GS - Bearish Rising Wedges - And USO

From Friday morning's analysis on GS:

"How many times have we referred to Goldman as "The Stock That Refuses To Die?"

Looking at the final hour of trading on Friday, I'd have to say "The Stock that STUBBORNLY refuses to die!" LOL.

Lest anyone misinterpret my joking, I want to be clear that I have been describing Goldman that way as an expression of repect for how strong it has been off its autumn low (same for Morgan). In my view, any opinion or feelings that we have about companies are best left for Cocktail Hour conversation, and left out of our trading. What I call "vengeance trading," or "vendetta trading" out of anger doesn't serve us very well, and certainly hasn't over the past several months, in particular.

Rather than get angry, and I do understand peoples' anger with Goldman and with the market in general, I find it better to steel ourselves to our emotions with our trading, and to look for EVIDENCE that we've got a case for shorting a stock, if that's what we want to do. Let's look at Friday's trading in Goldman, as an example.

We came into Friday's session on a Bearish Rising Wedge (pattern in white), a "fractal" (just means a "repeating pattern") of the Bearish Rising Wedge that has formed in the daily chart. Goldman gapped up out of The Wedge to a new high for the move, in sympathy with Keefe, Bruyette & Woods' upgrade of Morgan, but immediately came down hard, and down through the bottom of the Bearish Rising Wedge. That's known as a "Gap And Crap Reversal." Gap up and fizzle, back through the bottom of the pattern, and it was on volume, suggesting that Goldman was in for a rough session. UGH.

Where is resistance on a reflex rally off the initial breakdown low?

1. 143.63 - That's first horizontal resistance, at the low of The Wedge (White #2).
2. 144.14 -144.14 - Identical lows, at White Data Point #4.
3. 144.52 - 144.53 - 144.53 - 144.53 - the near-identical "last lows" of the 5-Minute bars, going into Thursday's close.
4. Trendline #2 - #4, which is rising a bit every 5-Minutes.

Have we got reason to short Goldman on a reflex rally? Yes. Why?

1. Gap And Crap opening.
2. Fakeout Breakout of The Bearish Rising Wedge and downside reversal through the bottom of the pattern, on volume
3. Bearish Rising Wedge in the Daily Chart, on weakening technicals.

Are we "predicting" anything? No. We're LOOKING at what already happened, and we're deciding if we can structure a good risk:reward for a trade.

My personal choice was to try to short Goldman below Thursday afternoon's late afternoon 144.52, 144.53, 144.53, 144.53 5-Minute bar lows. I picked 144.45. Stop: above the 145.29 Thursday aftenoon high of the Bearish Rising Wedge, at White Data Point #5. Risk: $0.84. Reward: at least double that, depending on how trading ensued.

Obviously, my order didn't get filled. The Reflex Rally high was 114.13, one penny below the identical 144.14 - 144.14 lows at Data Point #3, and down she went to a new low on the session, at Red Data Point #1.

From there, we can see that a Symmetrical Triangle (pattern in red) emerged, which "should have" a bearish resolution because of the Gap And Crap Reversal. It did. Goldman broke below it, rallied back inside it, broke below it again, and the next rally was a failure at the bottom of the pattern, at 143.09 (red arrow) validating it as resistance. Down she went to a new low, at Yellow Data Point #1.

Raise stops to above the 143.89 high of the pattern (Red #2).

From there, Goldman rallied to 143.09 exactly, at Yellow Data Point #2. Another Symmetrical Triangle pattern (in Yellow) emerged. Goldman broke below that, and sank to another new low on the session, establishing 143.09 at DOUBLE validated resistance:

1. The retest of the Red Symmetrical Triangle failed at 143.09.
2. The high of the broken Yellow Symmetrical triangle failed at 143.09.

Raise stops to an upside takeout of 143.09. Anyone who shorted the Bearish Rising Wedge breakdown, or who shorted the Reflex Rally back toward the breakdown now has locked in a winning trade.

What can we say about the Bull Stampede/Short Squeeze that began just before we turned for home for the final hour of trading? One thing that I'd say for sure is that, if you shorted in the morning, get the heck outta there on the upside takeout of 143.09. Ms. Market had told us very clearly that it was DOUBLE RESISTANCE, and when resistance isn't any longer resistance, it's a good idea to pack it in and "take the money!" Now, I'm talking about this specific trade off the 5-Minute chart. Swing traders likely are using Friday's high, or the Bearish Wedge trendline in the daily chart as their stop.

There is discussion this weekend about the late afternoon "ramp up" and an end-of-month "market manipulation" I doubt that any of that discussion is coming from Bulls. LOL. Let's be honest about that. Regardless, of "the reason" for the late afternoon rally, did Ms. Market CLEARLY tell us that an upside takeout of 143.09 "might be" important, or not? I think that she did, but I won't argue with anyone about it. Waste of time ;) While I wouldn't argue, I might say, "Quit yer whining and play it as it lies." (Cranky old man) LOL.

Congratulations to anyone who read this far, and my apologizes for the length and detail of this post. The purpose of it was to demonstrate the wealth of information that Ms. Market gives us if we try our to best to FOLLOW along. I also wanted to point out that, although Ms. Market isn't exact with these numbers, she sometimes is, or comes mighty close (the boldfaced numbers above.) Ms. Market rules, whether we like it or not, and if she hasn't humbled us yet for trying to act smarter than she is, she eventually will ;)

Quickly, since this is so long-g-g...

