NASDAQ: Bad News Is Good News

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From yesterday:

"The Bulls still have a chance to put in Data Point #4 of this pattern in purple and resolve it to the upside, but they'd better look sharp about it or this simply could roll over and die."

Bulls did what they needed to do yesterday, and did it on horrible news: a record drop in housing prices, and a record drop in consumer sentiment. So far, so good. Bulls still need to take out NASDAQ 1603.

NASDAQ: Data Point #4

The Bulls still have a chance to put in Data Point #4 of this pattern in purple and resolve it to the upside, but they'd better look sharp about it or this simply could roll over and die. The MACD, for example, is up near the zero line and positioned to go up through it, but the NASDAQ has to rally soon, or the MACD will roll over and go below its signal line like it did in mid-November.

QLD: Rectangle Breakdown

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From December 26:

"I bought the QLD at 25.93 on the fill of this morning's gap. I'm front-running a possible breakout, but the risk is less than 3% on the trade. Stop: below 25.23, the recent low on December 22."

In the 10-Minute Chart, the QLD broke below a Rectangle this morning (the lows were 25.68 and 25.69). It turns out that would have been a good place to sell, but I wanted to give the trade a chance, so I stayed with my stop.



Stopped out for a loss of $1,800.

NASDAQ: 55/89 RSIs

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From Christmas Eve:

"The 55/89 RSIs still are at Bullish Synchronicty. The 55 is at 43.8136; the 89 is at 43.7989, so the difference is only 0.0147, which is very tight."

The 55/89 RSIs ticked higher at the Christmas Eve close, and the Buy Signal at 1527.24 in the NASDAQ, a penny above the Christmas Eve high, got printed this morning. I bought the QLD at 25.93 on the fill of this morning's gap. I'm front-running a possible breakout, but the risk is less than 3% on the trade. Stop: below 25.23, the recent low on December 22.

NASDAQ: Taking A Fresh Look

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Looking at this Ichimoku Kinko Hyo chart ("At A Glance...The Table Of Balance"), we can see that the Kumo (Cloud) Resistance represented by the vertical lines is just overhead, and that "The Table Of Balance" strongly favors The Bears. "At a glance," we might want to call that Kumo a BRICK WALL, rather than the less daunting sounding "Cloud." In general, thick resistance like this is difficult to overcome, as evidenced by the past five sessions since the Bullish Falling Wedge breakout. It's been sideways-to-down trading at the bottom of the Kumo as the Bulls try to muster strength for a rally attempt into Kumo resistance. Let's look at the next chart, to see what the Bulls have got.




I've done a "redraw," removing the rising channel in red (see yesterday's chart) in an effort to see if there's something else going on in the chart that I might be missing. It's arguable that we've got an Ascending Triangle (in green), or even one of William O'Neill's "Cup & Handles," with an Ascending Triangle "fractal" (repeating pattern) that has formed since December 9 (pattern in purple). The pattern in purple would be the "handle" of the Cup & Handle, and it has formed on low volume, as it should.

If that's the case, the NASDAQ currently is looking for Data Points #4 for BOTH patterns: a final low, prior to a breakout. If we go a little lower here, the pattern in purple could morph into a Bull Flag, then break out. If we go much lower, the Bulls' case is seriously weakened.

Again, that Kumo (Cloud) represents solid resistance, but an upside breakout would be out of Triple nested patterns: (1) The Bullish Falling Wedge in blue, (2) The Ascending Triangle/Cup & Handle in green, and (3) whatever pattern we've got here in purple, so there at least is a reasonable base from which to launch a rally attempt.





The 55/89 RSIs still are at Bullish Synchronicty. The 55 is at 43.8136; the 89 is at 43.7989, so the difference is only 0.0147, which is very tight. That kind of compression can have an effect similar to a tightening of the Bollinger Bands, and can produce a nice move if it can kick higher out of the synchronicity. A print today of 1548.45, above yesterday's high, would be a technical buy signal from this particular indicator.

Bottom line: Price rules. Bulls need to take out NASDAQ 1603.

NASDAQ: Broken Trendlines

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Yesterday, the Bears managed to close the NASDAQ back below BOTH the top of the downward sloping channel (blue) and the upward sloping channel (red), but not convincingly. Given the Quadruple Reversal that we examined yesterday, I'm a tad suspicious that we might get a fifth, particularly given the fact that the 89 RSI (Chart #2) has broken out of an Ascending Triangle, LEADING PRICE, and on yesterday's selloff, came back to retest the breakout. The 55/89RSI's also are at Bullish Synchronicity. The NASDAQ needs to take out yesterday's high of 1563.79 to generate a Buy Signal from this particular indicator, so we'll see.

The Bears have the advantage here after the break of TWO trendlines. A downside takeout of the December 12 low of 1478 would look more convincing. That would put in a short-term Double Top (highs: 1602 and 1598).

