Divergence food for thought

Not sure how to interpret this chart (lack of belief in China growth?) but the divergence between $QQQ and the metal miners $XME hasn’t been this significant since 2008.    Our time-frame is too short to trade off such a chart but interesting nevertheless.   Even if you take out $AAPL out of equation the divergence is very significant as a $SPY/$XME chart shows  similar divergence.   Any thoughts?

Refiners coming into important zones

Refiners had a hard reversal on Friday and look like they want to test their respective 20SMA averages on daily.   Let’s take a look at our three favorites,  $HFC $WNR $TSO and their respective initial support zones.
WNR 17.6 range is the first initial support.   Note that this would be the first test of the 20sma this year.

TSO first support near 26.75

And HFC first support near 32.8

If they aren’t clearly trending down (following 20ema on 5 min intraday chart) we’ll try all three for support long buys, either a) waiting for reversal before entry with stop on low or b) bidding the aforementioned spots with around 0.5% stop.

To put it simply  bullish would be a bounce on the zones given in this post, and bearish would be no reaction on these levels as buyers shy away from initial support.

Refiners can sometimes act as decent market tells and with crude approaching $110 and $SPY at resistance we’re on the look-out for the possibility of at least a pause in the music.   Keep your eye on that empty chair.

Market hasn't gone anywhere but look at the move on these stocks

We have referred to this market as “benign” as a while now and one of the features of a kind bull market is even when the market sits and digests,  break-outs work.   Take a look at the last four freebies we gave out on the stream  $SLW, $IBM, $WLL, and $CLR.    Big moves in individual stocks while $SPY has done very little.
CLR was an alert in our newsletter but also a freebie on the stream for 84 break-out.

IBM has been on our list for weeks, and we mentioned many times on stream:

Just before we left for vacation we gave out this idea for SLW,  long on close with stop on lows of day.  Awesome continuation.

WLL 54 also given out on stream — and again, big move.

Market sits and does very little while individual set-ups work very well.   Definition of a benign market.

This is how we trade

We keep things very simple for our trading.   Every day after the close we manually scan through our universe of stocks looking for patterns to trade.   This is our homework and anyone can buy it for $44.76 a month.    We send our alerts out to our subscribers.   The next day we review everything that triggered, win or lose, whether we traded it or not, etc.
During the slow parts of the day we start writing the newsletter.   Right now we have taken day-trade profits in $AMZN $KLAC $ALTR long,  $WYNN short, and have small swing size positions on with hard stops that we’ll take into tomorrow if we don’t get stopped in the next 3 hours.
Our Sunday morning newsletter included all the alerts that we review today:
KLAC support was 49 or 48.5 overshoot. At 49 stock was trending lower without any pause, but finally green bar reversal on 48.5. Decent move back to the 20ema at 49 (overshoot often rallies back to primary support – that’s the first day-trade target).

ALTR 39.26 alert—found it’s footing just under and decent bounce back to S1 (day-trade first target).

We liked our chances with KLAC ALTR also because of SMH coming within pennies of our 33.8 support. The more support that hits at same time, the greater the chance of recovery.

WYNN short 112 at open we found impossible as it went on opening bar, bounced on S2, but gave good entry on bounce back to the 20ema and back to new lows.

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AMZN was the star of the day – but you needed some conviction on this one to buy the new high near the open. For those who hesitated stock gave second entry on pull-back to R1 at 188 and then great action to 190 which was first day-trade profits.  (Trend-line break was on our newsletter for Friday, and 188 was sent out Sunday morning — AMZN is one of the best trading stocks right now in the market).

Swing long as long as 188 holds.

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Every day after the close we manually go through our master list of 300 stocks to look for patterns. Sometimes on weekends we look for new names and do scans – FTI was a product of a scan. We often regret adding them after as we realize “there’s a reason the stock isn’t on our master list”. We wrote yesterday that FTI was not a good trading stock but 55 was big number. Decent swing candidate to keep an eye on on a close over 55, but crappy day-trade action at extended run and scum of 55.

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We don’t like surprises.  We like trading our pre-determined list every day and nothing else.

