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

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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

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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

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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)

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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

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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.

UYG: Rectangle Target 3.67 MADE

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When the Ascending Triangle target of 5.62 went IN PLAY on October 3, and the Rectangle target of 3.67 went IN PLAY the next session, on October 6, I sat here thinking, "No way will those targets get MADE. This fund was at 74.06 in February, 2007. 3.67 would be a loss of 95%. No way is it going to get tha-at bad."

As the kids would say, "Way."

VPHM: H&S Top

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From yesterday morning;

"It's not uncommon for Bearish Rising Wedges to "morph" (change) into a H&S Top. If that's the case here, it would be the second pattern in purple."

It appears that's what we got. VPHM gapped down at the open from 11.23 to 11.15, printed a high of 11.20, then immediately broke the trendline/neckline, at 10.88. That puts targets of 8.47 (the bottom of the two Bearish Wedges) and 8.10 (measured move off the H&S Top breakdown) IN PLAY unless/until we see something different, like VPHM closing back above the neckline. That would put the targets ON HOLD until we see what develops.

To derive the measured move target for the broken H&S Top, take the distance between where the neckline was when the 13.10 high of the Head was put in (it was at 10.32), then subtract that from the point of the breakdown (which was crossing below 10.883 yesterday).

13.10 - 10.32 = 2.78 points of downside.
10.88 - 2.78 = Target: 8.10 IN PLAY.

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.

VPHM - Bought To Cover

(That breakdown puts a target of 10.84 IN PLAY).

The Decending Triangle target of 10.84 MADE in the early going. I bought to cover my short at 10.84, for a 9.4% gain.

SPX: Wolfe Wave Watch

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Regarding the Wolfe Waves, I like to see price get back to the bottom of Wolfe Wave after a Wave 5 fakeout before considering entry. I might cheat and get in a little earlier, but I want to see something that at least looks like a reversal, otherwise we can get caught in something that continually goes lower, and lower, and lower, like the UYG did after I got out with a 3% loss. At yesterday's close of 4.60, my loss would have been 29%. YUK!

Chart #1: Yesterday morning, the SPX bounced off what looked like a possible Wave #5 fakeout low. I didn't like the market well enough to consider playing it, but it did break out above the pattern. Afterwards, it pulled back inside the Wolfe Wave (that's a flaw) then broke out again and got only to 864, which was also the first breakout high. Both highs were below the 865 Wave 4 high, which "should have" gotten taken out to the upside. Instead, the SPX went back inside the Wolfe Wave AGAIN and also broke the low (horizontal yellow line) of the first move back inside the Wolfe Wave after the initial breakout.

So, at that point, we had a failure to get above the Wave 4 high of 865, AND a move to a new low, back inside the Wolfe Wave? There aren't any hard and fast rules in technical analysis about where we should stop something out and where we shouldn't. This thing still "could have" continued higher. Those decisions depend on the individual analyst's read of what's going on, and individual tolerance for risk, etc., but that move below the horizontal yellow line sure looked lousy. The breakout was "supposed to be" bullish. I would have dumped it right there, even though it "could have" gone higher.

Additional confirmation that it wasn't bullish was the break below the bottom of the Wolfe Wave, and then the TWO failed retests of the bottom of the pattern.

Chart #2: Wolfe Wave Watch Redux. LOL. The SPX has a "possible" Wave 5 fakeout/breakdown again, but we don't have any evidence of whether it is or not unless/until the SPX at least gets back to and above the bottom of the Wolfe Wave. And, then there's no guarantee that the target will get MADE at #6 even with that evidence, as we saw in chart #1 above.

As with ANY pattern or with ANY trendline breakout or violation, it's a "plunk down yer money and take yer chances" if we like it well enough, but the MOST important thing when we do that is to MANAGE THE RISK. As I said, my long entry into the UYG "possible" Bullish Wolfe Wave turned out to be wrong, but I only lost 3% vs. the 29% loss, as that chart stands at yesterday's close.

