SpikeTrade.com Blog

Gold?? by Grant C

2012-01-08T22:59:00.001-05:00

I'm watching GLD very carefully for what could be a substantial move. On the monthly chart, it looks like GLD has formed a flag or pennant pattern after a multi-year rally. While usually a bullish consolidation pattern, a failure can lead to a substantial move down. The weekly chart shows a major spike down in momentum and a drop in volume, which would indicate a lack of buyers. The daily chart shows an inverse S/H/S pattern, but on the right, price is doing a low volume wedge right into major resistance. Unless volume comes in, odds are that price fails here at the 200 EMA, and a bear market begins. However, if we regain power and break to the upside, odds favor new highs. The last chart is GDX, or the gold miner ETF. Since the miners have greater leverage, they usually lead the price of gold. Now, GDX is forming a S/H/S topping pattern and threatens to break the neckline. If it does, then this would increase the odds that GLD will drop.

Market overview

2012-01-06T08:38:00.000-05:00

[This arrived last weekend from Brian D, a long-term Member in California - a good example of how a serious student views the market. Clearly describing what you see is the essential first step when making trading plans. The last chart has an interesting angle on options - Alex.]

2012 May See a Major Shift by Grant C

2012-01-02T18:31:00.002-05:00

Instead of watching Monday's ubiquitous bowl games, I thought I would do a little planning for 2012's trading year. It didn't take long to realize that 2012 has the potential to be an exciting year. I used the IShares sector and index ETFs charts for my analysis. My thoughts are based on weekly charts and represent intermediate trends. Here are the notes and observations that will guide my 2012 trading.

Dollar decline is over. After a year-long decline the dollar is finding support (monthly UUP chart). However, there is too much U.S. debt for a strong dollar, so chances are the dollar will muddle sideways.This has major implications--gold and hard commodities will weaken, and the U.S. equity market may attract money from the commodities hedge funds.
Gold has reversed. The trend is down, the bubble is bursting, and it could be a long and violent move down. Short rallies into resistance, using GLL. Shorting the gold miners is another approach.
Bonds, TLT, is forming a 1,2,3 Top, though confirmation is needed. Probably the bond rally is over, though interest rates will be at all time lows through the 2012 election. This is positive for the U.S. economy and the equity market, and maybe its time to put money into residential real estate. Short the bonds on rallies into resistance with TBT.
Foreign markets are mixed. Brazil, Mexico, and Korea are strongest. Europe large caps (FEZ) may be finding support. The markets may actually believe that the Eurozone will survive. Switzerland is best in Europe.
U.S. markets have the greatest potential, especially U.S. Big Caps. DJIA is the world's strongest index, and 2012 could be year of the Big Caps despite dollar stabilization. May indicate that while economy is sluggish, the U.S. is relatively strong.
U.S. financial stocks are finding bids. XLF has formed an inverse S/H/S bottom, which should be good for U.S. market. U.S. banks should make substantial gains relative to European banks, which are in decline.
Retail and consumer stocks are leading the U.S. market, but their rallies may be slowing as other sectors strengthen. Several U.S. sector ETFs are experiencing or will experience bullish Golden Crosses--50 EMA crossing up through 200 EMA, including transportation, energy, and real estate.
Strongest sectors are in healthcare/pharma/biotech. While these sectors are dismissed as defensive, not growth, they have extraordinary potential. Biotech could be the next "high-tech" bubble.

While anything could happen in the market--and of course, the Eurozone could blow up--2012 should be an exciting year. Several factors, including the end of the gold and bond rallies, may provide enormous amounts of speculative money for stocks. Watch biotech carefully as new drugs emerge. No one is talking about this sector yet, but if the media grabs the story--it's off to the races!

These ideas are a rough guide for my 2012 trading. Some of them have the potential to be extremely profitable, especially if gold collapses and biotech goes into bubble mode. Some, like the financials, will offer easy swing trades as they built bases for future rallies. I'm a short-term technical trader, but I pay attention to macro movements. As the Russians saying goes, "hunt fat, not skinny, rabbits."

Breakout of Triangle?

2011-12-26T20:55:00.002-05:00

Alex posted a summary tonight about the market being on a "razor's edge." Here's another look at it. The market is right at resistance of multi-month triangle formation. As Alex's said, if it fails, down we go. If it breaks through, then we'll likely test the August highs. The indicators are tipping to an upward breakout, but we need next week's bar to confirm.

Rare Inverted S/H/S by Grant C

2011-12-15T19:49:00.002-05:00

Back in January I worried that the financials were leading us into a nasty correction. Unfortunately, they did--the European crisis was all about the financials, and the big US banks sold off hard dragging the rest of the market with them. (Notice how prescient the market is!) The decline gathered steam as traders wondered just how much exposure to the toxic mess did the big U.S. banks have? The shorts jumped on board and the U.S. financial companies got pummeled.

While we still don't know how much impact the eurozone crisis will actually have on the U.S, banks, it is clear that their European competitors are in far worse shape. Currently, six out of ten of the world's biggest banks are European, but next year the story will radically change. The U.S. banks after going through their own crisis and government rescue are a lot healthier than the European banks, so its logical to assume that they will gain significant market share.

In any case, many of the U.S. banks are forming major, complex bottoms--mostly the classic inverted, Shoulder/Head/Shoulder type. As can be seen in XLF, the financial ETF, they are at the critical right shoulder stage. Most have formed a pivot confirming this higher low, but the current market weakness clouds the picture. If price drops below this right shoulder low, it would be extremely bearish for the financials and the market as a whole. However, if we are able to hold in here, and gain a little traction to the upside then the first higher low would be confirmed and the financial sector might lead us out of the correction just as it lead us in.

As I noted on the JPM daily chart, I'm watching for a close above the rising 50 EMA, which would be solidly bullish for the intermediate term. In reality, I don't actually expect the financials to mount a major uptrend, just trade sideways in a loose range, which will offer lots of easy swing trades. However, if they stabilize, then the whole market should calm down and make it easier for the leading sectors to rally.

For that group, we need to find the sectors that are still trading in bullish territory above their 200 EMA. That's a fairly small list--pharma, health care, consumers stables, biotech and discount retailers. The corresponding ETFs are PPH, IHE, XLV, XLP, IBB, and RTH. The biotech sector looks to have the greatest potential and there are several strong stocks in this group--BIIB, ONXX, QCOR, CELG, AMGN, & JNJ. Watch biotech carefully--while the industry has matured, there is a whole wave of new drugs emerging. If the marketing whizzes jump in behind the stories, this sector could be as hot as the high tech was in the late 1990s.

Junior Miners

2011-12-15T08:11:00.000-05:00

[This came from a long-term Member in The Netherlands - Alex]

Dear fellow members,

I am investing in the Junior Mining Companies around the world.

I am wondering whether there are more members of Spiketrade who are investing in such companies.

I have some questions about investing in this Industry and would like to exchange ideas.

Kind regards,

Paul

Triple Tops? Pay attention to this rare pattern by Grant C

2011-12-05T18:34:00.002-05:00

Despite the worrisome environment, there are some rare and surprising behavior in a number of stocks. In fact, several stocks in my database are forming a very strong pattern I call a 3T BO, or Triple Top Break Out. Usually, a stock will form a cycle high with a 1,2,3 Double Top formation, and decline about 50% of its rally. Some very powerful stocks will form double tops, decline a bit, and then trade sideways. Finally, if the big buyers (hedge funds & institutions) hold and start to accumulate, then these stocks may turn up again and break resistance. While nothing is certain, this pattern can be extremely profitable as it often foretells another leg up. In my database, I have numerous stocks setting up in this pattern, including: IBM, COST, CAT, UNP, DG, DLTR, CNH & WMB. (PETM blew through a logical entry, so look for a pullback.)

This is not the ideal time to be heavily long with the EU fate unresolved, and these stocks could all blow up if the EU fails to come to a new agreement. Caution is required, and small sizes are recommended. Conversely, you can be prudent and enter later on pullbacks.

For the record, I'm long CAT & DG.

Running & Trading

2011-11-20T06:27:00.000-05:00

[ This email came in from Jorge F, a Member in Mexico, describing his progress after our intensive class in Alabama in September and linking it to his marathon running. Kerry and I are planning another intensive class in March, but it’ll be in Europe. ]

Hi, Everyone.

I ran my first Marathon on October 9th in Chicago. A marathon is not about time or speed – it is about a fight between you and your mind. The only way to finish the 42Km or 26.2 miles is not listening your mind but listening your heart and believing in its wisdom.

I was doing very well running up to 35Km keeping a very good speed (10km/h or 6mph) but I felt pain in one leg and a blister on one foot and started to support the running with the other leg. After another 3 km I felt a blister on my other foot, then I have to finish my last 2 miles with blisters on both feet. My mind kept saying stop to run, but I never did because I listened to my heart saying is wonderful that you can finish your first 26.2 miles in Chicago. And the moment when you cross the finish line the feeling is very good, you say to yourself – I did it.

The same in trading: focus on your chart and listen to your heart which tells you to enter or exit. Pay attention to it because when you listen to your mind you’re listening to your ego and your greed and then you lose.

I began doing very well in trading: I only day-trade for an hour or two per day (stocks, futures and forex) and I am up 7.5% in my account in November for the first time in a very long time.

The method that I use is what we saw in Alabama, the only thing is that I am combining the Alex method with Kerry one and I put something of me. I use Force Index, MACD, and I combine 10 and 20 MA with 4 ATR and I include one ATR more than Kerry and I keep the MA of Alex.

I use 30-min charts as my long timeframe and 5-min as short-term. When a stock is between the 3/4ATR and the Force index starts to signal a change in the direction and the Macd confirms it, it is time for me to enter, exiting in the value zone. The stop depends on the volatility of the stock or future that you choose.

I appreciate the time that we spend together learning from Alex and Kerry.

I hope to see you soon in another meeting.

Jorge F

A question from Australia

2011-11-17T11:21:00.000-05:00

A new Member from Australia writes:

I would very much like to contact any Australian Spike members so that I can ask them three questions.

1 Do they trade Australian or US stocks

2 What software program they use
3 Which brokerage firms they find easiest to deal with

It would be easy to either phone or email them

Regards

Jesse L

Please post your answer as a comment below...
Alex

Good Boots, Good Truck--We Go by Grant C

2011-11-16T15:06:00.002-05:00

The ranchers I know spend so much time alone with cattle and horses that they stop speaking in sentences. Even the smartest will use a kind of "phraseology" in conversation. One of my favorite phrases is "Good boots, good truck--We go." Which captures the reality of the hardworking, never-ending ranching life. A quick look at the SPX weekly chart brought that phrase to mind. SP price has screwed itself into 3-week Dynamic Triangle, with progressively lower highs and higher lows on each bar. (I'm assuming that the rest of this week will trade more or less within the perimeters of the last bar.) This pattern of narrowing price ranges represents a significant decline in volatility and sets up a major move as volatility returns. While you find it occasionally in individual stock prices, it is extremely rare on the weekly index charts. Usually these DTs set up halfway between a move--a sort of pause, as momentum collects. If that happens and price takes out the 1265 area, then this market could rocket up to challenge the old highs. Conversely, if the situations in Spain and Italy worsen,then we head down quickly. While I've noted that the momentum is declining, I won't make a premature bet on direction. Direction will be determined by the whether the narrow-range bar high, or low, gets taken out next week. Either way, It should be interesting.

The Tug-o-war Between Support and Resistance

2011-11-16T11:01:00.002-05:00

It is interesting to note the slow and steady increase of support that is occurring in the broader market. In the middle of October, the 50 day EMA provided support. As we entered a symmetrical triangle consolidation pattern, the up trendline then functioned as support for prices. Now as the apex is approached, the 20 day EMA is serving as support. This correlates to the slow erosion of the VIX over that period of time.

Prices respond to volatility by reflecting the mood of the investors who make up the market. As you are aware, when these price and volatility swings become violent, fear increases and rationality decreases. Profitable trades become sporadic, eventually causing investors to run for cover. In this way, volatility functions to erode the confidence of investors. Without that support under prices, they eventually succumb to downward pressures.

With prices buried in the protective barriers of the up and down trendlines, current price swings and volatility appear to be muted, thus providing that confidence as evidenced by the varying levels of support.

This strengthening is one more encouraging piece of evidence, coupled with the uptrending MACD lines, to support a bullish resolution. Perhaps not this week though. With options expiration on Friday, they will try their best to contain prices within this triangle so that the massive calls above and puts below expire worthless. Monday will then be the day of reckoning.

Stephen M.

What is the best way to blow up resistance?

2011-11-08T08:02:00.003-05:00

With the old reliable coiled spring. A symmetrical triangle has developed on the daily S&P 500 index. In my opinion, it is the most reliable bullish pattern in TA. It also appears that a Continuation Diamond (Bullish) pattern has traced on the same chart. This is a rare pattern that has the potential to launch prices up sharply through resistance. The deception that this type of consolidation induces is astounding. This is due in part to the apparent weakness in both volume and the MACD indicator while under the influence of consolidation. How many short sellers got vacuumed into yesterday's action as a result of these indicators? Now we find the pattern poised to break out.

Despite the news across the pond this past month, market conditions have changed and they changed the 2^nd week of October. I watched so many bears doubt the 09 rally all the way up. They were unwilling to embrace the bull then, and they seem to be unwilling now. In the meantime, quietly, the market keeps building new launch pads for higher prices. Take yesterday for instance, so much bad news to react to, yet the market shook it off and put the last piece of the puzzle into this pattern.

The measurable level of fear does not support what it's purported to be by the masses. Big money is buying this market and they already have a pocket full of small caps. Believe me; I personally sold them a few shares on the cheap. The train has left and unfortunately too many reserved seats for cautious investors are empty.

Anything can happen and we could spill downward out of this consolidation, but when the dots are connected, it seems to outline a bullish picture.

Stephen M.

Survival Tools for a Choppy Market by Grant C

2011-11-03T20:41:00.002-04:00

"Mama said there'll days like this..." is a wonderful line from a great old R&B song from the Shirelles. The song holds out the hope of future love--just not today. While the song is about teenage longing, it fits this careening news-driven market. So, what's a poor trader to do? Especially, now, when the market stretches 200 points in one direction, only to bungie back another 200 points in the opposite direction. Here are a few of my "survival" tactics for today's market.

1) While we may painfully suffer in this environment for several weeks, know that it will eventually end. Better and easier times to trade will come along, so remain calm.

2) Keep things simple. While I'm always trying to simplify both my market thinking, and market trading, times like now require the simplest, easiest, and most consistent tactics.

3) Keep things short-term. Now, more than ever, think in 1, or 2 day segments if you swing trade (I do very little day trading.)

4) Keep size small, and profit expectations in check. Never have more than 50% of your account at risk.Go flat at the end of each week; start each week new.

4) Sell strength, buy weakness. Use short-term indicators (my favorites are 2-day RSI, and 2-day FI).Selling early is good--don't hang on for the last bit of profit. Don't chase morning gaps, either.

5) Psychology is extremely important in this type of market. It's far better to book a small profit, than to let it slide into a loss. Once you start chasing losses, you can do severe damage to your account. Grind it out.

4) Distrust support--sell resistance. Use stops!

5) Concentrate on the indexes--NAZ, S&P, DOW, Russell. My pick is the NAZ, and I concentrate on the 2X ETFs-QLD for long positions, QID for short (inverse ETF).I also trade GLD & SLV and their inverse ETFs, DZZ & ZSL. However, I will trade an individual stock for Spike if I really like the set up.

6) Concentrate on 1 or 2 reliable set ups. I like to flip index ETFs using 2-day RSI & 2 day FI, or I use a highly reliable short-term consolidation breakout system. In both cases, I look to take profits in 1 or 2 days as opposed to a more usual 2-4 day period.

There you have it--a few tactics to help traders get to the other side of this Greek mess. Eventually, follow through will return, and the great intra-day swings that cause our stomachs to wretch will be over.

I'm posting the weekly and daily charts of the Qs. The weekly is worrisome--we may be putting in a lower high. Notice that each upthrust has been on lower momentum. The daily has formed a dynamic triangle and could make a sharp move in either direction--odds tilt downward to a retest of the 200 EMA.

Pavlov's Dog cont....

2011-10-24T17:42:00.002-04:00

This is a follow up comment to my previous post. As you can see from the chart posted above, this right angled expanding triangle pattern is completing to the upside. If it tracks the example chart to the left, the market has plenty of room to run. With so many shorts yet to cover and sideline money to deploy, It wouldn't surprise me at all to see this market sprint up further, with very shallow "breathing." If you are looking for pull backs they could be minimal at best, in light of the fact that all of the EMAs have turned up and a golden cross (20-day/50- day EMA) occurring. Barring a European dagger in the heart, this market wants to climb to higher ground.

Steve M

Pavlov's Dog Hypothesis

2011-10-17T22:13:00.002-04:00

Wondering if and how the market will ever breakout of this trading range?

Well consider my "Pavlov's dog" hypothesis.

The market just completed its fourth trip to the resistance of the upper channel line. Each time previous to this it ricocheted sharply, sending prices down to retest the lows. Just like Pavlov's dog, traders have become complacently conditioned to this cause and effect response – each time shorting a little earlier and putting on larger trades.

So, is this time different? Perhaps.

Two things to consider: Price action, and pattern.

Price Action ( chart 1, S&P 500 daily)

1. Previous reversals (red arrows) occurred as prices smacked the resistance of the falling 50-day EMA. Now, however, prices have reversed (green arrow) to the downside following a price break above this – now rising -average which has held for 6 trading days. Don't forget resistance becomes support.

2. Though the market is short term overbought, on low volume, we cannot discount the increased momentum beneath prices - reflected by the MACD lines (red and green highlights). Previous downside reversals occurred in conjunction with an accompanying reversal in the slope of the MACD lines positioned below the centerline. The recent rally carried these lines above the Centerline. Also, MACD lines are poised for a bullish crossover on the weekly chart – an event that will trigger programmed buying.

Price Pattern (chart 2, S&P 500 daily with Bullkowski example of an Expanding triangle)

1. The S&P 500 index is tracing an right angle expanding triangle that is near completion.

2. As for Resolution? Bullkowski states that given a "partial decline," upside breakouts occur 63% of the time.

Two Questions:

1. Could the newly formed S&P 500 index support serve to "brake" a swoon to new lows, thus forming the partial decline?

2. If this were to occur, with all the previously conditioned short sellers aboard, wouldn't it produce a significant short squeeze leading to a high volume upside breakout of this pattern?

Conclusion:

The combination of price action, chart patterns and conditioned trader psychology often times can unlock the secrets to solving puzzling market conditions. If you are short be aware. If you are long, don't panic sell into this dip too fast, if you are in cash, be on your toes – Pavlov's dog may have no bark this time.

Stephen M.

Is AAPL Done? by Grant C

2011-10-11T22:22:00.002-04:00

Apple Inc., led by recently deceased Steve Jobs, has been an institutional favorite since 2009. Driven by extraordinary creativity, the company introduced remarkable product after remarkable product, and I've been a fan for years. After Jobs death, I read an analyst's comment that AAPL would continue to rally, and with a lowish PE for a tech company, AAPL was heading a lot higher. Since I trade AAPL now and then, I thought I would take a long look, particularly since AAPL is a major driver of the NASDAQ index.

When I pulled up the chart, I jumped back, wondering how much the Puts were, or whether I would commit that much money to shorting a $400 stock (nope). So, what has me worried about AAPL? Besides the bearish divergences and the possibility that we may be forming a lower high, which would confirm the downtrend, the volume is scary. On both the weekly and daily charts, AAPL shows clear signs of distribution--large amounts of selling, and greater selling on down bars than on up bars. Generally, this means that hedge funds and/or institutions are liquidating large positions--taking profits while they still can. When the institutions decide to get out of a leading stock like AAPL, it can take weeks or months before they are finished, and each rally is capped as they push more supply onto the market. Since AAPL has a market cap of almost a billion shares, once the institutions say the game is over, distribution is the result.

So, I'm watching AAPL carefully over the next few days--not only for its own price weakness, but how this heavy selling will impact the tech indexes. An even more interesting question is where will the money go from the profits? Will the profits from AAPL rotate back into the financials? Maybe it is finally time to buy the banks...

Fib Retracements by Grant C

2011-10-07T13:38:00.002-04:00

I'm always surprised at the symmetry apparent in human group behavior--unlike the randomness of individuals.One example that keeps repeating is the uncanny consistency of trend retracements in the stock market. Trends will commonly retrace about 50% of their original move; a particularly strong trend maybe only 38%. A strong corrective move will see a retracement of about 61%. These retracement levels of 38.2, 50, and 61.8% are commonly referred to as Fibonnacci retracement levels (Fibonnacci, or Leonardo De Pisa was a 13th century Italian mathematician, who introduced an integer sequence in his book Liber Abaci). While traders continually debate the efficacy of the Fib sequence in stock trading it is a useful tool. Based on my experience, the odds tip in favor of the FIB retracement levels on big picture trends. So, the original move from Jan 2009 around SPX 667 ended in May 2011 about 1370. A 50% retracement would mean our current down trend will carry to 1019. If the decline is particularly strong, we will go to around 936. With all three of the long-term EMAs heading down, the downtrend is intact.

Is Gold Done? by Grant C

2011-09-22T19:47:00.002-04:00

As I've mentioned before, I'm not much of a believer in gold. It has
no real intrinsic value except for jewelry; and the often expressed
opinion that paper currency is trash and will soon be replaced by
gold, seems to me a gigantic myth spun by the gold sellers. I think of
the current rally/boom in gold like I do the Dutch Tulip craze--just a
bubble waiting for a guy to come by and stick a pin in it.
That said, I admit to trading gold and silver on and off as they
rallied. Mostly though I stood aside watching the greed mount,
particularly as the cry came that "gold was the last safe haven." What
lunacy! Yet, the "safe haven" cry intensified over the last few weeks
as the market cracked, and gold held the 20 EMA. It has held no more,
plunging the last two days like everything else. That gold collapsed
after forming a perfect 1,2,3 Top around $1,800 is clearly visible on
the GLD chart, the metal's ETF. It's been a sobering two days for the
gold bugs and support is far away--maybe GLD 160, but most likely the
rising 200 EMA around 155.
Besides the technicals, there is a vicious lesson to be learned by
gold investors. The lesson is simple--in times of severe market
declines, the institutions and hedge funds will sell everything, and
anything, to preserve profit. As the market crashes, margin calls
mount and those that have profits in GLD, hit the computer switch. The
old traders used to say that "When the paddy wagons come they take all
the girls".... Clearly it was a simpler time, but the reality is true.
In price waterfalls, everything goes except US bonds and dollars.
The question remains, are the margin calls and forced-selling over
yet? Probably not. The pattern on the SPY looks like a rising wedge to
me, and generally they form mid-way through a move. Also, the volume
doesn't look like its reached a climax, and we've only dropped out of
the wedge one day. So, my guess is that we've started a second leg
down that will eventually retest the June 2010 lows around SPX 1000.
With the overall market collapsing, the bonds have gone parabolic.
This move is exaggerated with a flood of money coming from around the
world, setting up one wonderful short trade once a top is in. My
vehicle of choice is TBT, the inverse bond ETF.
Finally, I wanted to show SODA another hapless victim of the SHS top.
Like a moth on a pin, SODA is done. It is shortable on bounces with a
potential target in the 25 area.

SHS Marks the End of Netfix by Grant

2011-09-21T12:47:00.002-04:00

As I've pointed out, the classic Shoulder/Head/Shoulder top pattern
has been very apparent as this market corrects. Not only did it mark
the top in the indexes, it recently nailed the top in Netflix, one of
the hottest of the glamour stocks. NFLX has a slopping SHS pattern,
which I think is the most bearish of the type. Notice how much lower
the right shoulder is than the left. Also note the distribution
days--selling on high volume--that marked the end of this once
high-flyer. High-volume distribution days indicate that institutions
are selling, which unlike us individual traders takes several days and
leaves very distinctive volume/distribution patterns. Once the
institutions start selling a high-flyer like NFLX it's over, so you
might as well short it on the bounces. I'm guessing that NFLX
eventually drops to around 100.
AXP is one potential SHS top I'm stalking. Again, notice that the
right shoulder is lower than the left. A breach of the 46-47 area will
complete the pattern. Ordinarily, in these patterns you don't see a
spike down through the neckline like the one in August. I'm willing to
assume this was all part of the European mess and that the next breach
of the neckline will actually complete the pattern.
CALM is another one I'm waiting on. CALM's pattern is more the classic
style with both shoulders roughly equal. Notice the high volume
selling. If CALM breaks the 31 level, it should drop to around 28
quickly.
The SHS pattern has been part of market formations for decades, if not
centuries. As a 'big-picture" pattern, the SHS is best used in
combination with more precise indicators for entry, and general
money-management rules, but it definitely pays to exploit them.
I'm noticing more now in high flying stocks--like NFLX--that led the
last rally leg.
A quick flip through my database reveals several stocks that are in
various stages of forming the SHS pattern: UA, QCOR,WYNN, IBM, ANF,
CHS,EL, NCD, BIDU. KO on the other hand, looks like it is forming a
1,2,3 Double Top.

New High - New Low for UK's FTSE 100

2011-09-06T07:28:00.000-04:00

[This post comes from a Member in the UK. Please comment and/or write to info@spiketrade.com - we will forward your comments to Will - Alex]

After seeing the S&P chart and 20/-500 bounce indicator created by Kerry, I decided to try the same on my home market, the UK FTSE100. I know that Vladimir D posts worldwide NH-NL charts, but I wanted something I could run in my own time, and also to include the 20/-500 indicator. So here are the results to date for any UK (or elsewhere) based traders who might be interested.

I’m very keen to hear any comments or criticisms on this – one thing I have yet to do is to identify bullish and bearish levels. Buy signals in the US are triggered when:

1. The 20 day NH-NL is greater than or equal to -500 and the previous day was less than -500
2. The 65 day NH-NL is greater than or equal to -100

For info, I use Metastock Pro with Reuters Quote Center data. In order to calculate new highs and lows, I use a Metastock addon product called FIRE. This allows me to plot new highs and new lows over multiple time frames of my choice. Metastock only allows me to show indicator values in the title bar, hence the chart looking a little cluttered with frames – my own version has the frame titles removed. The bottom frames show the 250, 65, and 20 day NH-NL, and the bottom frame shows new highs and new lows on a 250 day time span. The moving averages in the top frame are 200 day and 50 day. This chart is based on today’s (5^th Sept) data.

I’d really appreciate any criticisms or suggestions on this – I think it’s pretty indicative already but any improvement suggestions are very welcome. And if anyone is interested in receiving the chart for their own purposes, I update it most evenings, so am quite happy to mail it out in the evenings; if you’re interested, either leave your mail address in a comment, or for the spam conscious, I guess Alex and Kerry would be happy to forward it to me.

Hope nobody was long UK banks today!

Will D

More on S/H/S by Grant C

2011-08-29T18:25:00.002-04:00

I wanted to show a few more examples of the Shoulder/Head/Shoulder
pattern that formed as the market recently topped. The pattern is a
classic and covered in detail by most charting books. Notice in the
examples how the Bearish MACD-H indicator clearly confirms the topping
action. The SPY weekly chart is almost a perfect S/H/S pattern with
the shoulders highs and lows about even. Price breaks below the
neckline and 39 WEMA about the same time. AMZN was a glamour stock
that formed the pattern with a sharply sloping right shoulder. AMZN's
had a failed breakout high and bearish divergence that started it's
collapse. EWG is the German (DAX) ETF with a S/H/S pattern and failed
high. It fell through the neckline and 200 day EMA at the same time.
What's interesting about EWG is that Germany was the first of the
major markets to break down. For the last few months, watching what
EWG was doing gave a trader advance indication of what our markets
were going to do. It will be interesting to see how long this
relationship holds up.

