AMZN: The Short Squeeze

From September 30 on AMZN:

"The problem that The Bears have in AMZN is that yesterday's rally was the third move above the top of the pattern, and it also was the third CLOSE above the top of the pattern. The Bears are vulnerable to a squeeze here, especially if AMZN goes pounding through the 94.40-94.50 highs. They need to knock this back inside the channel."

From October 9:

"The Bears have a problem here with the CLOSE above 94.40-94.50 resistance and the top of the channel."

Oh, my! Huge problem for the AMZN Bears at today's open, but we could see that potential during the past few weeks ago when:

1. The Bearish Island Reversal high of 94.40 got taken out to the upside
2. The putatative Bearish Wolfe Wave wasn't bearish
3. The 94.40-94.50 "possible" Double Top got taken out to the upside

The AMZN November 95 Calls (.QZNKS) currently are up 389% on the day. Whew! I'm not fond of playing earnings or options, but that play certainly seems justifiable given the evidence.

SPX: Bullish Inverse H&S Target

August 23, 2009 3:34 AM:

"1085.24 has been IN PLAY since the May 1 technical breakout of the Bullish Inverse H&S. That breakout was successfully retested July 8 and 10 (refer to "Support at neckline of 4½ month Inverse H&S" on the chart) which, in large part, propelled us to the current level in the SPX."

The 1085.24 Bullish Inverse H&S target got MADE in the first few minutes of trading this morning.

PCLN & AMZN: Stop Busters Revisited

From September 30 on PCLN:

"Stop busters are (1) a takeout of the 169.00 high at Wave 5, and then (2) the top of pattern, which comes in today at 170.04, particularly a CLOSE above the latter...

PCLN reversed into the close, so The Bears using a CLOSE above the pattern got a break, but they sure had a knuckle-biter on their hands, intraday."

Both PCLN and AMZN give testimony to the difficulty involved with shorting in a bull market. PCLN sold off from its last attempt to get through the top of the channel, but it double-bottomed in the 158's and "it's ba-a-ack" in The Bears faces.

Wednesday was a new CLOSING high for the stock. Thursday was a CLOSE above the channel and a new high for the move. That's mighty tough on the shorts. Yesterday was a close back inside the channel so The Bears have some hope that a reversal to the downside has begun, but I get a little worried when I find myself "hoping" for something.

From September 30 on AMZN:

"The problem that The Bears have in AMZN is that yesterday's rally was the third move above the top of the pattern, and it also was the third CLOSE above the top of the pattern. The Bears are vulnerable to a squeeze here, especially if AMZN goes pounding through the 94.40-94.50 highs. They need to knock this back inside the channel."

The Bears managed to knock AMZN back inside the channel for a few days, but like PCLN, "it's ba-a-ack," and the 94.40-94.50 highs got taken out to the upside yesterday. That's the fourth close above the top of the channel, so as we've discussed before with this stock and with the SPX and MZZ, the top of the channel isn't acting as reliable resistance, as it should.

The Bears have a problem here with the CLOSE above 94.40-94.50 resistance and the top of the channel. They obviously need to knock AMZN back inside the channel again.

SVA: Rally To Resistance

From September 29 on SVA:

"SVA rallied off that 7.51 low, so it looks like Data Point #4 is in. The top of the Falling Wedge comes in today at 8.869. The slope of that trendline is 0.1911, so subtract that amount each session to watch for a possible technical breakout, or failure. It will come in on Wednesday, Sept 30, at 8.678."

SVA rallied toward the top of the Falling Wedge on Wednesday, but only made it to 8.62. Yesterday, it took out Wednesday's 8.10 low (Sell Pivot) then followed through to the downside.

PCLN And AMZN: Stop Busters

From yesterday morning on PCLN:

"Stop busters are (1) a takeout of the 169.00 high at Wave 5, and then (2) the top of pattern, which comes in today at 170.04, particularly a CLOSE above the latter."

Given the bullish chart and the momentum coming off the 21-day Kijun-sen (solid red line), I had a suspicion yesterday morning that they might try to bust some stops at the top of the pattern. They busted both 169.00 and 170.04 on an intraday basis, but not on a closing basis. I suspect that they hit the "hard stops" (Buy To Cover orders that actually were entered).

PCLN reversed into the close, so The Bears using a CLOSE above the pattern got a break, but they sure had a knuckle-biter on their hands, intraday.


Among my reasons for being suspicious about the stops in PCLN yesterday morning was the stop-busting action in AMZN a week ago. The Wave 5 Fakeout/Breakout on July 23 was a Bearish Island Reversal. Usually, those gaps don't get filled for awhile, if at all.