There is NO method of trading that ALWAYS will work out. If there is, whoever discovered it isn't telling, and I wouldn't either ;)

VPHM: Broken Descending Triangle

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VPHM failed at 12.115 - 12.13 resistance that we discussed yesterday morning, just below the wedge, confirmed by the breakdown below the QUINTUPLE bottom of the Descending Triangle (little pattern in black on this chart) and shown in the intraday chart posted yesterday morning. That breakdown puts a target of 10.84 IN PLAY.

Math for the target:

12.42 - High of the Descending Triangle
11.63 - (I use to most conservative of the 11.60-11.63 lows)

12.42-11.63 = 0.79 points of downside

11.63-0.79 = Target: 10.84 IN PLAY

The 200 Day Moving Average is 10.88 and the trendline connecting the recent lows also comes in today at 10.88, so 10.84-10.88 is likely to get tested on any further weakness here.

It's not uncommon for Bearish Rising Wedges to "morph" (change) into a H&S Top. If that's the case here, it would be the second pattern in purple.

VPHM: 11.60 - 11.63 QUINTUPLE Bottom

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"VPHM hasn't given up the fight and currently is between hither and yon: above 11.60 support, but below the wedge, so hold all paramutual betting tickets. LOL."


VPHM has bounced off 11.60 this morning for a QUINTUPLE bottom in the 11.60 - 11.63 area. The pattern is a Descending Triangle. The majority of those resolve to the downside, but continue to hold all paramutual betting tickets. LOL.

VPHM: At The Bottom Of The Wedge

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The bottom of the wedge came in yesterday at 12.115. The 50-day moving average, at at 12.13. In yesterday's trading, VPHM put in a low of 11.60 at short-term support of the prior two days (11.61 and 11.63, respectively), then made a bid to get above that 12.115 - 12.13 resistance. The high on the session was 12.07, right below resistance. The entire day's session was below the Double Bearish Rising Wedge, but VPHM hasn't given up the fight and currently is between hither and yon: above 11.60 support, but below the wedge, so hold all paramutual betting tickets. LOL.

The upward slope of the bottom of the wedge is 0.135, so we "move the chains" (add 0.135 to yesterday's 12.115), and the bottom of the wedge comes in today at 12.25. VPHM needs to stick a close at that, or better, to regain the wedge.

UYG And VPHM

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From Sunday re UYG:

"Intraday trading is going to be problematic... I'm not going to know what the close will be, so I'll have to play by ear. If I see prints of 6.42...6.41...6.40...6.39. I'll be thinking, "YUK!"...

... No, I won't hold it down to 6.16. I'm going to stop it out in the high 6.30's just below the .618 retracement of 6.419. If I get shaken out, that's fine. I always can re-enter at a higher price if this thing really is bullish and gives some convincing evidence of that."
------------

Chart #1 - UYG: I think I jinxed myself writing that on Sunday ;) Since the selloff began right out of the gate, I gave the trade a little more room on the downside, trying to avoid getting shaken out if it reversed higher, but when the UYG moved down to new lows after the initial selloff, I threw it in at 6.32 since the .618 retracement at 6.42 clearly had not held. The .764 retracement of 6.16 didn't hold either. The UYG printed a low of 5.97 and closed at 6.05. I'm definitely changing this symbol to UGH! LOL.

While this "could" be a double Wave 5 fakeout to the downside and the UYG "could" get back inside the Wolfe Wave (currently above 6.473) and head toward the top of the pattern, it's bearish at the moment with yesterday's CLOSE below the Wolfe Wave, so it also "could" go lower. I'll continue to watch it, but I don't want to be long a situation like this, below pattern support.

Chart #2 - VPHM: I shorted this one per my plan yesterday morning. Intraday, VPHM got back above the broken Rising Wedge once again and made another bid to fill the 12.57 gap (I forgot to change the 12.59 on the chart. It's 12.57). It failed at 12.30 and closed at 11.70, back below the pattern again.

Chart #3 - Trades: I sold the UYG at 6.32, for a 3.1% loss from my 6.52 entry. Shorted VPHM at 11.97.

