AIG: The Short Squeeze

Last Thursday, CNBC reported several times on AIG, saying that there were no shares available to short, and that the Bears were being squeezed. Geez, I guess! The stock was at about $47, up from $8 in early July.

Friday morning, they squeezed the shorts almost to $56, which was followed by a $10 selloff. Parabolic rallies usually don't end well, but they can inflict tremendous pain on the shorts if they don't get out of the way. Anyone shorting "because" AIG rallied 100% ... 200% ... got punished severely as the stock rallied 560%! Merciless!!

After the $10 selloff, giving the shorts at least some temporary relief, I got interested in the long side of AIG, but ONLY if I had solid technical reason for playing it. So I watched it, and here's what unfolded:

An Inverse H&S broke out, measuring back toward the morning highs, and then the channel, in yellow, formed. Ooo-oooo...

What I especially liked was the fact that the lows of the channel at Yellow #2, #4 and #6 were THREE successful restests of the neckline, constituting TRIPLE validated support. Lovely! If AIG could break out of The Channel to the upside, that would be a DOUBLE breakout (Inverse H&S and Channel), and the squeeze should be on again.

I got long at 49.87 with a mental stop below 49.28, the low of the Right Shoulder of the Inverse H&S. Right Shoulders "shouldn't" get taken out, and if they do, I'm not interested. Risk: $600. Targets were 50.90, the top of The Channel, and 51.90-ish, the measured move off a Channel breakout (high minus low, added to the breakout).

The channel broke out, but got only to 50.79, below the first target at 50.90. That ended up hurting my trade because I wanted to unload half my position there, but the stock came back toward my entry, and it was getting late in the game. I didn't want to hold overnight given the volatiility in this stock.



Late in the session, The Channel (seen in red here) looked to be morphing into a THIRD Bullish pattern, a Symmetrical Triangle, in white. What I didn't know, was if Data Point #4 (in yellow) already was in, or if there would be one more move down for Data Point #4 (in white), and there only was about an hour left in the session.

I decided that since I ju-u-ust had missed my 50.90 target, that might be all that I was going to get, which is why I said that it hurt my trade. If I had cashed in half the position up there, I could afford to get stopped out below 49.28 on the other half, and still come out of it with a gain. So, I raised my stop to "a break of the yellow trendline/anything below 50.00."

The yellow trendline got broken. 50.00 got broken, so I stopped it out for a very small gain. AIG put in White Data Point #4, at about 49.80, then broke out on BIG volume, and both targets got MADE.

Arrrrrrrrrrghh! LOL.

Gain: $75. Pitiful, but the amount isn't important. Having a plan and managing risk is what's important. I "coulda" had about $1,500 on the trade if I had kept my stop at 49.28, but I also "coulda" lost $600. My risk:reward was 1:2½, so I probably "shoulda" held, but we aren't always going to make the winning decision. That's all part of the game.

Accept it with dignity, and move on. Curses! Curses! Curses!

The FAZination Bubble: Market Perversity

Next weekend is the six month anniversary of the March low, back when "no one' wanted the banks/financials, in particular. The market appetite for shorting banks/finacials was enormous back then, and still is. Witness the short squeeze in AIG.

My last comments on the FAZ were on March 20...

"...take profits when targets get MADE" at this 34.50-34.80 Rectangle resistance area. We know that targets against the trend are less likely to get MADE. The trend has been down, and we're AT RESISTANCE, so if I had gotten long the Ascending Triangle breakout, I would take at least some off the table."

...and, on the morning of March 24:

"Oh, my. What an UGLY day for the FAZ. The "possible" Bearish Wolfe Wave simply turned out simply to be a Bear Flag AT RESISTANCE. Yesterday was a big Gap Down, and down she went for a 45% loss in a single session.

Oh, my."

Here's a link to that chart:

http://1.bp.blogspot.com/_pcU86gqBxuA/SciTOQpBgcI/AAAAAAAABe4/BCzLONi6c5I/s400/FAZ+-+3-

Since that crash in the FAZ off resistance near $35, it's down about 93% The FAZ had a 1 for 10 Perverse split, so Friday's close of 22.87 is 2.29, pre-split.

FAZ holders expected huge gains of 100% ... 200% ... 300% ... 400% ... but, it crashed and instead ...

... it is the FAS that has rallied a whopping 600%, as of Friday's high. Talk about the perversity of markets!

It's a great example, though, of:

1. "Buy what no one else wants."

2. "Buy when there's blood in the streets."

3. "If you can keep your head, while those about you are losing theirs..." (paraphrased)

4. "Want what Ms. Market wants."

5. "Admit when you're wrong as quickly as possible, and get outta there!"

6. "FOLLOW the market."

Six months after the low in the FAS, we found out last week that there have been at least 81 bank failures. Dick Bove expects 150-200 more. Meredith Whitney expects 300 more bank failures (check me on those numbers). Banks still have billions in losses.

Late February/early March, those who thought that the news still would be bad six months out were right. But, if they played their opinion/prediction by purchasing and holding the FAZ to this point, they got absolutely clobbered.

Often, the market doesn't make sense and also can be downright perverse, but as the kids say, "It is what it is." Playing against Ms. Market and trying to tell her what to do can be very dangerous to our wealth.