Basis the daily chart, Goldman still is inside the Bearish Rising Wedge, so the jury still is out. Friday's candle is a possible Bearish Hangman, but no guarantees that it will break down. For example...

...not only did the Bearish Rising Wedge in the USO resolve to the upside, so did the Rising Channel. Granted, Friday's candle sure looks like a Bearish Hangman, but let's remember that Wednesday's candle at the top of the Bearish Rising Wedge sure "looked like" a Bearish Doji Star Hangman. It wasn't.

Although the majority of Bearish Rising Wedges do resolve to the downside (I don't know the percentages, but Bulkowski might have something on that), this is a fine example of how there is no "always" in the stock market.

SLV: The 3 Bullish Falling Wedge Targets

From pre-market comments on the SLV, on May 5:

"The SLV broke out of this Bullish Falling Wedge yesterday, on a print of 12.69. The 8, 55, and 89 RSIs came into Bullish Synchronicity on April 30, which means that the 12.30 high of that session is the "Buy Pivot," and that a print of 12.31 in the next session was a Buy from that particular indicator...

The upside targets IN PLAY, listed on the chart, are Black Data Point #3, Black Data Point #1, and the measured move off the pattern breakout, respectively.

14.45 - High of the pattern
11.64 - Low of the pattern

14.45 - 11.64 = 2.81 points of upside, added to the point of the breakout.

2.81 + 12.68 = Target: 15.49 IN PLAY"

All three of the Bullish Falling Wedge targets got MADE, within one penny. Yesterday's high was 15.48. The close was 15.47. Again, we can't require exactitude from Ms. Market with these targets, but a penny is as close as we're going to get to exact unless it actually is exact. LOL.

"Take profits, or at least some profits, when targets get MADE."

This trade turned out to be one of those "no brainers" insofaras it went directly to the final pattern target in 37.5% (close to a Fib 38.2%) of the time that it took for the pattern to form.

CNBC mentioned yesterday that silver was up something like 23% in the month of May, its best monthly gain in a number of years. We can see that the technical breakout of The Bullish Falling Wedge in early May certainly supported such a big rally. It seems fitting (and, rather tidy) that the last of the targets should get MADE on the last day of the month ;)

Too bad that I was a day late posting the chart, and the breakout. We got a gap up, and no chance to get in on a pullback, but that's alright. We still can use it as a learning experience, which is what my blog is about.

Buying the SLV on May 1, above the last Buy Pivot, at 12.31 (the last green circle), was an ideal place to enter a swing trade for a gain of 25.6% at yesterday's final target. Very favorable risk:reward. Intial stop: Below 11.64, the low of The Bullish Falling Wedge, at Black Data Point #4.

Risk: 12.31 - 11.67 = 0.64 points.
Reward: 15.47 (BID price on a sell order)- 12.31 entry price = 3.16 ponts

Risk:Reward ratio: 1:5

If we got stopped out on FIVE trades like this one, and won only ONE of them, we'd be no worse off than break even on this kind of risk:reward.

GS And USO

In mid-December, 2008, when I described the "sea change" that we were witnessing in the market, I dubbed Goldman and Morgan my poster children for "Bad News Is Good News." In the late 2008 market Smackdown, if there was even a hint or a rumor of a problem, a company got whacked. But, when Goldman and Morgan both reported horrible earnings in mid-December, and when both stocks broke out of patterns to the UPSIDE, that gave us a very strong suggestion that the worst was over for these stocks for awhile, and likely over the market, in general.

When the general market fell to the the SPX low of 666 in March, for example, Goldman not only was showing a strong postive divergence, it was finding DOUBLE support at the bottom of the channel off the November low (in black), and at the bottom of the Bull Flag/Falling Channel, at Purple Data Point #4.

Against the ugliest economic backdrop since The Great Depression, Goldman has rallied 206% off its November low, and Morgan is up 350% off its Octber low. Whew!

In the current time-frame, Goldman is rallying in a Bearish Rising Wedge on the lowest volume since September, 2008, which is a "red flag," and it's done it against "sell" signals, which often are misunderstood, like the MACD.

As we've discussed before, we never allow indicators to TELL US to buy or to sell. On April 17, when Goldman was at $120, the MACD had put in a negative divergence, and had fallen below its signal line. That "can be" a sell, but be very careful with that when a stock is as strong as Goldman was.

Look at the chart. That "sell signal" came while Goldman was trading in the Bullish Falling Wedge, right after it reported that it would issue shares at $123. The technicals (MACD) and fundamentals (share issuance) "looked like" the stock was going down, but LOOK at what it actually did. Goldman found support just above the channel (in black), broke out above the Bullish Falling Wedge, and those upside targets got MADE.

That's when we hear, "Technical analysis doesn't work!" It worked just fine. The MACD "invited" us to sell, but the MACD didn't have a clue what the chart looked like. The successful retest of the channel was bullish. The breakout of the Bullish Falling Wedge was bullish.

The next cross below the signal line in the MACD came on May 13, at Black Data Point #2. It not only wasn't a sell, it was a short-term low.

The next "sell signal" in the MACD, the "Kiss of Death," came on May 20. That particular signal "can be" deadly, depending on what the chart looks like. In this case, Goldman lost only $2.00 at the open the next session, then ralled $9.50. How many times have we referred to Golman as "The Stock That Refuses To Die?" LOL.

The MACD currently is bearishly positioned below its signal line, and is rallying back to it for another possible "Kiss of Death" signal if it fails at/near its signal line. If that should occur, especially if it's coincident with Golman failing at/near the top of this Bearish Rising Wedge, the stock could be in for some downside.