VPHM - Two Bearish Rising Wedges

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Chart #1: After VPHM broke out of a 10-month Ascending Triangle in early June, it put in a Bearish Wolfe Wave and came back inside the Ascending Triangle. However, it didn't break through the bottom of that pattern and subsequently went on a Parabolic Rally of 62% from late July to the early October top.

Parabolic rallies (a rally that is pretty much straight up, without stopping to form an area of consolidation to digest the gains) often result in a Parabolic Return to the area where the stock went parabolic, as VPHM did after it broke down below a H&S Top.

Chart #2: Off the October 10 low, VPHM has put in two Bearish Rising Wedges. The second (in red) broke down after a gap down from 12.57 (sorry, the chart says 12.59. It's 12.57). Pattern breakdowns and gaps often get retested. VPHM recovered on Thursday and closed back inside the Rising Wedge. On Friday, VPHM continued higher in an effort to close the 12.57 gap, but made it only to 12.42 before sliding and closing back below the Rising Wedge for the second time.

I'm considering this one for a short if it rallies back toward the bottom of the wedge, which currently is at 11.98. Stop: above the 12.79 high of November 10, the day before VPHM gapped down and closed below the wedge.

NASDAQ: Bullish Reversal, Or Bull Trap?

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Chart #1: NASDAQ Daily: On Thursday's swoosh to the downside, I suspect that more than a few players were watching the lower trendline of this wedge. The NASDAQ came within just a couple of points of it, validating as support, then banged higher on a bullish Key Reversal candle. As I've said elsewhere, if this ISN'T some kind of decent bottom, it will be one of the best Bull Traps that I've ever seen because it accomplished THHEE important things on Thursday that certainly looked very bullish:

1. The pattern is a "Three Drives To Bottom" (I think that's Larry Pesavento's baby). Successive "lower lows" that finish with a reversal, which we got.
2. The third drive to the bottom ALSO was a trendline validation. It held beautifully, and bounced right there.
3. Thursday was a bullish Key Reversal: a new low, then a close higher than the prior day's high.

So, if it is a Bull Trap, it's a great one in my opinion, but that's why it's a good idea to have a stop loss. It certainly could be a Bull Trap, which we'll find out in the coming sessions.

Chart #2: MACD: By late September, the NASDAQ had: (1) broken below a rising channel; (2) broken below horizontal support; and, (3) failed a retest of its 50DMA from below it. YUK.

Notice that when the MACD failed below its signal line in late September, it led to an UGLY smackdown in the NASDAQ. That "sell signal" was WITH the trend and the MACD was in bearish territory, below its zero line. Those signals often produce pretty good moves in the direction of the trend.

In late October, the MACD Double Bottomed with a bullish divergence between price, which was lower, and the MACD, which was higher. The bullish cross of the signal line produced a rally back to 1782 resistance (the high for the rally was 1785), but that was it. The NASDAQ tanked and went to Thursday's new low. That "buy signal" was against the trend from a deeply oversold condition in the MACD, so it produced only a dead cat bounce to horizontal resistance in a bear market.

The NASDAQ, currently at 1516, is roughly where the MACD Double Bottomed at 1505 in late October, but the MACD is much higher than it was back then, showing a BIG positive divergence between price and the MACD. That's "constructively bullish," 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.

We want to see the NASDAQ take out Thursday's Key Reversal high of 1597, for openers. Then we want to see the 1603 failed Double Bottom of Nov. 6 and 10 get taken out, then the 1679 gap, and finally a rally to the top of the wedge, currently at about 1720. At that point, MACD would be up near the zero line, poised to go up through its zero line on a pattern breakout, but that's getting way-y ahead of ourselves. The NASDAQ has a lot of work to do before then.

On the other hand, if the NASDAQ continues down, the MACD simply will roll over its signal line to the downside, and this current BIG positive divergence won't have meant squat. "Price will have trumped this 'constructively bullish' MACD indicator."

UYG: 50% Retracement

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Going into Thursday's close, the UYG had rallied 30% off its low and my "Greed Demon" told me to grab my 15% gain at the 7.50 close, and reposition Friday on a 50% retracement of Thursday's candle, which was 6.63. That would guarantee me a winning trade if the UYG should continue down below the Wolfe Wave, and stop me out. My "Fear Demon," however, told me not to get too cute, that the reversal was so strong, I might not get a chance at the 6.63 re-entry.

Result: the UYG sold off to 6.61 Friday morning, within TWO CENTS of the 50% Fibonacci retracement! Hey, we ALL "coulda" been a genius, right?! LOL.

When the UYG rallied back to 7.50 late Friday (I think it was 7.49), I figured that it would close near there, or higher. Nope. The UYG slid with everything else, and it now stands at 6.70, just above my 6.52 entry, and just above the bottom of the Wolfe Wave, which comes in on Monday at 6.504. I'm changing this symbol to UGH! ;)

Bottom line for me on this trade: I'll sell any CLOSE below the 6.504 bottom of the Wolfe Wave. If it's "too close to call" going into the close, like BID 6.48...ASK 6.49, I'll hold it. I don't want to get jiggled out of the trade.

Intraday trading is going to be problematic. If, for example, the UYG goes down and tests the .618 retracement of Thursday's candle, which would be 6.419, then rallies back inside the Wolfe Wave, that would be fine. But, if it does test that, I'm not going to know what the close will be, so I'll have to play by ear. If I see prints of 6.42...6.41...6.40...6.39. I'll be thinking, "YUK!"

When I'm in a trade like that, knowing that it's below support (the 6.504 bottom of the Wolfe Wave), and find myself "hoping" that it's going to turn around, I know that I've got a problem, and that I better know what I'm going to do about it.

Some players will use the more arcane .764 as an acceptable retracement level. That would be 6.16. From my 6.52 entry, that would be a loss of about 5.5% if I use that area. That isn't bad, but at that level, I have to ask myself how bullish this Wolfe Wave is and how bullish Thursday's Key Reversal was, if it's going to act that weak?

No, I won't hold it down to 6.16. I'm going to stop it out in the high 6.30's just below the .618 retracement of 6.419. If I get shaken out, that's fine. I always can re-enter at a higher price if this thing really is bullish and gives some convincing evidence of that.

"Shaken out" means that you get out of your position, only to found out later on that you would have been alright holding it. I never mind getting "shaken out." For the times that it has cost me money, there have been many, many more times that getting out of a losing position has saved me a lot of money by not sitting there watching a trade go down 10%...15%...20%...25%... Yeeks.

So, I'm prepared for the downside. But, hey, maybe it will RALLY on Monday ;)

UYG: Wave 5 Fakeout And Key Reversal

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I bought the UYG when it rallied back to UNCH, at 9.52, just below the Wolfe Wave pattern. I would have been happy just with yesterday's Wave 5 fakeout and a close at the bottom of the Wolfe Wave, but the UYG did much better than that, putting in a bullish Key Reversal candle: a new low for the move, and then a close that was higher than the prior sessions high. Ver-ry nice.

So, "the fix is in," as far as putting the proverbial "everyone" wrong-footed on the false breakdown to 5.77, which was very near the Ascending Triangle (pattern in purple) target of 5.62. That pattern broke down at 16.15 going into the October 3 close, prior to the big gap down on Monday, October 6. Yesterday's low achieved 98.6% of the measured move down, so that's certainly "close enough" to that target getting MADE, and hopefully, we'll get a nice rally off yesterday's reversal.

On any selloff from here, we want to see the bottom of the Wolfe Wave become support, if it gets tested. A slight intraday penetration is fine, but I shouldn't like to see a CLOSE below it. After a Wave 5 fakeout like we got yesterday, we "should be" headed higher, and sharply higher. That's one of the hallmarks of a Bullish Wolfe Wave, to move sharply in the opposite direction, to correct how overdone things got at the Wave 5 fakeout low. At yesterday's low, the UYG was down 77% in just two months' time. There aren't any limits on HOW overdone things can get, but I think we can agree that that kind of loss sure seems a tad overdone ;)