NEM: The Play Of The Hand

NEM began yesterday to the downside, along with the general market, and headed toward 38.53 - 38.71 horizontal support (sorry, I mistyped it as 38.55).


It took out the prior day's low of 39.51, dropped to 39.06, then rallied with the market. Shortly after noon, NEM had put in a Symmetrical Triangle, with the highs at 39.53 and 39.52, right at the prior day's low. Given that the general market was looking so strong, I decided to cover my short when the triangle got taken out to the upside. I didn't like seeing it (and the market) showing strength like that.

After the Symmetrical Triangle breakout, NEM put on a pretty good rally.


Gain: $1,400

NEM: Falling Wedge - Ascending Triangle

On July 15, NEM had a Breakaway Gap out of the Falling Wedge (pattern in black), and closed at 40.45. Technicians often will use the top of the Wedge as the target, then a measured move off the breakout (high - low of the pattern, added to the breakout point).

As I've often said, I don't find wedges to be very reliable. I use the "last high" in the wedge as my first target, which in this case is 43.36. So far, NEM hasn't gotten there and at yesterday's close of 39.88, it's below the bullish Breakaway Gap close of 40.45 on July 15. Six weeks later, it's not looking very bullish.

After the Falling Wedge breakout, NEM put in an Ascending Triangle (pattern in blue), with the relative flat highs of 42.71 - 42.83, below the 43.36 target. On August 11, NEM violated the bottom of that pattern, but hung on and closed just three and a half pennies above it. The next session opened below the pattern, but NEM managed a close back inside it.

August 13, NEM made another another move toward the top of the Ascending triangle, but at that close, ALL of the Fibonacci sequential measures of relaative strength were at Bearish Synchronicity, so that candle became a "pivot candle." That meant that a downside takeout of that day's low of 40.84 in the next session was an Across The Board Sell Signal in the RSIs (the red "ATB" on the chart).

August 14, NEM not only printed 40.83, which was the actual Sell Signal from all of those indicators, it closed at 40.63, two pennies below the lower trendline, which came in that day at 40.65. The next session was a Gap Down, which put the 38.71 low at Blue #3 IN PLAY. The target got MADE in a single session. The low of the Gap Down candle was 38.70. NEM put in a low at 38.53 two sessions later, then began a rally.

"Retests of breakdowns are common, and are to be expected." NEM also had that gap to fill. NEM rallied back to the bottom of the Ascending Triangle, filling the gap, and failed just below the trendline.

Across The Board Buy/Sell signals are rare, so I'm particularly interested to see how this plays out. The 38.71 target got MADE, so that could be it on the downside. NEM also could make another bid for the bottom of the Ascending Triangle on an A-B-C rally (the next rally leg would be "C"), but as the chart stands, Ms. Market is telling us that it's bearish, given the Ascending Triangle breakdown, and the failed retest of the breakdown.

SDS: Broken Indicators...Broken Systems

On May 13, at Blue #2, we had a positive divergence in the MACD of the SDS (SPX UltraShort). Price had gone lower, but the MACD didn't confirm the lower price in the SDS, and the MACD had gone up through its signal line once again, which "can be" construed as a Buy Signal.

There's an old saw, "In a Bear Market, your Buy Signals are a Sell. In a Bull Market, your Sell Signals are a Buy." That's just a rule of thumb. There's no ALWAYS in the stock market.

At the Blue #2 positive divergence in the MACD, if we took that as a Buy Signal, we would have bought into a top in the SDS. Price went only $0.48 higher, then the SDS went down to a new low. UGH.

Blue #3 was a DOUBLE positive divergence. Price had made two successive "lower lows." The MACD had made two successive "higher highs." Buying the SDS there worked out better. The SDS rallied to the bottom of the Kumo (Cloud), pulled back to Blue #4, where the MACD pulled back toward the signal line. The 8-day Kijun-sen (green line) had made a Bullish Cross of the 21-day Tenkan-sen, then the SDS and the MACD rallied in unision to Blue #5, on July 8.

On July 8, the MACD finally crossed above the zero line, issuing a Buy Signal. That "Buy Signal" was the EXACT TOP for the move in the SDS, right at the top of the Kumo (Cloud), which proved to be resistance. Remember...

"In a Bear Market, your Buy Signals are a SELL." Not ALWAYS. At Blue #3, the Double Positive Divergence was a decent Buy. But, the "bullish" cross of the zero line in the MACD on July 8 was deadly. It was a SELL, not a buy. The indicator wasn't broken. It acted as indictors do, in a bear market. They give us "false" signals, which is information that is just as useful as valid signals. They tell us to do the opposite.

We can see how technicians feel that their indicators and/or systems are "broken," but as we often discuss, indictors and systems must be viewed in context with what PRICE is doing. In this case, PRICE failed at Kumo resistance on July 8, which we know was a bottom in the underlying SPX. If anyone bought and held the SDS on that July 8 Buy Signal in the MACD, they currently are down 31.8%. UGH.



At yesterday's new low in the SDS, the MACD pulled back to the signal line, and it's positively diverging with price. The MACD is at -1.889. The signal line is at -1.924, so it's poised for a "slap shot" to the upside, like a puck sliding into the hockey stick, and then....WHACK...slapshot to the upside.