Let's look at an example of that, USO.

On Wednesday, USO poked through the top of this Bearish Rising Wedge, but closed below it on a near-perfect Doji Star Hangman. Look at the Dragonfly Doji Star in March, at Blue #1. The gap down the following session, below the low of the Dragonfly Doji Star, was a pretty good indication of some downside.

If anyone shorted Wednesday's Doji Star Hangman, with a stop above the 34.94 high of that candle, I sure couldn't argue with it. Excluding a horrible gap up, that's a nice risk:reward.

The trade didn't work, though. The USO gapped up to 34.97, above the prior day's high, stopping it out for a small loss. Not bad.

Yesterday's rally high, interestingly, was within pennies of the top of the channel, and also within pennies of where Leg CD equals Leg AB. The top of the channel was drawn by creating a trendline that is exactly parallel to the bottom of the channel, the slopes of which are 0.084. We could get a reversal here, but I'm not going to assume that. Goldman traded in a similar channel earlier this year and broke out of it to the UPSIDE in March.

Back to Goldman...admittedly, it looks vunerable here. Bearish Rising Wedges tend to have a bearish resolution. The volume as the stock has moved higher is weak, and the MACD is weak. Worth watching. The trendline at the top of the Bearish Rising Wedge in Goldman comes in today, May 29, at 147.747. The rising slope of that trendline is 0.4125 per day, so add that amount each day. It will come in at 148.16 on Monday, June 1.

SPX And POT

From yesterday, on the SPX:

"Since yesterday was such a strong day, I'd like to see some give back, then a breakout, but I don't get to call the market ;)"

We got some give back. The SPX still is trading within the pattern in black. This pattern still could "morph" (change) into a Bull Flag if the SPX makes a "lower low" than the low at Data Point #2, which was the May 15 low of 878.94, or it simply could fail altogether.

Let's say that the pattern fails, and that the SPX goes down to the bottom of the Kumo (the vertical lines), which currently is at 771.21, or even back to 741 November low. That would be about a 20% haircut off the SPX 930 high. And, let's say that the general market sells off a similar amount. Where would that put bullish stocks, like POT?



A 20% haircut for POT would put it back at the top of the channel (horizontal green line). As long as that would hold, the two targets in the low 120's still are IN PLAY.

POT has had a big move, so a consolidation of those gains while forming a bullish continuation pattern would be healthy. I drew a Bull Flag (pattern in blue) as an example.

SPX, IBM, And PCU

From yesterday morning on the SPX:

"Again, the current chart of the SPX is bullish "until it ain't." LOL. I just wanted to discuss the kinds of things that we would look for that would tell us that "it ain't."

We sure didn't see anything yesterday that would indicate that "it ain't." The Bulls came with their "A" game. They gave up only a couple of points at the open, held it above the neckline, then took it higher. The Bullish Engulfing candle engulfed the prior four days' "real bodies," which are defined by the open and closes of those candles.

As the chart stands, it looks like the missing Data Point #4 already was in, at the May 21 low of 879.61. The upward slope of Trendline #2-#4 is 0.24249, which came in yesterday at 880.095. The low on the session was 881.46, a point above that trendline, so that's a successful retest and the retests of the 877-875 neckline of the Bullsih Inverse H&S pattern also have been successful, thus far.

The top of this putative Symmetrical Triangle (pattern in black) comes in today, May 27, at 821.815, so a print of 821.82 would be a technical breakout of the pattern. Since yesterday was such a strong day, I'd like to see some give back, then a breakout, but I don't get to call the market ;)

AAPL got an upgrade yesterday morning out of Morgan Stanley and was indicated to gap up about two dollars. IBM, however, was called down at the open from Friday's 101.89 close. My plan was to buy IBM if it could recover to UNCH from the gap down. It put in a low of 101.02 and recovered to UNCH in only a few minutes, so I bought it there.

The next part of my plan was to sell it when it was up a dollar, just below resistance in the $103's, and try to reposition on a pullback toward UNCH. The darned thing went up a dollar very quickly, but never pulled back. IBM blew right threw that resistance and was strong all day. It put in a nice candle on the session.

IBM recently fell out of a rising channel, and failed a retest at the bottom of the channel on a Bearish Engulfing pattern. Not so hot. But, it came roaring back on yesterday's strong Bullish Engulfing candle, and now is at the top of a Symmetrical Triangle (pattern in purple) champing at the bit for an upside breakout, which would occur today, May 27, on a print of 105.78.

There are a number of things that I like about the chart of Southern Peru Copper, PCU:

1. The 34/55RSIs gave TWO "buy pivot" signals when Data Point #4 got put in.

2. The May 20 rally to the top of the Symmetrical Triangle failed by about four cents. That was a trendline validation, telling us, "Yep, that's resistance alright!" When validated trendlines get taken out, that tends to have some significance because Ms. Market then is telling us, "Nope, that isn't resistance any longer."

3. On the pullback from validated resistance, PCU put in lows of 19.04 and 19.01, right near the two "Buy Pivots" of 19.03 and 19.10, so that area is support, so far.

4. That support also is at the top of the Kumo (Cloud), represented by the vertical lines in this Ichimoku Kinko Hyo chart. We can "See At A Glance...The Table Of Balance" that the stock is bullishly positioned.

5. The pullback from validated resistance also gave the stock a chance for form a "nested" Bullish Falling Wedge (the pattern in blue), the top of which came in yesterday at 20.015. The close was 20.02, so that's a technical breakout of that pattern, by a ha' penny.