Next order of business, beyond remaining above the bottom of the Wolfe Wave, is to get through the Tenkan-Sen (8 day...bold red line) and the Kijun-Sen (21 day ... bold green line) which are slightly inverted at 8.42 and 8.45, respectively, but positioned to make a Bullish Cross on a rally. If we go rallying gangbusters out of the gate in the morning, we might expect at least some turbulence in that area. After that 8.42-8.45 resistance, we need to break out of the Wolfe Wave, which would be a print of 10.06 for today. I don't expect that to happen. Just pointing out where the goal line is so we'll know if we should happen to score ;)

As far as the target line is concerned, I have absolutely no idea whether or not we'll even break out of this Wolfe Wave, let alone get a rally of that magnitude. These patterns are very unorthodox. Some of them work out, some of them don't. But, when they do, like the TWO Bullish Wolfe Waves did in the SKF (see those charts in my October 25 post, "How The Shorting Ban Played Out," the moves can be quite spectacular.

A move higher from yesterday's low of 5.77 to where the target line is for today's session, at 12.85, would be a gain of 122.7%. That kind of percentage gain is rather a lot to expect even over several years' time, let alone over several days' or weeks' time. Do I expect it? No, I really don't. But, I do think that the UYG can have a very nice percentage gain off yesterday's low.

Off the July 15 low of 14.08, for example, the UYG had a sharp six day rally to 24.79, for an outstanding gain of 76%. Something like that would be most welcome and is more realistic. However, the Kumo (Cloud) resistance (vertical lines) is above the target line (Blue #6), and the October 6 gap at 15.08 intersects the target line around Thanksgiving, so hey, you never know. Those things (Kumo...gap) often act like magnets, and the UYG might be given to at least chasing them to the upside for a bit.

The UYG: Bullish Wolfe Wave Watch

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Chart #1 - Daily: Prior to the October breakdown, the UYG had FOUR nested patterns. Those can be very powerful when they break out or break down. They're "packing some punch." When the Ascending Triangle (or, Symmetrical Triangle, if you will) in purple broke down in the $16's and the Rectangle broke down in the $14's, the targets of 5.62 and 3.67 might have seemed a bit ridiculous, but at yesterday's close of 6.52...not so ridiculous :(

Notice the steep black down trendline coming off the final high of 24.88. Be careful about viewing a move above a sharp trendline like that as a "breakout." They often produce some kind of move higher, but they can be very deceptive. They often come back and "walk down the trendline," or move to new lows as this one did. Eventually, if the UYG had only traded sideways, it would have "broken out" at some point simply by falling over the trendline. Those moves often are a "break above," but not a breakout.

Chart #2 - RSI: Be careful of Positive Divergences in a bear market. There was one in June in the 20's, but the UYG dropped to $14's. The positive divergence at 14.75 in July produced a very nice rally, but it also was accompanied by a Bullish Morning Star pattern in the daily chart. We recently had another positive divergence, and now a DOUBLE positive divergence. Looks encouraging, but the UYG closed a new lifetime low yesterday.

Chart #3 - MACD: It took a TRIPLE positive divergence in the MACD to get a good rally in July, and again, the third one was accompanied by the Bullish Morning Star in the daily. Getting on the first two positive divergences didn't work. The MACD currently is coming back to its signal line. A bounce off that often produces a rally. Not always. There's no always in the stock market.

Chart #4 - Volume: Huge volume doesn't always produce THE capitualtion low. The UYG has made two "lower lows" on much less volume.

Chart #5 - Possible Bullish Wolfe Wave - I'm not real happy with the Wave 1-2/Wave 3/4 relationship since Wave 3/4 is much longer in terms of time, but "...if it walks like a duck...quacks like a duck." The Wave 5 Fakeout to the downside is a posssibility here. The proverbial "everyone" who has been long the UYG has a loss, and the breakdown of what looked to be a Bullish Falling Wedge invites the bears in to short it, putting "everyone' wrong-footed. If the UYG goes lower, or even rallies right from here back inside the Wolfe Wave (above the Wave 1-3 trendline), that would suggest that the "fix is in," as it were, and that the UYG could rally to or at least toward the target line, at Wave 6. I'd like to see a move back inside the Wolfe Wave (if we get it) accompanied by something like a nice bang higher off the signal line in the MACD.

No time to proofread. Sorry. Will do it later.