First Leg of Three? by Grant C

2011-08-22T12:27:00.002-04:00

George Santayana, the Harvard teacher and philosopher who wrote "Those
who cannot remember the past are condemned to fulfill it", must have
known stock market investors well.
So, heeding Santayana's words, let's go back to the last major Bear
market in 2008 and see what history teaches. The first thing that
jumps out from the weekly SPY chart is that the market tends to top in
a Shoulder/Head/Shoulder pattern. (I pointed this out about a month
ago in the blog). Once the neckline is broken, a Bear market tends to
unfold in 3 legs (Bulls also). Each leg, especially the first leg,
ends with multi-week consolidation periods. This consolidation period
ends when price rallies into the declining 39 week (200 day) EMA. The
whole Bear market usually ends with price at an extreme away from the
200 EMA (in 2009 price reached 30% away from the 39 WEMA). The 5-week
RSI does a good job in tracking overbought/oversold and in Bull
markets, rallies usually begin when the 5-week RSI drops close to 30.
In Bear markets they start lower, usually below 20.
So, given our look back at history, odds are that we are probably
finishing the first of 3 legs down in this new Bear market. Around
this area, about 1100 on the SPX, we should enter a period of
consolidation (good for short-term swing trading, not trend trading).
Prices should work this range until they intersect with the declining
39 WEMA. At that point, we resume legs 2 & 3 of the decline, or hold
strong and rebound. If that happens, then this violent move down will
be considered a correction in a bull market.
While history is a marvelous teacher, it's not infallible. Just
because something happened in the past, doesn't mean it will happen
that way in the future. The 2008 Bear was created by a monumental
collapse of the real estate/financial industries that verged on the
1930s financial collapse. While weak (particularly Europe), the
world's economies seem to be healing, and central bankers are
committed to keeping interest rates low, so the August 2011 decline
could be different. Only time will tell, but the safest way to make
money in this type of market is buy weakness and sell strength, and
don't overstay positions. This is particularly true for short
positions--bear market rallies are quick and violent, and getting
caught in a short squeeze is painful.

Trading is definitely a kind of yoga and the training can be pretty expensive - by Jock M

2011-08-21T12:44:00.000-04:00

[This post comes from a Member currently located in Greece - Alex]

No sooner do we discover a new apparently good method for trading, when it becomes obsolete and something new is needed. I was struck by how many Spikers and members were long at the beginning of last week. I did not enter a pick last week because I could not figure out what I wanted to do by the Sunday deadline. Somewhere Alex has written that "standing by" is a wonderful advantage we individual traders have over institutional traders.

It's easier said than done. One needs to learn to enjoy just sitting at the screen, relaxing and watching it all unfold without a penny in there (for the moment).

I have found that the strong emotion of anxiety that one is going to miss a move is usually a prelude to a bad trade. That was why I did not enter a full position last Thursday in TVIX when it took off for the races the moment the market opened. In fact I bought only 10 shares premarket when I saw it was up 9% (it eventually closed up over 40% and added another 6% on Friday). I have got burnt so many times chasing a moving bus, and yet that day, for once, jumping on that bus and hanging on for dear life would have been the right action: I could have recouped my 3 1/2 years of "training loses" just with one substantial (1000 shares) long trade in TVIX had I had the courage (or a magic crystal ball) to have put on a substantial trade and stayed with it till just before the market closed.

I often wonder whether I am actually learning anything since I first began to trade, having encountered TRADING FOR A LIVING in Brazil in January 2008.I wonder, because every time I think I have learnt a lesson, a new lesson is needed or an old one no longer holds true. I certainly do not yet have the confidence a successful trader must develop, nor the emotional immunity to losses. Therefore, I have become more cautious the last few months, perhaps too cautious. I'm also more circumspect because as a Spike member my trades are now public. The potential for humiliation and embarrassment are now compounded with monetary loss. This is good in some ways because my character is impatient; not so good in other ways because I can be afraid to place a trade when the setup is there staring me in the face.

Learning to trade successfully still feels like a journey through emotional minefields, and always lurking in the background is the knowledge that less than 5% of those of us who attempt to become traders actually succeed.

jock m

Australian NH-NL Ratio (by John T)

2011-08-18T19:18:00.000-04:00

[this post came from a long-term Australian Member - Alex]

Kerry's post of 16 Aug 2011 showed the NHNL Ratio dipping below 20 percent. The Australian NHNL Ratio has been dipping below this value since mid March. Up till 3 Aug, I thought it may be a basing pattern. However the overall market has continued lower. The lower highs of the 10MA (Red Line) in July and August would indicate the bears are winning. The NHNL Ratio (Grey Line) certainly shows the volatility that has been with us.

The 65 Day NHNL chart shows we have not been in the Bullish Zone since the beginning of April. This certainly shows a depressed market in the medium term.

Regards

John T

Have Commodities Rolled Over by Grant C

2011-08-15T14:59:00.001-04:00

Have Commodities Rolled Over? by Grant C.
One of the drivers to the 2010 stock market run was the huge and
awesome rally in the commodity markets. As interest rates plunged, the
dollar dropped and oil, basic materials, grains, and the other
commodities raged. It was an amazing rally. DBC, the commodity index
tracking ETF, went from around 21.5 on July 2, 2010 to a peak of 32 on
April 29, 2011. This 50% gain in less than a year is extraordinary for
the commodity index, which is more a function of supply/demand than
speculation.
Now, the rally has reversed and a downward trend is in place driven by
changes in international politics and economics--Europe's continuing
mess, China clamping down on inflation, slower economic growth in the
U.S., huge debt in the emerging markets, etc. Based on reasonable
Fibonacci estimates, DBC should slip back to around 26, or even to
24.5 from its current 29. So, a 15-20% decline would not destroy its
long term bullish trend.
There's several options available to those who wish to participate in
this trade. A trader could buy long-term in-the-money puts on the
index, sit back and let nature take its course. Those more aggressive
could short the various commodity futures, knowing that they should
all tip downward over time (watch out for the grains, though, the US
drought may spike prices). A trader could also short the DBC ETF
directly, or go long CMD, or DDP, both thin-volumed inverse ETFs.
Another approach would be short XLB, the basic materials ETF, or go
long the SMN, the inverse ETF. However, these last two ETFs are based
on companies that use commodities, so are subject to the speculative
nature of the company stocks.
Finally, a trader could short the emerging market ETFs based on the
theory that most of these emerging markets are driven by resource or
commodities. This method would also give you the leverage inherent in
an emerging market trade. Two inverse ETFs to look at are BZQ--short
Brazil--or EEV, which is short the emerging market index.
Remember, the ETFs based on the commodity index are more a
supply/demand/rising dollar trade. The others are more correlated to
the stock market. Regardless, the commodity index is clearly
responding to the world's slower economic activities, as well as the
potential rally in the dollar. Both will have a significant impact on
all the financial markets, one way or the other.
--
Grant Cooke
Sustainable Energy Associates
gcooke@sustainableenergyassc.com
925-989-7117

S&P major signals from the TLT / TIP ratio

2011-07-14T17:12:00.000-04:00

[ this post comes from a long-term Member in Canada. I've asked him to update his post when he gets the next signal - Alex ]

Just thought I would share a chart of an interesting relationship between the iShares 20 year bond ETF (TLT) and the iShares TIPS bond ETF (TIP). The TLT:TIP relative line on the chart illustrates the relationship between the two bond ETF’s, providing long-term signals for the overall market.

As a bull market becomes mature, investors become increasingly aware of inflation and accumulate inflation protected bonds (TIPS), while reducing their long term bond (TLT) holdings. This is illustrated with a move below .85 on the chart. As a bear market becomes mature, investors become ever more fearful as they watch their portfolios decline in value. They panic, sell their equity holdings and move in to the bond market (TLT) driving up prices to an overbought level (above 1.0 on chart). This provides a signal for the market to move higher. It would appear that when the ratio of TLT:TIP reaches an extreme reading below .85 (and it has not been below this level in months), investors have full positions of inflation protected bonds and are underweight in longer term bonds. This is a sign of a bull market that is ready to reverse. This provides us with a signal to start looking for an exit in the overall market. Moves above 1.0 show that the long term bonds are overbought, and investors have sold their equities in favour of overweight positions in the long bond market (TLT). This is a turning point for equities to move higher leaving behind those who have sold their equities in fear during the final months of the bear market.

Happy trading!

Rich N.

Long Straight Bases, Cups & PBs by Grant C

2011-07-07T15:12:00.002-04:00

Wow! Did this market throw us a curve ball. Just when the SP looked
like it was going to sink into Bear mode, prices bounced off the 200
EMA, shorts covered, new money came in, and we have blossomed into a
stunning rally that ripped apart a possible HSH top pattern and now
threatens the former May high of around SP 1370. So, now what?
As I flip through my charts, I'm struck by the number of strong growth
stocks that have traded sideways over several weeks instead of
declining like the majority. As I said before, this correction was
triggered by the failing financial sector and quickly followed by
profit-taking in the oils and materials. However, the health care,
pharma, and biotech sectors held strong, correcting sideways over
time, not down, and forming these long multi-week bases. In some
cases, these bases are thin and straight like VRX and JNJ. Other bases
are U shaped like WTI. Now the stocks are busting out of these bases,
starting new up-legs. The first ones, like CAH, have had strong moves
and need to rest before new purchases should be attempted. Others like
JNJ and VRX are testing resistance and can be bought either as they
emerge, or on pullbacks (my preferred style of entry). Some stocks
about to break out of bases and start new up legs, include VRX, JNJ,
HNZ, COST, and CELG.
Other powerhouses that have broken out and need pullbacks for new
purchases include CAH, CAKE, AMZN, and MCD. With the market so ST/OB,
many of the most powerful stocks should pullback over the next several
days, making them ideal purchase candidates--buying the first higher
low from a base breakout, or intermediate low is a high percentage
trade.One way to enter these high-momentum pullback stocks is Alex's
classic 2-day FI entry. After a strong stock breaks out and has a run,
I start hunting it, using the 2-day FI. Once 2-day FI sinks below the
center line, I place a buy stop order a nickel above the previous
day's high. So if the stock resumes its rally, I'm in, if it declines
for a second day, I follow it down. I'll do this for 2-3 days as long
as the 8-day and 20 day EMAs are trending up.
I also use this entry system on stocks that have strong earning
"surprise" announcements. Many times stocks (MKC, last week) will
announce earnings that are above analysts consensus and then sell off
the same or next day for some odd reason. Then they will consolidate
for day or two around the EMAs, like a punch drunk fighter struggling
for balance, then take off. As FI moves back up toward the center
line, I'll like for entries.