AMZN did have a significant selloff to the bottom of the pattern, but it held right there and came back in The Bears' faces. The bottom of the pattern was a good place to take at least some profits on short positions, especially when the stock held right there for three days, then rallied. There never are any guarantees with these things, and the rally off the bottom of the pattern is a great illustration of that.

The July 23 high was 94.40. The September 23 stop-busting high was 94.50. That sure looks like they busted some hard stops, given the fact that the takeout was just ten cents above the prior high.

The problem that The Bears have in AMZN is that yesterday's rally was the third move above the top of the pattern, and it also was the third CLOSE above the top of the pattern. The Bears are vulnerable to a squeeze here, especially if AMZN goes pounding through the 94.40-94.50 highs. They need to knock this back inside the channel.

PCLN: The Possible Bearish Wolfe Wave

After putting in a possible Wave 5 Fakeout/Breakout of a putative Bearish Wolfe Wave, PCLN sold off to the 21-day Kijun-sen (solid red line), and a little lower, then reversed and is making a bid for the top of the Wolfe Wave. Stop busters are (1) a takeout of the 169.00 high at Wave 5, and then (2) the top of pattern, which comes in today at 170.04, particularly a CLOSE above the latter.

Back in July, the MACD made a positive divergence at Blue #1, ticked higher from there, at Blue #2, then went up through the signal line on July 15, at Blue #3. The next session, PCLN took out the high of the Right Shoulder of the H&S Top in the price chart (UH-OH), then took out the 119.14 high of the Head several sessions later (UH-Oh-h-h)), which put roughly 137.00 IN PLAY. The Bears got squeezed badly if they didn't cover either of those takeouts (the Right Shoulder and the Head).

In the current time-frame, the MACD has put in a positive divergence (Blue #1) and has ticked higher from there (Blue #2). Bulls have some momentum. Bears need to defend here.

SVA: Falling Wedge

From Sept. 25, on SVA:

"The stock now appears to be looking for Data Point #4 of a Falling Wedge from which to attempt a rally. A continuation lower could morph that possibility into a Falling Channel."

SVA rallied off that 7.51 low, so it looks like Data Point #4 is in. The top of the Falling Wedge comes in today at 8.869. The slope of that trendline is 0.1911, so subtract that amount each session to watch for a possible technical breakout, or failure. It will come in on Wednesday, Sept 30, at 8.678.

Wolfe Wave Elements

In Friday's Comment Section, Neo said:

"Are there any good books or free websites/blog that will teach me more about WOLFE WAVES?"

Try VoodooTrader.com, and also try Google, using "Wolfe Wave." Here's a piece that I wrote in my May 2, 2008 Blog entry:

WOLFE WAVES:

Step 1: THE LEAD-IN - Start at an important high or low basis whatever time-frame you're using. There should be an obvious, sustained directional move during the Lead-in. There will be down days, but overall, a sustained directional move. When that strong move ends, that's Wave 1.

Step 2: The following Waves 2-5 have to be in the direction of the Lead-in. If the Lead-in was a rally, the next Waves have to be "HIGHER highs" and "HIGHER lows," like a Bear Flag, or a Bearish Rising Wedge. If the Lead-in was a selloff, the next Waves have to be "LOWER highs and LOWER lows."

Step 3. After Waves 1-4 are established, we look for a WAVE 5 FAKEOUT of the pattern that puts everyone "wrong-footed," on the wrong side of the trade. In a Bearish Wolfe Wave...The Bulls buy the breakout at Wave 5, and The Bears "Buy To Cover" the breakout at Wave 5, and it's exactly the wrong thing for everyone to do. As a result, the selloff is often sharp and swift. The opposite is the case for a Bullish Wolfe Wave (see SKF examples below).

Step 4. To determine the target line for Wave 6, connect the HIGH of Wave 1 to the LOW of Wave 4. If it's a valid Wolfe Wave, the target will get MADE, or pretty close to it.

Additional Comments: Wolfe Waves can look like Bear Flags/Bear Channels (parallel lines) in Chart #2, or like Bearish Rising Wedges, as in Chart #1. Also, it's nice if there is some symmetry between the waves, e.g. if the moves down from Wave 1-2 and from Wave 3-4 are equal in time, or have some Fibonacci relationship. Also look for symmetry between the two highs and the two lows (Waves 1-4)

The back-to-back Wolfe Waves in the SKF in 2008 probably are my favorite examples of Wolfe Waves. This prospect of the target getting MADE in this first one looked nearly impossible, the upward slope of the target line (#6)was so steep, but it did end up working out.

Interestingly, the day that the first Wolfe Wave target got MADE was the beginning of the Lead-In for this second Wolfe Wave. This one had a Double Breakdown Fakeout on September 19, on the "no shorting" ban on financials. Ironically, although "no one" wanted to be short financials. that second move down put the proverbial everyone "wrong-footed." Buying the SKF (3X short financials) turned out to be the right play, and the Wolfe Wave target got MADE.

