are handled because they can easily cause a short term reversal especially after a recent strong run-up.

I'm Not Convince

The SP500 moved above the 1120 level, something I said the market needs to show us in order to give us some clarity on its direction. But the manner it moved and tried to hold that level today was not convincing to me that the market is ready to move higher. The 15 minutes intraday chart shows how it faded in the afternoon, which is why we never try to anticipate what the market might do. Always wait for the market to tell us what its intention is.

SP500 Intraday 15 Minutes:



SP500:

Here We Are Once Again

The SP500 is at the 1115 level once again. From the 15 minutes intraday chart, one can see how strong the 1115 resistance is throughout the session. The index was unable to stay above the 1115 level until near the close.

SP500 15 minutes chart:



If it is unable to hold above the 1115 resistance level and unable to move toward the 1130 level, then it will most likely retrace back down to test the 1085 support level. If a strong move above the 1120 level occurs tomorrow, then that can be the clarity from the market we've been waiting for. Stay tune!

SP500 daily chart:

Waiting For Clarity

The market has been chopping around within the range bounded by its recent support and resistance level. The SP500 is confined in the 1085-1115 trading range. Until the market breaks out of this trading range and provides some clarity on its direction, I will exercise patience and limit my trading activities. Since there have not been much changes for the market indices, I will just post an updated SP500 chart. Support and resistance levels for all the indices remain unchanged.

Overtime

It appears the market was able to regroup after the spook from the Fed discount rate hike announcement. The SP500 was able to hold above the 1100 level, the DJI was able to keep its gains for the week and closed above its 50 SMA, and the Nasdaq 100 also was able to hold above its 50 SMA. Neither the bulls nor the bears were able to pull away. Looking at the various sectors performance, it appears there is a slight momentum favoring the bulls in the coming week. Is this momentum strong enough to carry the market back to the January, 2010 high? We’ll need to see who will win this game, and the game is currently in overtime. Keep watching the charts!

SP500:



DJIA:



Nasdaq 100:

Fumble!

Yesterday the SP500 was trying to get above the 1100 level, and today it appears the SP500 was able to move above 1100 after a few pull back to the 1100 level. In the afternoon, the SP500 starts to pull away from the 1100 level and prepares to head higher by closing at 1106.75. However, shortly after the market closed, the Fed made an unexpected announcement on increasing the discount rate by 0.25% from 0.5% to 0.75%. The result of this surprise discount rate hike announcement hit the index futures on the downside almost immediately.

Using a football metaphor, the price action of the last two trading sessions is like watching two defensive oriented football teams playing against each other in the Superbowl. In the first half, the bulls have the ball and drove the ball from its 20 yard line to mid-field (SP500 1100 mark), and failing to make a first down before they have used up their set of downs, the bulls have to give up the ball to the bears. The bears use their set of downs and drove the ball back to the bull side of the field (below SP500 1100), and failing to get another first down, the bears have to give the ball back to the bulls once again. This defensive exchange goes back and forth for a few times. When the first half of the game (yesterday’s session) ended, the ball is sitting at mid-field (SP500 1099.51) In the second half (today’s session) the bulls finally able to move the ball across mid-field (above SP500 1100), but failing to make first down to keep the drive alive, the bulls have to give the ball back to the bears and the bears attempt to move the ball back onto the bulls’ side of the field (below SP500 1100.) This series of exchange go back and forth for a few times. In the 4th quarter, the bulls were able to make a few first downs on a drive and drove the ball within field goal range (SP500 closed today at 1106.75), and then the unexpected happen, a FUMBLE! (The Fed announced a 0.25% increase in the discount rate)

SP500:



15 minutes intraday SP500:




Now the bulls feel devastated and the bears are jubilated with the new found fortune. This fumble (Fed discount rate announcement) can be a game changer for either side. If the SP500 falls below 1085 like a hot knife cutting butter, then this market is going much lower and the bears claim victory. If the bulls are able to hold the SP500 at or above 1085 and ultimately move it back above 1100, then the bulls will claim victory and look for the SP500 to go higher.

So be prepare for tomorrow, it is options expiration day and those option market makers just received a big gift from the Fed. If the market react like the index futures did in after hours, then they can just let the market free fall to take out all those open interest calls without doing much pinning. I will not be surprise to see extraordinary high volatility for tomorrow. I might just be a spectator tomorrow and watch how this game ends, and then next week I go celebrate with the victor (go long if the bulls win, go short if the bear win.)

Looking At The Charts

Sometime the market makes it so easy and clear for us to see what it is doing and where it is going, and sometime it disguises itself and try to throw us off. But if you look at the price charts carefully, you will see what the market is doing and get a clue on what it might do. I am not saying the charts are completely infallible, but if you look at them correctly, it will give you an edge. If you are a trader and you are not looking at the charts, then you are at a disadvantage.

Check the charts from today and see how the SP500 hit the 1100 mark and came to a halt (make sure to look at the 15 minutes intraday chart for more detailed price action at 1100), Nasdaq 100 hit 1810 near the 1815 resistance level, the DJI hit intraday 10,320 and pulled back under the 10,315 resistance, and the Russell 2000 hit the 625 level and close near it.

The next thing to watch is how these indices react to these resistance levels. If they pull away, look for the next resistance level for reaction. If they pull back, look at those levels below these resistance levels for possible support. The market will tell us which direction it will take if you pay attention to the price action.

SP500:



15 minutes intraday SP500:



DJIA:



Nasdaq 100:



Russell 2000:

Getting Ready For A Bounce

The market is appearing to be setting up for a bounce to test recent broken support. The DJIA is attempting to move back above 10,160 and test the 10, 315 resistance level. The SP500 is gearing up to test the 1085 support turned resistance. If it breaks above the 1085, look for possible resistance test near 1100-1103. The tech heavy Nasdaq 100 found support at the 1740 level and is preparing to test the 1815 resistance. These market indices seem to indicate a short term rally could be in the offing. My overall bias still remains bearish, but if this dead cat bounce rally present some nice short term longs, I will not hesitate to trade them for a day or two. I will not be a seller until these indices break below recent low if the dead cat bounce does not occur. Here are the updated charts:

DJIA:



SPX:



NDX: