AMZN: The Three Bears

I shorted AMZN a week ago because of 3 bearish factors:

1. The Bearish Island Reversal, on July 24.
2. Kevin's possible Bearish Wolfe Wave (see chart posted on August 3).
3. The late July Bear Flag.


The Bear Flag (in purple) broke down on August 3, crossing the lower trendline at 85.966. The next session, AMZN was down pretty good, but it didn't make it to the 82.60 target, the bottom of the Bear Flag. It held at 83.02, double bottomed there the next session with a low of 83.05, then was back in my face on Friday's jobs report on a print high of 85.96, the exact number where it broke down below the Bear Flag. I hate it when that happens. Curses! LOL.


In yesterday's going, I decided to "take the money" on the selloff.

While the downside Bear Flag targets still are IN PLAY, this sideways trading has me thinking that AMZN might make a bid for the Island Reversal gap, and possibly morph the Bear Flag into a Symmetrical Triangle, or a larger Bear Flag, in the process.
Gain: $2,100

SPX: Broadening Top

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

"actually, if you look at spx, it is forming similar broad top pattern. xlb just follows the index."

The Broadening Top is the pattern in black. Notice that after Black trendline #1-#3 was established, the SPX found resistance there on June 5 and again at the June 11 high. Off that June 11 high, we broke a Bear Flag, the 898.18 target got MADE, and we found support at the neckline of the 4½ month Bullish Inverse H&S pattern.

Within the Broadening Top, we had the H&S Top (in red) that morphed into the Falling Channel (in blue). The Channel breakout crossing 916.292 got us back to the top of the Broadening Top on July 30 where the SPX ran into validated resistance. The high was 996.68, right at the upper trendline, then the SPX eased off into a close of 986.75. That's the way that resistance should act, like it did at the top of the Bear Flag in June. The resistance was reliable. The Bear Flag broke, and the target got MADE.

On August 3, however, the SPX broke out of the Broadening Top to the upside, and CLOSED above it that day, and also for the next two sessions. That's at least a warning that that the validated resistance isn't acting as it should. Thursday, August 6, ahead of the jobs report, the SPX closed back below the upper trendline, but Friday's reponse to the numbers sent the SPX back above it, telling us once again that the upper trendline isn't acting as reliable resistance.

When that upper trendline was taken out again on Friday, and when last week's 1006-1008 SPX highs were taken out, The Bears were squeezed to SPX 1018. Although Cramer's comment of August 3 (at the top of the chart) was just a wee-ee bit late in the rally (LOL), I would suspect that more than a few Bears felt that way on Friday :(

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!

XLB - Materials

This chart came to my attention when I was looking at Thomas Bulkowski's site, which I highly recommend. He's written some books on technical analysis and does an excellent job. His site is a great source for pattern study and identification. This link should get you to his XLB chart from Thursday, August 6. http://thepatternsite.com/Blog.html#P6

I added a few pattern's to Bulkowski's chart. The main pattern is his Broadening Top (in blue, on my chart). After Data Point #4 (blue) is established, these things often make a run for the top of the pattern. The XLB began to do that, as he pointed out, but it broke below a Rising Wedge, then broke below the bottom of the Broadening Top. We can see how The Bears got pickled on that breakdown because, as it stood at the July low, it was:

1. A break of a Bear Flag
2. A break of a Rising Wedge
3. A break of a Broadening Top

Those July lows acted very much like a Wolfe Wave #5 Fakeout/Breakdown. It put Bulls and Bears alike "wrong-footed," then the XLB staged a Bullish Island Reversal and ripped it to the upside on a parabolic rally to the upper trendline of the Broadening Top.

In his analysis, Bulkowski speculated on Thursday that the XLB could break out to the upside on the jobs report Friday, which it certainly could have, but it didn't. It closed up on the day, but the session high was capped by the upper trendline of the Broadening Top.