6. The MACD has come back toward its zero line, has put in a bullish divergence, and just missed making a Bullish Cross of its signal line yesterday, by a hair: 0.0065.

The top of the Symmetrical Triangle (pattern in purple) comes in today at 20.4809, so a print of 20.49 would be a technical breakout of the pattern, as well as a breakout above validated resistance. We then would want to see the 20.78 high of Blue Data Point #1 get taken out for a "higher high."


Gain: $1,050

SPX: Neckline Retest

We looked at this chart (and intraday charts) at the end of April and early May, when the SPX was breaking out of the Symmetrical Triangle (pattern in blue), which also was the Right Shoulder of a Bullish Inverse H&S pattern. The pattern not only broke out, there also was a successful retest of the top of the pattern. The Bulls took it higher from there and scored over 60 points. The Symmetrical Triangle target of 918.30 got MADE during the rally.

Since then, the SPX has been consolidating those gains in the pattern in black, the outcome of which is yet to be determined. Here are some possiblilites:

1. The pattern "could be" a Symmetrical Triangle if the missing Data Point #4 holds above the low of Data Point #2 and The Bulls can take out the top of the pattern. Symmetrical Triangles have "Lower highs" and "Higher lows."
2. The pattern "could be" a Bull Flag if missing Data Point #4 is below Data Point #2. Bull Flags have fairly parallel trendlines, and have "lower highs" and "lower lows."
3. The pattern "could be" a bust, with the SPX simply going down...down, below the neckline, without any pattern formation at all.

As the chart stands, it's bullish until we see something different.

Similar to the current Bullish Inverse H&S breakout, we had a DOUBLE Bullish Inverse H&S breakout in late April, 2008, which also took out the down trendline off the October, 2007 high. The patterns also could be seen as a Bullish Inverse H&S and an Ascending Triangle, if one prefers.

When patterns break out or break down, they need to be monitored for signs of trouble along the way, particularly when the breakout is against the trend, as this one was. What kind of evidence would we look for? Well-ll...

1. The DOUBLE Bullish Inverse H&S pattern morphed into the Bearish Rising Wedge, in May, 2008 (the pattern in black), and broke down.
2. A Bull Flag formed after that (pattern in red), which is an "upside down" Bear Flag. "Lower highs" and "lower lows." That "should have" broken out to the upside. It broke to the downside.
3. As we know, Bearish Rising Wedges often "morph," or change, into Bearish H&S Tops, as this one did (the horizontal blue line is the neckline).
4. After the neckline of the H&S Top broke, the SPX went down and also took out the low of The Head: 1256.98.
5. From there, the SPX staged a Bearish Rising Wedge rally back to the broken neckline, but that broke to the downside.
6. There were TWO failed attempts to retest the bottom of the Bearish Rising Wedge.
7. After a sharp break to the downside from those failed retests, the SPX rallied for a retest of The Head of the "Bullish" Inverse H&S pattern: 1256.98. No good.

We can see how they "pulled the plug" on the SPX from there. That was a lot of bearish evidence of breakdowns, and failed retests of breakdowns and a lot of good opportunities to get out of long positions, and/or to short the SPX.

That outcome in 2008 certainly doesn't mean that we will have the same bearish resolution in the current time-frame. Again, the current chart of the SPX is bullish "until it ain't." LOL. I just wanted to discuss the kinds of things that we would look for that would tell us that "it ain't."

PAAS: Three Bullish Patterns

From Thursday morning:
"I was wanting a breakout of The Rectangle before the close, back to the morning highs, but I didn't get it. If I had, I would have held some shares, and I definitely would have held some shares if I had gotten filled at the open, at 20.15 (Curses!), but given my late entry at 20.67, I said, "Deal!" near the close, and took the money."

The Rectangle (pattern in yellow in the next chart) broke to the downside Thursday morning, which gave me an opportunity to buy back my shares at a lower price. I repurchased PAAS at the 61.8% retracement of Wednesday's Breakaway Gap candle in the daily chart.

High: 21.35. Low: 20.16. 61.8% Retracement: 20.615.


The Bullish Falling Wedge (pattern in white) ended up morphing into a larger triangle, or channel (pattern in green), if you will. That pattern (in green) broke out Thursday morning, above 20.99, putting a target of 21.99 IN PLAY.

21.35 - High of the pattern
20.35 - Low of the pattern

21.35 - 20.35 = 1.00 point of upside from the breakout, at 20.99.

1.00 + 20.99 = Target: 21.99 IN PLAY

After the breakout, PAAS rallied to 21.66, then went into the third bullish pattern, the Bull Flag (pattern in red). That pattern broke out near the close, at 21.19, putting a target of 21.96 IN PLAY.

21.66 - High of the pattern
20.89 - Low of the pattern

21.66 - 20.89 = 0.77 points of upside on a breakout above 21.19

21.19 + 0.77 = Target: 21.96 IN PLAY

When there are two targets very close to the same price, in this case 21.96 and 21.99, that increases the likelihood that they will get MADE. There never are any guarantees, of course. But, as we've seen so often, when there are "nested" patterns, or multiple patterns like we've got here, stocks can have a nice pop.



PAAS gapped higher at Friday's open, and the targets of 21.96 and 21.99 got MADE in the early going. I sold. The high on the session was 22.14, just above the targets.


Gain: $3,400. That salves my wounds for getting pipped at the post for ONE PENNY on my order to Buy PAAS on Wednesday morning for 20.15. LOL. (Low was 20.16).