All charts are from E-Signal– our subscribers get a substantial discount on their service. If you’re interested please email us at info AT highchartpatterns DOT com

All about this chart

We are basing at the very important 135 $SPY area while trending higher on the 20ema on the 60 min chart.  However note that we have tested it three times already in three days — the more we test it the weaker it becomes.   If we revisit again any time soon good chance it will crack.

Sticky Level

The bulls couldn’t ask for better price-action thus far as the market is refusing to pull-back and instead is constantly digesting thru time and then making a leg higher.    We are at a sticky level– one we posted last week — the $SPY 134.8-135

Extended into a major resistance area but handling it well so far– the more we base near 135 the better the potential break-out will look.   We’ve mentioned for a while that our favorite sector right now is the $XLE — good bases in this sector and not extended (compared to market).     That’s the place we have been and will be focusing for near future.

Map going forward

Slight sell-off today making today’s candle completely below the Standard Deviation 1 on the Bollinger Band, first time since Jan 03.    However, we’ll err to the bullish side (buying dips/break-0uts) as long as we stay on top of this trend-line.   If we break it, then it would be time to re-assess but until then ball in bull court.

Quite possible that the “easy money” has been made as we have broken the Standard Deviation 1-2 trend but as said — as long as we are on top of the trend-line the bulls have the advantage $SPY

The re-test market

This last month has been one of the best markets for break-out traders we’ve seen in a long time.   Everything works:  not only the first break-out, but also the re-test, which is a sign of how generous the tape has been this month.      What do we mean by successful re-test?  Take a look at these examples:
We gave the first trend-line alert on $AMZN a while back as a freebie on the stream– first buy was trend-line break.    Stock ran,  then was faded back to trend-line and then ran again up to our next alert (this one was for HCPG subs only) at 185.   Again fantastic run, and again re-test and a break-out of our third pivot which was trend-line break.     Great trading stock.

$POT 44 was another freebie for the stream — nice break-out on original break and look how it came back to test the number and bounce this week.

$X 29 was HCPG newsletter alert for weeks — it finally went,  re-tested the number and bounced yet again.    Usually each of our alerts is good for one trade.  We’re now finding that the alert is giving us multiple trades — a sign of an extremely good tape for traders.

One last example in $SLW — 32 was our buy spot in the newsletter.   Worked great first time through, but look how it came back to re-test 32,  find support on the number and bounce like a rocket.

All traders with similar strategies to ours want this tape to stay like this for as long as possible.   Of course it never lasts for too long but as traders we have to milk it for what it’s worth.  We’ve written a few times this week in the newsletter not to overthink the market.   Yes we’ve come straight up, yes we’re overbought, but in this tape you have to put that aside and focus on the individual set-up.    If it’s good, take it, if it’s not, pass.   Today a good example as $SPY was flat yet there were break-outs galore left and right in momentum stocks.

Our strategy going forward is the same — we’re not going to hyper analyze strategies –  whatever sets up on our list we’ll take a shot ($NUS $LNKD were the two HCPG break-outs for today — fantastic moves in a flat market), and if nothing sets up then it’s usually the sign that market wants to pull-back.   One step at a time.

The chosen ones

Our readers know that we like to find big spots on our favorite stocks and then focus on them until they break-out.   The longer they’re on the newsletter often the better the trade.  Why?  Because we have watched the stocks for sometimes weeks and know their behavior very well.  When the break-out day comes and we see the action/volume fall into place our conviction is strong.  And once you get the basics down (strategy, risk management, etc) what’s left, at least for our type of trading, is all about conviction.
Two recent examples from 2012.    We saw $POT  44 in early January and wanted that break-out.   It was highlighted in our newsletter on Jan 4, 5, 7, 9, 11  until it finally broke out on the 13th.

 The same happened finally with $AMZN today which had been highlighted as 185 breakout in newsletters sent out on Jan  7, 9, 11, 15, 17 with a 5 point break-out today.

Every trading style is different but for us it pays to watch the big spots like hounds, learn the stock’s behavior, and then hit it hard when the big day arrives.      The disadvantage to this method is that there are fewer opportunities compared to strategies that constantly scan for volume, moves, etc, but the advantage is that the win rate (which in turn helps one’s confidence) is relatively high compared to other strategies.