AGU: Before And After

We last looked at AGU when the H&S Top target of 35.90 got MADE, on July 10. It was one of many examples of an unorthodox H&S Top because the Right Shoulder was significantly higher than the Left Shoulder, but the June 17 "Take No Prisoners...Just For Openers" Breakaway Gap down open below the neckline gave a strong suggestion that the pattern was valid, and that the target would get MADE, or at least come reasonably close.

When we looked at that chart, it was discussed in the Comment Section that this actually could be a DOUBLE H&S, as drawn here. Anything is possible. Our job is to follow Ms. Market, and try our best to do what we're told to do. It ain't glamorous, but we would do well to become good "order takers." (Not easy for folks who have a lot of energy in the fire signs...they want to TELL Ms. Market what to do ... LOL).

If we shorted this "possible" DOUBLE H&S Top breakdown, the best place to do it was on the break of the second neckline, or on a retest of the neckline, once it's broken. How would we know if we got it wrong?

1. A move, and especially a CLOSE, back above the neckline (or any pattern breakdown) is a warning that we might be in trouble on a short postion. Sometimes, stocks do close back above breakdowns for a day, or a few days, but we've been warned if that occurs, so take that under advisement.

2. A move, and especially a CLOSE, back above the high of a Right Shoulder (in this case, 41.96), is another BIG warning that we might be in trouble on a short postion.

This chart looked so lousy back on July 10, I put it on the back burner and didn't follow it, but you'll see in the next chart why I would like to have a staff of elves who DO follow these things ;)

Are you saying, "Get OUTTA here with that!" like I did, when I looked at this chart on Wednesday morning, before AGU reported earnings? LOL. (It helped me to play the long side of POT, though).

Where did Ms. Market tell that shorts that they probably were in trouble?

1. July 16 was a CLOSE back above the putative neckline of the second H&S Top. Uh-oh...

2. The neck session, July 17, was a PRINT above the 41.96 high of the putative second Right Shoulder. It wasn't a CLOSE above it, but the 41.99 high established a nearly perfectly flat neckline for a BULLISH Inverse H&S! Uh-oh...

3. The next three sessions, AGU traded sideways-to-down, and the 55/89 RSIs went into Bullish Synchronicity on July 22. A print above that day's high of 40.65 (so, 40.66) was a Buy Signal from that particular indicator. As analysts, we have to decide if we want to take the signal, based on what the chart looks like. Oh, Boy! A BUY SIGNAL, coming out of a Right Shoulder of a Bullish Inverse H&S? Yum ... Yum ... Yum... LOL.

4. July 23, not only did the 40.66 Buy Signal get printed, AGU also broke out above the 41.96 - 41.99 neckline on a strong white candle. Shorts who didn't Buy to Cover on any of the "warnings" that we just looked at were in BIG trouble as AGU raced higher on breakout buying, and they were forced to Buy to Cover, or face the consequences, and we can see what consequences were involved if the were stubborn about covering! The 48.47 Bullish Inverse H&S target got MADE in only seven sessions. UGH.

If we go back and look at the first two charts and had made a prediction about the next move in AGU, my guess is that the majority of us would have said BEARISH, and I would have been one of the folks who would have predicted that! LOL. I'm serious, though. AGU looked terrible back on July 10, and I would have predicted down.

This is a great illustration of why it's so important to FOLLOW what Ms. Market tells us to do. It would have been perfectly justifiable to short AGU when it retested that second neckline, but take the loss as early as possible when Ms. Market tells us that we've got it wrong. Being stubborn about it turns small losses into big ones. If the warnings that we got along the way weren't enough for us to cover any short, the takeout of that 41.96 - 41.99 neckline sure looked like "Die if you want to...die if you MUST" for the shorts. UGH.

At its Bear Market low of 22.08 on December 5, the bad news was factored in. Mid-December was when we discussed the "sea change" in the market, when Goldman and Morgan broke out to the UPSIDE on absolutely horrible earings. We looked at "Bad News Is Good News" in a number of posts.

