Agrium (AGU) - Support Levels

All four stock that we look at yesterday morning went down in the general market selloff. When that occurs, we want to look for possible levels of support. If a stock is in a downtrend and there are only weak levels of support, or no levels of support, the stock is extremely vulnerable to getting hit very hard.

Review of Agrium (AGU):

1. In November, the stock broke below the neckline (upward sloping blue line) of a Head & Shoulders Top. When stocks break down, they tend to go down a lot faster than the time that it took for them to go up. AGU got to the H&S Top target of 78.26 in only 3 days.

2. After a selloff like that, a stock needs to settle down and try to establish a base from which to launch another rally, if it can, which is what AGU did from mid-November to mid-December. After it broke out of the Bullish Falling Wedge (sharp downward-sloping blue pattern) on December 16, it gave a number of Buy Signals basis the Fibonacci Sequential measures of Relative Strength that I use. Those Buy Signals are the horizontal green lines. They were resistance before they got taken out to the upside, so they now become possible levels of support.

3. After AGU broke out of the Bull Flag (the pattern in green) on January 12, 2011, it got to the 95.00 target, which was the top of the pattern, then sold off into Wednesday's close. The top of the pattern (Green Trendline #1-#3)"should" act as support on any selloff, and it did hold on a closing basis on Wednesday. That trendline was at 90.65 yesterday. AGU gapped down below it at the open, rallied to 90.66, just a penny above it, then in the first 5 minutes of trading it also took out the 89.10 low of the pattern at Green #4, 89.01. That's the horizontal red line.

4. When the low of a pattern that has broken out to the upside gets taken out to the downside, any remaining targets that were IN PLAY are CANCELLED. The outstanding target of 97.45 from the Bull Flag breakout might be achieved down the road, but as the chart stands right now, a play for that target was technically stopped out on the break below 89.01, which was the low of the Bull Flag.

89.01 now is the first level of resistance to be broken through on any rally from here. The reason for that is because players who recently bought AGU during the formation of the Bull Flag and who still are holding the stock had a nice gain when it broke out to the upside, but if they didn't "take at least 'some' profits when the 95.00 target got MADE," they all are sitting on a loss and are possible sellers if they get can out of their postion at a better price than yesterday's close of 87.62. If, for example, they paid 89.62 for the stock and AGU rallies $2.00 to that price today, they will be thinking, "Okay, I can get outta this thing at a break even" and they will sell. That kind of selling causes RESISTANCE to upward movement in the price of the stock, particularly after it just has broken down.

GS, AMZN, AGU And TIE

When targets get MADE, that doesn't mean that a stock is going to reverse right there and go in the other direction, but that often is the case, as it was with Goldman Sachs (GS) and with Amazon (AMZN) yesterday.

After the 174.80 target in GS got MADE, it rallied only a little bit more, to 175.34, then gapped down yesterday on disappointing earnings, below the recent Cup & Handle breakout (blue horizontal trendline).

When GS gapped to the upside on January 3, 2011, it left a gap in the chart (the two horizontal green lines). GS came back and filled that gap, then broke out again and the 174.80 target got MADE. That was very nice, technically. Yesterday, however, in adddition to breaking back below the breakout, GS also took out the low of that little gap-filling black candle. UGH. When technicians say, "Some technical damage has been done the chart," this is an example of what the mean. Instead of the blue breakout trendline and the two green horizontal bars being support, they now are resistance because players who thought that they bought a successful gap fill and another upside technical breakout find that they haven't, and many of them will be inclined to sell on rallies back to the gap-filling candle (green horizontal bars) and what currently looks to be a failed breakout (the blue horizontal bar).

GS needs to close back above the breakout to turn this chart bullish again, which might prove difficult. Yesterday's selloff was on heavy volume and the candle is a long black one, closing near it's low, suggesting that players threw it in going home.



Like GS, AMZN rallied to the last of our upside targets, 191.50 (it got to 191.60), then sold off yesterday. Another of many examples why it's a good idea to "take at least 'some' profits when targets get MADE."

This chart looks much better than Goldman, however, because rather than closing below two levels of support as Goldman did yesterday, AMZN has at least three possible levels of support below it, and still is well above the two pattern breakouts that we've discussed. Possible support levels are listed on the chart.



Agrium (AGU) has been one of many stunning performers off the November, 2008 Bear Market low. It's up over 300%. AGU broke out of this Bull Flag (patten in green) on January 12, leaving a gap in the chart from its January 11 close of 90.91. Yesterday, AGU retested the upper trendline of the breakout and also filled the 90.91 gap. That trendline comes in today, January 20, at 90.65. A little intraday dip below that would be fine, but I shouldn't like to see a CLOSE below that trendline.



On January 18, Titanium Metals (TIE) rocketed out of this big Falling Wedge (pattern in blue) on a Breakaway Gap, also taking out the recent highs of 18.89 and 18.85. That got "called back" yesterday, much like a long completed pass does in football when someone is off sides ;)

In yesterday's selloff, most of the gap from the January 14 close of 18.30 got filled (yesterday's low was 18.41) and the Falling Wedge trendline got retested. 18.30 might get filled here, but as long as the trendline holds up, TIE looks like it has some further upside.