The Bulls need to get back above the broken trendlines (data points for today are at the upper right on the chart), then more importantly, knock out 1603.

NASDAQ 1603:Quadruple Reversal

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Reversal #1: The November 6 little black candle (circled in red) was a Buy Pivot in my work. When a signal is given, it's up to the individual technician whether they like the chart well enough to take action on the signal. It's a Buy if the 1676.92 high gets taken out to the upside. Stop: 1603.87. and we can see from the horizontal black line how "pivotal" that Buy Signal was, and still is.

November 8, the high was 1680.67, triggering the Buy Signal, but it turned out to be a "Gap To Crap" candle that only served to fill the 1679.19 gap from November 4, then the index reversed and printed a low of 1603.33, which technically triggered the stop. Some technicians will wait for a CLOSE below the stop. That came the next day, officially triggering the stop, and indicating a return to the bottom of the channel.

Reversal #2: Two days later, the bottom of the channel was tested. It held, validating it as support, and the day finished on very bullish Key Reversal candle. The close was on the high, at 1596.70, just below 1603.87, which now "should be" resistance since that was the low of the November 6 pivot candle. But...we've got a Bullish Key Reversal!

Reversal #3: The Bullish Key Reversal turned out to be a HUGE Bull Trap. 1603.87 did turn out to be resistance, and the "not so Bullish Reversal" got reversed. The Nasdaq went into a severe drop of 300 points over the next six sessions, broke below the channel, and CLOSED below the channel, indicating that the Nasdaq was headed lower.

Reversal #4: Not so fast! LOL. The downside reversal got reversed on November 21, and look at the action since then, with respect to the "pivotal" 1603.87. The high for the move is the December 9 high is 1602.97. The Nasdaq has come out the other side of the channel, but the subsequent highs have been just under 1600.

Summary: The Nasdaq begins Christmas week with DOUBLE support today at 1538-1541 (listed at the upper right on the chart). An upside takeout of 1603.87 "should" produce a rally at least to the November 10 "scene of the crime" (the false Buy Signal), at 1679-1680 resistance.

GIGM: Bullish Key Reversal - Bullish Wofle Wave

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Chart #1 - Daily: This chart not only is an illustration of "BUY the rumor of good news (the May earnings)...SELL the release of good news (GIGM topped the following day), it's also an illustration of how brutal this bear market has been. From the May earnings high of 19.86, GIGM lost 87% of its value at its November 21 low of 2.64.

"When the news is great (May earnings)...you probably are too late" and "Buy when there's blood in the streets (November 21 low)." Those market maxims sure make it sound easy to play the market, but we all know that it isn't quite that simple. LOL. For that reason, I try to look at the "body of evidence," to see if the market is telling me anything.

Chart #2 - Bullish Wolfe Wave: Catching exact highs and lows is very difficult because, by definition, we are "shorting new highs" and "buying new lows - catching falling knives," both of which are a "no-no," but we can come close when the high or the low is a big reversal day, like GIGM had on November 21. It printed a new low, then rallied and closed above the prior day's high, putting in a Bullish Key Reversal candle on the day.

Additional evidence of a significant low was that the Bullish Key Reversal also was at a Bullish Wolfe Wave 5 "Fakeout/Breakdown." Confirmation of the "fakeout," was a rally back inside the pattern, rather than a continuation to the downside, which the November 19 pattern breakdown suggested. We can see that at the Wave 5 "breakout/breakdown," the proverbial everyone was put wrong-footed. Bears shorting the breakdown got faked out, shorting into the hole. Bulls who finally capitulated on the obvious breakdown also got faked out. That's THE hallmark of a Wolfe Wave, in my view. The greatest number of people possible are disappointed, and they don't get much of a second chance to correct their mistake, if at all. The market reverses direction from there.

After a five-day rally off the 2.64 low, GIGM settled in and put in a Bullish Falling Wedge pattern (pattern in blue), a bullish continuation pattern. During the Bear Market off the May high, GIGM did nothing bullish. The December 8 upside breakout of the Bullish Falling Wedge, following the November 21 Bullish Key Reversal, indicated a "sea change" in the stock. That gave us a second piece of evidence that the bearish behavior in the stock had changed to bullish behavior. Confirmation of that was the 5.37 Bullish Falling Wedge target getting MADE on December 11, just below the top of the Bullish Wolfe Wave pattern (in green).

The declining 50 day moving average coincided with the top of the Bullish Wolfe Wave, so that DOUBLE resistance "should have" put a lid on any further rally, and it would have suggested the possibility that the rally in GIGM was nothing more than a Bear Market rally that was finished.

Instead, we got further evidence of a "sea change" in the behavior of GIGM. It broke out of the Bullish Wolfe Wave to the upside on December 12, at 5.54, and at the December 18 high of 6.69, it was up 153% off the November 21 low of 2.64. Whew! Who cares if this is "just a Bear market rally," or if GIGM ever gets to the target line (Green #6)? Investors hold many stocks through multi-year Bull markets and don't achieve the kind of return that GIGM had in just one month's time! LOL.

GIGM certainly got overbought on that rally, and it put in a Bearish Engulfing pattern on December 18. The 20/50DMA's also are inverted, so the stock is "ahead of itself," but on a selloff, it's got some support below it, i.e, the moving averages and the top of the Bullish Wolfe Wave.

My main point here is about the "sea change," and about the fact that stocks like this are very playable based on the Bullish Key Reversal and the two pattern breakouts, even if it does turn out to have been "just a Bear market rally."

POT: Gap Down - Rally To Double Resistance

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Chart #1: POT had a very nice rally of nearly 75% over the past two weeks. In Thursday's session though, POT put in a Bearish Engulfing pattern, then after the close, the company lowered its 2008 earnings estimate. We won't accuse anyone of selling Thursday on inside information, but it sure "looks like" sumbuddy knew sumpthin' and got outta there on that Bearish Engulfing candle ;)

Chart #2: Rather than try to PREDICT what a stock (or sector, or market) is going to do, I try to FOLLOW the action, then have a plan for what I'm going to do about it, if anything.

On the news, POT was called gap down, and I knew that I didn't want to join in the "shorting into the hole." That's the obvious play, and the trade is already gone. But, looking at the 10-Minute chart, we can see that horizontal resistance is at 73.08 and 73.38, and we also can see that the bottom of the broken Falling Wedge (pattern in yellow) comes in right there, in the low 73's, so on any rally attempt to fill the opening gap, that's DOUBLE resistance, and any rally to that level "should" fail.

Chart #3: POT put in an early morning low about a dime higher than Monday's gap higher (the gap to the far left in the intraday chart), then turned and rallied hard toward the gap, and toward DOUBLE resistance. When it did that, I placed an order to short 73.30, just below Thursday afternoon's "last low" of 73.38. I got filled, and POT went just a little bit higher, to 73.53 I think it was, and that was all it had in it on the upside. Within about 20 minutes, I had a quick $1,500 profit and banked it. That's a nice reward for being prepared, by doing a little bit of homework on resistance in the intraday chart.

SPX: H&S Top

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Basis the 5-Minute Chart, the SPX broke down from a H&S Top at 1:40PM that put a target of 882 IN PLAY. There were two "nested" patterns in the Right Shoulder, the patterns in red and in yellow. Nested patterns tend to give added strength to breakouts/breakdowns.

Math for the target:

The distance between the neckline and the Head is about 20points. The pattern broke down at about 902. 902 - 20 = 882.

GLD - Rally Leader

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While the general market was putting in a Bear Trap low on November 21, the GLD had a Breakaway Gap out of a Symmetrical Triangle that morning, which put an upside target of 85.39 IN PLAY.

Math for the target:

76.36 - High of the pattern
66.00 - Low of the pattern

76.36-66.00 = 10.36 points of upside on the breakout above 75.03
75.03 + 10.36 = 85.39 IN PLAY

The 85.39 target MADE at the open this morning.

QLD: H&S Top Measured Move Target

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From Wednesday afternoon:

"The neckline is 26.83 and 26.93. If that gets broken, we should fill the 25.94 gap (or close to it), at a minimum. A breakdown would put a target of roughly 24.75 IN PLAY)."

The QLD strung out the H&S Top, putting in another Right Shoulder prior to breaking down (see intraday chart, posted on Thursday), but the "roughly 24.75" estimate for the measusred move target was pretty close: the low for the move came in on Friday morning at 24.86, within about one-third of 1% of target. Remember that targets are just "what we're aiming for," and rarely are exact. Friday morning, buyers were stepping in on the selloff, and shorts were covering, so we witnessed once again "buying on bad news:" the auto bailout failure, AND the $50 Billion Ponzi fiasco.

In the daily chart, the QLD still is above the channel breakout. This isn't the most bullish pattern in the world because all of the candles to the left, within the channel, represent nearby resistance. The QLD could rally to its declining 50DMA, currently at 30.133, and still be within the "possible" Bear Flag (pattern in red), the top of which comes in on Monday, December 15, at 30.315, then fail.

So, at the moment, I'm not excited about the long or the short side of the QLD and might play short-term patterns, as I did last week.

QLD: 25.94 Target MADE

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From yesterday;

"The neckline is 26.83 and 26.93. If that gets broken, we should fill the 25.94 gap (or close to it), at a minimum."
They broke the neckline again this morning, took it up and formed another Right Shouder (a Bearish Rising Wedge), then they took it down. The 25.94 gap target MADE.

I guess Ms. Market had to engineer that second Right Shoulder since everyone in the known world could see this big topping pattern that we looked at yesterday. LOL.

QLD - Possible H&S Top

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The QLD looks to be puting in a H&S Top here. The Head (in red) was a Bearish Descending Triangle. The Right Shoulder (in yellow) is a Rising Channel that just got broken to the downside, and now is being retested.

The neckline is 26.83 and 26.93. If that gets broken, we should fill the 25.94 gap (or close to it), at a minimum. A breakdown would put a target of roughly 24.75 IN PLAY.

QLD: Play What You See

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The market gapped down at the open yesterday. When it rallied and the QLD got back above the top of its channel (27.33), the NASDAQ remained well below the top of its channel, not confirming the QLD breakout, so I decided to sit tight. "When in doubt, stay out."

In Chart #3 of the intraday QLD, we can see that coming off the morning low, the QLD broke out of a Bullish Inverse H&S and rallied very sharply. The rally ended in a Bearish Wolfe Wave 5 "Fakeout Breakout" while the NASDAQ still was about five points below its breakout in the daily chart. Given the fact that the QLD had broken out in the daily chart, I respected that, and didn't short the Bearish Wolfe Wave.

In Chart #4, however, we can see that another bearish pattern formed in the intraday QLD: a Bearish Descending Triangle. At that point, the Dow, SPX and NASDAQ Composite were looking weak, so I went ahead and shorted it, knowing that the target that would be IN PLAY in the 27.40's was above the 27.338 breakout in the QLD daily chart. There was plenty of room for a retest.

Note how 28.11 and 28.10 were support for the Descending Triangle (pattern in white), and how 28.11 and 28.10 exactly later became resistance after the breakdown. Ms. Market certainly isn't always that exact, but when she is, that indicates to me that players really are paying attention to support/resistance areas and that they are "buying/buying to cover at support, and selling/selling short at resistance."

Chart #5: I covered at 27.50, a little above the target and above the breakout, for a gain of $2,500. Although the QLD didn't hold the morning rally, it still was trading above its channel in the daily chart, so I didn't want to play around with being short an upside technical breakout. Shorting the QLD wasn't at all what I expected to be doing yesterday, but it's an example of "Play what you SEE, not what you think."

XING: 2.74 Target MADE

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From December 7 post:

"Just for fun, if I could design a game plan for XING, it would be the following:

1. On Monday, sell off to 2.26, the top of the Bullish Falling Wedge and validate it as support.

2. Rally to/near 2.74, which is the first target and also the top of the Kumo/Cloud.)"

On Monday, XING sold off to 2.25. "Former resistance 'should be' support on any retest." It was. XING planted a foot right on the top of the wedge and rallied. The 2.74 target got MADE yesterday. The high was 2.84.

"Take at least 'some' profits when targets get MADE."

Yesterday ended up being a "Dark Cloud" reversal on volume that was three times heavier than the prior session, and the low of the day was another retest of the top of the wedge. Although XING remains above the breakout, that looks pretty weak. By taking profits on half the position in a trade like this when a target gets MADE, it ensures a winner or a break even if XING should go back below the break out, and take out the 1.97 stop (the December 5 low).

QLD: Barbarian At The Gate

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From November 24th:

"...if this Bear Trap is any good, we ought to at least get up to the top of this "possible" Wolfe Wave/Bullish Falling Wedge pattern."

The NASDAQ Composite still is shy of the top of the pattern, but the QLD broke out of its channel intraday and closed ON the top of it, within less than a penny. From the Bear Trap lows of November 21, the QLD has enjoyed a rally of 44.42% to yesterday's high, doubling the NASDAQ's rally of 22.26% almost exactly, which is it's aim. That would be an outstanding performance over one year's time, let alone less than three week's time, Bear rally, or no.

The QLD now is a Barbarian At The Gate, champing at the bit for a break out of top of this channel, which represents resistance. There's a gap below here from yesterday, at 25.94. A pullback right here would work off the near-term overbought condition, as well as establish the top of the channel as validated resistance.

We can connect any two data points and call that a trendline, but we don't know if it's significant or not unless Ms. Market validates it with a third (or more) hit. If a validated trendline gets taken out, that usually does have some significance.

Case in point: the lower trendline validation in the NASDAQ chart, on November 13, which set up the reversal rally that resulted in a Bull Trap. When that validated trendline got taken out to the downside, it was very significant because it set up the Bear Trap "Fakeout/Breakdown" on November 21, which spawned the recent rally. On December 1 (the big black candle circled in red) the NASDAQ sold off hard, back toward that validated trendline, but it never was reached, nor was the Bear Trap gap ever filled. The NASDAQ re-established support near the bottom of the pattern, then moved higher toward the top of the pattern.