The market is a discounting mechanism that is said to discount roughly 6-9 months out, and 8 months after the Bear Market low in AGU, we found out on the morning of August 5 that the company had its second best quarter ever. Interesting, given how bleak things looked back in December, huh?!

SDS: The Ascending Triangle/Bear Flag

From August 5 on the SDS:

"Yesterday, the SDS got to within sixteen cents of its "nested" Ascending Triangle target of 45.21. As we've seen so many times before, these "nested" patterns can pack some punch when they break out or break down, as this one did, particularly when the breakdown is a Breakaway Gap, as this one was."


When I saw the SDS trading in the 45.20's in pre-market yesterday morning, I placed an order for 2,500 shares at the 45.21 target. They only filled 1,342 shares.
I tried to get the remainder of the shares in the regular session. Nope. The session low was exactly 45.21, the Ascending Triangle/Bear Flag target got MADE, and they gave me zeeeeeeeeeeeeero shares. Curses!

Gain: $1,525. I'm grateful, though, especially since it was a trade on the "dark side." LOL.

POT: Inverse H&S Breakout

At its June 1 high, POT scored a 155% gain off its December, 2008 Bear Market low. A sizeable selloff of 33% began two days after the 50/200 DMAs made a "Bullish" Cross, which was not a good entry long into the stock. Be careful with those Bullish and Bearish Crosses.

On earnings in late July, POT broke out of a Falling Channel and rallied directly to the top of The Channel (the tall, white candle). Since then, the stock has traded sideways-to-down, forming a Right Shoulder for a pattern morph from a Falling Channel to an Inverse H&S pattern. Shortly after the Opening Bell yesterday morning, POT broke out above the 97.75 - 97.72 neckline on nice volume and raced to 99.12.

The general market sold off pretty hard in the morning and after the early breakout in POT, and it eased off two dollars from the 99.12 high. Despite the weak market and the fact that the general market has been on an upside screamer for the past month, I decided to get long the pullback with a target near the early high, just below the round 99.00. In addition to breakout buying, there was short squeeze potential in a breakout like that, even in a down market. Bears aren't favored shorting, or remaining short, a bullish technical breakout.

With the Dow still down 100 points, POT managed to rally back to the morning high within a half an hour of my entry, where I sold. It rallied beyond that, to 100.64, before closing at 99.56.

Gain: $1,550

SDS And AMZN

The SPX refused to let loose of the shorts yesterday as the squeeze higher continued. Even Bulls have been short-term bearish in recent sessions, wanting a pullback in this nearly 150 point SPX rally, but they haven't gotten what they have wanted either.

Yesterday, the SDS got to within sixteen cents of its "nested" Ascending Triangle target of 45.21. As we've seen so many times before, these "nested" patterns can pack some punch when they break out or break down, as this one did, particularly when the breakdown is a Breakaway Gap, as this one was.

The breakdown on July 15 was one of those "Take No Prisoners...Just For Openers" openings on a Gap Down below the "nested" patterns, to 55.16. The lower trendline was at 55.23. The high near the open was just three cents above that, at 55.26, and it's been down...down...down ever since.

Math for the Bear Flag (in red):

High: 61.57
Low: 51.55

61.57 - 51.55 = 10.02 pts. of downside on the break below the 55.23 trendline.
55.23 - 10.02 = Target: 45.21 IN PLAY

The larger pattern in blue is arguably an Ascending Triangle rather than a Symmetrical Triangle since it has the right look, but for my purposes it doesn't matter because I always use the more conservative of my two choices to establish my target, so using the 61.57 high, my Ascending Triangle target is the same as the "nested" Bear Flag target. Using the 62.08 high to establish the Ascending Triangle target is perfectly fine, in which case the target would be 44.70 IN PLAY.

As we discussed pre-market on the morning of July 16, we had a Channel breakout in the SPX on July 15, crossing 916.292, and we can see here how that was expressed in the SDS on July 15. The Bear Trap was "set" on the successful retest of the Bullish Inverse H&S neckline on July 8, at 869, and the move across 916.292 in the SPX and the Breakaway "Take No Prisoners...Just For Openers" Gap opening of July 15 in the SDS is exactly where that Bear Trap got "sprung."