SVA: 7.85 - 7.88 Targets

From September 4, on SVA:

"Basis the 10-Minute chart, the "island" candle in the daily chart is a Symmetrical Triangle, which got broken to the downside on Wednesday's opening Gap Down. That put a target of roughly 7.88 IN PLAY.
Math:

12.50 - High of the pattern
10.01 - Low of the pattern

12.50 - 10.01 = 2.49 points subtracted from the trendline break at roughly 10.37.

10.37 - 2.49 = Target: 7.88 IN PLAY"

Back on September 4, we were at the red arrow in this daily chart. The Rising Wedge (pattern in blue) that formed thereafter is a good depiction of our discussion about the "push and pull" between Bulls and Bears after the Parabolic Blowoff Top to 12.50. Rising Wedges, particularly after a huge volume blowoff like we had in SVA, generally are weak patterns that suggest a continuation to the downside.

Notice that when the pattern broke down, it put a target of 7.85 IN PLAY, within three cents of the 7.88 target already IN PLAY off the Symmetrical Triangle breakdown in the 10-Minute chart that we looked at three weeks ago. Never any guarantees with these things, but that target off the daily chart breakdown reinforced the target off the 10-Minute chart breakdown, thereby increasing the likelihood that the 7.85 and 7.88 targets would get MADE. They did in yesterday's trading.

At yesterday's low, SVA was down 40% from its Parabolic Rally high of 12.50, which is the kind of selloff that can be expected after a HUGE volume Blowoff Top like that. The stock now appears to be looking for Data Point #4 of a Falling Wedge from which to attempt a rally. A continuation lower could morph that possibility into a Falling Channel.

SPX And Goldman

1074.77 wasn't a Bearish Wolfe Wave 5 Fakeout/Breakout high. While it seemed very unlikely back in May after a 200 point gain off the 666 low, the SPX rallied yesterday to 1080,15, within about five points of the Bullish Inverse H&S target of 1085.24 that has been IN PLAY since May 1.

It would be unusual for a Wolfe Wave, but yesterday's rally to a new high could have been a Double Fakeout Breakout. For that to be the case, the SPX would need to break Purple Trendline #2-#4, then get to the target line, at #6.

Meredith Whitney upgraded "The Stock That Stubbornly Refuses To Die" to $186 on July 13, which was the catalyst for the breakout of the Bull Flag (pattern in purple) that put 165.09 IN PLAY. That target got MADE in a very straight forward manner.

Meredith's 186 target got MADE in yesterday's session, but the move to that level was anything BUT straight forward. It was fraught with traps for Bulls and Bears alike.

Notice that when "the story finally was told" on the Breakaway Gap out of the Symmetrical Triangle (in black) on September 8, it was a breakout of multiple patterns/horizontal resistance of the Right Shoulder and Head, which we know can be very powerful. From that breakout, Goldman slam danced its way to the H&S top target of 183.01, and also to Meredith's 186 target.

AKS: Bullish Continuation Patterns

In yesterday's Comment Section, David said...

"Have you seen US Steel (X) lately? Looks like we missed a head and shoulders bottom. Look at a 1 year chart. It has had a breakout and a retest of the neckline."

Yes, I've liked AKS and posted on it a time or two. It's been a huge winner in that sector, up 367% off its November, 2008 low. Notice that since the triangle breakout in April, AKS has had four upside breakouts out of bullish continuation patterns.

SPX - Possible Bearish Wolfe Wave

The pattern in purple is the possible Bearish Wolfe Wave that we've mentioned. The strong directional Lead-in is the rally from the July 8 low to Purple #1. The pattern that emerges after the Lead-in should be in the same direction, and it is. Ideally, for this to be a Bearish Wolfe Wave, the rally to the 1074.77 would be the Wave 5 Fakeout/Breakout, putting the proverbial everyone wrong-footed. Bears get stopped out and have to buy to cover the breakout. Bulls buy the technical breakout. "Everyone" is a buyer at the wrong time because the market reverses to the downside, and usually quite sharply. That's the ideal bearish scenario.

All of that needs to be viewed in the context of the entire chart, which is very bullish. We need to keep in mind that the putative H&S Top (in red) was a huge Bear Trap, and that the putative Broadening Top (in black) wasn't a Broadening Top. The first selloff on the break of the Descending Triangle (the little pattern in red), from Purple #1 to Purple #2, was another Bear Trap. After the selloff from Purple #3 to Purple #4, finishing off what looks like a Bear Flag/Bearish Wolfe Wave/Rising Channel, we've ripped to the upside again. Merciless for The Bears.