QQQQ: 28.83 Target MADE

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From November 6-10, the QQQQ tried to put in a Double Bottom at 30.40...30.40. That broke down at the open this morning, so to derive the downside target:

High: 31.97
Lows: 30.40 and 30.40

31.97 - 30.40 = 1.57 Points
30.40 - 1.57 = Target: 28.83 IN PLAY, which just got MADE.

SPX: 877 H&S Target

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Traditionally in a H&S Top, the Right Shoulder should be lower in height than the Left Shoulder, and it should be narrower in width than the Left Shoulder.

This pattern is unorthodox in that it violates both of those strictures, but the 877 target got MADE, nonetheless. It's best not to be too rigid about these things. "If it walks like a duck ... quacks like a duck..."

Math for the target:
High of the pattern: 917
Neckline: 897

917 - 897 = 20 Points. 897 - 20 Points = Target 877 IN PLAY.

Targets are just what we're "aiming for." That doesn't guarantee that they will get MADE, or that price won't continue lower. In this case, the target has been exceeded on the downside. The SPX currently is at 872.

NASDAQ And Intraday H&S Patterns

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The NASDAQ had a weak session on Monday and the intraday 29.62-29.58 Double Bottom in the QLD got taken down immediately after the open yesterday morning.

During the session, however, H&S patterns formed in the indices, creating short-term trading opportunities. The QLD broke out at 1:53PM, putting a target of 29.41 IN PLAY. That target was below the 29.62-29.58 Double Bottom broken support (anticipated resistance) so the QID had no problem rallying and the target MADE rather quickly.

The QLD then went higher, attacking the resistance above the 29.62-29.58 breakdown. It got to 30.24, then slid into the close of 29.36, back below 29.62-29.58 resistance. That often occurs on the first attempt to get through nearby resistance because recent buyers above the breakdown got trapped and would like to get out at a break even, or near break even.

The SDS chart is an example of the H&S Tops that simultaneously formed in the short and ultrashort funds.

NASDAQ: 1680; 1694-1695 Resistance

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There was a small gap in the daily chart between the 1679.19 Nov. 5 close and the 1676.92 Nov 6. high. Yesterday's open was 1680.67, which filled that gap entirely.

Partial fills, or even a complete fill of an opening gap like we had yesterday morning are common, but when the gap is filled and the stock or index continues down like the NASDAQ did yesterday, it's a "Gap To Crap," and a fizzle. The downtrend from the Nov. 4 high of 1785 still is in place.

Intraday, The NASDAQ took out Thursday's low by about a half a point, but it managed to close above it so that could be a little downside fakeout. The session was weak though. I'd want to see yesterday's 1680 "Gap To Crap" high get taken out to the upside.

Chart #2 is the Ichimoku Kinko Hyo chart which is a visual way of looking "at a glance" at the "table of balance." We can "see at a glance" that we're in Bearish territory below the Kumo (Cloud), represented by the vertical lines, and that very short-term, the 8 Day Tenkan-sen and the 21 day Kijun-sen are overhead and slightly inverted at 1694 and 1695, respectively, so that's some additional resistance.

On yesterday's gap up opening, I was looking for a retracement, then a push up through that resistance. That isn't what we got, so I threw in my QLD long position based on the continued late day weakness going into the close. I'd rather "pay up" if resistance gets taken out than risk riding this down, if that's what it's going to do.

NASDAQ: Improving Strength

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Within the larger Bullish Falling Wedge (pattern in blue), the NASDAQ looks to be putting in a Bullish Inverse H&S, which possibly could "morph" (change) into an Ascending Triangle if the Right Shoulder takes much longer to develop. Either way, if these nested patterns both can break out to the upside, the declining 50DMA, currently at 1938, and the gap at 1947 look very doable, which would be roughly 300 points higher from here.

In Chart #2, the fastest sequential Fibonacci measures of relative strength came into Bullish Synchronicity last Thursday and bounced higher on Friday's positive close after the late afternoon Obama Speech shakeout. That's the first such occurrence since early August, and its constructively bullish. Price needs to confirm that though, by breaking out.

