AKS - Morgan Downgrade

Analysts' calls on stocks can be confusing and can be very right, or very wrong. Earlier in the month Credit Suisse put a price target of $12 on AKS to which Cramer gave a rather grim, ominous response, referencing Bethlehem Steel (comment on chart). Cramer could end up being very right in the end, but the market's RESPONSE to the Credit Suisse call was to break the stock out of a five month base to the upside, to 9.96 (Purple #1 of the Bull Flag), so for the time being, Cramer's remark wasn't enough to reverse the breakout.

Yesterday, Morgan Stanley downgraded AKS from overweight to equal weight, with a price target of $14. That's a bit confusing because the word "downgrade" gets the headline, but Morgan liked it on June 9, 2011 when it was trading in the $14's (it fell to $5.51 in October, 2011), and now they're "downgrading" it to equal weight, but they have a target of $14, which was that price of the stock when they liked it last summer. Bottom line: Morgan's downgrade seems much ado about nothing.

As long as AKS holds the FOUR upside breakouts, it looks fine. If AKS should CLOSE below the big Ascending Triangle trendline (Black #1-#3), which currently is at about 9.18, that would be cause for concern, and if AKS should take out the 8.76 low of the Purple Bull Flag, that would be a bigger concern. That 8.76 low was an initial 5% drop in the stock in response to the release of earnings, but AKS rebounded smartly and rallied to a new recovery high of 10.33 two sessions later. That 8.76 low "shouldn't" get taken down, at least not before the targets in the $10's get MADE, at a minimum.

KEY SUPPORT:

9.18 - The top of the Black Ascending Triangle (Black trendline #1-#3), which has a downward slope of -0.00312, so we "move the chains" downward a tad each session.

8.76 - The release of earnings low, which also was the Bull Flag (in purple) low.

As the chart stands, it still is broken out to the upside and still is intermediate-term bullish.

ARIA: Reversals And Confirmations

ARIA put in a Bearish Engulfing pattern on Thursday at the top of a "possible" Bear Flag, so "possibly" a sign of some kind of top. In a situation like this, some players will go ahead and short it with a stop of either a PRINT above the high, or a CLOSE above the high. Either of those is fine for a short, if anyone wants to do it. It's a low risk entry unless the stock has a big gap up, but that risk exists when shorting ANY stock.

Some players will wait for further confirmation, like a break of the putative Bear Flag, or even a break of the Bear Flag, then a failed retest for additional confirmation that the chances are very good that some kind of top is in, an example of which we'll look at in a moment.

The December 2 candle pattern at Blue #2 in the Channel was a Bearish Engulfing pattern, similar to the one on Thursday, January 26. That one turned out to be a short-term top. The high was 12.50 and the stock sold off to 10.41.

Now look at the September 21 top, at 10.71. That one had several confirmations of a short-term top:

1. The stock had broken out of an Ascending Triangle to the upside, but September 21 was a Reversal candlestick. It made a new high for the move, then closed back inside the pattern AND closed below the prior session's low, closing at 9.97. That's nice initial confirmation. For a short trade, use a PRINT or a CLOSE (trader's choice) above the 10.71 high as the stop loss.

2. ARIA bounced off the bottom of the pattern and rallied back to the top of the Ascending Triangle and, although The Bulls managed to poke their heads through it by a tad, The Bears did their job and knocked it out of there by the close, still inside the pattern (red arrow).

3. Two sessions later, The Bears broke the bottom of the Ascending Triangle AND took out the recent 9.27 low (green arrow). More confirmations.

4. The next session, The Bears only allowed The Bulls to get to 9.30, a hair above the 9.27 horizontal resistance, then took it down. That was confirmation of a failed retest of former support, which now was resistance as it "should be."

The final low for that move off the 10.71 high was 7.72, just about half way between the last two lowa of the Ascending Triangle (8.13 and 7.55). That's about what one would expect on a broken pattern like that. Some kind of retest of the low, but a stock doesn't always go all-ll the way back.

The next session was a Bullish Key Reversal: a new low for the move, then a close higher than the prior session. That two-day reversal pattern suggested that Bears had jolly well had it as far as taking the stock down. Bears who didn't cover their shorts on that reversal got squeezed to the upside. Badly.



In March of last year, ARIA had enjoyed a big percentage gain and had put in an ominous looking Gravestone Doji Star Hangman AND a possible Double Top at 7.32... 7.30. The Bears felt that it was a reversal candle and that it was a great shorting opportunity, and sometimes they are...



...but, it wasn't. The shorts got squeezed some more, into ANOTHER Gravestone Doji Hangman. That gave The Bears hope that maybe their misery finally was over.

