AZO: Falling Wedge Breakout

From yesterday on AZO:

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

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

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

AZO: Double Falling Wedges

From my July 23 trade in AZO:

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

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

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

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

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

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

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

AMZN: Possible Bearish Wolfe Wave

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

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

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

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

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

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

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

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

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

ARIA - The Good News "Gap And Go"

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

Excerpt:

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

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

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

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

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

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

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

Gain: $1,000.

Everyone Out Of The POOL

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

July 15, 2009 - Internet post:

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

July 16, 2009 - Internet post:

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

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

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

Market Lesson:

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

BIDU: This Is NOT a Bull Market!

Late February, 2009 ...
Mr. Perma Bear: "I hope that you're shorting the crap outta this stupid market!"

Mr. Trend Follower: "Actually, I just bought the Ascending Triangle breakout in BIDU."

Mr. PB: "You're joking. This is a Bear Market, you IDIOT."

Mr. TF: "Well, not according to this chart. BIDU not only broke out to the upside, it looks like it just transitioned into a Bull Market."

Mr. PB: "Fool! Just wait. The market is going to crash and burn, sucker!"

Early March, 2009 ...

Mr. PB: "See, wud I tell ya! The SPX just broke below its November low. Are you still long BIDU, that piece of crap?"

Mr. TF: "Yep. I'm down a little on it, but it's holding up very well with the market at new lows. I'm going to stay long."

Mr. PB: "IDIOT! You're going to get killed, and I hope that you do. I'm short BIDU, and I'm staying short until it crashes and burns!"

Late May, 2009 ...

Mr. TF: "Gee, I hope that you're not still shorting BIDU. It's had a terrific run, and it just broke out of a third pattern, a Symmetrical Triangle."

Mr. PB: "You're a complete MORON. Yes, I'm still shorting BIDU and I've added to my shorts all the way up. I can afford it. This is only a bear market rally!"

Mr. TF: "Oh, okay. Good luck!"

Late, July, 2009 ...

Mr. TF: "Hey, how are you doing? I just sold my BIDU at the $347 Symmetrical Triangle target and made a nice chunk of change. I hope you're doing okay."

Mr. PB: "I'm still shorting it. I have all the time in the world for this piece of junk to crash. I told you, this is a BEAR market!"

Mr. TF: "It is? Gee, I guess I'll call my broker and give the money back. I don't feel right taking the money if it was only a bear market rally."

Today is my birthday, so you will forgive me having a spot of fun with that little spoof, but we sure can fight Ms. Market, can't we? I swear that I've been reading things akin to that dialogue for months while we've been looking at many, many charts that have had rallies similar to that of BIDU, and some with gains even better than this one.

As crazy as it sounds, despite the huge gain that BIDU already has had, and despite the fact that we were on Day #13 of the rally in the NASDAQ, I still tried to buy BIDU on Friday's gap up opening on very good earnings since 347.01 still was IN PLAY.

I put my order in at 336.10 just before the open, near the BID...ASK indication. My order turned out to be just above the 335.87 50% retracement of the gap, which is where I wanted it and which often gets hit, but I didn't get filled this time. Curses! The low was 338.08, then BIDU went on a screamer, so I cancelled the order when it was gone on the upside. The Symmetrical Triangle target of 347.01 got MADE (where I would have sold) on the way to a high of 363.30. What a steady rally BIDU has had, with several nice consolidation/bullish continuation patterns along the way!

Since it's also on the order entry sheet, I made some on my initial play of ESI, but also gave some back on my re-entry. Gain: $250.

NDX, SPX, GS And AZO

Wow-w, what a stunning performance! Up 12 sessions in a row, and the Bull Flag/Falling Channel target of 1605.63 got MADE within a half a point. Per Mark's question the other morning on longer-term trades, if I were playing the NAZ via something like the QQQQ or the QLD, or individual stock components, I definitely would take at least some profits when that target got MADE.

In addition to the 956.23 target getting MADE this week, the Symmetrical Triangle (pattern in purple) target of 971.57 from the June 1 breakout finally got MADE in yesterday's rally.

This chart is an excellent illustration of a Bear Trap (at the July 8 low), and how it gets sprung. That low was at neckline support of the 4½ month Bullish Inverse H&S breakout, shown in previous charts.