SSO: H&S Top

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Structuring The Trade:

The SSO put in a H&S Top this morning, basis the 1-Minute chart. The neckline was an identical 29.02...29.02. When it broke, that put 28.52 IN PLAY. (29.52 - 29.02 = 0.50 Points. 29.02 - 0.50 Points = Target: 28.52 IN PLAY).

From a short entry at 29.02, that's a gain of 0.50 if the target gets MADE, so we'd want a "logical" stop that is roughly half of that, or better. The two red horizonal lines are the "last highs" (or, "logical stops) before the pattern broke. The first one is 29.17, so the stop the is 29.18; the second one is 29.29, so that stop is 29.30, or a $0.30 loss. That's less than a 1:2 risk reward, so I used the 29.17, which was roughly a 1:3 risk:reward on the trade.

SPX: Bearish Wolfe Wave

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The Key Elements of a Wolfe Wave are:

1. A strong directional move (the Lead-In), to Wave 1.
2. Four Waves (including the Wave 1 high) that form IN THE DIRECTION OF THE TREND.
3. A Wave 5 Fakeout/Breakout that puts players wrong-footed. Longs buy and shorts cover at exactly the wrong time, at the fakeout.
4. A sharp move down from the Wave 5 fakeout to the target line, at Wave 6. (The target line is formed by connecting the high of Wave 1 and the low of Wave 4).

Notice that Wave 4 also was the third "hit" to the bottom of the channel. That hit validated the bottom of the channel as support. When a validated trendline gets broken, it usually has some significance. The channel got violated at about SPX 979 cash and the move down to the target line was very sharp, consistent with a Wolfe Wave.

Also of note: after the Wave 5 breakout/fakeout, the SPX sold off then made another bid for the top of the channel which, on that rally, proved to be resistance. The SPX made a nominal new high on that second move, at 1007.51, vs. the Wave 5 breakout/fakeout high of 1006.03. That second move to a "higher high" also contributed to putting players wrong-footed.

USO: Not A Bullish Island Reversal

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From October 30th entry:

"If that gap of one penny, at 53.93, gets filled, this is MUCH, MUCH less bullish than it appears to be at the moment, because it then would not be a Bullish Island Reversal."

Hourly Chart: The Bullish Island Reversal possibillity was negated, but there are some signs that the USO could rally a bit. It broke above a down trendline (red). That's not a breakout. It's a "break above." The trendline has such a severe slope that the USO would have "broken above" it even if it simply traded sideways for awhile. What is significant about this "break above" the trendline is that the USO came back and successfully retested the trendline, formed a Bullish Falling Wedge (pattern in yellow), broke out above that, then moved higher toward the recent highs.

The pattern in white is an Ascending Triangle, so we've got "nested patterns." A Bullish Falling Wedge, "nested" within the Ascending Triangle. A breakout would be above the Ascending Triangle highs of 56.85 and 56.71, which would put a target of roughly 62.87 IN PLAY if it breaks out.

Daily Chart: In addition to the Inverted Bullish Hammer and Bullish Hammer of Oct 27-28, the Oct. 31 candlestick is a Bullish Engulfing pattern. That's looking constructively bullish.

Note the Green "M's" on the Daily Chart, on Aug. 21, Sept. 22 and Oct. 31. On those dates, the MACD crossed its signal line. Often when that occurs we will hear, "The MACD gave a Buy Signal." No, it didn't. It simply crossed above its signal line. The technician must determine whether or not that's a "buy signal," not the indicator.

MACD Chart: "In a Bear Market, your 'Buy Signals' are SELLS." Not always. There is no always in the stock market. But, we can see that the first two MACD "Buy Signals" on Aug. 21 and Sept. 22 were exact highs in the USO. The first one came on a "dead cat bounce" off horizontal support (black line). The second one came at resistance at that horizontal line.

We'll see about this third MACD crossover, on Oct.31, but at least with this signal, the chart is looking constructively bullish with the three bullish candlestick patterns and the two "nested" bullish patterns in the Hourly Chart. The USO needs to break out of those patterns, above the 56.85-56.71 Ascending Triangle highs.