You know what's coming, don't you? LOL.



UGH. That wasn't a top either. The top didn't come in until the stubborn Bears nearly were squeezed half to death, and that has much to do with the nature of parabolic rallies. The shorts won't let it alone and, at least in part, margin calls force them to capitualte and "Buy To Cover" forcing the stock higher and higher until some of them are knocked out of the game entirely.

"Know when to fold 'em!"

Shorting a "possible" reversal candle, or "possible" reversal pattern (like a two-day Bearish Engulfing pattern) is perfectly alright and sometimes we get rewarded for doing it, but if the high gets taken out, as in these examples, admit as quickly as possible that our thesis for shorting is blown, take the small hit, and don't allow a trade to turn into a horrible disaster like this. DOUBLE UGH.

As is usually the case with parabolic rallies...



... they don't end well. ARIA finally topped out and had a Parabolic Return to the origin of the rally, and slightly below it, which often is what occurs. There's no base-building on the way up and the plunge often is equally dramatic on the downside. Greedy Bulls who don't take profits watch their stellar gains evaporate. We looked last week at a much more stunning example of that in AK Steel (AKS), if anyone wants to scroll back and review it. The stock had a Parabolic Return from $73 to $5.



In Friday's session, The ARIA Bulls came roaring back and took out Thursday's 15.15 high of the Bearish Engulfing pattern, but closed at 14.96, so Bears using a PRINT above Thursday's high were stopped out of their shorts. Bears using a CLOSE above Thursday's 15.15 high still are okay in their short position, but Friday's action certainly wasn't what they wanted to see.

BIDU: Heading Into Earnings

BIDU's Friday morning Gap Up opening and strong move higher looked like "The Tell," suggesting that the mid-week take down of the bullish Inverse H&S pattern was a Bear Trap, as I suspected, and that BIDU finally was going to move higher off the Channel breakout that we've been looking at in the daily chart.

This Symmetrical Triangle looked lovely. Both the top and bottom had been validated as resistance and support (the white arrows) and, forming after the big move up off the opening, it "should be" a bullish continuation pattern that resolves to the upside.

Given how sloppy The BIDU Bulls have been since the Channel breakout in the daily chart, and given the fact that I've been "paying up" for BIDU most of the week, I wanted the perfomance that I was paying for, and no nonsense. I wanted to see this pattern breakout and GET GOING, dang it!

I bought 2,000 BIDU at 126.00.



UGH. She broke out...then was back in my face for "Ye Olde Knuckle-biter," back below the breakout, just like she's been doing in the daily chart since the Channel breakout. I had had enough of that nonsense.

I had "paid up" for the stock and didn't have any room to find out if it was a fakeout, or not, so I threw it in for a small gain, at 126.04. I thought that I had a good read on "The Tell," but I wasn't willing to pay to find out.

Sloppy...sloppy...sloppy.



Arrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrgh!!!

You have to have a sense of humor in this game. As good as my read of "The Tell" was, Ms. Market got me gooood on that one! I would have been fine if I hadn't fine-tuned it with the 1-Minute chart, but this stock moves very quickly and I didn't want to get caught in a quick downdraft. Oh, well...

As much as I would have liked to have had it, I'm not going to chew myself out for missing it. I've sold plenty of times on trendline violations and on "Ye Olde Knuckle-biter" and have been rewarded for doing it, so that's the breaks. I will say, though...

Curses! Curses! CURSES!!!



Here's "THE TELL:"

1. The Bullish Inverse H&S broke out to the upside, but it was a Fakeout/Breakout. Bulls who bought it were disappointed. Bears who bought to cover their shorts were disappointed. The proverbial "everyone" got busted.

2. The low of The Head got taken down at the first red arrow. That's usually bearish, but it was a Fakeout/Breakdown. Bulls who sold the breakdown and Bears who shorted the breakdown (both very reasonable plays) got busted again because the takeout low got successfully retested (second red arrow), and the stock went higher.

3. After The Bulls broke out of the Ascending Triangle at 123.50 on Wednesday and the target of 125.00 got MADE (see that chart back on Wednesday), BIDU opened down on Thursday and went through 123.50 like a knife through butter. Look where it stopped going down: 122.83 (horizontal yellow line). That was a successful retest of Wednesday morning's 122.84 Gap Up high (yellow down arrow), then BIDU raced higher, to 127.21. That looked like the "real move," enticing Bulls to buy again and Bears to buy to cover again, but it wasn't, and they both were disppointed again as BIDU moved down ... down ... down on Thursday afternoon.