Fwd: More on 200PB

2011-07-02T20:05:00.002-04:00

A Spike member had a couple of questions about my 200PB post. The
pattern is very straightforward--buy blue chip stocks after a decline
to a rising or flat 200 EMA from an intermediate high.This is
basically a deep, deep, pullback pattern. Confirm the set up using
bullish divergence on MACD or FI, or a 1,2,3 Bottom. I use a pivot
system for entry into this set up and several others when I'm
anticipating a reversal.The first image is my basic slide explaining
pivots, which are usually 3,4, or sometimes 5 bar set ups. Buy or sell
above/below the last bar. I try to enter on close if possible, never
on opening gaps. Stop is at the low/high bar's extreme, but I adjust
for position size, risk amount, and market dynamics. Next is a shot of
CAT outlining the pivot in action. Following that is a graph of INTC,
which I mentioned in my other post. I traded INTC around a couple of
days of business travel, so it was awkward, but ended well. Finally,
DBA is now set up in the 200PB with a 1,2,3 Bottom. Ideally, it will
form a narrow-range (small) bar in a day or two, which will allow a
low risk entry. The market is overbought, which makes me cautious and
I have another business trip next week, so I may pass.The 200PB is a
reliable set up--it just doesn't happen that often.
I have closed out several recent 200PBs after initial moves up. I will
follow them, looking for repeat entries as they pullback using 2-day
RSI and 2-day FI to time the entries. AAPL, CAT, DD, and DOW are
200PBs that may offer re-entries on pull backs.
--
Grant Cooke
Sustainable Energy Associates
gcooke@sustainableenergyassc.com
925-989-7117

The 200PB by Grant C

2011-06-28T19:09:00.002-04:00

We all have our favorite trading set ups that we are shy to share. I
have 2-3 that I keep to myself. However, I thought I would mention the
200PB since there are numerous current opportunities. I discovered
this set up long ago, but only seriously exploited it in the last few
months. The theory behind it is simple. Institutions will buy, or
reload, on Blue Chips stocks once they have made an intermediate high
and then declined to a rising 200 EMA. This behavior results in a
short term tradable bounce. Adding bullish divergences in MACD-H and
FI as price tests this support zone provides a significant positive
dynamic.
The buy point is a completion of a positive pivot above the 200
EMA.This behavior seems more common in high-volume, high-price Blue
Chips than in smaller stocks. Note in NFX, price completes the 200PB,
then knifes through the 200 EMA on the second test. I'm only
interested in trading the first test of 200 EMA support, since each
test increases the odds that price will break down through it. Looking
at today's charts, I've noticed that INTC has set up, after trading
sideways for a few days along the rising 200 EMA. Depending on
Wednesday's Greek decision, INTC may be a candidate for a bounce.

Three solutions for saving and syncing your data - by Member Igor S

2011-06-20T22:56:00.000-04:00

[This post came from a member Igor S who is a professional programmer - Alex]

If you use more than one computer you have a problem – how to sync your data? You can do it manually using flash sticks, external hard drives, or a network. But there is a simpler method – automatic sync via a web-server, provided by a free service – Dropbox.com

1. Dropbox.com = Automatic sync data between computers

First you must register on their website, download and install software on all computers and smart phones you plan to sync. Then you can simply drop any data (and portable software) into special “dropbox subfolders”. That’s all. All other sync routines are done automatically. Dropbox watches the “dropbox folder” for any changes, maintains a copy of it on a protected web-server, on then sends it to your others computers when they be turned on and connected to Internet.

The Dropbox is safe and very simple. You get 2GB of disk space for free (and additional space for 10 – 20 dollars per month). Having your data on a web-server you has additional benefits: your files are always available to you via web-interface; you can restore deleted files and old versions; you can share files simply dropping them into special subfolder.

Look at this video tour - https://www.dropbox.com/tour and read the complete features list - https://www.dropbox.com/features. Please register on Dropbox using this link - http://db.tt/Xwz6QHk (it will give me bonus drive space).
2. Another very useful and inexpensive software is Total Commander - http://www.ghisler.com/ It has special semiautomatic tools for synchronizing directories. Look at these screenshots - http://www.ghisler.ch/wiki/index.php/Synchronize_directories . Total Commander compares media and shows you color coded differences: what files are newest, what files exists only on one media and so on. You can mark files and direction for sync and click Synchronize button.

3. Acronis True Image a powerful backup for your data and system - http://www.acronis.com/homecomputing/products/trueimage/ Ithelp you in case of a system crash, physical crash, or a loss of your notebook.

It can create image of your entire computer to restore your system in case of damage. It can automatically make real-time copy of selected folders to an alternative hard or flash drive.

It can store backups and give you access to your files via a web-server - http://www.acronis.com/homecomputing/products/online-backup/ (Cost for 250GB is about $50/year).

Igor S

SP Down about 8%

2011-06-16T14:46:00.002-04:00

The market doesn't "feel" like it's in a major drop (fear seems
surprisingly muted), yet the SPY/SP is down six weeks in a row for the
first time since the April-August correction of 2010. From the May
high of 137.18 the SPY has dropped 8% to its 39 WEMA of around 126.
Most interesting, the 5 week RSI (great weekly momentum indicator) is
down around 19, more oversold than the 2010 correction. All of which
points to a market that has had a quick crack, and is rapidly getting
to oversold extremes.Since anything is possible, we could continue
straight down, but the highest probability indicates some sort of
short-term price stabilization--even a bounce off the 200 EMA support
zone. Generally, an index will test the 200 EMA a few times before
deciding which direction to trend. Looking back at the April-August
2010 correction, there were over a dozen moves back and forth through
the 200 EMA, so we're probably going to be in for similar range-bound,
base-building action.

Choppy around the 200 by Grant C

2011-06-15T21:59:00.002-04:00

I use the 200 EMA on the indexes, especially SPY/SP for a variety of
purposes. In particular, it serves as a magnet for price--always
pulling price back from either direction over time. It also creates a
strong zone of indecision as price comes and goes. This creates a
choppy period until price finally moves away with conviction.
Recently, price has been in a major decline as it springs back to the
200 EMA/baseline after its significant rally ended in early May with a
false breakout and massive MACD-H and FI bearish divergence on the
weekly charts.
This week the 200 EMA chop was as bad as it gets, and prudent behavior
required small trade size, or no trading at all. (Conversely, day
trading is great during this choppy period.) Watch the Qs, they have
just knifed down through the 200 EMA on the close. Typical behavior
would be for the Qs to bounce around below the 200 EMA for a day or
two, test it as resistance, then collapse for another leg down. Look
for the other indexes to follow the Qs down. Particularly weak are the
financials( XLF), which crossed down through the 200 in late May
pulling the rest of the market into the gloom. (Full disclosure, I'm
short the Qs at today's close.)

DOW forms Head & Shoulders by Grant C

2011-06-13T13:43:00.002-04:00

Amazing how market behavior repeats, isn't it? Despite all the emotion
and passion that goes into trading--much of it contradictory--price
seems to want to follow previous behavior. A prime example of this is
the way the DOW tops. This venerable index forms a common Head and
Shoulders pattern as it tops. This pattern jumps out from the daily
charts--see the tops in late 2007, the recovery rally top in 2008, and
now the current 2011 top. While the other indexes are forming raggedy
versions of this pattern, the DOW's is distinctive, and right out of
the textbook. We had the left shoulder in mid-April, the head in early
May, and the right shoulder in early June. Now, with last week's
collapse, the pattern is confirmed as price breaks the neckline
between the two shoulders. Classic market theory says that the decline
equals the distance from the neckline to the top, so we can project
another 200-400 point decline.
Remember, this is a broad pattern approach to the DOW index. So, its
more strategic than tactical, and the overall market is tending to
short-term oversold so be cautious with shorts. Nevertheless, this is
a weak market, so traders should be on the lookout to short rallies.
For those looking for shorting opportunities, the Qs look to be the
first of the US index ETFs to break below their 200 EMAs, so it can
be shorted if it knifes through this support. I also suggest peeking
at the foreign markets--if the U.S. markets continue to decline, the
rest of the world will decline at a faster clip.The precious metals
also look weak and GLD is putting in a 1,2,3 Top on the weekly chart.
As you can imagine, TLT, the bond ETF is on the verge of making new
intermediate highs.

A Few Ideas for Summer Trading by Grant C

2011-06-09T13:53:00.002-04:00

Summer is here! The temps are heating up and where I live just south
of California's Napa Valley, the grapes are budding. If you are not
planning to take the summer off completely as a trader, here are a few
ideas to justify paying the commissions.
++The SPY and the SP are on course to test their rising 39 WEMAs, or
200 DEMAs. For the SP this will be around 1260 or about 20 SP or 200
DOW points lower. It will be a slow grind down over the summer as
traders try and protect spring profits. Short the SPY on bounces, or
buy the inverse ETFs on pullbacks. If SP price closes down through the
1260 zone, more selling will come in from institutions that use the
200 for binary buy/sell decisions.
++Despite the "Cloud" chatter, tech seems to be a waste land, but the
Qs are shortable on bounces. On both the Qs and SPY weekly charts the
10 WEMAs (50 day EMA) are crossing through the 15 WEMAs, confirming
the trend reversal. We will probably get a choppy, sideways range with
a down bias this summer. Short bounces into resistance.
++The favorite spring trade was long oil, short financials. The
May/June decline was triggered by a collapse of oil stocks on rumors
that OPEC would pump more oil. The oils should get a short term bounce
now that the OPEC meeting has passed; however, the financials will
remain weak and shortable on bounces. Also, the inverse ETFs--like SKF
and FAZ--are buyable on pullbacks.
++AAPL is trading in a sideways range and is buyable at the lower
envelope. I use a 2-day RSI to pinpoint oversold and overbought in
AAPL. This indicator seems to work well with AAPL, particularly in
this sideways range.
++Europe is probably toast, especially if they raise interest rates.
Raising rates will push the Euro up/Dollar down, which means tourism
will be down throughout the EU. EPV is the inverse Europe large cap
and its showing massive bullish divergence on the weekly MACD-H. It's
my choice for summer fun.
That's a rough outline of my summer trading plan. Remember most hedge
funds and large traders have spring profits they will be trying to
protect, so rallies will be sold, then sold short, or hedged. We have
returned to the basics--sell strength and buy weakness, and don't over
stay positions.