When the SPX got back above the neckline of the putative H&S Top (which wasn't a H&S Top) at 893 where I threw in my SDS long position (also shown in previous charts), that was the first sign of "Uh-oh" for The Bears. The next "Uh-oh" was when the SPX broke out of the Falling Channel, crossing 916.293.

Staying short, or shorting, an upside technical breakout is very ill-advised, and we can see why. If I had stubbornly held onto my SDS long postion because of some opinion that I had, or because of some prediction that I had made, or because I allowed some indicator to tell me what to do, I'd currently be under water to the tune of about $25,000, or worse, if I had kept adding to my position. UGH.

Speaking of stubborn, "The stock that STUBBORNLY refuses to die" sold off about a buck in early trading, but as is its wont, Goldman came roaring back and rallied with the rest of the market. The Bull Flag target of 165.09 got MADE. What a monster this stock has been, up 251% off it's November, 2008 low. Whew!

Kudos to Meredith Whitney, by the way, for her upgrade of Goldman when it was at $141. Her posture on the financials has been bearish, but she correctly recognized that Goldman, specifically, had upside potential and it has rallied $25 since her upgrade. I admire and appreciate it when an analyst makes an effort to be objective.

Like Goldman, AZO sold off in the early going, but unlike Goldman, it didn't rally much. It got back in the green, but languished all session. Unfortunately, I bought AZO instead of Goldman :(

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

Despite closing in the red on a big up day in the market, AZO didn't do anything wrong, technically, so it still could rally here. My decision to throw it in was predicated on the fact that I had paid a premium to the best entries into the stock because of the pattern breakout and because of the successful retest of the pattern breakout, so I really, really didn't like it lagging on such a strong day in the market when it had every reason to rally along with it, technically. Blah-h...

Don't you just love it when the market has a HUGE rally, and the stock that you're long is one of the few that closes in the red? LOL.

Gain: $250

AZO - Falling Wedge Breakout And Retest

Like so many stocks that have enjoyed huge gains off their November, 2008 and/or March, 2009 lows, AZO rallied 100% from its November 21 low of 84.66 to its April 30 high of 169.99. Since then, it has traded in a Falling Wedge pattern which we'll get to in a minute.

This is a quadruple threaded chart of the fastest Fibonacci sequential measures of relative strength, the 8, 13, 21 and 34. What we're looking for here is for the faster measures to thrust higher, above the next measure of relative strength down in the sequence, e.g., the 8 above the 13, then we want to see it hold when it pulls back to Bullish Synchronicity, which means that the readings are very close. When that occurs, that session's candle becomes a "pivot candle." If the high of that candle is taken out to the upside, that's a Buy Signal from that particular indicator.

The more RSIs that give a signal, the better, but buy and sell signals always must be viewed in the context of what the chart itself is doing. We never allow indicators to dictate Buy and Sell signals to us.

In this particular case, we can see that on Tuesday, the 8,13, and 21 RSI's all came into Bullish Synchronicity with their "shadows," which is the next number down in the sequence, then they bounced higher. The 89 RSI did the same thing with its "shadow," the 144 RSI (not shown).

Now, let's look at what the chart itself is doing to determine whether or not the Buy Signal actually was given (which would be a print above Tuesday's high), and see what we would do about it, if anything.

From the price chart, we can see that:

1. AZO broke out of the Falling Wedge on July 9, at 155.06.

2. The next session, AZO closed back below the breakout, but that candle is circled in green because it was a "pivot candle." The 13/21 RSIs went into Bullish Synchronicity, so the 156.54 high of that candle was a Buy Pivot, meaning that a print of 156.55 was a Buy Signal from that particular indicator.

3. The next session, AZO closed back above the breakout.

4. The following session, July 14, in addition to the pattern breakout, the 13/21RSI Buy Signal was issued on a print of 156.55, but on the rally that day, the 34 and 55RSIs went into Bearish Synchronicity, so that candle is circled in red.

That kind of "push and pull" from the various RSIs is common. They're trying to "get into synchronicity" with each other, for lack of a better way of expressing that.

4. Off that Bearish Synchronicity on July 14, AZO sold off, but look where it landed! Just about smack on the top of the Falling Wedge, on July 21, where it bounced very hard to the upside, and on that session, the 8, 13, 21 and 89 RSIs all went into Bullish Synchronicity! Hmmmm-mm...

5. The high of the July 21 "Pivot Candle" was 156.52, so that's the "Buy Pivot." A print of 156.53 is a Buy Signal from those FOUR measures of Relative Strength, and the stock just came off a successful retest of the Falling Wedge Breakout. Hmmm-mm...