Yesterday's candle in the SDS is a Bullish Hammer, but it's only bullish with upside confirmation. Initial confirmation of anything bullish for the SDS would be a print high of 43.28, above yesterday's high.

The SDS still in freefall, knife-catching mode. Anyone who has been caught with his/her hand in the cookie jar has gotten it slapped very severely, but this setup could be good for at least a pop to the upside, and possibly more if it can print 43.28 and continue higher.

CAUTION: Knife-catching can be dangerous to our wealth. I don't make recommendations. As always, if we play anything, USE A STOP.

SPX: Back-To-Back Targets

Review of the rationale behind, and the math for, the Descending Triangle, from the August 22 Comment Section:

For the same reason that we added 70.73 points to the 956.23 high of the H&S Top pattern when it got taken out to the upside (see the math at the bottom of the chart), we add the measured move of the Descending Triangle to the point of the upside breakout, which occurred crossing 1007.20 at the open on Friday.

1018.00 - High of the triangle
992.49 - I always use the more conservative of the two lows, which were 992.49 and 992.40.

1018 - 992.49 = 25.51 points added to the breakout point, 1007.20.

1007.20 + 25.51 = Target: 1032.71 IN PLAY

The Descending Triangle target of 1032.71 got MADE eight minutes into yesterday's trading. Combined with the H&S Top target of 1026.96 that got MADE on Friday, it's important to note that we've had back-to-back upside targets that got MADE from patterns that initially broke down and looked bearish!

If you haven't been already, you'll be reading and hearing things like, "Technical analysis doesn't work." "Technical analysis doesn't work in a Bear Market." "My indicators aren't working." "My system isn't working."

The problem isn't with technical analysis. The problem, in my view, is an over-reliance on indicators and systems, wanting them to TELL US what to do. PREDICT what the market will do. They can't. All that they can do is give us "some reading," and we have to interpret that reading based on what the price chart is doing.

Regardless of what any indicator or system was telling us at and since the July bottom, we've known that Ms. Market was telling us:

1. July 8-10 - I have found support at the retest of the neckline of the Bullish Inverse H&S ("Retests of breakouts are common, and are to be expected").

2. July 13 - I have CLOSED back above the 893 neckline of the putative H&S Top.

3. July 14 - I have taken out the top of the blue channel, crossing 916.292, and I have CLOSED above the channel, putting 1003.20 IN PLAY. I also have CLOSED at 932.68, above the 931.92 high of the Right Shoulder of the putative H&S Top ("The high of a Right Shoulder shouldn't get taken out to the upside, and if it does, shorts are not favored").

4. July 21-22 - I have taken out the 956.23 high of the putative H&S Top on an intraday basis.

5. July 23 - I have CLOSED well above 956.23 on a big white candle, putting 1026.96 IN PLAY.

You get the idea, so we'll stop there. I would imagine that more than one indicator or system was flashing a sell signal at that point, or shortly thereafter, since we had rallied 100 points off the July 8 low, and parabolically, but we've tacked on another 60 points since that July 23 close.

There never was any guarantee, of course, that the 1003.20, 1026.96 and 1032.71 all would get MADE, but we knew where and why those targets went IN PLAY, so we have at least some understanding of how the SPX has gotten here, and some understanding that there was a technical basis for the rally regardless of what we might read or hear to the contrary.

AMZN: Falling Wedge Morph

From August 18, 2009 1:59 PM in the Comment Section on AMZN:

"AMZN rallied to within nine cents of filling the 82.78 gap and has fallen back below the Falling Wedge. That looks fine, as long as it isn't morphing into a larger Falling Wedge.

The next session was a CLOSE back above 84.60 - 84.45 (thin blue line), indicating that the Falling Wedge had, indeed, morphed into a larger Falling Wedge. It looks more like a Bull Flag or a Falling Channel than a Falling wedge, though. That was an "uh-oh" for The Bears because AMZN "shouldn't have" CLOSED back above that broken trendline, and it suggested a return to the top of the pattern, which is a validated trendline.

At Blue Data Point #4, the high was 85.60. The slope is -0.22857, so the trendline came in at 85.3714 the next day, August 13. The August 13 high was 85.37, smack on the trendline, validating it as resistance.

Thursday was another "uh-oh," as AMZN made further progress toward the top of the pattern. Friday, the top of the pattern came in at 85.00, and the Bulls banged away at it, trying to get through there, as we can see from this 5-Minute chart.

The Bulls got refused several times at 34.99, a penny below the trendline, for a second validation of that trendline as resistance. The Bears were able to knock it down mid-session, but in the late going, the Bulls brought it back and took out 85.00, but not with any conviction. AMZN settled at 85.00, smack on the trendline, so like Goldman on Thursday and like the SPX on Friday, it's champing at the bit for an upisde technical breakout.

The top of the pattern comes in today at 84.7714, so any opening above that puts AMZN over the trendline, but I wouldn't consider any down opening to be an upside technical breakout. That would simply be "falling over the trendline." If AMZN opens down, it would need to take out Friday's late session high of 85.06 at some point to look in any way sincere about a breakout.