S&P 500 Parallel Lines…giving us a clue about direction? - by Susie W

2011-06-03T11:42:00.001-04:00

[This came in from Susie W, one of our longest-term Spikers - Alex]

Yesterday, we saw a beautiful pattern of parallel lines; price just kissed the lower line and was rejected and then closing midway between the days’ high and low. Histogram, however, does not look terribly happy and did not cross the zero line on the last upswing. Nevertheless, the decline appears controlled with a potential turnaround in the offing.

Today, price broke through the lower line but quickly retraced. Support at the lower parallel line, right around 1306, seems to be holding.

Led Over the Edge by the Banks by Grant C.

2011-05-24T20:01:00.002-04:00

I almost choked today watching a richly-dressed money manager pitch
the banks/financial stocks on CNBC. Couldn't believe how he deftly
spun a story of rising profits, increased dividends, and generally
healthy prospects. Well, he's mistaken if the market is the judge of
the financials' future. I've been clocking the down turn in the
financials for a couple of months, wondering if their weakness would
create a reversal in the S&P. In the first week of May when the SPY
price punched higher, than ended the week down forming a false
breakout on the weekly chart and confirming a 1,2,3 Top, I knew that
the financials' weakness had caught up with SPY and the game was over.
Look at XLF, the financials ETF. After peaking in Feb, it drifted down
and then sideways until the EMAs crossed and then the downtrend
accelerated right through the 39 EMA. How far we go down isn't clear,
but maybe another 10-15%.
SPY is heading down along with the financials. Price is now trading
below the 50-day EMA, confirming that the short term and probably the
intermediate term is down. We could stabilize here for a week or so,
but watch out if the weekly EMAs cross and the 10 WEMA (50 DEMA)
starts to fall.That said, SPY is short-term oversold so we might get a
weak bounce. Now is the time to shift to Bear Mode and look for
chances to short bounces in the indexes. Nothing much will happen on
the upside until price breaks through the down trend line on the SPY's
daily chart. There's some support on the SPY around 130 or SP 1300,
and more support around the rising 200 EMA. The financials have led
the market down this spring, so we need to see what happens this
summer.

An Australian Member looking for contacts

2011-05-23T17:11:00.000-04:00

A Member from Australia wants to begin trading in the US. He is looking to contact other Australian members with questions about tax implications and brokerage services such as Zeeco. Please reply here or write to info@spiketrade.com, and we will forward to him.

Boris
client services

"Solar system" revisited - by Susie W

2011-05-18T08:38:00.001-04:00

[A Spiker revisits her post from a month ago --- Alex]

It was just about a month ago (April 15th) that I wrote a blog about the consistency of a technical pattern (pennant) that I observed in the solar stocks. It appeared to me then that this sector was headed for a downturn. Several stocks were hugging the 200 EMA and they looked weak. As I also mentioned in my Spike presentation, from an economic standpoint and despite the inherent value of solar power, money is simply too tight to be funding these companies at this time.

Let’s look at a few charts. I have drawn a vertical line when I gave my previous blog presentation so you can easily see where we were then and where we are now.

Here we have LDK. Pennant lines converged when price hit the 39 and 50 EMA’s; it broke through the 200; thought it might hold at a potential support at 10 and broke; I then drew parallel lines from the gap in January to the low in March and that did not hold; today it dropped nearly 7% on double normal volume. Is it a falling knife? Only the histogram suggests it may be getting close to inhaling.

Let’s take a look at SOL. SOL didn’t make it to the convergence of the pennant, but sputtered at the 200. It hit its head a few times on the 200 but obviously all it got was a headache. It was down five and a half % today on slightly less than normal volume. Again what may be noteworthy is a slight bullish divergence on the MACD Histogram.

FSLR, perhaps the bellwether for solar, broke below the pennant when I last reported; it took a little hike above the 200 at the end of April, then got slammed when it hit the pennant line together with the convergence of the 39 and 50 EMA’s. It was actually up 1% today, looks like it is trying to base, and once again we see a MACD Hist. divergence.

YGE had a 4 day fiesta the end of April beginning of May then dropped just as heavy and is now showing a potential triple bottom.

Last, but not least, is my favorite TSL. It hugged the 200 for 6 days in May and then fell off a cliff…and especially today… with a near 7% drop on double the normal volume. We now see a doji…a sign of possible indecision (double bottom anyone?)

Are we nearing a selling climax? I suspect we may be approaching that point.

Note: I did not include SPWRA in my solar update because it seems a European oil producer acquired 60% of the company. Imagine! My technical analysis pales next to that!

Susie W

Mean Reversion Revisited by Grant C

2011-05-16T17:14:00.002-04:00

Experience has shown how valuable the concept of mean reversion is to
price behavior. Price, particularly as it applies to the S&P and other
major indexes, tends to revert to a normalized moving average over
time. This is especially true with the S&P price and it's tether, the
200 DEMA, or 39 WEMA. Back in late February, I posted a chart that
showed that price had stretched 11% away from the 39 WEMA and noted
that was at the outer range of price extension during a bull run. (A
strong bear bottom can stretch price as far away as +30%.) Well, from
late February price has closed that gap as it struggles with a topping
pattern and now is about 7% away from the rising 39 WEMA. I anticipate
that this reversion behavior will continue until price retests the 39
WEMA, probably with increased velocity as it declines. A weekly close
below 132.5 would confirm my suspicions that an intermediate top has
formed. The financials, one of the stronger S&P sectors is in a
downtrend, making lower highs and lower lows.
Mean reversion functions on multiple time levels, for example, there
are several high percentage mean reversion concepts that can be
applied to short-term S&P trading. In most cases, the further price is
stretched from the mean, the higher the probability that it will
revert.

More on SPY by Grant C

2011-05-09T21:12:00.002-04:00

Sorry, forgot to note the bearish divergences on the weekly SPY,
particularly in 5W RSI and 13W FI.

Heaven to the Left, Hell to the Right by Grant C

2011-05-09T20:57:00.002-04:00

We are at one of those exquisite moments in the market. The market's
usual fog has lifted and we can see clearly the forks in the road. On
the fork to the right, the SPY is struggling to overcome a 1,2,3 Top
on the weekly chart. As you can see, we rallied, then reversed last
week, leaving an ugly false breakout (Little Worm) right at 135
resistance. If this week closes down, particularly below the 10 WEMA,
we have a confirmed top in place. On the fork to the left, the
financials (XLF is the ETF) look perky. If the financials hold support
and rally, they will likely carry the S&P past the 1,2,3 Top
formation, which would be hugely bullish and extremely rare
technically. JPM is a major driver of the financial stocks, so
watching it will give you an early tip off. The SPY's pattern on the
far right, with a one strong week pushing through resistance, then
with an equally strong reversal the next week is very rare. I call it
a King/Queen pattern and if you cycle through the SPY's history, it
usually forms at the SPY's tops/bottoms.However, at previous tops, the
market was very overbought, now the MACD-H shows slightly oversold. It
is moments like these that traders live for--stay close to the price
action over the next week or so, because clarity in the market is
rare, and most importantly, very profitable.

Bonds Trending Up - a Bad Sign for Equities? ... by Sergey S

2011-05-09T17:17:00.000-04:00

[This came from Spiker Sergey S]

Bonds and equities tend to be negatively correlated. The bond market is ten time bigger than the equity market. Bonds began to rise in February and now there is definitely a nice uptrend. Look at the charts below:

TLT,IEF,SHY,MUB,LQD

If we look at the money flow of long term mutual funds, published by http://www.ici.org/ , we see that for the last five weeks money have been moving into bond funds. This steady inflow in to bonds is generally not a good sign for equities market.

MF

The Hour Before the Open by Susie W

2011-05-08T10:15:00.001-04:00

[this came from a long-term Spiker - AE]

The eternal question for a trader…. “What is the best time of day to set your trades?”

Trading sites are rife with a myriad of opinions!

For instance, we are advised to definitely stay away from the first hour. You don’t want to get caught in the deluge of overnight orders that are just waiting to be filled…and you certainly don’t want to be assigned to the camp known as “amateur hour” players.

Then, we hear in a more boastful tone….”Trading the last hour of the day is for the big boys…that’s when the “BIG” money comes into the market.” Hop on, we are advised, and follow their lead! After all, it is VOLUME that moves the market!

Then there is the 10AM reversal… and the 11 AM reversal. And then, of course, all the floor traders are at lunch between 12 and one so it is futile to trade then. And if you watch it carefully, you might see the market change direction again at 2. It often seems it likes to change direction right ON the hour.

So...where does this leave the poor trader? Constantly going mad trying to anticipate the next hour and the next move the market makers will take. Never leaving the screen! Mesmerized! On high alert! And ultimately emotionally exhausted…..