When BIDU opened gapped up on Friday and raced higher, that looked like "THE TELL," that the "real move" was about to unfold, which is why I got long at 126.00 (orange arrow), but I got disappointed along with "everyone" else after I threw it in, questioning my read, then later saw what unfolded. Wow!



The "real move" was a much larger Bullish Inverse H&S breakout, packing plenty of power!

It turns out that the initial Bullish Inverse H&S (in yellow) was a "fractal" (repeating pattern) that formed what became the Left Shoulder of the much larger Inverse H&S (in white) that was to come.

Great example of how charts can "morph," or change, into something else as they unfold. It's also a great example of how Ms. Market will disappoint the greatest number of people possible with all of those fakeouts, prior to the "real move" out of the BIG Bullish Inverse H&S.



So-o, after the sloppy breakout of the Channel, back and forth above and below the breakout, BIDU powered higher into the release of earnings, which is slated for Monday, according to Yahoo Finance (check me on that). That's always a "wild card." As nice as the chart looks, the bullishness always can be trumped by a poor response to earnings.

On a pullback, The Bulls "should" defend that neckline of the BIG Bullish Inverse H&S pattern in the last chart.

Gain: a paltry $75, but I earned every penny of it trying to figger this one out! LOL.

FCX: Long-Legged Doji Star Hangman

From January 1st, on FCX:


"FCX finished 2011 breaking out of a Channel, successfully retesting the top of it on December 28 and 29 and moving a tad higher into the final gong for the year...

Key Resistance:

Level 1 - 41.20 - 41.45 (the August lows, prior to the second Crash in the stock)

Level 2 - 46.06 - 46.20 (the lows of the early 2011 BIG Falling Wedge)"





FCX has had a smart rally off the validation of support that we discussed back at the end of 2011. The stock has made it to, and through, both levels of Key Resistance that we examined.

Yesterday's session is a Long-Legged Doji Star Hangman the 48.96 high of which got close to the Symmetrical Triangle target of 49.28 that went IN PLAY off the Symmetrical Triangle breakout in early January. That candlestick "can be" a sign of a reversal and some pullback in a stock, especially after such a nice rally, and especially now that FCX is into the 2011 Falling Wedge resistance. At yesterday's high, FCX was up 70% of the early October, 2011 3-Close Bullish Key Reversal. Excellent rally!

Notice the two Gaps Up in October. Those came shortly after The Smackdown from the 2011 Falling Wedge breakdown and both got filled rather quickly, in November. Lots of willing sellers on that first rally attempt into resistance.

Notice also that the December 30 and January 10 Gaps Up have not been filled. In the autumn, we discussed the facts that (1) after a big Smackdown like FCX had, it would need time for some base-building, and (2) the stock likely would have difficulty making upside progress due to year-end tax loss selling. Once the tax loss selling was over with and a decent base had formed (the Symmetrical Triangle), FCX had a much better chance of a rally, as we've witnessed in January.



Bigger picture, FCX has rallied into the thick of the 2011 Falling Wedge resistance. Interesting that it nearly ran the gamut of the narrowing top and bottom of that wedge in yesterday's trading.

Viewed in the context of that big overhang of sellers, yesterday's Doji Star candle makes a lot of sense. Bulls who have been trapped inside the Falling Wedge and who sat on fairly sizeable losses during The Smackdown were saying things like, "Omigawd, I finally have a chance to get outta this thing at a break even. SELL!!!"

Additionally,some of the Bulls who have a nice gain from the recent rally began to take profits when they saw yesterday's rally fading.

Bullish news could cause the stock to pound its way right through all of that 2011 resistance to the left of the chart, but strictly based on the technicals (the overhang of sellers), that isn't likely. After a 70% run-up into this kind of substantial resistance, a selloff or some backing and filling would be more likely, and much healthier, technically.

X, AKS And BIDU

The December 19 validation of support at the bottom of the Rising Wedge earned US Steel (X) a rally back to the top of it yesterday, and in the process, the October 27 Ascending Triangle target of 30.71 got MADE, within five cents. The session high was 30.66.



From yesterday morning on AKS:

"The early selloff accomplished two things: (1) it filled most of the gap left in the chart from January 9, and (2) it estabished White Data #4 for yet another possible bullish pattern, a Bull Flag (the pattern in white), which is the pattern in purple in the next (daily) chart."


Yesterday, on the strength of the three pattern breakouts that preceded it, AKS had a FOURTH upside technical breakout to a recovery high of 10.12, so the bullishness of the nearly six month basing period and recent breakouts is being borne out.

The Bull Flag (pattern in purple) broke out yesterday crossing 9.33, so the upside targets are: a retest of the 9.96 pattern high (that got MADE yesterday), and 10.53, which is the measured move off the breakout.

