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.

200 SMA wall

We posted this chart yesterday showing the few times we’ve been above the 200sma on the $SPY since the August sell-off.   To be exact we were above it for 2 days on Oct 27-28 before reversing, then one day above on Nov 8 before again reversing,  and yesterday we closed above the 200SMA for the fourth time since the summer sell-off.   If the bulls can manage additional closes above it in the near term ( we’re a point below it  right now) then it likely will shift the sentiment away from  the current “sell-strength” environment.

The most bullish scenario for us is for the market to flat-line and base near the 200SMA and then break through which is exactly what has been missing from previous break-out levels is the base — we’ve approached it every time from exhausted V -moves.     Churn baby churn, indeed.

On the bearish side of the argument,  the 200sma is a wall until it isn’t, the Euro ($6E_F ) acts like death, and silver/gold can’t find any traction.

The recent randomness of news/rumors has diminished the edge for our type of trading strategy and  as we’ve posted on the stream — we’ve pulled back  from being active in this tape.     We’re ok with giving back on trades that simply did not work, but we’re not ok with getting chopped up in a tape that offers no good set-ups for our strategy.        All that being said, things can change in a heartbeat and it’s still important to stay involved and watch price-action, looking for hints of change.

Gap fill magnet?

It’s not really our job to be bearish or bullish, our time-frame is too short. Our job is to go through charts the night before and come up with actionable alerts for the next day.  This has been very difficult lately due to the (more so than usual) randomness of the market via gaps.   However, we think it will get easier soon for our type of trading based on the charts we see (as @todaytrader says, fingers crossed).     Let’s take a look ahead:

Huge gap — will it act as magnet?   We’d love to see a fill on this gap and our style would dictate a buy on the 50SMA.     We’re not betting on it but it’s definitely a possibility for which we want to be  prepared.

The junior gold miner ETF ($GDXJ) is one of our favorite trading vehicles — and it illustrates some tough slogging ahead for the bulls.  We posted this chart numberous times in November — we had bought a test of the trend-line on November 10 but had warned that another test of the trend-line would probably cater through.  Technically this is still a bearish chart and for our time-frame the first test of the 50SMA (blue line)  is a short.

Note that bonds are still not rolling over yet — $TLT bounced on 50SMA today.  Keep today’s low on radar for rest of week.

A win for the bulls here as copper ($HG_F) loved the China lowering reserve requirement news — through trend-line with a blast,  bullish.

It’s hard not to get excited over today’s action but stay cool — bulls still need to prove their mettle going forward.   There are a lot of potential new spots we found today on daily but all of them need a bit of basing ($CAM 54, $GD 66.5 to give two examples).  All we care about are opportunities, long and short, and it looks like we should get many of them in the coming days.

 

Weave your way

The only sense we’ve made out of this market is to go reversion to mean.    At the bottom of the range today we had many support longs trigger — and they worked.   Last week bulls excited for break-out got killed on the reversal.    Range trading at its best.
For tomorrow we have a nice mix of resistance shorts and support longs –  traders are confused, investors are confused, politicians are confused, everyone is confused.   And when everyone is confused they become weak holders, thus reversion to mean reigns.     One day we’ll leave this large multi-month range but until then either stay in cash or shorten your time-frame.

$SPY broke the range lower only to reverse into the afternoon and close over trend-line.   Ball is still however in the bears camp until the bulls distance price away from bottom trend-line.

Bear Trap?

Usually if $SPY is trending down our support alerts don’t do well.  Today there has been an astounding divergence as our support alerts have ROCKED while SPY has done nothing but trend down.

These are the support long alerts that triggered from our weekend newsletter (QCOM COP gapped below):

$XOM 76.3
$USO 36.8
$VMW 91.2
$APC 74.25-74.6
$CLR 64.6 — if base,  64 were instructions
$ALGN 26.8
$ULTA 64.4-64.5
(and two shorts $EOG 96 and $WLT 70)    Take a look at how well they worked for bounces.

It’s ridiculous how well they worked (and so is the divergence from our PnL and the opportunities in our own alerts as we didn’t have the faith considering SPY action).
We can’t even remember the last time we saw such divergence.   Not sure it’s enough evidence to call it a bear trap but it sure is one point for the bulls to see dip buyers under the surface buying with such conviction.

Slaughterhouse Won

Last Friday as the market was heading back to the top of the range we wrote about how it was do or die time — we would either break-out of the range or fat pigs were going to the slaughterhouse.   On Tuesday we really didn’t see an edge for swing longs and wrote Not Good Enough Risk Reward which indeed was true since the market proceeded to dump later that week.
Our tells of Euro ($6E_F) lagging, combined with lack of good set-ups,  and Ags ($POT $MOS $AGU $CF)  underperforming helped us and our subscribers stay away from swing longs BEFORE the down move.
For the last 4 months the golden rule has been — the more the bulls get excited, the more you go to cash.   We broke the mini triangle down but we’re still in the bigger channel which has support around 119-119.5 on the $SPY.   Note that the trend-line moves every day and target needs to be adjusted.

Our favorite “tell” sectors are completely broken.    However, SPY will probably offer a decent short-term trade on the bottom of this channel.   We like the idea of an overshoot of the 50SMA (120.8) to bring in some panic, and then a bounce around 119 zone on bottom blue line.

If the bottom line of channel breaks (currently around SPY 119-119.5) then it’s going to get a lot dicier to navigate.   However, we’ll worry about that if/when it happens.   Have a good week.