UBS wasted a bullet by adding AMZN to its Strategic Stock Selection list the morning of August 14. The stock had just validated the top of the pattern as resistance, and had closed down on the session. The upgrade didn't move it higher. If UBS came out with that upgrade this morning, with AMZN poised for an upside technical breakout, that might have had a more postive impact on the stock. Maybe they'll "reiterate" before the open, or maybe someone else will pound the table on it. Analysts like to do that sort of thing ;)

NDX: The New Bull Market

In October and November of last year, when the news was absolutely dreadful, there seemed to be no end of "this is just the beginning of Armageddon" calls. One never wants to leap in front of speeding train, but when we got all of those calls for SPX 500, SPX 400, SPX 250, we at least wanted to be looking for some kind of bottom, as we did in December with our discussions about the "sea change" in the market, particular when Goldman and Morgan Stanley broke out the UPSIDE on horrible earnings, in mid-December.

Looking at this chart, November certainly wasn't the beginning of anything bearish.



The last few weeks, we're hearing that this is a new Bull Market! Huh?! Does this chart look like the beginning of a move to the upside? If anything is beginning, it isn't a Bull Market. The SPX target of 1026.96 got MADE on the nine month anniversary of the beginning of the Bull Market in the NDX, which was the November 21 low of 1018.

I know...I know. There are those who say that this has been "only" a Bear Market rally, and they are entitled to that opinion, but I just will suggest that those folks haven't participated in the extraordinary gains that we've witnessed in many stocks that have rallied 100%...200%...300%...400%...500%, and more. There are plenty of multi-year Bull Markets in which stocks don't rally anywhere close to that. I was looking at VECO this morning, for example, a stock which I've traded a few times. It's up 580% off it's March low. If this has been "just a Bear Market rally," bring on those Bear Markets! LOL.

Chart #1: When the NDX took out 1761 support, then took out 1668 support, failed a retest of 1761 broken support, then moved to new lows, that was confirmation of a continuation move down in an ongoing Bear Market.

Chart #2: When the NDX double-bottomed in March, then took out a Triple Top on April 1, that strongly suggested that it had transitioned into a New Bull Market. The NDX also was above the Kumo (Cloud) basis the Ichimoku Kinko Hyo chart, and we can "See At A Glance...The Table Of Balance" that it's been gone on the upside since the technical breakout. Confirmation of the breakout was when the 1523.57 and 1531.75 targets got MADE, and we've gone another 100 points beyond than that.

I don't predict anything, as you know. I try to follow the program, as best I can. I have no idea if we're at or near a top, or if we're going a lot higher. Just sayin'. This ain't no beginnin' of a NEW Bull Market! That's my story, and I'm stickin' to it ;)

Meanwhile, if I hear and read very much more about a New Bull Market, I might have to go ALL IN on the short side, just on general principles.

Just kidding. Ju-u-u-ust kidding ;)

SPX: H&S Top Target

From August 10 on the SPX:

"By the way, we've discussed a number of times in the past that when a putative H&S Top gets taken out, the points from The Head (956.23) to the neckline (885.50) are IN PLAY on the upside. (the math is at the bottom of the chart). When we took out SPX 956.23, 1026.96 sure didn't seem very likely on this move, but we got to within nine points of that at Friday's SPX 1018. Whew! "

The H&S Top target of 1026.96 finally did get MADE in the last hour of yesterday's trading. The session high of 1027.59 and the close of of 1026.13 were just above and below the target.

Goldman's morph of the H&S Top into a Falling Wedge upside breakout on Thursday presaged Friday's springing of the Descending Triangle Bear Trap in the SPX. On August 19, the SPX closed at 996.46, above the 992.49 - 992.40 bottom of the Descending Triangle. As we discussed in the "Problem Trades" post this week, that close presented The Bears with a problem because the SPX "shouldn't" CLOSE back above that resistance. That was an "Uh-oh."

Thursday, August 20, the SPX presented The Bears with a BIG problem by closing at the top of the Descending Triangle, champing at the bit for an upside breakout. That was an "UH-OH."

Just as Goldman did on Thurday's Gap Up breakout of the Falling Wedge, the SPX gapped up above the top of the Descending Triangle at the open Friday morning, springing the trap on The Bears, many of whom were like deer caught in the headlights, and many of whom held their short position, "hoping" that the SPX would double top at 1018. We all know the saying: "Hope is NOT a strategy," especially when we're caught on the wrong side of a trade, as The Bears were caught on Friday's upside technical breakout. UGH.

The SPX rallied right through 1018 and the 1026.96 H&S Top target, that has been IN PLAY since the July 23 upside takeout of the 956.23 high of the H&S Top pattern, got MADE.

As we discussed a couple of weeks ago, Bulls and Bears alike have been wanting a selloff. Bulls want lower prices to get long. Bears want to stop getting squeezed to death, and to cover at lower prices. "Ms. Market disappointed the greatest number of people possible" at August expiration.

Finally, we discussed the fact that the upper trendline of the putative Broadening Top didn't look reliable for shorting since price had moved above and below it on three occasions. It wasn't.

Goldman: Falling Wedge Breakout

From yesterday, on Goldman:

"Given ... that we've got the "double threat" (160.04 and 160.123), if I hadn't covered my short on Tuesday, I would have yesterday. That certainly doesn't mean that Goldman will break out to the upside here. It just means that I really wouldn't have liked my chances on the short side..."