6. 156.53 got printed in yesterday's session, and the stock CLOSED above that, at 156.97. Hmmm-mm...

Summary: In my view, as you know, asking "What do you predict that this stock will do?" and/or "Do you think that AZO will rally to the top of the Falling Wedge?" are the wrong questions to be asking because the answer always is going to be, "I don't have a clue, I'm not a psychic." LOL.

The questions that we want to ask are:

1. Do we want to take these RSI buy signals? Why?
2. Is there a pattern?
3. Did the pattern break out?
4. Has the breakout been retested? If so, was the retest successful?
5. If we want to buy it, at what price?
6. Where is our stop?
7. What would our upside target(s) be?

Not everyone would have the same answers to those questions, but in my view, those are the kinds of questions that we need to answer so that we know what we're doing in a trade.

NAZ And AAPL

The NAZ rally has continued for ten days in row, during which time the April 2 Bullish Inverse H&S and the Double Bottom breakout targets of 1523.57 and 1531.75 both got MADE.

Off its July 15 Symmetrical Triangle breakout, AAPL rallied to within two dollars of the 157.25 target IN PLAY on Monday before selling off into that close, and then closing down yesterday ahead of the release of earnings after the bell.

After the performance that AAPL has put in since JPMorgan downgraded it at the March 6 low in the stock, and after the ten day rally in the NAZ and NASDAQ, it wouldn't be much of a surprise if the stock sold off on the release of earnings, no matter how good they were, on a "sell the news," but...

...the Symmetrical Triangle target of 157.25 got MADE in after-hours.

The only BAD news here is that Cramer just upgraded it to $200.
Just kidding. Ju-u-u-u-u-ust kidding.

AKS: Gap Up And Descending Triangle

From last Tuesday, on AKS:

"Although 16.88 was IN PLAY from The Rectangle breakout (16.15 - 15.42 = 0.73 pts. + 16.15 = Target: 16.88), I took profits on AKS on Monday when the SPX got to 893 neckline resistance."

AKS has been on fire since then. It gapped up yesterday morning from Friday's 19.99 close, to 20.65. Despite the wicked short squeeze in the market since last week, those common gaps often get a 50% retracement of the gap after an early session rally, so I decided to take a walk on the dark side and short it when it came off its early high of 21.07. The target for a 50% gap retracement was 20.32.

I placed my order at 21.04, but only got a partial fill of 1,000 shares. Curses! My 21.04 turned out to be the secondary high, and also the high for the remainder of the session.

My entry was the first white arrow. The second white arrow was a trendline validation, so I moved my mental stop down to there, to lock in a winning trade. Especially in a market that has been experiencing a vicious short squeeze, we don't want to tarry if a validated trendline gets taken out to the upside.

As trading progressed, we can see that a nice little Descending Triangle formed. The high was 21.07. The "flatish" bottom was perfectly flat: identical lows of 20.50. The majority of those patterns are bearish, so a short trade looked favorable when the pattern broke down, putting a downside target of 19.93 IN PLAY.

21.07 - High of the pattern
20.50 - identical lows

21.07 - 0.57 = Target: 19.93 IN PLAY

I covered my short just above my original 20.32 target, the 50% retracement of the opening gap. If I had gotten filled on my entire order, I would have held some for the 19.93 target IN PLAY, but I would have covered that portion just above Friday's 19.99 close in the low 20.00's, in case it was a just a gap fill, or near-gap fill.

As it played out, the 19.93 target did get MADE. The session low was three pennies below the target, at 19.90.

Especially in a bullish trend, and the trend is bullish, we want to be careful that a Descending Triangle doesn't "morph" (change) into a Bull Flag, or a Falling Wedge, as in this example. That was another reason that I covered near the 20.32 target.

What can be deadly about a "morph," as in this example, is when the 20.50 Double lows get taken down, we're lulled into thinking that we're safe in our short position since support just got broken, but the stock makes only a nominal new low, then "morphs" and takes off to the upside. Again, if I had gotten filled on the entire 2,500 shares, I could take some profits at the first target of 20.32, then been able to defend against a pattern "morph" on the remaining shares, and still come out of it with a gain. I would have covered a breakout above Trendline #1-#3.

With only 1,000 shares, I "took the money when my target got MADE."

Gain: $675.

50/200DMA Bullish Crosses

I've been hearing and reading a lot lately about Bullish Crosses of 50/200 Day Moving Averages (or, use any ones that you like). The idea is that money will come into a stock or index because that's so-o bullish when it occurs.

The people who employ such strategies probably are the ones who end up saying, "Technical analysis doesn't work!" LOL.

As with any technical indicator, or signal there from, moving averages don't have a clue what the stock has done, nor does it know what the chart looks like. Buying "just because" some moving average has crossed another moving average can result in a poor entry.

A few examples:

From its November, 2008, FSLR rallied 143% into May of this year. Coming off the 207.51 high, the stock looked to be forming a nice Bull Flag, and the 50/200 DMAs made a Bullish Cross on May 28. If we bought the May 29 open of 186.00, we wouldn't be very happy. The next session was a high, and FSLR closed Friday at 144.55 for a paper loss of 22.3%. UGH.

APWR had a Bullish Cross on May 29, just two days ahead of its recent high of 14.68, which was a gain of 389% off its March, 2009 low. The stock fell 55% to its recent low on July 8. UGH.

POT rallied 155% off its December, 2008 low. The Bullish Cross of the 50/200DMAs occurred two days after the high was put in. POT fell 27% from the Bullish Cross; 33% from its June high. UGH.

Here's an example in which buying the 50/200 DMA Bullish Cross worked out quite well. AAPL corrected into The Bullish Cross, which coincided with an exact low in the stock.

Summary: View 50/200DMA Bullish (and Bearish) Crosses in the context of what the chart is doing. There's nothing automatic about them as far as buy signals are concerned. In fact, they can occur near TOPS, as we've just seen!

NAZ 100, NASDAQ And Sentiment

From yesterday:

"Wicked on the shorts who refused to cover those TWO closes back above the SPX 893 neckline, and who refused to cover The Channel breakout that occurred just after the open. UGH."

The short squeeze continued yesterday and took both the NASDAQ and the NAZ 100 above their June 11 highs, and to new 9-month highs. Sentiment-wise, there certainly was plenty of fodder for that kind of wicked squeeze. You will recall that, the day before the June 11 top, we looked at:

"Results of the Wall Street Sentiment Survey, June 8, 2009:

Bulls: 11%
Bears: 78%

The survey chart, posted at Traders-talk.com (thank you) shows that Bearish Sentiment has not been this extreme since early 2003, coming out of the 2000-2002 Bear Market.

June 10, 2009 5:41 AM"

Back on June 10, I also mentioned that the gentleman who posted those survey results observed that selloffs from that kind of sentiment extreme usually do occur, but then a rally ensues. That made a lot of sense. We certainly were overbought and due for a selloff at the June 11 high, but it was very unlikely that the "probervial everyone" had called the top for the year, and even more unlikely that we were going to crash directly off those numbers.

Additionally, participants in the American Association of Individual Investors immediately turned bearish, and have remained bearish, coming off the June 11 top:

AAII members are:

(as of 6/10/2009)
Bullish: 39.25%
Neutral: 21.50%
Bearish: 39.25%

as of 6/17/2009)
Bullish: 33.33%
Neutral: 20.24%
Bearish: 46.43%

(as of 6/24/2009)
Bullish: 28.00%
Neutral: 23.20%
Bearish: 48.80%

(as of 7/1/2009)
Bullish: 37.84%
Neutral: 17.57%
Bearish: 44.59%

(as of 7/8/2009)
Bullish: 27.91%
Neutral: 17.44%
Bearish: 54.65% (TWICE as many Bears at the July 8 low)

(as of 7/15/2009)
   Bullish: 28.68%
   Neutral: 24.26%
   Bearish: 47.06%

Sentiment can be difficult to read, and the intrepretation usually is quite subjective. Bears tend to say, "Everyone is too bullish." Bulls tend to say, "Everyone is too bearish." Have you ever heard anyone say, "I am extremely bearish, and I think that everyone else is extremely bearish, too?!" LOL.

I view sentiment as something "playing in the background," as I have with these numbers since the June 11 high. Obviously, there were plenty of Bears to fuel this short-squeezing rally off the July 8 low, right at the 4½ month Bullish Inverse H&S neckline support, basis the SPX (per our discussion earlier this week), while "everyone" (including Melf) got caught looking at the much-ballyhooed short-term H&S Top! I threw in my SDS position at the SPX 893 neckline, which was fine, but I didn't get long. I wanted a pullback from the low 900's to that neckline, but I never got it.