It’s common wisdom that a trader’s strategy should synch with his personality — we’d rather trade less (relative to day-traders that is) and be right most of the time than trade more and be wrong most of the time, even if the PnL is equal.  Why?   Over the years it’s what has evolved naturally for our type of trading due to our desired levels of confidence, stress-level, and quality of life.

It's not the charts, it's what mood the market is in

Almost every break-out we had in our newsletter last week worked, from copper stocks, fertilizer, biotech, oil, tech, no wonder what sector, it ran.  They were the same patterns we had in second half of 2011 which often didn’t work.  Same charts, very different success rates.   Why?   Sentiment of course.  We wrote a few times in the last few weeks how this has been one of the most “benign” markets we’ve traded in for a long time (since earlier parts of 2011).    Even the gap-ups would offer opportunities, as stocks would be faded to alert numbers, and then spring like a rabbit up for fantastic moves.   Dips are shallow, buyers are aggressive, and everyone is a genius.       Indices go to resistance, stall, digest and then go higher the next day.  Enjoy it while it lasts because it never lasts for too long.
We’ve never been interested in mechanical strategies exactly because of this — in some markets the exact same chart pattern fails 80% of the time, while in other markets the same pattern works spectacularly for 80% of the time.    Figuring out how benign/generous a market condition is for us is integral to our way of trading.     In easy markets like this mistakes are forgiven, as long as they’re on the long side.   You chased up?  No worries, after a shallow dip stock goes right back to the highs.   What is essential for us now is to look for signs of when this mood starts to shift — the first will be a dip that is not bought, i.e. a trend-day down.   That could start shifting the psychology.
We watch our favorite tells all the time,  the Euro ($6E_F),  silver ($si_f),  bonds, copper, etc, but in the end, all decisions defer to price-action.  How does a stock act at support and resistance is ultimately the most important piece of information for our type of trading.
On a different note some of you have noticed that we’re not “tweeting” that much during session hours — this was part of our 2012 resolution, to keep our focus on trading during trading hours and make appearances more during after-hours.    If things get less busy we’ll probably tweet more but trading will always be priority number one.    We’re grateful to be part of such a wonderful community but after the honeymoon stage of social media is over, the next pivotal stage to conquer is finding a work/life balance.

Don't get frustrated by the gaps

Our readers know that if a stock gaps above our alert we either a) let it go b) wait for an intraday set-up to form  or preferably c) wait for a fade back to our alert to enter.     Happily,  the fade is happening a lot.   If you see a gap above the alert, don’t delete it and walk away with frustration.   Keep watching — what we’ve found in recent days is that the stocks are fading back to the important break-out zones, testing it, and then rallying again.   This of course happens frequently in the market, but we’re finding it happening more often than usual this week.    Let’s take a look at the examples just from the last 2 days:
We’ve had $OXY 98 in our newsletter for days — and it finally broke out yesterday morning with a gap above our number.   And then two perfect fades/trades for those who waited patiently for the entry with 20 cent stops and 1 point rewards:

$SLW 31 interested us long — again, gap up, but fade to number with excellent risk/reward day-trade entry.

$CLF 68 break-out from this weekend’s newsletter — same thing, gap up,and then fade back to our spot, and rally.

$FCX 40 from this weekend’s newsletter — yesterday it gapped above and wasn’t faded back to our spot, but look at today’s action.   Great pull-back to 40 and rip higher.

And lastly $DECK 87 from last night’s newsletter — again a gap above, and then quick fade to our spot for excellent risk/reward entry.

We’re currently experiencing a very benign market — don’t worry about the gaps,  just watch your spots and wait for the pitch.   Almost every single alert we had this week that gapped above gave an excellent entry later in the day at the original alert.

Place your bet

We’ve posted these charts on the stream in the last 2 days but wanted to bring them in together to show what is at stake:

We’ve spent all week digesting, but not filling, Tuesday’s gap on the $SPY.  This is bullish digestion above the 200sma on daily.

$XME is boxed in by major moving averages– it bounced on the 20sma yesterday but is having trouble with the 50/100 from above.  Make or break time coming up next week.

$SLV repelled by the 20sma today — note trending slope down.    Very clear line in sand.