For an example of what a pullback from here, then a breakout above a validated trendline would look like, scroll down to the chart in "XING: Bullish Falling Wedge Breakout" posted last weekend. XING pulled back for two days from a trendline validation, then broke out last Friday and continued to rally yesterday, al-lmost getting to the 2.74 target IN PLAY. High was 2.65.

The Bear case here for the QLD is that the 44% rally has been nothing more than a Bear Flag rally (pattern in red) back to resistance at BOTH the top of the flag AND the top of the channel, and that it isn't going anywhere but down, below the flag, and then back below the channel again. That case certainly has technical merit, and anyone shorting the QLD yesterday AT RESISTANCE had reason for doing so, but Bears need to hold this little Barbarian At The Gate, and not allow him out of the channel.

QLD: Sell The Rumor...Buy The News

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From Friday's "QLD: Nested Bearish Patterns" post:

"It's interesting how the market often tells a story, if we can follow along. Yesterday's trading in the QLD, is an example."

Friday's trading was another example.

If our opinion of the brutal jobs report was bearish, that was correct at the open, but the market's initial response to news often is a head fake. LOOK at the story Ms. Market told us after the market's initial reaction Friday morning: a very well-defined channel with a number of "hits" to both the top and the bottom that broke out to the UPSIDE. That "didn't make sense," based on the bearish news. But, when the QLD broke out of the channel, LOOK at the next few candles: rip...rip..rip to the upside, just as we had crater..crater...crater to the downside on Thursday when the triple nested patterns broke in anticipation of the bad jobs report.

On Friday's channel breakout to the upside, the jobs report was old news, and was irrelevant as far as what was happening in the market, which was technically-driven buying on bad news. Bears were getting squeezed and covering their shorts; bulls were buying the technical breakout of the channel.

After the channel breakout, a Symmetrical Triangle formed (pattern in red), which was a bullish continuation pattern. LOOK at what happened when it broke out. Rip...rip...rip to the upside again. More Bears were covering shorts; more Bulls were buying the continuation breakout.

Late afternoon, a third pattern broke out to the upside, and Thursday's high was taken out on the heels of a horrible jobs report. That doesn't make sense on the face of it, but if we don't learn that the market doesn't necessarily trade in tandem with the fundamentals, we're going to get caught looking the wrong way, as many players did on Friday.

Why would anyone BUY on a horrible jobs report? We can speculate about that based on the fundamentals, but we'll probably end up saying, "That doesn't make sense!" But, based on the technicals, it does make sense. Players were buying and buying to cover the technical breakouts, solidly confirmed by the rip...rip...rips to the upside after the pattern breakouts.

XING: Bullish Falling Wedge Breakout

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It's been awhile since I've posted on XING, an old favorite of mine. Since the Crash of July 17, 2007, below $12.00, it's been down...down...down...

Chart #1 Daily - Starting at the October 10 low of 1.50 (Blue #1), XING put in a weak Symmetrical Triangle that broke to the downside, below the dotted red line. I left Red #3 and Red #4 on the chart to illustrate how patterns often "morph," or change into something else. That Symmetrical Triangle pattern "morphed" into a two-month Bullish Falling Wedge, so we relabel it with Blue #3 and Blue #4.

We can see from the note on the chart that XING went up to the top of the pattern on December 2, penetrated it slightly (high was 2.35), and closed less than a penny below it. It sold off from there for two days, so the December 2 close was a trendline validation, validating it as resistance. Trendline validations can be meaningful because the market is telling us, "Yes, that IS resistance, and you're not getting through here!" Further validation of that resistance was the December 3 open of 2.30, smack on the trendline. That was the high on the day. Ms. Market said, "You DEFINITELY are not getting through this resistance!" LOL.

If the market later DOES get through that validated resistance, it "should be" significant, but be aware that there always is a "fakeout/breakout" possibility. Handle that accordingly with a stop. In this case, I personally would use a print below Friday's low of 1.97 as a stop. If XING should go back down there, reversing Friday's bullish candle and the bullish breakout entirely, I wouldn't be at all interested, and probably would say something like, "Curses!" LOL.

XING not only got above that validated resistance on Friday, it took out the December 2 high of 2.35 and CLOSED above it by one penny, at 2.36. Hmm-m...no guarantees, of course, but hmmmmmm-mmm...

Volume was lacking, so we'd want to see some buying interest come in, but that breakout puts targets of 2.74 (the top of the Wedge), and 3.65 (measured move) IN PLAY, as long as XING remains above the Wedge.

Math for the Bullish Falling Wedge measured move:

2.74 - High of the pattern
1.36 - Low of the pattern
2.27 - Where the trendline was on December 5, when XING broke out

2.74-1.36 = 1.38 points of upside added to 2.27 = Target: 3.65 IN PLAY




Chart #2 - Ichimoku Kinko Hyo - It means "At A Glance...The Table Of Balance." Don't be intimidated. It's just a simple visual, telling us if we're above the Kumo (Cloud), represented by the vertical lines, or below it.

We can see to the left of the chart that the highs of the Symmetrical Triangle in July and August tried to bang through the Kumo (Cloud) resistance, but those attempts were unsuccessful. The breakout was to the downside.

XING currently has had a breakout to the upside, but The Kumo (Cloud) still is overhead, so it's a breakout into resistance. That isn't as good as it would be if XING were trading above the Kumo (Cloud), so we must keep that in mind. It's a rally against the trend, but it also could turn out to be a "trend changing" rally.

Notice that the top of the Kumo (Cloud) currently is at 2.71, just below the first upside target of 2.74. On the first attempt to get through the Kumo (Cloud) resistance, stocks often get somewhere near the top of it, then pull back, so that 2.71-2.74 is an area where XING might run into some resistance if it can follow through to the upside on Friday's breakout.

Just for fun, if I could design a game plan for XING, it would be the following:

1. On Monday, sell off to 2.26, the top of the Bullish Falling Wedge and validate it as support.

2. Rally to/near 2.74, which is the first target and also the top of the Kumo/Cloud.

3. Sell off from there, establishing the top of an Ascending Triangle, or a neckline for a Bullish Inverse H&S (i.e., bullish continuation patterns).

4. Break out again, above 2.74, and head to 3.65 target. Notice that the low of the Symmetrical Triangle to the left of the chart is 3.76. When that pattern broke, it was almost a straight down affair, so there isn't a lot of horizontal resistance (congestion) between 2.74 and that 3.76 low. In other words, we've got some "head room" for a rally to that 3.65 target before we get to that Symmetrical Triangle resistance.

5. Continue higher to $20.00. Alright, Melf, settle down. Sett-ttle down ;)

QLD - Nested Bearish Patterns

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It's interesting how the market often tells a story, if we can follow along. Yesterday's trading in the QLD, is an example.

Bearish Pattern #1: Bearish Rising Wedge - If we start at the morning low (arrow) of 24.34, we can see that a Bearish Rising Wedge formed (pattern in white). It broke down, and I shorted 25.18 on the retest. The downside expectation on a broken wedge is the low of the pattern, 24.34. The QLD printed 24.35 at 1:30PM. I thought about covering my short right there, not wanting to see an IN YOUR FACE afternoon rally (LOL), but decided to hold.

Bearish Pattern #2: Ascending Triangle (or, Inverse H&S, if you will)- The rally off 24.35 was a "possible" Double Bottom, so I decided to cover at 24.76 and take $1,000 profit and call it a day. Too bad. From 1:30 to 2:35PM, the pattern in yellow formed, then broke to the downside.

Bearish Pattern #3: Descending Triangle - The first two patterns are nested within this larger pattern (in red). The high was 25.54. The lows were 24.34 and 24.35.

25.54-24.35 (the more conservative of the lows) = 1.19 points of downside on a breakdown, so 24.35 - 1.19 points = target: 23.16 IN PLAY.

When nested patterns like this break down, the target has a better chance of getting MADE, and we can see that it looked like they "pulled the plug" at 3:00 PM when 24.34-24.35 support broke. The 23.16 target MADE at 3:25PM. The low was 22.98 at 3:40PM, after which a snapback rally to broken 24.34-24.35 ensued into the close.

VPHM: At 11.60-11.63 Resistance

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From November 21:

"Resistance levels:

10.88 - The 200 Day Moving Average
10.93 - The broken neckline (rises 0.0477 each session)
11.20-11.23 - The gap from yesterday morning
11.60-11.63 - The broken bottom of the Descending Triangle that gave us the 10.84 target that got MADE yesterday"

1. After breaking down below four Bearish patterns, VPHM has come all the way back to 11.60-11.63 resistance, and it's back above the neckline of the H&S Top, which comes in today, December 4, at 11.318. Yesterday's high was 11.61. The 50 Day Moving Average is at 11.609.

2. Notice also, beginning at the 13.10 high on November 5, the "hits" (black arrows) to the black down trendline. There are about 10 or 11 candles that found resistance at that trendline, but yesterday's close finally was above it.

These two factors certainly look constructively bullish.

What Bulls DON'T want to see is VPHM fail right here, or a little higher, at Red #4, which would be a Bear Flag/Bearish Rising Wedge (recent pattern in red, off the November 21 low of 9.65). VPHM has been fending off the bearishness of the pattern breakdowns very well and is in the high end of the recent trading rangle. It needs to continue higher and take out the down trendline off the September high (green down trendline, which is at about 12.20) and also get above the 12.42 high of the Right Shoulder.