Scum and Reversal

 Three charts we’re watching closely for bullish confirmations are $GDXJ $MOS $GS.  What do they all have in common?  Possible break-down failures which would be bullish.  Scum and reversal (go through the breakdown zone and then reverse higher) trap the bears and inspire the bulls.    We need the closing price to make any kind of price-action judgement but keep these 3 on radar:

We wrote earlier today that $MOS was offering decent risk reward on 55 break-down reversal (was around 55.4 at the time) with stop at 55.     A close near 56 would be bullish.

$GS 98 we posted last night we would be short but that a scum/reversal would make us bullish.   The short worked for a point and now it’s hovering under 98.   A close over 98 today or tomorrow could help bottom this financial.    It trades heavy today (too heavy for us to go long) but keep on radar.

We posted this last night as action spot — look how it scummed the lower trend-line and then reversed to stall at higher trend-line.    A move through the upper trend-line could get $GDXJ going and would be nice win for the bulls.

To inspire the bulls you need the closing price to have some distance away from the break-down zone.  A close near the break-down point would not really yield any information/edge.  Two hours to go until the close –  keep these 3 on your radar when doing research tonight.

Not good enough risk/reward

We sent this off to our subscribers (in the newsletter) after the close today:

Usually we’d be in anticipation swing mode right now — that is, putting on positions that we think will hit tomorrow.   We held off as we didn’t like the risk/reward as we found good arguments for both sides.

 

For the bears: 

 

1. We don’t have enough set-ups we love — it really is still slim pickings.  However, once we break through the range this will change fast.

 

2.  The volume is atrocious.  Note how the Euro  ($6E_F) is doing nothing (i.e. not confirming today’s rally) — and currency traders (also bond and commodity) tend to be more “right” than equity traders.     Equity traders running up the market on no volume for a Thanksgiving rally.

 

3.  One of our favorite “tells” , the Ags ($POT $MOS $AGU) , are doing nothing and look terrible.  

 

4. The “solution” to the Euro mess will likely involve money printing so why are gold/silver stalling?

 

For the bulls:

 

1.  The resilience of this market is astounding.   No matter how bad the news, and yields surging in France this morning was pretty dismal, the bulls buy the dips.     This is a huge point.

 

You take all these arguments together and what happens is it puts us on the side-lines.    The risk of a break-out head-fake we believe is too high for us to anticipate anything right now.    There will be easier markets to trade and this certainly isn’t one of them.

Bulls need to prove it this week

This week should be pivotal — we’re right against resistance in many sectors and it’s up to the bulls to take the ball.
$XLF through this down-trend could cause a squeeze (that being said the first attempt on it could be a nice opportunity day-trade short –all about time-frame) .

$SPY going back to the top of the handle — needs to get rocking if it wants to get the juices going for a year-end rally.  Thus far every attempt has been squashed –  again, up to the bulls to prove different.

$XME lagging — still under the range.

Copper $HG_F  still the weak link even though no one seems to care about it anymore.  Needs to get going above that trend-line and 50SMA to get the bulls excited.

Best looking in the commodity region is the $OIH — right at resistance, looks like it wants to be the first to break-out.

Should be week full of opportunities, be it failed break-outs (resistance shorts) or finally some continued bull follow-through.   Buckle-Up.

Fat pig to slaughterhouse or breakout of range?

We’re basing and filling in the handle — the more we test it the greater the chance of a break-out.   That being said everytime the bulls have been excited for a break-out they’ve been smashed over the head, but seasonality is bullish and patterns are looking better.      $SPY 127.4 zone/top of channel/200sma will be the test for the bulls.

Support Long example GDXJ

Excerpt from our newsletter tonight:

We had on a few ideas yesterday for support long ($OIH 120, $GLD 168, $SPY 120, $GDXJ 30.5-30.8 trend-line) and the only one to hit was GDXJ 30.5-30.8 trend-line bounce.

  

GDXJ trend-line bounce on 30.5-30.8 –  sometimes when we have these zones instead of exact numbers it’s difficult to find one hammer to go off of and instead we start partialling into the zone with a pre-set stop (say 30-40 cents).   This is what we did today with GDXJ buys starting at 30.87 and adds at 30.8, 30.6 and 30.57.    Once it hammered at 30.53 and bounced we had an exact stop (30.47)  but before that we were looking at a “bail point” of     around 30.4-30.3.

Of course you use smaller size when you are partialling into a zone because your stop is often wider (we rarely have a 50 cent + stop on a $30 stock).      We use these “partial in the zone” type entries also more often with ETFs which tend to chop around more than stocks and also when market is more nervous as panic often means overshoot.   

S1 (dotted blue line) was 30.8 and we were looking for overshoot into trend-line 30.5 (daily trendline on last night’s chart), hence the zone.  Start at S1, add all the way to trend-line, and if that didn’t hold, cut the loss on the whole position at a pre-defined number.  

You need a pre-defined number before you enter the trade so you don’t freeze and talk yourself out of taking the stop.  

To repeat: adding lower within a pre-defined zone is fine as long as you have a pre-defined stop.   When we started at 30.87 we were hoping very much it would go down to the bottom of our buy zone of 30.50 (but not any further than that .   

Extended from EMA right into S1 intraday support/ and trend-line support from daily.    This is what you want in a support long.   Note that GDX was also hitting 50sma at the same time — the more stocks hit support from same sector at same time, the better the chances of success.

This bounce on trend-line is what we were looking at and happily, other traders noticed it too which is why it worked – you want spots to be obvious enough to be on other trader’s watch-lists but not so obvious to be a crowded trade.  Fine balance.

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Nice bounce but we won’t get long on any other moves back to this trend-line as next time will probably go through.

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