Technically, yesterday the SPX closed back inside the putative Bearish Wolfe Wave, so the Wave 5 Fakeout/Breakout setup is in place. The top of the pattern came in at 1067.38. The close was 1064.66. The slope of the trendline of the top of the pattern is 1.646, so we add that amount each session. The SPX would need to close today above 1069.03 to regain the breakout (1067.38 + 1.646 = 1069.03).

ARNA: Response To The News

Normally, I like to take at least some profits off the table as targets get MADE, but I had a relatively small position in ARNA and I liked the chart so well, I held it when we got to the first two targets (5.23 and 5.64).

ARNA rallied to over $6 in after hours on Thursday on news that the company would hold a conference call at 8AM Friday morning, but during the call, it traded down about 30%, in the low 4's, in response to the news on trial results. UGH.

Pre-market trading was well below the bottom of the Ascending Triangle, so it was marked for a "Take No Prisoners...This Is Just For Openers" opening. I don't try to interpret the news in terms of how the stock "might respond" later on. When a pattern gets broken, I simply want outta there. ARNA came off the lows right before pre-market trading ended at 9:15AM, so I sold it for a small loss. As it turns out, the CEO spoke at about 10:30AM on CNBC, after which the stock rallied sharply. I would have been fine holding it, but that's a "coulda...shoulda...woulda." More often than not, holding a Gap Down opening below a pattern, like we had in ARNA Friday morning, gets punished, so I don't hold those.



Loss: $250

ARNA And PCLN

From September 11, on ARNA:

"The 5.64 and 5.61 highs set up a flat top for a morph into an Ascending Triangle. If ARNA pulls back here, then breaks out above 5.64 - 5.61, that would look fine."

ARNA not only pulled back after the first two targets got MADE, it came within about four cents of validating the ascending line for a second time, and the Symmetrical Triangle (dotted black line), indeed, has morphed into an Ascending Triangle. At 4:01PM yesterday afternoon, there was this news item announcing that ARNA would have a conference call at 8:00AM this morning. There wasn't any indication that I saw regarding whether the news was good or bad, but the stock was flying in after-hours, above $6.00. At midnight, there was this release:

Arena Pharmaceuticals Reports Positive, Highly Significant BLOSSOM Trial Results for Weight Management; NDA Submission on Track for December
Arena Pharmaceuticals Inc
ARNA | 9/18/2009 12:00:00 AM

--- Lorcaserin Meets all Primary Endpoints and FDA Benchmark ---- 63% of Lorcaserin Patients Who Complied with the Protocol Lost at Least 5% of Their Weight ---- Lorcaserin Patients in the Top Quartile Achieved Average Weight Loss of 16% or 35 Pounds ---- Combined Phase 3 BLOOM and BLOSSOM Data Set Confirms Lorcaserin's Excellent Safety and Tolerability Profile and Rules Out Heart Valve Effect ---- Conference Call and Webcast Presentation Scheduled for 8:00 a.m. ET on September 18, 2009 -

SAN DIEGO, Sept 18, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- Arena Pharmaceuticals, Inc. (Nasdaq: ARNA) reported today positive, highly significant top-line results from the BLOSSOM (Behavioral modification and LOrcaserin Second Study for Obesity Management) trial. BLOSSOM confirms the results previously reported for the BLOOM (Behavioral modification and Lorcaserin for Overweight and Obesity Management) trial and completes the lorcaserin Phase 3 pivotal registration program of 7,190 patients evaluated for up to two years. Arena plans to submit a New Drug Application, or NDA, for lorcaserin to the US Food and Drug Administration, or FDA, in December."

Possible Breakaway Gap in ARNA at the open.

Okay, okay, Kevin, I owe you a couple, so I downloaded the chart and did the analysis. LOL.

PCLN has been in a powerful Bull Market since its October, 2008 low, up about 275%. Of note, there were a number of bullish breakouts prior to the 50/200 Bullish Cross, and we have another example here of a H&S Top that got taken out to the upside, so the points for the measured move get added to the high of the head.

Your Bear Wolfe Wave possibility looks very decent. The volume is markedly low in this move higher, so that's suspicious. Yesterday's close was just eleven cents above the pattern. Add 0.462 per day to 165.89, which is where the trendline came in yesterday. Good luck if you play it!

SPX 1060

Since the May 1 breakout of the Bullish Inverse H&S, above 877-875, the SPX has rallied 190 points, and has rallied 400 points off the March low. Goldman's year-end price target of SPX 1060 got MADE yesterday as that index got to within about 17 points of the 1085.24 target that still is IN PLAY. As we discussed in the post "Broken Indicators...Broken Systems," sell signals in a strong trend like this haven't been reliable. The most bullish thing that a market can do is to get overbought and stay that way, as this market has done.