The upside move this week is a great example of Ms. Market confounding everyone, and rallying with as few people aboard as possible. Sigh...

Hey, no one said that this was easy! LOL.


Basis the Ichimoku Kinko Hyo chart ("At A Glance...The Table Of Balance"), in a bull trend the Kumo (Cloud), represented by the vertical green lines, "should" act as support on a selloff. The recent lows, at Blue #4, found support right at the bottom of the Kumo (Cloud).

SPX And GS

From comments on Monday's trading in the SPX:

"One of the catalysts for the rally, if not THE catalyst for the rally, was Meredith Whitney's upgrade of Goldman, but she said that her call on the general market was bearish. That kind of call often sparks a rally, as it did yesterday, but resistance (the 893 neckline) "should be" resistance, regardless of any call like Whitney's."

We can see what eventuated after SPX 893 neckline wasn't resistance. Yesterday, the SPX also CLOSED back above the Right Shoulder of the pattern. Wow!

On the floor of The Exchange yesterday morning, Art Cashin said (paraphrasing) that everyone in the world was watching this H&S Top, and mentioned that the SPX had closed back above the neckline. He cautioned about a takeout of the Right Shoulder, which we got, and then a takeout of the high of the Head.

What I haven't heard discussed, is the the fact that the neckline of the four and a half month Bullish Inverse H&S breakout was support on the selloff from SPX 956, as it "should have been." We got a minor intraday violation of that neckline last Wednesday, then Friday's low of the Bullish Doji Star hammer nailed the neckline, and the index bounced off it.

Up, up and away from there.

Also from my comments on Monday's trading:

"... there was very little give back of the rally to SPX 893, which I didn't like at all, so I gave the Ascending Triangle bullish breakout a lot more credence than I had, initially.

When in doubt, get out." I threw in my SDS long position just ahead of the upside breakout of the Symmetrical Triangle (pattern in yellow)."

I would be under water to the tune of $10,000 on that SDS trade if I hadn't thrown it in on Monday. This move in the SPX is another example of why I've said so often that CLOSES back below or back above pattern breakouts and breakdowns can be so dangerous. Monday's close at SPX 901 was convincing, well above the SPX 893 neckline. Tuesday's close at SPX 905 was further still above the neckline.

Yesterday? Wicked on the shorts who refused to cover those TWO closes back above the SPX 893 neckline, and who refused to cover The Channel breakout that occurred just after the open. UGH.

Similar to the Goldman Channel breakout, the SPX also had a channel breakout right out of that gate yesterday morning, crossing SPX 916.29. The short squeeze was on, and remained on all session.

The slope of the top of the channel is -1.736, so that amount is subtracted each session. If I had my druthers, I'd like to see the SPX trade sideways-to-down into the 20-week Hurst cycle low due on July 24 (check me on that date). The top of the channel will come in at SPX 905.876 on July 23, which would be a gap fill of 905.84 left on the chart from Tuesday's close, so something to keep in mind if we're around that level late next week.

From yesterday on Goldman:

"This "could be" a Double Top, at 151.17 and 151.15, but it also arguably is a channel breakout that puts, roughly, 16 points of upside IN PLAY as long as Goldman trades above the channel."

"The Stock That STUBBORNLY Refuses To Die" tacked on 6 of those 16 points in yesterday's trading.

AKS And GS

Although 16.88 was IN PLAY from The Rectangle breakout (16.15 - 15.42 = 0.73 pts. + 16.15 = Target: 16.88), I took profits on AKS on Monday when the SPX got to 893 neckline resistance. The SPX powered higher into the 901 close off the little pattern breakouts (see yesterday's chart), but AKS traded in the little Rectangle fractal (a repeating pattern), in red.

I liked the fractal, but I didn't like the fact that another Rectangle (sideways trading) was forming while the SPX was moving so nicely to the upside, so I decided not to buy back my long position. Result: AKS handily outperformed the SPX in yesterday's trading. The 16.88 target got MADE, and a good bit more. Curses!

In yesterday's trading, Goldman, "The stock that STUBBORNLY refuses to die" got to within two cents of its early June high.