Goldman did break out to the upside at the open, at 160.28. After the H&S breakdown on Monday, the last thing in the world that I expected to be doing this week was to be re-entering on the LONG side of Goldman, but hey, "Want what Ms. Market wants."

I've been getting pipped at the post on some of my orders lately, but my order at 160.13, just above the 160.123 neckline, fortunately got filled. The session low just after the open was 160.10, just three cents below my bid. I almost put my order in at 160.05, the Rising Wedge breakout, and if I had, I would have been pipped at the post again by five cents. Whew!

That 160.10 low also was a validation of the neckline, within two cents. Instead of acting as resistance after the H&S Top breakdown, "as it should have," the neckline became immediate support after the Falling Wedge breakout at yesterday's open. Players were lined up there wanting the upside technical breakout, like I was.

This Falling Wedge showed up in the 5-Minute right after the breakout, a fractal (repeating pattern) of the Falling Wedge in the daily. The upside breakout of this wedge put the top of the pattern, 161.98, IN PLAY. I sold my long a bit below that, shortly after which the 161.98 target did get MADE.

Also from yesterday:

"If Goldman breaks out of the Falling Wedge, above 160.04, then gets back above the 160.123 neckline, that would suggest that it wants to make a bid for a complete gap fill of Friday's 162.73 close. The 20 DMA is up there, too, currently at 162.81."

The gap from 162.73 got filled in early afternoon trading. The high on the session was 162.84.

Gain: $1,700. Combined with Tuesday's $1,700 gain on the short trade, that's a gain of $3,400 on the two Goldman trades, so it's been well worth the time that we've spent identifying the patterns and the trendline/neckline data points.

Goldman - Falling Wedge

In yesterday's Comment Section, hello said:

"does the head and right shoulder looks like bull flag for GS?"

You have the right idea, but it's a Falling Wedge. In a Bull Flag, the trendlines are somewhat parallel. In a Falling Wedge, one of the trendlines has a sharper angle than the other, like we've got here (pattern in blue), and they eventually converge (meet up with each other).

The neckline of the H&S Top came in yesterday at 159.984. The close was 159.93, so technically, the target of 147.50 is back IN PLAY. A problem, though, is that Goldman isn't showing us that the neckline is significant. In the early going yesterday, the high was 159.97, a penny below the neckline. If that had held, and if Goldman sold off toward the low, or especially if it made a new low on the session, that would have told us that the neckline was resistance. That didn't happen. Even though Goldman closed five cents below the neckline, it was able to rally above it intraday, to 160.50, so it isn't acting very reliable.

Another problem is that at the open today, August 20, the top trendline of the Falling Wedge comes in at 160.04. Goldman closed at 159.93, eleven cents below that, and is poised for an upside technical breakout. That trendline also is validated resistance. The high at Blue #3 was 165.49, making the slope -1.09. That trendline moved down to 164.40 the next session, the high of which was 164.39, validating that trendline as resistance, within one penny. Validated resistance usually has some significance, and it did. The next session, Goldman gapped down below the neckline of the H&S Top.

The slope of the neckline is +0.1389, so the neckline comes in today, August 20, at 160.123. If Goldman breaks out of the Falling Wedge, above 160.04, then gets back above the 160.123 neckline, that would suggest that it wants to make a bid for a complete gap fill of Friday's 162.73 close. The 20 DMA is up there, too, currently at 162.81.

Given the facts that, once again, Goldman "STUBBORNLY refused to die" on yesterday's gap down opening, and that we've got the "double threat" (160.04 and 160.123), if I hadn't covered my short on Tuesday, I would have yesterday. That certainly doesn't mean that Goldman will break out to the upside here. It just means that I really wouldn't have liked my chances on the short side, so I would have taken the money and retreated to the sidelines.

Will somebody please kill this stock?! Just kidding. Ju-u-u-ust kidding ;)

GS And POT: Problem Trades

At Monday's close, I had a paper gain of about $4,700 on my Goldman short position. Often, I will try to jockey for position by taking the gain, then re-entering at a better price, like I tried to do with the second re-entry on the AMZN short. If I can't get back in, and I couldn't in AMZN, that's fine. I get to keep whatever gain I've got.

In Goldman, I liked Monday's gap down out the H&S Top so well, I decided not to try to jockey for position, so I held all of it at Monday's close. It turns out that covering the position and re-entering on yesterday's gap up would have worked out very well, unlike my attempt to do that in AMZN. "Damned if you do...damned if you don't." LOL.

With yesterday morning's move in Goldman, back above the neckline, it became a problem trade. In the early going, it printed a high of something like 160.74, just below the 160.79 gap fill. That was a lot more strength than I wanted to see, and by 11:00AM, Goldman hadn't given up much, so I covered half of my short. Going into the bell, Goldman still was trading well above the neckline, so I covered the remaining half position.

As Kevin pointed out in the comment section yesterday, the H&S Top "could be" morphing in a Falling Wedge (the pattern in blue), which is what the SPX did on the July 14 breakout. It morphed from a H&S Top and went on a bull rampage (see the first chart in yesterday's post).