MOO - Three Ascending Triangles

From yesterday, on POT:

"Yesterday, POT came to within $3.00 of the 121.29 target that is IN PLAY off the Symmetrical Triangle breakout (pattern in black) before pulling back, so the shorts might get some relief."

In addition to Wednesday's reversal candle in POT, we had a Bearish Inverted Doji Star Hangman in the MOO which, with yesterday's unfilled gap down, has become a Bearish Island Reversal, as the chart stands.

That's reason alone to be cautious on the MOO, as well as the fact that the three Ascending Triangle targets all have been MADE. Stocks don't automatically reverse at that point. All that tells us is that "we're done" with those patterns, and that it's a very good idea to "take profits, or at least some profits, when targets get MADE."

The DOUBLE breakout of the "nested" Ascending Triangles (the larger one in blue, and the smaller one is green) was quite nice. As we know, "nested" patterns tend to pack some punch, and indeed, this one did. It took 80 days for the larger one (in blue) to form, and only 17% of that amount of time for the 37.60 target to get MADE: 14 days.

It's interesting how charts often trade in "fractals," a fancy way of saying "repeating patterns." After the DOUBLE Ascending Triangle breakout, another little Ascending Triangle showed up, which was a Bullish Continuation Pattern. Ascending Triangles have a "flatish" top, with rising lows. The highs rarely are exact, but with this one, they were. The highs were an identical 34.50, which was just seven cents above the Green Ascending Triangle target of 34.43.

Very pretty chart.

POT, XING And PAAS

POT has been a monster off its triple breakout in early May. Coming off the late April low, with the exception of the hesitation at the top of The Rectangle, the rally has been a parabolic 52% gain, which is quite a move for a stock in this price range.

Yesterday, POT came to within $3.00 of the 121.29 target that is IN PLAY off the Symmetrical Triangle breakout (pattern in black) before pulling back, so the shorts might get some relief.

This chart is a reverse illustration of what we witnessed last autumn, when the Bulls kept buying technical breakdowns because they thought that stocks were too cheap, or that stocks had gone down too much, known as "knife catching." In the current time-frame, Bears got steamrolled shorting, not only an upside breakout, but a TRIPLE upside technical breakout because that thought that it was only a bear market rally, or that the stock was too expensive.

OUCH! OUCH! OUCH!


From May 12, on XING:

"It now looks to be "champing at the bit" for a breakout. XING needs to knock out the triple highs of 2.19, 2.12 and 2.14. If it can, first resistance would be 2.70 - 2.84, the bottom of the Kumo (Cloud) in the weekly chart, and the December, 2008 high of the Falling Channel, respectively."

2.20 got printed, and some more buying above that, with some blocks thrown in. 100-Day average volume for XING is only 180,000 shares. Yesterday was a five-month high in the stock on three times average volume: 540,000 shares.

XING eased off just a bit at the close, to 2.15. I would like to have seen the stock put it away, above 2.19, but it's "turning the corner" higher, like AAPL did when it took out its triple top at $103.00. We'll see if XING can capitalize on yesterday's move higher.

From yesterday morning's Comment Section, pre-market:

"Pan American Silver (PAAS) is looking interesting here. The H&S Top breakdown in the intraday chart, below the 18.68 - 18.68 neckline, looks to have been a Bear Trap since the stock:

1. has rallied well above that
2. has taken out the high of the Right Shoulder
3, and, almost has taken out the 20.10 high of the Head."

Shortly after that comment, I saw that PAAS was indicated to gap up at the open. BID: 20.05...ASK: 20.25. The high of the recent consolidation pattern, which looked to be a possible H&S Top, was 20.10, so a print of 20.11 would be confirmation that the pattern was, indeed, a Bear Trap.

I entered my order to buy just before the open, at 20.15. Have you ever felt that "they" are out to get you? "They" opened the stock at 20.21, and "they" took it down to only 20.16, ONE PENNY above my order and left me standing at the station while...

...PAAS raced higher, and the Ascending Triangle target of 20.77 from the early May breakout got MADE in the first half hour of trading.

Arrrrrrrgggh! LOL.

After PAAS put in early morning highs of 21.35 and 21.34 (White #1 on the chart), it pulled back in what looked to be shaping up as a Bullish Falling Wedge. That broke out, and PAAS took out the high of 20.81 (White #3) and got to 20.87, a "higher high," giving the suggestion that a low was in at the 20.47 low of the Bullish Falling Wedge (White #4), and that the pattern was a Bullish Continuation Pattern.

I bought the pullback from there, at 20.67, with a stop below 20.47, the low of the Bullish Falling Wedge, for a nice risk:reward entry. Risk: only twenty-one cents.


As we know, Bullish Falling Wedges are weak bullish patterns, and they often "morph" (change) into something else. This one appears to have morphed into a Cup & Handle-ish pattern. The "handle" part of a Cup & Handle usuaally has a downward slope, and this is a Rectangle, but we never like to quibble unless "They" leave us standing at the station over the matter of ONE PENNY ;)

I was wanting a breakout of The Rectangle before the close, back to the morning highs, but I didn't get it. If I had, I would have held some shares, and I definitely would have held some shares if I had gotten filled at the open, at 20.15 (Curses!), but given my late entry at 20.67, I said, "Deal!" near the close, and took the money.

Gain; $700, and I'm happy to have that, given the way that "They" disabused me at the open yesterday morning. LOL.

POT: Two More Targets Got MADE

From yesterday morning:

"Since Friday's late day Bullish Falling Wedge (pattern in white) breakout, POT has formed and broken out of FOUR bullish intraday patterns. Quite nice."