$GLD repelled by the 200sma — we had this as a short resistance spot all week but alas  took it off radar yesterday.  Again, clear line in sand.

Nice tight bars under 200sma on the $XLE and has refused to fill the gap — again, roll down or break-out coming soon.

As we wrote yesterday divergence between Euro ($6E_F) and market is deepening — one of them will give in soon and there will be some reversion to mean.   Place your bets on which horse will fall first.

Stay Cynical

After a few days off from the market we came back refreshed and energized and happy to see the Santa rally.   But then we looked through our charts and one thing really stood out — silver action, or in this case, non action.

$SI_F chart — dead in the water.    Silver is a “risk-on” metal, what’s happening here?

Here’s a chart of the gold/silver ratio overlaid with $SPY.   As you can see they usually have an inverse relationship but have recently begun to  trend higher together  (meaning that market is moving up while gold outperforms silver).   It’s too short a time-frame to draw firm conclusions but it’s something to keep in the back of your head.

SPY chart near resistance zone from V move from 120 support — needs to digest this move.    We’re in short-the-rally mode until the V formation is worked through.  In bullish markets this means pops are faded intraday but support buyers show up before the close- – and this happens until the move is digested.  In bear markets it means complete reversals.

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Remember that 2009 trendline

We wrote about the $SPY 2009 trend-line on this blog at least a dozen times earlier this year  — it was for us the only chart that counted.     Take a step back and take a look at what the market has done since we broke it– churn.   Like a dumb old fish bobbing its head up and down in the water.    A bunch of nothing.

Market looks like it’s establishing a new trend-line range:

Taking that into account with what we wrote about yesterday, it looks like we’re in for some interesting times.

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Bonds and the case against a market bottom

A quick look at the March 2009 bottom versus our current position at the end of 2011.      Note how the inverse correlation between bonds and equities started to crumble in the three months before the S&P 500 market bottom.    $TLT topped 3 months before equities (just one more piece of evidence that equities are the last to know after bonds, currencies, and futures).      If history is to repeat in this 2011 Euro crisis then we’d expect the inverse correlation bond/equity to also start to falter, something that hasn’t occurred  yet.    Something to keep on radar.

Metals trying to hold support

Gold ($GLD), silver ($SLV), and our favorite junior miner ETF ($GDXJ)  all are attempting to find footing (bouncing intraday before the market) today as they hit major levels of support.     If these levels crater then it would be a major blow for reversion-to-mean strategies that have worked well so far this year.

Major weekly level on GDXJ

SLV bounce near 100 SMA on weekly

GLD first touch of 50SMA on weekly since 2009

Even if you aren’t interested in trading these keep an eye on them as a greater market tell.

For relevant commodity quotes check out  Jet Fuel Prices,   Coal Spot Price,  Crude Oil Price, and Electric Power Maps.

Houston: We have our base

We’ve talked about the 200SMA wall for months — every time the $SPY got close to this major resistance in it did so from an exhausted V-type move.   But not this time.     We hit it again this week and just like always, retraced, but on Friday the market came right back up to base under it — we’re at the cusp of breaking through this coming week.    It hasn’t paid to anticipate now for 5 months and we held off from doing so but we’re on break-out watch mode and have a list of decent candidates as our go-to stocks.

Furthering the bull case is the bar down below the 50SMA for $TLT

On the worry side we’d like miners to act better– but we’d defer to the actual metals ($SI_F and $GC_F) and if they break-out that’s good enough for the bull case.

Copper has broken out of the range and now is basing nicely.  $HG_F

Euro on the other hand is just following the trend-line down — Note however that one good day would break it out of the pattern.

The same can be said for this risk-on metal — silver right now has a bearish pattern but one good day would take it above the trend-line.    Many charts to us look the same — we’re not anticipating but we do understand that they could be on the cusp of a break-out and it’s good to have that possibility  in your trading plan come Monday.

So to recap — we’ve seen this scenario before where things are lining up, bulls are excited and bang bears pull the rug out.   So yes we approach break-out possibility with cynicism but at the same time we do see that this is the first time $SPY has approached the 200 SMA from a decent base which increases the possibility that yes, this time will be different.