There isn't any hard and fast rule about whether or not to hold a stock that goes back above a breakdown, like Goldman did yesterday, or back below a breakout, like POT did on August 7. Sometimes, stocks will do that for a day or three, then break out or break down again. The Goldman short might work out fine, but I don't like having the problem, so generally, I throw those in. POT is a good example of why I do that.

I played POT long earlier this month for a quick gain, but what I didn't like about the breakout was that it came so late in market rally off the July 8 low. When POT broke out on August 5, sector-related AGU (Agrium) already had broken out of its Bullish Inverse H&S Bottom and MADE its target two days prior, on August 3.

Two days after its breakout, POT reversed and CLOSED back below the neckline of its Inverse H&S breakout. Uh-oh. Problem trade. Possible morph into a Bearish Rising Wedge, similar to the possible morph into a Falling Wedge in the Goldman chart.

POT closed down the next day as well, and on August 11, it closed below the Bearish Rising Wedge, confirming the pattern morph. BIG problem trade.

August 13, POT tried to break out again, above the 97.75 - 97.72 neckline, but it got refused at the bottom of the Bearish Rising Wedge, confirming that as resistance, and only managed a closed of 97.55, still below the neckline. The next session, it was down again, then on August 17, it gapped down and made a new low for the move (90.64) off the "bullish" Inverse H&S breakout above 97.75 - 97.72. BIG, BIG, problem trade. UGH.

So, as I said, these all play out differently, but anyone who threw POT in at the August 7 close of 96.98, back below the neckline breakout, didn't have a BIG, BIG problem trade, if you see what I mean.

These are my entries and exits on my Goldman short. I was short it in both accounts.




Gain: $1,700. Once again, as with AMZN, I wouldn't have had this one had Kevin not mentioned the Right Shoulder formation in Friday's Comment Section. When I saw that the RSI Sell Signal at 162.60 already had been printed, I shorted it immediately, then shorted it again in the other account right near the sell pivot. THANK YOU, KEVIN.

SPX, XLB, AMZN, GS And GOOG

The top trendline of the putative Broadening Top wasn't reliable. The SPX whipsawed through it three times before the SPX broke below the 992.49 - 992.40 bottom of a Descending Triangle (the pattern in red), which puts SPX 967 IN PLAY.

Nested within the Descending Triangle is a Symmetrical Triangle (pattern in red). The top trendline of that pattern is identical to the descending line of the Descending Triangle. I drew the red line above the white line just to show that it's there, and that it's a separate pattern. The Symmetrical Triangle puts roughly 970 IN PLAY, so the target area for that nested pattern is 967-970.

In the XLB, the top trendline of Thomas Bulkowski's Broadening Top did a better job of containing price. There were two minor intraday penetrations on August 6 and 7. The August 13 violation was less than two cents, prior to Friday's Bearish Engulfing pattern that preceded yesterday's gap down.

In AMZN, the second Bear Flag target of 80.37 finally got MADE yesterday. The low on the session was twelve cents below that, at 80.25. "Take profits, or at least some profits, when targets get MADE."

I got pipped at the post on my second attempt to re-enter AMZN short on Friday's gap down. The session high was below my bid, so I didn't have it for yesterday's 80.37 Bear Flag target, but congratulations to any of you who did. I want to thank Kevin for the $2,200 that I did make playing AMZN last week. I wouldn't have played it if he hadn't called our attention to the possible Bearish Wolfe Wave formation, and I really appreciate it. THANK YOU, KEVIN.

Goldman gapped down to 159.32, below the 159.706 neckline of the putative H&S. The session high was 159.61, just ten cents below the neckline. The breakdown puts a target of 147.50 IN PLAY, as long as Goldman trades below the neckline.

Math:

170.94 - The high of The Head
158.73 - That's where the neckline was when the high was put in

170.94 - 158.73 = 12.21 points of downside from where the neckline broke, at 159.706.

159.706 - 12.21 + Target: 147.50 IN PLAY

Caution For The Bears: Goldman is "the stock that STUBBORNLY refuses to die," so be advised. The good news is that the target is very near a support area, the top of The Channel (in purple), so actual death isn't required in order for the target to get MADE. If Goldman even would be willing to feign a decent illness, that would do quite nicely ;)


I shouldn't post this, lest anyone else be tempted to flirt with Satan by playing options, but I very nearly took a flyer and bought GOOG August 450 puts (.GOPTJ) on Friday. They were up as much as 475% yesterday, in a single session. Mercy!

The reason for my temptation was "the hook," which was the upside Fakeout/Breakout on Thursday, August 13, that resulted in a Bearish Doji Star Hangman, followed by Friday's Hangman, the high of which was just about smack on the top of The Wedge. It looked ready for them to pull the plug, and they did.

Normally, in a good Wolfe Wave, the upside Fakeout/Breakout comes at Wave #5 (Black #5), putting the proverbial everyone "wrong-footed" before a reversal. In this case, though, the Fakeout/Breakout was only ten cents, which wasn't very convincing, and 469.62 still was IN PLAY from the Falling Wedge breakout of July 13.

The August 13 Fakeout/Breakout got to 464.72, still about five points below the target. If it had gotten closer to the 469.62 target, then put in the Bearish Doji Star Hangman, I might have had to "flirt" a little :)

No-o-o-o-o-o.... "Get thee behind me, Satan!" LOL.