Nonsense! There is a solution to this madness. And it’s called, “What if?”

It is something we hear often enough, but I will wager we rarely follow through and do it. This is most assuredly essential of you have “soft” stops…but even so if your stops are hard.

The most important time in your trading day is the hour before the market opens!

Let me repeat.

The most important part of your trading day is the hour before the market opens!

Any why is that?

Overnight news, national and international disasters, economic numbers, earnings reports, investor sentiment…most are announced before market open. This is the crucial hour. As we know, it’s not so much “what” the news is, but “how” the market reacts to it.

And some of the premarket action is very dramatic.

What I advise is to look at EVERY open trade and analyze best scenario/worst scenario and take definite action with projections and/or stops. I, personally, would not use this hour to contemplate new trades, but only to protect or take advantage of what I do have.

How many times have I been caught unprepared? Too many to count! Calmly turning on the computer 15 minutes before market open and I am still yawning as my coffee is brewing….not good!

I’m writing this to document as much what I need to do every morning. Seeing it in black and white makes it more real and much more doable.

On missed opportunities - by Steve A

2011-05-08T08:08:00.000-04:00

[this post came from a long-term Member - AE]

My Spike pick (STLD short) behaved very well this week, but unfortunately I wasn't on board. I followed the trade, and there were opportunities to enter according to my (developing) trading rules, but these occurred primarily on Monday, when I couldn't be in front of the screen (due to arm surgery). Later when I was pondering missed opportunities I marked up a chart to identify possible entry points - I went ahead and attached it (comments welcome!).

Steve

A Trading Theme: Takeover Candidates - By Patricia L

2011-04-24T16:37:00.000-04:00

Dear SpikeTraders,

I believe that one’s trades should follow a theme. I believe in reaching a fundamental view on some major trend and only then switching to technical analysis. I use charts and indicators to zoom in on specific stocks from the fundamentally selected group.

I have been asking myself lately – what is the next big fundamental theme. Corporate America has undergone restructuring and cutting cost to increase profits in the last two years. Furthermore, Corporate America has hoarded cash after the financial crisis. I believe companies are now ready to begin acquiring companies to boost future earnings growth.

This means focusing on stocks that may be targets of mergers or takeovers. In this post I suggest several candidates – and invite you to add your comments by suggesting your own takeover candidates or even better screening methods for such stocks.

NSM, DSCM, GSIC, CEPH are takeover candidates because of their levels of cash per share, while NYX is a merger candidate. These companies are in different industries but all have received offers ranging from 24.25% to 113.4% premium over the latest closing price of the stock. The companies that bid for them see them as channels into their businesses.
The most controversial takeover is New York Stock Exchange (NYX). Not only did NYX receive an offer from Deutsche Boerse, it also got an offer from Nasdaq (NDAQ) and IntercontinentalExchange (ICE). The acquisition of NYX will not be finalized until after regulatory approval.

Of the other five stocks, three are being acquired at deep discount from their all-time peak prices. Ebay announced the acquisition of GSIC at $29.25 per share for cash, 2 cents below its all-time high. EBay acquired GSIC to expand beyond its network of small power sellers, to connect with large retailers. Valeant offered CEPH $73 per share, 12% below its all-time high.

MY QUESTION: how can we identify such stocks prior to their takeover or merger announcements? The idea would be to acquire a group of such stocks, not put all eggs in one basket.

Last year, I traded in and out of NYX because I believed that a brand-name company with all time high price of $112 per share could not be trading only 1/5 of its high price. I was attracted to this stock pattern, but was short-sighted in seeing it as a merger-acquisition candidate.

Actually, looking at this chart, it seems that the offer of $42.67 from Nasdaq and Intercontinental Exchange is very low. I want to find companies with similar patterns, where stocks are trading sideways for a long time.
Here is another example of a similar pattern.

Please add your comments to this blog. Thank you.

Patricia L
Spiker

NZ$ vs US$ - by Peter M from New Zealand

2011-04-23T15:23:00.000-04:00

Our NZD is at very high levels against the USD and in November last year when the dollar was around the same rate against the USD our government was making noises about trying to do something about it. We are again at this level and it may be caused by a weak USD rather than a strong NZD. On this chart there are 3 prior climbs to the same area and lack of long term support. I am not a currency trader and placing this blog simply because I like the chart and the fact that our country will face trouble if the dollar climbs or even stays at this level for any length of time. The news on a few sites around the USD gives me the impression that the USD will need to become more desirable very soon and that the processes in the US may cause this to happen in the near future and that will affect the NZD/USD currency pairing.
Please share any ideas that you may have
Peter M

Gaps - Run or Hold?

2011-04-22T11:36:00.000-04:00

[This post came in from Nick V, a Member in Upstate New York]

How do you handle large opening gap against your trade? Do you immediately exit, taking a large loss OR do you hang on hoping the gap will be filled shortly?

On Monday April 18th I liked the short setup of Salesforce.com (CRM) and took a good-sized short position with a tight stop. The trade was showing a nice profit until Wednesday morning when the stock gapped up right at opening. I have a rule that I try not to trade during the first hour of trading so I sat back hoping the stock would settle down and come back to earth since it had totally blown through my Stop at the open.

As the morning progressed, CRM continued to surge, increasing my paper loss. I had traded BAS short two weeks ago and the same thing happened to me. Except in that case I exited the trade immediately at the open and took a large loss only to find that within 2 days BAS had filled the gap and was now trading even lower than before the gap.

So now I was sick to my stomach seeing another large gain vaporize in a matter of minutes, blowing through my stop via the gap. I was sick that the BAS trade would have still been profitable if I had held on. Now I was very nervous watching CRM continue to build momentum. It closed at its high with a 9% gain for the day. I decided to hold, hoping the gap would get filled, taking a pretty big risk.

Today, April 21st, CRM was down 1.5% helping to erase some of my loss and I continue to hold the stock as the 60 Min chart which is attached is showing some large negative divergences and looks like CRM is getting ready to drop and possibly fill the gap. I will give the trade another 1-2 days to continue to work lower or I will exit with my loss. The short setup is looking rather good and I would probably go short this stock given the setup if I wasn't already in.

Thanks for your comments and opinions.

Nicholas V.
SpikeTrade Member

Uranium Stocks - by Peter M (New Zealand)

2011-04-21T19:06:00.001-04:00

Is anyone watching the Uranium stocks: CCI, CCO, URZ, UEC, URG, CXZ, DNN, URRE, HBM.

There is a mix of explorers looking for uranium, miners, and miner/producers. I can’t see any real reason for the decline in stock prices apart from a reaction to the Japan disaster and a bail-out by some investors.

The miners and producers are in an uptrend or else looking like a move will come soon, as there is a base building and some life in the MACD and MACD-H. The miners do not have any cyrrent earnings but have had some good prices in the past. They all seem to have been on the way up until recently.

Please share your ideas!.

Peter M

A New "Solar System"? - by Spiker Susie W

2011-04-18T08:13:00.001-04:00

A POSSIBLE SOLAR “SYSTEM” reveals itself…..

Constantly vigilant for order and repetition in an essentially chaotic (random) world of stocks, I return again and again to sectors, where I find the most likelihood that an island of order will emerge. You may agree or not, and your comments are welcome.

I began to notice the similarities in solar stocks last weekend as SPWRA was on my radar as a potential Spike pick. As it happened, it was Henry A’s choice.

A “PENNANT” formation is where there are lower highs and higher lows which are heading towards a convergence.
Next, take a look at LDK (a stock I have been shorting this past week). I did not draw the highest peak made in February, as the angle would have been extremely sharp…but I did include the two most recent highs:

Take a look at SOL and notice the similarities:

FSLR, probably the most popular in the solar arena, just broke down below the pennant….which tells me that the sector may be heading South. Notice, as well, that they are all hovering right at the 200 EMA, of which FSLR just broke through:

YGE looks very similar to the other stocks in the sector. Notice here, once again, how price in continually moving above or below the 200 EMA. The moving average is like a magnet…providing either support or resistance.

My opinion (even though my crystal ball is on the fritz) is that sooner rather than later, the 200-EMA will give way and when it does, price will hit its head on the ceiling and the 200 will become a strong resistance even before the upper and lower pennant lines attempt to converge. Thus, solar stocks will fall.

Susie W
Spiker, Mexico

Possible Trades by Grant C

2011-04-13T15:42:00.002-04:00

Three low-risk trades are setting up that Spikers might find
interesting. The first is USO, the oil ETF--after hitting a high of
+45, USO crumbled over 6% in two days. Now, we're testing the old
breakout area of 42-42.50 and if it turns into support, we might get a
quick recovery bounce to the 44-45 area. The second trade defies the
general horrific sentiment about Japan. The EWJ, or Japan country ETF
is showing huge bullish divergence on the daily MACD-H after
completing a 1,2,3 Higher Bottom. In addition, a nice short may be
setting up in JPM, as well as the overall financial sector ETF, XLF.
JPM announced seemingly strong earnings, opened strong, then collapsed
in a reversal; an very ominous sign. If it continues to show weakness
over the next few days, it will probably mean that the financials are
rolling over. FAZ and SKF are two inverse ETFs that are short the
financial sector. Both have major bullish divergence on the weeklies
and are completing 1,2,3 Bottoms.