While this 150 point rally might seem inexplicable, we can see how The Bears who were hopelessly quagmired in their opinion about the technicals and/or fundamentals got clobbered. Remember that 86% of Wall Street Sentiment Survey respondents were Bearish on June 8, Bears outnumbered Bulls 2 to 1 in the AAII Sentiment Survey at the July 8 low, and this rally has been an expression of how wrong they got it.

Painful lesson for The Bears, but if we don't look at "what happened," as we've been doing, we won't learn anything and we'll repeat our mistakes. Getting stuck in an opinion or a prediction can be very, very costly. UGH.

In addition to the July 23 Bearish Island Reversal and Kevin's "possible" Bearish Wolfe Wave in AMZN...

...we've now got a Bear Flag that broke to the downside yesterday (pattern in purple). Basis this daily chart, the bottom of the pattern came in yesterday at 85.9666. The Hourly Chart is slightly different.

The low at the white arrow, which was a "third hit" trendline validation was 86.05. AMZN bounced off that in the morning and rallied to 86.79 (red horizontal line), then broke below the Bear Flag in the afternoon session. Retests of pattern breakdowns are common and are to be expected. AMZN put in a low of 84.93 on the session, then as they turned for home, it rallied back toward the bottom of the broken Bear Flag and almost got there. The close was 35.80, roughly seventeen cents below the lower trendline of the flag.

In the daily chart, the slope of the bottom of the Bear Flag is 0.6733, so it comes in today, August 5, at 86.64, very near the last rally high of 86.79 (horizontal red line), prior to the flag breakdown. Any print above that 86.64 - 86.79 near-term resistance puts the breakdown in question unless/until AMZN should trade back below 86.64, which is the bottom of the Bear Flag for today's session.

SPX - The Channel Morph

From my comments on the July 15 SPX close:

"On the floor of The Exchange yesterday morning, Art Cashin said (paraphrasing) that everyone in the world was watching this H&S Top...

...What I haven't heard discussed, is the the fact that the neckline of the four and a half month Bullish Inverse H&S breakout was support on the selloff from SPX 956, as it "should have been."

This chart is one for the textbooks. The widely advertised putative H&S Top (in red) morphed into a Channel (in blue), right at neckline support of a 4½ month Inverse H&S Bottom (classic Bear Trap). The SPX came off that neckline support and went on an upside screamer of over 140 points in under one month's time and, in the process, made a direct hit yesterday on The Channel target. Whew!


The Channel target of 1003.20 got MADE at 2:20PM in yesterday's going. The session high came in five minutes later, at 1003.61, forty-one cents above the target. As we know, targets do not always get MADE, but it's uncanny how close they can come to being achieved, like this one.

XING: Back On Track

From June 16, on XING:

"...I threw it in yesterday for a small gain. While the chart still looks okay and yesterday's break and close back below 2.23 could turn out alright, as I've said before, XING is a stock that knows how to disappoint, so I had it on a short leash." (Real Time Executions posted June 16).

All of the stops in XING got hit after I sold in mid-June, but interestingly, the stock held at 1.60 in mid-July, right at the retest of the top of the channel. Since that successful retest, XING has rallied back above the neckline of the Inverse H&S, so the targets of 2.84 and 3.34 are back IN PLAY.

That neckline "should have been" support in June, but it wasn't. What I would like to see now is for XING to meander back down to that neckline, currently at about 2.03, establish that it IS SUPPORT, then rally to the targets, and beyond. The bottom of the Kumo (Cloud) also is right there, currently at 2.025.

I would consider buying back my shares on a neckline retest, but XING simply could rally from here, and for those who are long, I hope that it does.

Bigger picture, although XING is a stock that knows how to disappoint, it also is a stock that knows how to hit its marks as far as targets are concerned. We can see on the chart that in the past couple of years (since October, 2007), at least 20 targets have gotten MADE on both the upside and the downside.