AMZN Targets

(Click on Charts to Enlarge, then click the back arrow to get back to the narrative. You can toggle back and forth).

From yesterday morning's post:

"...the stock gained some steam at the end of the week and rallied Thursday and Friday, almost getting to the 189.39 target (from the pattern in blue). That's still IN PLAY, and 190.32 also is IN PLAY from the breakout of the pattern in purple."

Update:

Both the 189.39 and 190.32 targets got MADE early in yesterday's trading. The high around 10:30 AM was 190.40, just above the second target.



From the 190.40 high, AMZN formed a Falling Channel/Bullish Falling Wedge, which "morphed" (changed) into a Bullish Inverse Head & Shoulders pattern (picture an upside down bust of a person). The neckline was a very flat 190.13 and 190.14. The low of the pattern was 189.43. Subtract that low from the neckline, and you get an upside target of 190.83 IN PLAY. I bought AMZN at 189.90 and sold it at 190.78 in front of the 190.83 target that got MADE. The session high of 191.00 at that point was just above the target (White #1 in the next chart).



Basis this 5-Minute chart, by mid-afternoon, AMZN had formed this nice Symmetrical Triangle (pattern in white), which dwarfed the Bullish Inverse Head & Shoulders pattern, by comparison (the pattern in yellow). The breakout put a measured move target of roughly 191.50 IN PLAY (hard to measure exactly on these intraday charts). I bought AMZN again at 190.22 and sold it at 191.44, just ahead of the 191.50 target, which got MADE. The session high was 191.60. The close was 191.25.




Gain on the two trades: $2,000.

My "stop loss" if the patterns had failed was the low of the Right Shoulder in the 1-Minute chart, and the low at White #4 in the 5-Minute chart of the Symmetrical Triangle. If a trade goes wrong, whether it be a day trade or a position trade, admit it as quickly as possible, take the small hit and move on to the next trade. We never want to allow a losing trade to turn into a disaster, which I did so-o many times in the past. UGH!

AMZN - 100% Rally

Since gapping up from the low $90's the last time we looked at AMZN (See "AMZN: The Short Squeeze" two posts below here), the stock has rallied 100%. (Click on charts to enlarge, then use the back arrow to get back to the narrative).



The high of the rally from short squeeze off the low $90's was $147.63 in April, 2010. Brutal for the shorts. From that high, AMZN went into a consolidation phase and formed a lovely Bullish Inverse H&S pattern during mid-2010, seen in the next chart). That pattern broke out to the upside on September 1, 2010 and the target of 156.00 got MADE in parabolic fashion (straight up, with almost no pullback). That's how stocks "should act" when they break out of a nice base like this one, but as we know, they don't always ;)






AMZN then formed and broke out of a Bull Flag (small pattern in blue). The target of 170.45 got MADE with no problem. The stock went on to form a Rising Wedge pattern in the Autumn, 2010 (pattern in black). AMZN broke down from that pattern, but quickly gained its footing and rallied to a recovery high of 181.84 (Blue #1) in late November, 2010. From there, two patterns have formed (the one in blue and the one in purple) and broken out to the upside.

Notice the dip below the top trendline of the pattern in blue, at Purple #4. That's a Bear Trap. It looks like the pattern in blue has failed, inviting the Bears to short the stock (play it to go down), but that proved to be the fourth leg of another pattern (Purple #4), and the stock broke out again to the upside on the first trading session of 2011.

Since that breakout, AMZN has tested the mettle of the Bulls while repeatedly retesting that breakout (Purple Trendline #1 and #3), but the stock gained some steam at the end of the week and rallied Thursday and Friday, almost getting to the 189.39 target (from the pattern in blue). That's still IN PLAY, and 190.32 also is IN PLAY from the breakout of the pattern in purple.

Goldman Sachs (GS)

I've been following Goldman(GS), with interest since it crashed in April, 2010 wondering how it would fare afterwards. We've referred to this stock in the past as "the stock that refuses to die," and we can see from the chart that it hasn't expired just yet ;)

In July, 2010, it broke out of a Bull Flag and the upside targets of 146.40 and 156.81 got MADE with no problem. That looked encouraging for the bulls, and indeed, it was the beginning of a move to the upside into the current time-frame.

In mid-October, 2010, Goldman broke out of another pattern, a triangle, which put an upside target of 174.80 IN PLAY, with a target date of roughly December 20,2010. That would be the same number of days from the breakout that it took the pattern to form. When a target takes longer to achieve than it took the pattern to form, it becomes questionable whether or not it will be achieved at all.

Goldman didn't make the target by the anticipated date of Decemmber 20, but by that date, it wasn't showing any problems. It was sitting at the bottom of the handle of what looks to be a Cup & Handle formation (pattern in blue).

The Cup & Handle broke out to the upside on the first session of 2011, putting another upside target of 185.99 IN PLAY. In "fractal-like behavior," (repeating pattern) it closed back below the breakout for two days, suggesting a possible failure, just as it did when it broke out of the triangle back in July, 2010.

On January 12, 2011, Goldman broke out to the upside again, and on January 14, 2011 the outstanding target of 174.80 finally got MADE.

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.