If GOOG sells off to anywhere near the target line (Black #6), we've got some downside ahead of us. It's nearing an area of possible support, though, at the gap.

Goldman: Possible H&S Top

In Friday's Comment Section, Kevin said, regarding Goldman: (excerpt)

"..it broke through the bottom support, and has been setting up the H&S, with both a left should and head complete and right shoulder well on its way. I have the neckline slightly increasing, currently at 159.25 give or take..."


Good observation from Kevin. If Goldman sells off and I make some bucks, I owe him another one (I owe him one from AMZN) ;)

On Thursday (candle circled in red), the 8...13...21...RSIs closed at/near Bearish Synchronicity, which made the 162.61 low of that candle a sell pivot from that particular indicator. Indicators don't know what the chart looks like, so it's our job as analysts to look at the chart when any signal is given, and make a determination about whether or not we want to act on it. In this case, given the "possible" Right Shoulder forming, as Kevin mentioned, I did.

Bearish Synchronicity means that the fibonacci sequential measures of relative strength got inverted (faster below the slower), tried to rally back into bullish position (faster above the slower), but only made it to "synchronicity," where the readings were very close, then failed there by turning back down.

The compression of energy seems to work a bit like pulling back on rubberband as far as it will stretch, like a slingshot that we used in grammar school when we inserted a wad of paper then let go of the stretched end of the rubberband, targeting the back of the neck of our buddy who was sitting across the classroom looking out the window, unsuspectingly. It always is preferable to use a little spit on the wad of paper, so that our effort doesn't go unnoticed. Hee...hee...hee...

The neckline of the putative H&S Top comes in today, August 17, at 159.706.

AMZN: Falling Wedge; Validated Resistance

The reason that I'm so picky about trendlines is because I want to know if they're valid, or not, in order to make a trading decision. We can connect ANY two data points and call that a trendline, but we don't know if it has any meaning unless/until Ms. Market confirms that it is valid with a third "hit" to the trendline. We don't always get that "third hit," but when we do, that's a piece of information for our "body of evidence."

Yesterday's "Gap And Crap" opening not only was a Bull Trap, the early high validated Blue trendline #2 - #4 to the exact penny. The slope of that trendline is -0.22875. Wednesday's high was 36.60, so the trendline came in yesterday at 86.3714. The session high was 86.37, so that trendline now is validated resistance. That doesn't mean that AMZN can't take it out to the upside. It just means that it "shouldn't," and if it does, it likely is going higher.

Wednesday's 36.60 high also established Data Point #4 for a possible Falling Wedge (in blue) with the Bear Flag (in purple) nested within it, as the chart stands. We know how these things can morph, so we'll see. Obviously, AMZN needs to take out the lows, and then the bottom of the pattern, but first...


... it needs to take out yesterday's 34.07 - 34.07 Double Bottom support in the 5-Minute chart.

My re-entry short at 34.55 was better than where I covered at 34.03 earlier in the week, but it wasn't a good entry. I got a little too enthusiastic after the Bull Trap opening, but I got a lot less enthusiastic when AMZN put in the Double Bottom at 34.07. The pattern in white is a Descending Triangle. The majority of those have a bearish resolution, particulary when the overall chart is bearish, but the market was holding up very well going into the final hour, so I threw it in near 3:00PM, suspecting a late day ramp-up.

The Descending Triangle did break out to the upside in the final hour. It's not a very strong pattern, but it was retested and held, so we'll see.

Gain on the re-entry: a little over $100. Total gain on the trade: $2,200.

AMZN And BUCY

From yesterday, on AMZN:

"This Double Bottom possibility is why I think that 'taking some profits when the Bear Flag target got MADE' is warranted, by the way."

Yesterday's action is a good example of why it's a good idea to lock in some gains when targets get MADE. All of the profits from the Bear Flag breakdown crossing 85.966 evaporated as of yesterday's close at 85.96.

Regarding the yellow line of the chart:

"Traders who want to put a tighter leash on their short position would move their stop down to just above that level (84.60's)"

When that level got taken out to the upside, AMZN headed for another retest of 85.96 - 86.00.

"...it failed again, at 85.96 (the second arrow), which was the exact number where the Bear Flag broke down."

The print high after the Fed news was 85.96 exactly, prior to the final hour breakout. The close was 85.96 exactly. Tell me again what they say about the market being "only random." ;)

"I wouldn't want to see DOUBLE RESISTANCE at 86.00 get taken out to the upside ..."

Oh, my. If I were coaching the AMZN Bears, I'd have to give them a thorough tongue-lasshing for allowing the Bulls back up here for a FOURTH retest of resistance! The Bears proved three times that they owned it, and even though AMZN didn't CLOSE above 85.96 - 86.0 DOUBLE RESISTANCE, the Bulls got through there intraday, so they are poised to do futher damage on the upside. We'll see what the Bears can do on defense today, but they'd better come out looking sharp. The Bulls would like to gap this thing up, to BID...ASK at something near/above yesterday's 86.60 high and make a play for 88.20, the top of the Bear Flag and the "W" pivot of a possible Double Bottom. Yeeeesh.

For the record, I wouldn't have bought The Bears any hamburgers or shakes after yesterday's game. LOL.