We also can see that XING has established a decent base from which to launch a rally. It needs to take out 2.63 to turn the corner and make a "higher high." Next resistance would be the 2.84 high from December, 2008, and then 3.76 horizontal resistance from the July, 2008 Symmetrical Triangle low.

AMED - Gotta Have A Sense Of Humor

I found this stock early Wednesday morning when I was going over earnings. AMED reported great earnings on Tuesday and raised guidance for the year to $4.75 - $4.90, which based on Tuesday's close of $37.76 is a P/E ratio of only 8 basis the low end of guidance. In this economy, that looks pretty outstanding!

But, when I looked at the chart early Wednesday morning, I saw that it had gapped up to $41.75, but that it fizzled and closed at 39.00 on heavy volume. That didn't look good, but what did look good were the earnings AND the heavy short interest in the stock.

33% of the float is SHORT, which would take 19 days to cover, AND the stock had a bullish breakout of an Ascending Triangle on great earnings? Quit it!

Shorts should be severely punished for that and, of course, I don't mean that in a moral sense. I mean that it shouldn't get rewarded to be short a BULLISH breakout, especially not in a stock that is sporting a P/E ratio of only 8. Sheesh!

Despite the "fizzle" on Tuesday's reporting of earnings, I decided to watch it and buy the stock if it could take out Tuesday's high of 41.75. Sure enough on Wednesday, AMED printed a high of 42.20! When it pulled back from there, I bought it at 41.61 figuring that it should absolutely explode to the upside on a HUGE short squeeze (sorry, I didn't know that I'd be talking about this, so I didn't do a screen shot of my entry).

Well-ll, no short squeeze. AMED fizzled again, and closed Wednesday at 40.64 and I was under water by $1,000. Thursday, the stock did nothing, but closed up a little, at 40.81, so I was under water by $800. Gr-r-r...

Friday morning, AMED gapped up to 41.33, so I was almost whole. Volume trickled in and the stock went higher and took out Wednesday's high of 42.20, so I was in the green, but not happy with the volume and the 100 share trickles. I was looking for a PANIC to the upside and wasn't seeing it, so I sold the rally, not wanting to sit through another "fizzle." I was happy to have a nice gain after being under water on the trade for two days.

Fifteen minutes after I sold, an analyst came on CNBC, praising AMED! How it beat earnings. How it raised guidance...

I couldn't hear what else the analyst said, because I was thinking, "Somebody PLEASE kill me!" as it ripped higher, to 46.65. LOL.

Gain: $1,050

AZO: Falling Wedge Breakout

From yesterday on AZO:

"...it has been forming another possible Falling Wedge (in blue) and currently is looking for Data Point #4, which "could have been" yesterday's low. We'll see. AZO needs to find support here, then go up and knock out the top of the Blue Wedge, which comes in today at 156.029."

AZO gapped up from 152.96 to 154.13. The high of Wednesday's session was 153.70, so I put my buy order in at 153.95, a little higher than 50% of the opening gap but I didn't get filled. The low on the session was 154.08 just after the open, then it shot up like a rocket. I won't whine about it, but ... but ... but .... Curses!

AZO broke out of The Wedge crossing 156.029 and closed at 156.31.

AZO: Double Falling Wedges

From my July 23 trade in AZO:

"In the final half hour of trading AZO was barely in the green, looking like it was going to sell off, so I threw it in and was glad that I did. AZO closed slightly in the red. Now, watch it rally to $160 today ;)"

AZO has traded sideways-to-down since then, down a little over $4 from where I threw it in. This chart is another example of why I say that wedges aren't my favorite patterns. AZO broke out on July 9 at 155.06, but we can see that as soon as a wedge breaks out (or breaks down), everything immediately to the left is resistance (or, support in the case of Goldman, when it broke down below a Rising Wedge). Not so swell. AZO is down about $2 from that breakout.