As we discussed about The Rising Wedge (in blue) back in June, those patterns aren't always very bearish because there's a lot of horizontal support on the way down (the targets on the chart), as opposed to, say, a H&S Top, where the prior trading is overhead and usually becomes pretty good resistance. In this particular case, Goldman sold off only to 135.23, just above 134.61 horizontal support, prior to returning to its recovery high yesterday.

This "could be" a Double Top, at 151.17 and 151.15, but it also arguably is a channel breakout that puts, roughly, 16 points of upside IN PLAY as long as Goldman trades above the channel.

AKS And SPX

AKS Doubled Topped at yesterday's open, at 16.15. On the early morning selloff, it Double Bottomed at the 15.42 gap from last Wednesday. When the SPX recovered off its morning low, looking like it was going to make a bid for the the broken neckline of its H&S Top, at 893.435, I got long AKS.

Retests of broken support, like this neckline of the putative H&S Top in the SPX, are common and are to be expected. But, on a retest, former support "should be" resistance. If it isn't resistance, that puts the validity of the pattern/breakdown in question.

When we got to the neckline on a quick jump in the SPX around 11:30AM, I took profits on AKS and went long the SDS, expecting SPX 893-894-ish to be important resistance.

One of the catalysts for the rally, if not THE catalyst for the rally, was Meredith Whitney's upgrade of Goldman, but she said that her call on the general market was bearish. That kind of call often sparks a rally, as it did yesterday, but resistance (the 893 neckline) "should be" resistance, regardless of any call like Whitney's.

As we traded in the little Symmetrical Triangle (in yellow), it looked to me like the market was holding up very well in the SPX 893 resistance area, and that it "could be" a bullish continuation pattern, following the Ascending Triangle breakout (pattern in white). I hadn't given the Ascending Triangle bullish breakout as much credence as I did the SPX 893 neckline in the daily chart, but there was very little give back of the rally to SPX 893, which I didn't like at all, so I gave the Ascending Triangle bullish breakout a lot more credence than I had, initially.

"When in doubt, get out." I threw in my SDS long position just ahead of the upside breakout of the Symmetrical Triangle (pattern in yellow).

Gain on AKS: $800. Gain on SDS: $300. Gain on the session: $1,100.

AGU - Unorthodox H&S Top

Classically, a Right Shoulder in a H&S Top shoulder be lower in price and narrower in width than the Left Shoulder. Since the neckline in this H&S Top is rising, a slightly higher Right Shoulder could be expected and "allowable," but this Right Shoulder is much higher than the Left Shoulder.

Nonetheless, on Friday, the H&S Top target of 35.90 got MADE.

Morgan: Target #3 - The H&S Top

The H&S Top (pattern in red) target of 25.27 got MADE in yesterday's trading. The low of the session was 24.85, at 24.73-24.85 horizontal support from the Symmetrical Triangle (Purple #2 and #4).

It took, roughly, an equal amount of time for the target to get MADE as it did for the H&S Top pattern to form and complete, but look at how quickly it came down, for six sessions in a row. They "pulled the plug on it" after the key failure on June 29.

Review:

1. June 29 was a failed retest, below the neckline of the H&S Top.
2. June 29 also was "missing" Data Point #4 for either a Bear Flag or a Rising Wedge. It ended up a Rising Wedge
3. June 30 was a break of, and CLOSE below, the Rising Wedge
4. July 1 was a retest of the Rising Wedge breakdown, and a failure
5. July 2, the Rising Wedge target of 27.12 got MADE
6. July 6, the neckline of the larger H&S Top (pattern in black) was violated, intraday.
7. July 7, the Rising Wedge target of 26.13 got MADE
8. July 8, the H&S Top target of 25.27 got MADE

So, we're done with the small H&S Top (in red) and the Rising Wedge (in blue). Another nice example of "nested" patterns and multiple patterns and how, more often than not, some or all of the targets will get MADE.

Morgan: Rising Wedge Target #2

The second Rising Wedge target of 26.13 got MADE in yesterday's trading (that's the pattern in blue). Just a suggestion, but if position players who shorted the break of the H&S Top (the one in red), or who shorted the Rising Wedge (in blue) "take at least some profits when targets get MADE," this is the second opportunity for them to bank some, and to lock in a winning trade, with a Buy To Cover stop above KEY RESISTANCE at 29.29. It's perfectly fine, of course, to short yesterday's break of the H&S Top (the one in black), as a "continuation play," but those who got in early now have almost no risk on the trade if they "banked some" at the two Rising Wedge targets.