HUI: Wolfe Wave - Rising Channel - Inv. H&S

(Click On Charts To Enlarge)

Some interesting patterns in the HUI over the past year:

Chart #1: Bearish Wolfe Wave - Nice Symmetry between Waves 1-3 (46 days) and Waves 3-5 (42 days). Notice that between Waves 3 and 4, a Symmetrical Triangle formed (pattern in purple). The chart was bullish, and the Symmetrical Triangle was a bullish continuation pattern that broke out and took the HUI to its final high, the Wave 5 "Fakeout Breakout" high. The Bearish Engulfing pattern at Wave 5 was a low risk:reward entry short (at HUI 505) The break of the bottom of the pattern (Wave 2-4 trendline) is another short entry (at HUI 450). The target line (Wave #6) was reached on April 29, just below HUI 400.

Chart #2: Two days after the Bearish Wolfe Wave target line was reached, the HUI put in a bottom (Purple #1), then rallied in a Rising Channel. Similar to the Bearish Wolfe Wave, the Rising Channel had an intraday "fakeout breakout" on a Dark Cloud cover candle. That was a low risk:reward entry short. Another short was the break of the bottom of the pattern, or the failed retest of the bottom of the pattern over the next few sessions.

Chart #3: In August-September, the HUI formed a possible Bullish Inverse H&S. 309 was the low of the Left Shoulder, which "shouldn't" get taken out. A Right Shoulder low should be higher than the Left Shoulder, indicating less interest in selling. A takeout of 309 is a clue that the pattern probably won't work out. A takeout of the low of the Head is confirmation of that.

Chart #4: 309 got taken out and the low of the Head got taken out, as well. Rather than take the height of the pattern and add that to an upside breakout, we SUBTRACT the height of pattern from the low of the Head (358-253.73 = 104.27 points of downside, subtracted from the 253.73 low of the Head = Target: 149.46 IN PLAY. The October 24 low was within a point of the target. Note that after the low of the Head was taken out, the HUI rallied back toward the Left Shoulder low of 309, and toward the bottom of the Kumo (Cloud). The rally failed at HUI 299, ju-ust below the Kumo. Ichimoku Kinko Hyo is "At a glance...the table of balance," and we can see "at a glance" the overhead resistance, represented by the Kumo (Cloud), which is the vertical red lines.

Currently, the HUI is trying to bottom again. It's sitting at 247, just below the bottom of the failed Inverse H&S, beginning at the 253.73 low of the Head. The top of the Kumo (Cloud), which is represented by the vertical red lines, currently is at 255.03, so 253.73-255.03 is nearby resistance. At the 150.27 low on October 24, the HUI had been whacked for a 71% loss off the St. Paddy's day high of 519.68, so we'll see if the HUI can turn it around and start moving higher.

SPX: Nested Bullish Patterns

(Click On Chart To Enlarge)

From this morning's comment section in the NASDAQ thread:

"The NASDAQ not only got back above the broken trendline, it GAPPED above that trendline, put in a low of 1397, and the session ended up being a "Gap and Go." The Bears who were waiting for a pullback to the trendline to cover, or who kept shorting the rally, got trapped."

We've been discussing "Follow what we SEE, not what we think," which isn't always easy. Especially not easy when we commit to our bulish or bearish predictions. We need to watch to see if anything is telling us that we've got it wrong.


Let's look at the SPX 5 Minute chart:

1. After a big rally off SPX 741, we got the Bullish Falling Wedge (in white)
2. After the Bullish Falling Wedge broke out, it pulled back to the top of the Wedge, at 841, and found support there (white arrow) at Red #4. SPX 841 (Red #4) also became Data Point #4 for a Symmetrical Triangle (pattern in red), within which the Bullish Falling Wedge was nested.
3. The Symmetrical Triangle broke out at about 862.50, which put a measured move of roughly SPX 896 IN PLAY.
4. There's never a guarantee that any target will get MADE, but a breakout of "nested patterns" like this usually has some added strength on a breakout.
5. In the ensuing rally, the yellow up trendline would be fine for a tight stop, if we're concerned about a failure. That trendline held beautifully, as support, and the market closed just above the 896 target that was IN PLAY.

USO: H&S Tops & Triple Bottoms

Chart #1: This chart is a great illustration of why I try never to predict anything, and why it is so important to FOLLOW the market as best I can, which still doesn't mean that it's easy ;)

As of the February 7 close where this chart ends, the USO had rallied 85% from its January, 2007 low of 42.70 to the 79.09 high in early January, 2008. The price of oil was "too high" according to many market participants, and the USO had formed this H&S Top with a Triple Bottom neckline. I've read many times that Triple Bottoms ALWAYS break to the downside, so with the H&S Top AND the Triple Bottom, this chart looked headed down about 10½ points (see the math on the chart for the target calculation).