Interestingly, though, while AZO has been trading sideways-to-down since the July 9 breakout, it has been forming another possible Falling Wedge (in blue) and currently is looking for Data Point #4, which "could have been" yesterday's low. We'll see. AZO needs to find support here, then go up and knock out the top of the Blue Wedge, which comes in today at 156.029.

Yesterday, we looked at the "possible" Bearish Wolfe Wave in AMZN. We can see in this chart that AZO also had a "possible" Bearish Wolfe Wave late winter of this year. Nice symmetry between Waves #1-#2 and Waves #3-4. Nice Wave #5 Fakeout Breakout on February 23-24. Unfortunately for The Bears, the Bearish Wolfe Wave possibility got blown on March 3 when it got trumped by earnings. When you run into a TA purist who says, "Fundamentals don't matter at all," show them this chart ;)

Notice that at Blue #3 of the large Falling Wedge on June 9, AZO found resistance at the Kumo (Cloud), right where it had narrowed and transitioned to red vertical stripes. I don't understand the math to explain what causes the Kumo (Cloud) to do that, but it's interesting how the door got slammed on any upward price movement right there!

At Purple #1 of the current Falling Wedge, AZO again found resistance at the top of The Kumo (Cloud). Granted, AZO looks like it's rolling over to the downside, but again, we'll see. I'm not going to assume that, given that the larger Falling Wedge breakout still is looking alright, and given that a possible second Falling Wedge is forming. This simply could be a consolidation of the 100% gain that AZO had off its November low, and could be a DOUBLE Bullish Continuation pattern (Back-to-back Falling Wedges).

It does look like AZO needs to GIT GOIN' to the upside, though!

AMZN: Possible Bearish Wolfe Wave

Since putting in its Bear Market low eight months ago, AMZN enjoyed a rally of 172% to its recent high of 94.40. It is said that the market is a discounting mechanism, and that it discounts the future roughly six to nine months out. In other words, by the time we hear rumblings that a recession is over and that we might be entering a new bull market (lots of rumblings recently), stocks already bottomed and have enjoyed some nice gains. Well-ll...

Basis the Ichimoku Kinko Hyo chart ("At A Glance...The Table Of Balance"), we can "see at a glance" that:

1. AMZN thrusted above its Kumo (Cloud) at the first of the year, beginning its transiton into a Bull Market,
2. It pulled back and found SUPPORT at the Kumo (Cloud), further suggesting a transition to a Bull Market, and
3. It blasted off to the upside on a Breakaway Gap at the end of January, 2009, completing the transition to a Bull Market, SIX MONTHS ahead of the current "rumblings" about the recession being over and about an incipient new bull market.

In early March, 2009, while AMZN was consolidating the initial gain off the blastoff in a Bull Flag (a bullish continuation pattern), many stocks and indices were at new Bear Market lows, and AAII bearish sentiment was at a generational extreme. AMZN and many other stocks already were in a new Bull Market.

This chart, along with many others that we've looked at in recent weeks that have had gains of 100%, 200%, 300%...are textbook examples of how the news is horrible at bottoms, and of how big gains already have occurred before we start to hear possible good news.

It might be time to SHORT EVERYTHING. Just kidding. Ju-u-u-ust kidding.

These are the individual patterns and breakouts along the way to 94.40. There was a little Bearish Wolfe Wave (in red) along the way, the target of which got MADE, then AMZN continued higher. All of the targets got MADE with the exception of the Falling Wedge target of 95.47. The recent high was 94.40

This is Kevin's possible Bearish Wolfe Wave that he mentioned in last weekend's Comment Section. Certainly worth watching.

Don't be intimidated by "Wolfe Waves." They, basically, have a big directional Lead-In (the arrow) like a flag pole for a Bull or bear flag. The ensuing waves form in the direction of the Lead-in. In this case, they must be "higher highs" and "higher lows," which they are, just like a Bear Flag/Rising Channel. The main difference between this Wolfe Wave and a regular Bear Flag or Rising Channel is the Wave 5 Fakeout Breakout, which we got on July 23. That put everyone who bought the breakout, or who covered their short, "wrong-footed." That candle also is a Bearish Island Reversal. It's detached from the preceding session and the session that followed, leaving longs stranded on that island unless/until the gap would get filled.