BUCY got a Conviction Buy out of Goldman before the open yesterday. The chart looked real decent, so I got interested in an Opening Gap play.

BUCY came out of the gate at 31.99, up $1.34 from Tuesday's close of 30.65, and up $0.57 above Tuesday's high of 31.42. 50% of that little gap was 30.705, so I put in an order at 30.75, a little above that. I've been getting shut out on a lot of those orders, but I was fortunate enough to catch this one. The early low on the session was 30.72, a penny and a half above the 50% retracement.

Fifteen minutes into the trade, I had a nice gain, so I cashed it in and planned to get back in on a pullback for a rally to the top of The Wedge, at 33.32. There wasn't any pullback. BUCY rallied directly to 33.32 and a little higher, and only pulled back to 32.82. It closed eight cents below the top of The Wedge, at 33.24.

Gain: just below $1,850.

AMZN: The Bear Flag

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

"today amzn made the 82.60 target. It then moved back above 83. I am curious what happens after a target gets made?

if the stock hits and continues to the downside, vs if it makes the target and then bounces?

does the target then become support/resistance?

I don't know if there's anything to be told about what happens afterwards..."

They all play out differently, Kevin. There never is any guarantee that a target will get MADE, and if it does, that doesn't tell us anything about what will happen after that. That would involve knowing the future, and we simply can't know that.

The market is dynamic, constantly changing, and we must change with it and adjust accordingly. Since we can't know with certainty what the market is going to do, we must try our best to know what we're going to do about it.

As you said, the first Bear Flag target of 82.60 got MADE in yesterday's trading. If we're short (I already covered), what do we want to do about that? That's up to the individual, but you know my feeling: "Take profits, or at least some profits, when targets get MADE," especially if that seems warranted, and we'll talk about that in a minute. If we take "some" profits, we can lock in a winner, or at least a break even on the trade, depending on how we manage the position.


Here's the Bear Flag. We can see that after the flagpole formed (the big drop), the flag formed in the opposite direction of the flagpole so it "should have been" bearish, and it was.

The "logical stop" in the trade is the high of the flagpole, 88.20. It's "logical" because it shouldn't get taken out to the upside, and if it does, something else is going on.

After the Bear Flag broke down, crossing 85.966, AMZN tried to rally back to the bottom of the flag. "Retests of breakouts/breakdowns are common, and are to be expected." AMZN rallied to 86.00 and failed (the first white arrow).

It then double-bottomed at 83.02-83.05 and made another attempt to rally off the jobs number, but it failed again, at 85.96 (the second arrow), which was the exact number where the Bear Flag broke down. That's DOUBLE resistance, at 85.96 - 86.00. When a stock makes a new low after establishing that kind of resistance, which AMZN did yesterday, the stop on the trade can be moved down to just above 86.00, but again, that's up to the individual. Personally, I wouldn't want to see DOUBLE RESISTANCE at 86.00 get taken out to the upside because if it does ...

... we'd be looking at a "W"-Bottom/Double Bottom breakout, which measures back to just below the recent high of 94.40.

88.20 - The high, and pivot of the "W" formation.
82.60 - The more conservative of the 82.60 and 82.45 lows

88.20 - 82.60 = 5.60 of upside on a breakout above 88.20

88.20 + 5.60 = Target: 93.80 IN PLAY

While I don't "think" that will happen, I can't know that, so I'd want to be prepared for what I'm going to do about it. I also didn't "think" that the Rising Wedge in Goldman would morph into a Channel and break out to the UPSIDE, but it did. See what I mean? We can't know the future, but we can be prepared for it by following the program, as best we can.

This Double Bottom possibility is why I think that "taking some profits when the Bear Flag target got MADE" is warranted, by the way.

Near-term, basis the 10-Minute chart, we can see that AMZN formed a Symmetrical Triangle (pattern in orange) last Thursday, and broke out of it to the upside on Friday's jobs number.

Friday, AMZN formed another Symmetrical Triangle (pattern in white) and broke out of that to the downside on Monday morning. The stock tried to do something bullish off that breakdown, but failed at 84.59 and 84.51 (the two red arrows at the horizontal red line). Traders who want to put a tighter leash on their short position would move their stop down to just above that level (84.60's), once AMZN broke to the new low of 82.45, known as "ratcheting down the stop."

Yesterday's trading is another possible Bear Flag (pattern in yellow), a "fractal" (repeating pattern) of the larger Bear Flag in the daily chart. That's encouraging for the Bears, who would like to see that break to the downside, then see 82.60-82.45 support get taken out. That would give a strong suggestion that the Bear Flag target of 80.37 in the daily chart will get MADE, or something close to that.

My apologies that this is so lengthy, but I think it's much more important to understand what's going on in a trade than it is trying to predict anything. We can predict things like, "AMZN will gap up," or "AMZN will gap down," but then what are we going to do about that?

If, for example, AMZN is called Gap Down this morning, at BID: 82.35 ... ASK: 82.40, below the 82.45 - 82.60 support, we would know that the Bulls very likely have a problem. Never any guarantees, of course. The market is about playing "likelihoods" and "probabilites," in my view, because we can't know the future with any certitude, although some players seem to think that they can ;)