The breakouts from the last two of the bullish patterns put targets of 111.82 and 112.05 IN PLAY. I got long near the open at 110.85 (yellow arrow) on the pullback to the top of the Bull Flag (pattern in yellow) and sold between the two targets.

POT showed a lot of strength beyond that, coming off the multiple breakouts. It rallied sharply to an intraday high of 115.51, and closed at 114.48.

Gain: A bit under $1,100.

EDIT: 7:52AM - I've added remarks on PAAS in today's comment section, if interested.

POT: Four Bullish Intraday Patterns

POT finished last week by finding support at the 105.44-105.49 top of the Ascending Triangle (horizontal red line), and breaking out of a Bullish Falling Wedge (pattern in white), continuing its bullish behavior since the May 1-4 TRIPLE Breakout in the daily chart.

Yesterday morning, POT gapped up about two dollars, to 109.17, and rallied a bit more toward 19.63 (the higher horizontal blue line), which was the secondary high in the Bullish Falling Wedge, prior to the selloff to 105.20 on Friday.

I generally won't short a stock that is acting this bullish, but opening gaps like that often have a 50% or 61.8% retracement, and sometimes fill the gap completely. POT also had some nearby resistance inside the Bullish Falling Wedge, between the 109.63 secondary high and the 110.75 high of The Wedge, so I shorted it at 109.45, playing it for only a 50% retracement of the gap, which was 108.295.

I used the 107.42 "last high" before Friday's close for my calculation, to be conservative, but it would be fine to use Friday's actual close of 107.14.

109.17 - Opening Price
107.42 - The "last high" before the close on Friday

109.17 - 107.42 = 1.75 points

50% Retracement of the opening gap = 108.295
61.8% Retracement of the opening gap = 108.09

I covered my short when the 50% retracement target of 108.295 got MADE. The low on the session turned out to be 107.83, which was pretty close to a .618 retracement of the entire gap, between the 109.17 open and Friday's 107.14 close: 107.915.

Given how bullish POT has been acting, my next move was to get long, at 108.85, during the formation of this Symmetrical Triangle:

Notice that as price coiled toward the apex of the Symmetrical Triangle, there were two refusals (white arrows) at the top of the pattern. "Not yet." "Not yet."

During that time, price remained near the top of the Symmetrical Triangle, and another little Symmetrical Triangle (in yellow) formed, "nested" within the larger pattern. Then...KABOOM!!!

Notice the nice volume that came in on the breakout. The proverbial "everyone" is a buyer. Shorts must Buy To Cover in order to get out of the way of a rally out of DOUBLE breakout (the little "nested" triangle within the larget one), which also is a breakout above TWICE validated resistance (the two white arrows), and longs Buy The Breakout. Ms. Market has spoken pretty clearly, and "Buying begets buying."

After the breakout, I moved my mental stop under 109.01, the "last low" prior to the breakout.

110.75, which was the high of Friday's Bullish Falling Wedge, already was IN PLAY. The breakout of this Symmetrical Triangle put a target of 111.17 IN PLAY.

Math:

109.60 - High of the pattern (also the morning high)
107.83 - Low of the pattern (also the morning low)

109.60 - 107.83 = 1.77 points of upside on the breakout above 109.40, which is where the upper treandline was when the pattern broke out.

109.40 + 1.77 = Target: 111.17 IN PLAY


After the breakout, POT rallied to 110.20, pulled back, then took out that 110.20 high. I moved my mental stop up (horizontal red line), but had no problem on the trade. It took only about seventeen minutes for the 110.75 target to get MADE, where I sold half my position, and about another half hour for the 111.17 target to get MADE, where I sold the other half of my position.


Since Friday's late day Bullish Falling Wedge (pattern in white) breakout, POT has formed and broken out of FOUR bullish intraday patterns. Quite nice.

Gain on the two trades: A bit over $3,200.

You can see why I say that I'm lousy at predicting anything, and why I say that I just try to FOLLOW Ms. Market, as best I can. Given how bullish POT has been acting, I sure didn't think at the weekend that I'd end up SHORTING this stock yesterday morning, but there you have it. I also didn't know that it was going to gap up two dollars.

As I've said many times, we can't possibly know what a stock (or index) is going to do, but we CAN know what we're going to do about it."

POT And PAAS

From Friday morning:

"My plan was to re-enter POT long on a retest of the top of the Ascending Triangle (105.44-105.49) since a target of 110.04 still is IN PLAY from that breakout (the Ascending Triangle), but it didn't pull back that far. The afternoon low was 106.30."

We got the retest of the 105.44-105.49 top of the Ascending Triangle (pattern in red) and it was successful, but unfortunately, it came late in Friday's session. The Ascending Triangle target of 110.04 got MADE early Friday morning.

Notice the white trendline, connecting lows of 106.33 and 106.50. Remember that we connect ANY two highs, or ANY two looks and call that a trendline, but we don't know if it's valid unless/until Ms. Market tests it and uses it as support or resistance.

That trendline broke to the downside, and POT made a "lower low," below 106.33, which suggested the retest of the 105.44-105.49 top of the Ascending Triangle. POT sold off to 105.62, then rallied for a retest of that white trendline. The rally failed AT the trendline, at 106.69 (the white arrow). At that point, Ms. Market said, "Yep, that's resistance!" That suggested that the retest of the 105.44-105.49 top of the Ascending Triangle wasn't finished.

In the final hour, POT sold off from the white trendline resistance, but put in a low at 105.20, just below the 105.44 - 105.49 top of the Ascending Triangle. Turning for home, POT rallied above the white trendline resistance, and...