Chart #2: There's no ALWAYS in the stock market! The Triple Bottom never broke down and instead, the USO went up and took out the high of the Right Shoulder (73.43) on February 9, two days after Chart #1 ended. That was a very important clue for what was to come. The high of a Right Shoulder "shouldn't" get taken out to the upside, and when it does, it can be very dangerous for shorts, as we can see by what ensued in the chart.

The next clue was when the high of The Head, 79.09, was taken out to the upside. Instead of subtracting 10½ points from the neckline if it had broken down, we ADD that amount to the breakout above 79.09 and get a target of 89.68 IN PLAY.

Notice that during the pullback after the breakout above 79.09, the USO printed a low of 79.40 at Purple #2 during the formation of the Symmetrical Triangle (pattern in purple). "Former resistance 'should be' support on any retest." It was. That was ver-ry nice confirmation of the breakout ABOVE The H&S Top pattern.

The Symmetrical Triangle broke out to the upside (continuation pattern), and the USO was off to the races, making "higher highs" and "higher lows" as it climbed the channel to the July high. Anyone who played their opinion that "oil was too high" or who stubbornly hung onto their prediction that oil would go lower got dragged inexorably higher throughout the spring and early summer. UGH.

Lesson: "Play what you SEE, not what you think."

We also can "see" that the channel was very well-defined: three "hits" to the top of it; four "hits" to the bottom of it. When it broke down at roughly 111.00 in mid-July, that was to be taken seriously. The USO fell all-ll the way back to its January, 2007 low of 42.70 and below it, to 39.16, and currently stands at 41.36.

Although it is tempting to try to predict Ms. Market because that feeds our Ego Demon's "need to be right," a lot of money can be made if we simply FOLLOW Ms. Market. Not always easy, admittedly, especially the fakeouts that we often get, but I still think it's better to follow, rather than to predict. At least for me, it is.

For the record, I would have predicted a break to the DOWNSIDE of the H&S Top and the Triple Bottom in Chart #1. WRONG! Do not try to predicting anything, Melf! LOL.

VPHM: At Resistance

(Click On Chart To Enlarge)

From November 21:

"On a rally, resistance is:

10.88 - The 200 Day Moving Average
10.93 - The broken neckline (rises 0.0477 each session)
11.20-11.23 - The gap from yesterday morning
11.60-11.63 - The broken bottom of the Descending Triangle that gave us the 10.84 target that got MADE yesterday."

On Friday, VPHM put in a mini-Double Bottom at 9.65 basis the intraday chart, filled most of the 9.57-9.88 gap, and has rallied back to the "bottom rung" of resistance, the 200 Day Moving average, which has moved up a little, to 10.90. Yesterday's high was ju-u-st a tad below that, at 10.86.

The next "rung" on this ladder of resistance is the neckline of the H&S Top, the slope of which is rising 0.0477 each session, so it comes in today at 11.026. Above that resistance is the 11.23 gap, and then the 11.60-11.63 bottom of the broken Descending Triangle (the little pattern in black).

So, VPHM has its work cut out for itself right here, because "former support 'should be' resistance on a retest," and its got several levels of resistance to overcome. The first order of business is to stick a CLOSE above the 11.026 neckline. A CLOSE above the 11.23 gap would be better still.

NASDAQ: Bullish Reversal Or Bull Trap? (Update)

(Click On Chart To Enlarge)

From November 16, 2008

"...but a bullish divergence in an indictor without price confirming it is meaningless unless/until price does confirm it. I put that in boldface because it took me a long, long time to learn that, and it cost me a lot of money."

Last weekend, we had what "looked like" a Bullish Reversal in the NASDAQ and other indices, accompanied by a BIG positive divergence in the MACD (Chart #2), but we knew to be cautious and to look for price to confirm the bullish-looking MACD signal by holding support (the November 13 low), and then going higher.

Nope. The NASDAQ rolled over to the downside and on Wednesday, took out the November 13 "reversal" low and also broke and CLOSED below the lower trendline, which was a validated trendline (3 "hits" to that trendline). The MACD simply rolled over to the downside with price. Oops! BULL TRAP.

As the chart stands, we've now got the "possibilty" that the break to the downside is a BEAR TRAP, a Wolfe Wave 5 Fakeout/Breakdown. The NASDAQ closed right below the pattern, the bottom of which was validated support as of the November 13 third "hit" and upside reversal.

"Former support 'should be' resistance on any rally," so we'll see if the NASDAQ can CLOSE back above that lower trendline, hold above it and then move higher, springing a BEAR TRAP.

DRYS - Not A 1929-Style Crash

(Click On Chart To Enlarge)

A couple of analysts were on CNBC this afternoon, agreeing with each other that this is NOT a 1929-style Crash. Well-ll, they might have difficulty convincing shareholders of stocks like this one. DRYS hit $116 in May after reporting great earnings. Last I looked, it was trading at 3.50, down 97% in just six months' time. Yikes.