I make that suggestion because, so often, we misfocus by asking the wrong questions, like "What is this stock going to do?" "Will the remaining targets get MADE?" "What is going to happen next?" Answer to all three of those questions: "We don't know, because we can't predict the future (unless we're psychics...LOL)." Therefore, I suggest focusing on "How are we going to play it," if at all.

The H&S Top (pattern in red) target of 25.27 still is IN PLAY, and as long as Morgan trades below the neckline of the larger H&S Top (pattern in black), 20.14 is IN PLAY.

Math for the larger H&S Top (in black) target:

The neckline was at 25.56 when the 31.98 high got put in (draw a line from the high straight down to the neckline), so...

31.98 - 25.56 = 6.42 points of downside from where the neckline was when the pattern broke down, which was 26.56 yesterday.

26.56 - 6.42 = Target: 20.14 IN PLAY.

The slope of the neckline rises at the rate of 0.0474 per day, so add that amount each session to see if Morgan fails near there on a retest. If it does, then makes a new low for the move, that's further confirmation of the H&S breakdown. If Morgan trades back above the neckline, the breakdown is in question. If Morgan CLOSES back above the neckline, the breakdown is in more serious question.

The neckline comes in today, July 8, at 26.603.

Speaking of July 8, this is kinda fun:

AT 5 MINUTES AND 6 SECONDS AFTER 4 P.M., THIS AFTERNOON, THE TIME AND DATE WILL BE: 04:05:06 07-08-09


THIS WILL NOT HAPPEN AGAIN UNTIL THE YEAR 3009!

Morgan: Nested H&S Top

In yesterday's Comment Section, Kevin said:

"I'm looking at the MS picture, and it looks like a giant head and shoulders with an upward sloping neckline..."

That would be the pattern in black in this chart.

"... the left should being where the symmetrical triangle in purple is..."

Right.

"... the right where the bearish rising wedge is..."

Right.

"... making the head a nested head and shoulders..."

Right.

"... if my terminology is correct...based on your chart and a piece of paper as a trend line, a break of 26.5 would put 21 or so in play."

Right. The neckline came in at 26.509 yesterday.

"...but then i look at today's chart and the neckline didn't seem to provide much support or resistance."

Morgan opened at 26.60, above the neckline, put in a low of 26.25, within twelve cents of the 26.13 target that is IN PLAY, then rallied to a close near the high of the session, and a close above the neckline.

We've seen quite often in the past how these "nested" patterns can produce nice moves once they break out or break down. Obviously, yesterday's intraday violation of the neckline wasn't good enough to be considered a breakdown, so the jury still is out on that.

29.29 is KEY RESISTANCE and "shouldn't***" get taken out to the upside. It was:

1) The high of the Bearish Rising Wedge, at Blue #4.
2) A failed retest of the neckline of the H&S Top (in red)
3) The high of the Right Shoulder of the putative H&S Top (in black)

*** After the breakdown of the March-April Symmetrical Triangle (in green), the high of that pattern "shouldn't" have gotten taken out. That pattern "morphed" (changed) into the Falling Wedge (in gray), and when the Falling Wedge broke out on April 30, it was an indication that the Morgan was going higher, not lower.

Very fine job on your analysis, Kevin. You get an A+, and you Go To The Head Of The Class ;)

Morgan: Targets

The 27.12 target got MADE on Thursday. The low was 26.91.

26.13 and 25.27 still are IN PLAY.

Morgan: Bear Flag

Morgan was able to capitalize on this Symmetrical Triangle breakout that we discussed last week, and rally back toward the neckline of the broken H&S Top in the daily chart,

As the chart stands, the rally ended shy of the neckline, at Data Point #4 (in blue) of a Bear Flag, which was broken at 28.60 in yesterday's trading. The close was 28.51, so the Bear Flag also was broken on a closing basis, which puts targets of 27.12 IN PLAY (the low at Blue #3), and 26.13 IN PLAY (the low of the flag, at Blue #1). Additionally, the H&S Top target of 25.27 still is IN PLAY.

The slope of the bottom of the Bear Flag is 0.496, so it will come in today, July 1, at 30.101 if there's a retest of the Bear Flag breakdown.

EDIT 8:37AM - Oops! The bottom of the Bear Flag comes in today at 29.101, not 30.101. 28.605 + 0.496 (slope) = 29.101. Sorry about that.