JPM Threatens Breakout by Grant C

2011-04-07T20:19:00.002-04:00

If you've been wondering what has been holding the SP up as price
probes a potential breakout or failure, take a look at the financial
sector. This sector, pushed by powerhouse JP Morgan and steadily
improving regional and consumer banks, is turning into the market's
"Little Engine That Could". Much of this stealth move has come as the
banks reintroduce dividends and other investor-friendly benefits. Keep
a careful watch on sector-leader JPM as it closes in on the +48 area.
We've been up here three other times, and now the bets are lined up.
There is a massive amount of money getting ready to wager one way or
the other; either we crash through resistance (see weekly chart) and
start another leg up, dragging the SP along, or JPM crashes and burns
in a classic 1,2,3 Top. If it crashes, most likely it drags the rest
of the sector and maybe the market with it. How to play this
potentially important move? At the moment, the price is OB on the
daily, so a trader could wait for it to drift back to value. Or if it
powers up through 48, you could play the breakout (not my choice).
Probably the least risky tactic is to wait for a break of 48-49 and a
retest of resistance; if it turns into support, then the race is on.
If it breaks and retreats under resistance creating a false breakout,
then a 1,2,3 Top is in place and we could short the reversal. In
either case, know that lots of traders are watching JPM closely,
wondering if that multi-month sideways correction has created a long
enough base to support JPM for a break to new highs.

PCP setting up by Grant C

2011-03-22T17:53:00.002-04:00

I admit to being bearish at the moment, but I'm willing to hedge. One
stock I'm long is PCP, a parts casting company that's attracting
buyers. PCP put in a classic 123 Bottom with huge bullish divergence.
Now it's resting comfortably after regaining the 20 EMA, waiting for
the 8 EMA to cross up. A squeeze is coming on both the weekly and
daily charts, so pay attention. If it goes up, it will move fast, and
the same thing is true to the downside. Also bullish is the
volume--lots of shares changed hands as the bottom formed. There's a
ton of new money in the stock now, which may attract more buyers.

Gold topping? by Grant C

2011-03-20T21:31:00.001-04:00

I've been making small trades in various gold mining stocks and ETFs
for several years now. Despite my firm belief that gold is essentially
worthless except for its value as jewelry, I've traded it from the
long side respecting the extraordinary bull market. Now the Gold Bugs
are calling for gold to push forward to at least $2k per ounce,
claiming that the more paper money thrown at the markets the closer we
are to hyper inflation--leaving gold the only true currency of value.
Well markets go both ways, and from the looks of the charts, the
better trade is to go short the bullion, or buy the inverse ETFs--DZZ
or GLL. Watch the daily price of GLD as it retests the high at 140. If
we reverse on the daily chart, we'll be following the pattern forming
on the weekly and monthly charts. At this point, GLD has lots of air
in the rally, and upward wedges are always dangerous, so if it drops
we could fall hard.
See you in a few days at the Traders Camp.

Where To Now? by Grant C

2011-03-16T22:04:00.002-04:00

I like to rough out the most probable scenarios after a major market
upheaval. Having a plan, even one that is somewhat ambiguous helps
focus my attention. Awhile back I posted a blog about how far SPY
price had stretched from the 200 DEMA. Generally, during a rally when
SPY price had stretched 10-13% away from the 200 EMA, something nasty
happens and we snapped back to the 200 EMA. That seems to be happening
now, triggered by the horrific tragedy of Japan, and the political
upheaval of the Mid-East. The odds are tipped to a return by price to
the 200 EMA area, which coincides with a 32% Fib number. This would be
the first level of support. If we continue lower, look for support
around the 50% Fib level about 118. Most likely, we'll get a feeble
bounce soon, since we're oversold, so pay attention and plan ahead.
We've moved from "buy the dip" mode to "short the rally" mode, so look
to short stocks, or buy inverse ETFs as we work lower. There's a
variety of options that should clear up in a week or so. Right now,
I'm particularly interested in what impact the world's central banks
will have as they ratchet up the flow of funds into world markets. If
they pour enough cash into the world's financial system, they will
ignite another major rally. Also, gold as an inflation hedge is
probably done ( a great short is coming here--gold's inverse ETF is
GLL). The threat is now deflation and the central bankers know how to
fight that battle, and they will print money 24/7 until Japan's
economy and social/political system stabilizes--maybe 3-6 months.
Watch the other commodities, they all look weak. XLE is teetering on a
support level now, and should eventually drop through it. Take a look
at the extraordinary bullish divergence in SCO, the short-oil ETF.
Traders Camp is just around the corner. Hope to see you there.

Diamond Top Follow up - Steve M

2011-03-10T16:27:00.002-05:00

Diamond Top Follow up

The two Diamond Top patterns are eerily similar. So far, we have a nasty pattern break on strong volume. Where do we go from here? If we continue to mimic the May 4, 2010 pattern the market would play out accordingly:

Day 1: Almost identical moves. Prices penetrated but did not close below the 50EMA in May, however that was not the case today, which could magnify what follows this time.

Day 2: This was the pivot day. Prices broke the 50EMA, retested, but failed to recapture the 50 level. Tomorrow is Friday, so possible robust profit taking in the afternoon with the likelihood of some bear shorts piling on if there is trouble in Saudi?

Day 3: Capitulation. The bulls are complacent crying to buy the dip, while the smart money has left the building. Fear ramps, sell fingers get itchy, indecision gets flattened.

The result? Matching sequels of the two Diamond top breaks (May 4 and now)

Here is how interconnected markets reacted to the sell off in May:

1-GOLD: Bounced off of its rising 20EMA, then surged to a new high.

2-OIL: Dropped 12% over 4 days before rebounding.

2-DXY: Broke out of a trading range and rose to a new 52wk high.

3-VIX (VXX): Day 1 of the Diamond top break, VXX broke out of a pennant flag pattern and rose modestly to the 50EMA, gaining 7.7% (today it rose 5.24%). Today several analysts were assured that this is just a pullback because the VIX did not explode. Hold on. Day 2, VXX blew out of the channel on strong volume, rising another 4.5%. Day 3 was a climax bar, taking the VXX up for another additional 35% gain. Clearly, if the same trail is trod, the VIX should really ramp over the next few days. If not, that would be somewhat of a "Hound of the Baskervilles" sign and we will probably bounce. It is probably dangerous to interpret today's lack of "explosion" of this index to mean that we go up from here.

An interesting note - then, as we heard today, the sovereign debt crisis was front and center in the news. Only now we have the Middle East roiled up, China slowdown and the Fed in a very difficult place, among other "cheery" things listed previously. Just my rambling,...done for now :)

GLTA,

Steve M

Watch carefully by Grant C

2011-03-10T12:32:00.002-05:00

To say that the market is at a critical juncture would be truly
understating the obvious. Thanks to some recent strength in the
financials, the S&P is still clinging to its uptrend. However, as
Steve M pointed out a few days ago, we've been forming this broadening
pattern that usually ends in a trend reversal. For that scenario to
play out, we end to knife through the 50 day MA support and close
below the 1300 level on convincing volume. The last time the SPY
touched the 50 was in December, when it bounced off this strong
uptrend. This time around we have been trading sideways for three
weeks and tested the 1300 level twice so we're at one of those
moments. While March is often a rough month for the market, this time
around we need to wait a while longer before the Bears can claim
victory. Instead of correcting, we could just as easily trade sideways
in a range and work off the rally. One thing is clear, there is a
rotation going on, and defensive stocks are stronger than growth. So,
if you're looking for longs, look to the food, pharma, beverage
sectors. If you like the Bear side, look at the chart of IEV, the
large Europe ETF. This ETF has the most egregious weekly Bearish
divergence I've seen in a long time. The corresponding inverse ETF,
EPV has a strong Bullish divergence and had a nice Breakaway gap
Thursday morning.
We're getting close to the March Trader's Camp, where I'll be talking
more about using patterns to enhance your Impulse system. Hope to see
you there.

Effective Volume - Is the Big Money Leaving (by Ray E)

2011-03-10T10:49:00.001-05:00

[this came in last night from probationary Spiker Ray E]

This is a 60-minute chart of the SPY for the past 5 sessions. The lower chart plots effective volume (EV). Red = small players; Green = large players; Yellow = total.

Note the negative (bearish) divergence of EV vs. price over the past three days. It will be interesting to see if this presages a break below support at around 1300 during the next week.

Good trading,

Ray E

2011-03-10T01:35:00.002-05:00

Diamonds Aren't Forever

Take a look at the similar pattern of the SP 500 with the Diamond top formation that existed on May 3, 2010. The SP 500 dropped a whopping 131 points over the next 3 days. Also, compare the NHNL reports, May 3, 2010 vs March 9, 2011. Will the Index trace a similar path that it did then?

Keep in mind, Oil prices are pressuring future bottom lines, prices are stretched with thinning volume, on the heels of a very prolonged bull rally. Also, the VIX is showing a bull flag pattern, while the weekly SP 500 MACD lines are poised for a bearish crossover – just the same as May 3, 2010. I will be very impressed if the Bulls ( + the powers that be) can pull a rabbit out of the hat this time.

Steve m

2011-03-06T18:13:00.002-05:00

Up or Down from here? Consider this:

The SP 500 is in a Broadening Formation which is identified by diverging trendlines that connect peaks and troughs.

Other identifying features are:

· They are found at the end of a prolonged uptrend

· Used to predict lower prices

· Broadening Tops are considered to be large reversal patterns with extreme consequences

· They feature widening price ranges with increasing volatility

· They are considered to be the product of "unrealistic expectations."

· The "megaphone" pattern always features extreme volatility and indecision

· Traders will use a 'doji' for reversal confirmation.

Last week saw wild swings of indecision and volatility, with wide range bars - but when the week ended - we were right where we started. The weekly SP 500 opened at 1321.61 and closed at 1321.15, only 0.46 points separating the beginning to the end of the week. That is about as close to the definition of a doji as you can get.

For what it's worth, this rare Classical Chart formation has traced a reliable textbook type pattern that is signaling an imminent reversal.

Steve M

Up or Down from Here?

2011-03-05T12:34:00.002-05:00