ARIA - The Good News "Gap And Go"

There was good news out on ARIA before the bell, and it was trading in pre-market around BID: 2.05...ASK 2.06 when I looked at it, up about 18%.

Excerpt:

"July 27 (Reuters) - Ariad Pharmaceuticals Inc (ARIA.O) said preliminary results from an early-stage trial of an investigational compound has shown significant activity in patients with advanced blood cancers, who were resistant to other drugs, triggering a 50 percent rise in its shares. Of the 23 chronic myeloid leukemia (CML) patients in the four highest dosing groups, 19 remain on study without disease progression, evidence of control of their disease, Ariad said."

"Good news" isn't always good news for a stock. Like POOL's earnings in yesterday's post, what is important is the market's REACTION to the good news (or earnings, in the case of POOL). The reaction in pre-market to ARIA's good news was pretty good, so I looked at the chart to see if I could find an entry long.

The BID: 2.05...ASK: 2.06 trading in pre-market was a gap above TWO recent highs: 1.83 and 1.93, so I viewed that as a bit rich for an entry long, but I also didn't expect much of a pullback. Maybe a gap fill of the 1.93 high, so I put in an order at 1.97 with a target near 2.20 horizontal resistance. A gap fill of that 1.93 high turned out to be the exact low on the session.

In addition to the fact that the market actually was reacting to the news as "good news" in pre-market, another reason that I didn't expect much pullback was the heavy short interest in the stock, like POOL had when it released its earnings last week.

Any opening in ARIA above 1.93 is a "Take No Prisoners" opening that often is "just for openers," and it causes panic in the shorts, who have to BUY to cover. The additional buying from longs (like me) creates a lot of upside pressure. "Buying begets buying."

I sold my shares ahead of my 2.20 target when the stock was up 25% on the session, but ARIA had a good bit more in it, rallying to 2.60 and closing out the session at 2.45 on 7,900,000 shares, which was 27 times average daily volume, and twice the amount of short interest in the stock. Whew!

Suggestion: When you see a stock gapping out of a pattern, like POOL, or gapping above resistance, like ARIA, check out short interest. No guarantees, of course, that it won't end up being a "Gap And Crap" opening, where the stock opens near its high, then fizzles, but a heavy amount of shorts are your best friend in a situation like that. They're forced to become buyers, unless they want to get their clocks cleaned ;)

Gain: $1,000.

Everyone Out Of The POOL

This is the chart of POOL when earnings were released last week, and these are a couple of comments from internet posters, a week before the earnings release:

July 15, 2009 - Internet post:

"If you guys want a tip of your lifetime then sell POOL asap. My dad came in crying last week saying he lost his job with them. They are in VERY big trouble financially. Sorry to say but in the next month this is going to drop close to $10 bucks or less. REMEMBER THIS POST."

July 16, 2009 - Internet post:

"This stock will see a major sell off within the next 10days. No one wants to be holding the bag when 2qtr numbers are released and if you do not understand the dynamics that are involved and the importance of these numbers you should not be in the pool. Leave it to people that know the industry."

The response to earnings was a breakout of the Bullish Inverse H&S pattern on the heaviest volume in a year. Apparently, not only did "no one want to be holding the bag when 2qtr numbers are released," market participants also...

...were heavily short the stock ahead of earnings, which accounts for much of the heavy volume. Shorts were dead in the water (pun intended) on the "Take No Prisoners" BIG Breakway Gap up in POOL after earnings were released. The gap up opening was "just for openers," and the stock continued higher into the close. UGH.

Market Lesson:

REMEMBER THIS POST? Definitely remember it, and try not to get locked into an opinion about the market's fundamentals (or technicals, for that matter)like this person did. Yes, the year over year loss in POOL doubled, but it's the market's reaction to earnings that matters, not the earnings.