...broke out of a Bullish Falling Wedge (pattern in white). Retests aren't always exact. The 105.20 low was a slight penetration of the 105.44-105.49 top of the Ascending Triangle. The fact that POT got back above the white trendline, which was validated resistance, and the fact that POT was able to break out above the Bullish Falling Wedge going into the bell is bullish, as the chart stands.

Bullish Falling Wedges are weak bullish patterns because all of the candles inside the wedge represent immediate resistance. If POT comes back down and retests the top of the Bullish Falling Wedge AND holds near Friday's 105.20 low, AND takes out whatever high gets put in before a retest, that would give a strong suggestion of at least a retest of Friday's 110.75 high.

For example: Let's say that POT rallies out the gate this morning to 107.95, sells off to roughly 105.20 support, then takes out the 107.95 high. That would put 110.70 IN PLAY, near Friday's 110.75 high.

Math:

107.95 - High
105.20 - Low

107.95 - 105.20 = 2.75 points of upside, beyond 107.95.

107.95 + 2.75 = Target: 110.70 IN PLAY

That's just an example as we try to follow the program, as best we can.


Since the 19.08 target in PAAS got MADE, the stock has been consolidating between 18.68 and 20.10. The 20.77 target still is IN PLAY.

Short-term, the pattern looks like a H&S Top, but the volume isn't right. It should be highest in the Left Shoulder, next highest in the Head, then lowest in the Right Shoulder. Still, we've seen many of those work out, even though the volume isn't right.

The data points of the putative neckline are an identical 18.68, which got broken on Friday afternoon. The close was just below it, at 18.66. If it plays out, the target IN PLAY would be 17.26.

Math:

20.10 - High of the Head
18.68 - Neckline

20.10 - 18.68 = 1.42 points of downside from the neckline break.

18.68 - 1.42 = Target: 17.26 IN PLAY

Targets against the trend are less likely to get MADE, and the trend is up. Looking back at the daily chart, the top of the Ascending Triangle is at about 17.74. The declining 200DMA, interestingly, currently is at 17.2776, right near the 17.26 target.

I shouldn't like to see the top of the Ascending Triangle get broken because "former resistance 'should be' support," but a quick down to tag the 200DMA and a bounce off that while the 50DMA (dotted green line) climbs for a bullish cross of the 200DMA might work out alright.

POT: Triple Breakout

Some time on Wednesday after the market had opened, CNBC reported that three analysts were bullish POT. Last I had looked at the stock, it was trading in a channel (Rectangle) and when I looked at it on Wednesday, I could see that it had broken out a week ago and that it was moving higher. I don't like to chase those.

As we've discussed, analyst upgrades and downgrades can present good opportunities. Sometimes they get it right. Sometimes, they're a good fade (aren't we all?). I decided to look at POT more closely on Wednesday night after the close since it clearly had broken out, to see if I could find an entry long.

Beginning at the December low, the first pattern (in blue) is a Bullish Falling Wedge, my LEAST favorite bullish pattern because when it breaks out, all of the candles in the wedge that preceded the breakout represent immediate resistance.

POT enjoyed a nice six-day rally coming off the Bullish Falling Wedge breakout, then began to trade sideways in The Rectangle (pattern in green) as it worked off overhead supply from The Wedge, and overhead supply from 2008.

There are so-o many charts to look at, I need to hire a team of elves to do nothing but follow maybe five charts, and then alert me when they start shaping up nicely, like POT did in late April. LOL.

POT formed a TRIPLE nested pattern: The two Symmetrical Triangles (small one in purple...large one in black), nested within the six-month Rectangle (pattern in green, better seen on the last chart).

Once Black Data Point #4 and Green Data Point #4 (same data point, on April 23) established the "missing leg" of both Symmetrical Triangles...KABOOM!! Both triangles broke out on Friday, May 1, then the Rectangle broke out in the following session, on May 4.

We can see, as we have a number of times, how nice these breakouts from "nested" patterns, or multiple patterns can be. It would have been nice if the three analysts all upgraded this stock back on April 23, or shortly thereafter! LOL.

However, all was not lost as far as an opportunity to get long POT was concerned.

In the early going yesterday morning, POT rallied to 105.49, establishing a flat top with Wednesday's high of 105.44 for a possible Bullish Ascending Triangle. It quickly gave back the gains, then formed...

...this Symmetrical Triangle, "nested" within the Ascending Triangle. We know how much we like those! I got long at 104.12 with a mental stop below 102.96, Data Point #4 of the Symmetrical Triangle. I forgot to mark the Data Points on the chart, but it's "the last low," prior to the breakout. NOTE: Nice retest and validation of the breakout (White arrow).

The Symmetrical Triangle broke out at 104.72, which put an upside target of 107.70 IN PLAY for a nice 1:3 risk:reward on the trade:

1. A stop out below 102.96 would be a loss of $1.17 on the trade
2. If the 107.70 target got MADE, that's a gain of $3.58 on the trade
3. Risk:Reward is 1:3.

Math for the Symmetrical Triangle target:

105.49 - High of the pattern
102.51 - Low of the pattern

105.49 - 102.51 = 2.98 points of upside on the breakout at 104.72.

104.72 + 2.98 = Target: 107.70 IN PLAY


I sold POT when the 107.70 target got MADE. Gain: Just under $3,600.

My plan was to re-enter POT long on a retest of the top of the Ascending Triangle (105.44-105.49) since a target of 110.04 still is IN PLAY from that breakout (the Ascending Triangle), but it didn't pull back that far. The afternoon low was 106.30.

Math for the Ascending Triangle target:

105.44 - The more conservative of the 105.44 and 105.49 highs
100.84 - Low of the pattern

105.44 - 100.84 = 4.60 points of upside on a breakout

105.44 + 4.60 = Target: 110.05 IN PLAY

POT got only to 108.60 in yesterday's session.

AAPL, AMZN And IBM: Price & Time

Yesterday, Mark asked:

"Concerning the H&S pattern going back to Oct '07,if the supply is worked off,what is the expectation of a time frame for this to occur and is it related to the time it took for the original pattern to form?"

Very good question, Mark. There isn't any hard and fast rule about that since it's an "unknown," as far as who is doing what, and why they're doing it. We have to try to give it our best assessment, much as we do with things like sentiment.

For example, a day or two before the March low of SPX 666, the American Association of Individual Investors sentiment was at a generational extreme (20-25 years). On something like that, we have to figure that we're in for a sizeable rally, but how many would guess that we'd rally over 260 SPX points in under two months' time?

A lot depends on what the charts look like, as we often discuss. How good is the base? How thick is resistance? What was the nature of the decline into the bottom, etc.? We had some nice looking charts coming out of the March low, and that helped to propel the rally.

In the GDX chart that we looked at yesterday (Chart #2), we know that we've got a very nice nine-month base, but we also know that we've got an eleven-month H&S Top "overhang" just above current prices.

"The more distant in time that resistance exists, the less resistance it becomes." If the resistance were from just three months ago, we could expect a good bit of head banging between Bulls and Bears as price tried to move higher. If resistance were from three years ago, the Bulls should have a much easier time moving price higher. A lot of the overhead supply would have been worked off during three year period, with many players giving up and throwing in.

Let's look at a few examples of things that we want to consider regarding price and time:


AAPL had two Bullish patterns in place, prior to its late March breakout. The second one, starting at Black #1, was the Bullish Ascending Triangle that formed over 3½ months.

The decline from the Summer, 2008 was pretty much a waterfall affair, so there wasn't months and months of price congestion on the way down. When the Ascending Triangle completed, it was as though an auctioneer banged his gavel, and asked "All done?" That chart looked very solid, and AAPL rallied sharply and the target got MADE in just over 1 month's time, or roughly 38.2% of the time that it took for the Ascending Triangle to form.

That's the sort of thing that I've observed when a chart looks like this one. Targets can be "expected" to get MADE between 38.2% - 61.8% of the time that it took for the pattern(s) to form, paricularly when we've got multiple patterns, or "nested" patterns (smaller patterns "nested" within a larger pattern).

By the way, since the rally in AAPL to 133.50 was pretty much parabolic, just as the decline from the Summer, 2008 was a waterfall, the current selloff again has that waterfall aspect to it. There wasn't any base-building during the rally to provide support on a selloff, so it's come off rather sharply.

Now, let's look at a chart that wasn't so rock solid, as far as a base was concerned:

AMZN had formed a nice Cup & Handle-looking pattern prior to the release of January earnings. The bottom should be more rounded to be a Cup & Handle, but we won't quibble. The pattern was only of three months' duration, and because of the deep move down to the low of the pattern, the target of 82.24 looked a bit lofty, especially if we looked for it to get MADE in 38.2%-61.8% of the time that it took for the pattern to form.

What helped this chart, structurally, was the Bull Flag (in purple) that formed from early February to early March. That was a decent little base from which to launch the rally to the target, and the Bull Flag target of 72.38 got MADE in only 28.6% of the time that it took to form.

The Cup & Handle target, however, got a little long in the tooth in getting MADE, hampered by the intervening Bearish Wolfe Wave (pattern in red). That bearish target got MADE, then AMZN went higher to the 82.24 target, which took almost the same amount of time as it took for the pattern to form. Just under three months' time, on April 24.

Interestingly, that day was the local high in the stock, which is why I often say, "Take profits, or at least 'some' profits when targets get MADE." Stocks don't automatically reverse at a target, but often they do at least take a breather. Another example of that...the local high in APPL was three days after the target of 127.39 got MADE.

Finally, a strange one...


...IBM formed a Bullish Inverse H&S pattern between mid-October and the end of 2008, so the pattern was only of 2½ months' duration. The neckline had a very severe downward slope and was "suspect," but Ms. Market confirmed the validity of the pattern by successfully retesting the neckline in mid-January, and the stock got sent higher.

There was an intervening Bearish pattern, the Bearish Rising Wedge, in February. That downside target got MADE, but the Bullish Inverse H&S target of 106.45 still was IN PLAY since the low of the Right Shoulder 79.92 never got taken down.

IBM then formed a "W"-Bottom, or Double Bottom (synonymous) and that target of 103.32 got MADE, but it took 23 days to get there. The pattern formed over just 21 days, so the target to longer to get MADE than it took for the pattern to form.

Finally, on May 4, the Bullish Inverse H&S target of 106.45 got MADE, over four months after the breakout of a pattern that took only 2½ months to form! That really isn't so surprising, though, given the fact that the pattern was "sloppy" with the severe down-sloping neckline and the intervening Bearish Rising Wedge pattern. This is a good example of "How good is the chart?" Not that great, but the "proof is in the puddin'. The bullish targets did get MADE, even though both of them were "late."

Sorry for the long-winded answer to your question, but I wanted to show you some examples of why there isn't any pat formula for calculating price and time that "always" works.