9.96 - pattern high
8.76 - the release of earnings Fakeout/Bear Trap low

9.96 - 8.76 = 1.20 points on the breakout above 9.33, which is where purple trendline #1-#3 was yesterday when the stock broke out.

9.33 (breakout point) + 1.20 points = Target: 10.53 IN PLAY

That target just is what this particular pattern suggests. The pattern doesn't "know" what the chart looks like, so it must viewed in context of the entire chart. We can see that there is no nearby overhead resistance, so the stock has a bit of open field running between here and the target(s). Shareholders who held the stock during the autumn Smackdown and who didn't throw in their shares during year-end tax loss selling have a very good chance of recovering some losses and aren't as likely to sell as they were prior to the upside breakouts.



From yesterday morning on BIDU:

"What "could be" bullish in this chart, potentially, is that the takeout of the Inverse H&S pattern is a "Fakeout/Breakdown," and that The Bulls will reverse it and race back to that critical breakdown at 123.50, which coincidentally also is where the top of the Falling Wedge came in yesterday."

Yesterday's action in BIDU is exactly the type of thing that I was looking for when I bought it on Tuesday at 122.03 and ended up throwing it in for $1,000 loss.

Curses! Curses! CURSES!!!

The Bulls threw the long bomb into resistance on yesterday's opening play, but that usually doesn't work, and it didn't. The Bulls got sent back to retest the possible "Fakeout/Breakdown" low, and they held their ground. I liked that.

The successful retest set up the stampede for 123.50 resistance that I was looking for on Tuesday. The Bulls then took out the opening high and ran directly to 123.50 exactly, which proved daunting on that first attempt.

After a sizeable pullback to the Exponential Moving Averages (EMAs), which provided support, The Bulls were baaa-ack, this time to 123.49.

Another, more shallow, pullback and The Bulls were baaa-ack again, to 123.49. That's the hallmark of an Ascending Triangle: Flat top; increasingly shallow pullbacks.

Geez, I hated "paying up" for the stock at 123.40 when I basically read it right when I bought if for 122.03 on Tuesday and took $1,000 loss, but let's try NOT to whine about "coulda...shoulda...woulda." There was enough evidence here that Tuesday's breakdown was a "Fakeout/Breakdown," so I "paid up" and bought 2,000 BIDU at 123.40. The Bulls had recovered to 123.50 and were building an Ascending Triangle pattern from which to launch a rally.



Game on!

There's the Ascending Triangle breakout, which put an upside target of 125.00 IN PLAY.

123.50 - high of the pattern
122.00 - low of the pattern

123.50 - 122.00 = 1.50 points of upside on a breakout

123.50 + 1.50 = Target: 125.00 IN PLAY

Note: Look at that Bull/Bear struggle right at 123.50 (horizontal red line) at the top of the Ascending Triangle, prior to the breakout. Some serious head banging, eh?!



Given how sloppy The BIDU Bulls have been, and given the VERY nearby resistance (yellow circle), I didn't stay for the 125.00 target. I sold my 2,000 shares for 124.45.



The 125.00 target ended up getting MADE. BIDU closed right near that at 125.05 after The Bulls scored a session high of 125.52.



Gain: $2,100

AKS: Earnings; BIDU: Break Below 123.50

The market's initial response to AKS's earnings was a panicky selloff of nearly 5% in the first few minutes of trading, back below the upside technical breakouts in the daily chart (below), but that didn't last long. The stock climbed off the lows and closed back above the breakouts and near the high of the session.

Unless the market changes its mind and sends AKS back below the breakouts on a closing basis, AKS has survived the release of earnings.



The early selloff accomplished two things: (1) it filled most of the gap left in the chart from January 9, and (2) it estabished White Data #4 for yet another possible bullish pattern, a Bull Flag (the pattern in white), which is the pattern in purple in the next chart.



As the daily chart stands, the upside targets still are IN PLAY as long as the stock continues to CLOSE above the breakouts.



From yesterday, on BIDU:

"The yellow line, by the way, is the Right Shoulder of the Inverse H&S pattern in the last chart. That 123.50 low "shouldn't" get taken down. The late session low was 123.50 exactly."

The BIDU Bulls have been as sloppy as this chart looks, and it has cost them.

When the low of a Right Shoulder of a Bullish Inverse H&S gets taken down (that's the top horizontal red line), that's a second "shot across the bow" from The Bears because, as i said yesterday, that "shouldn't" happen (the first shot across the bow was The Bears taking the stock back below the neckline).

The takeout of the Right Shoulder low suggests a test of next support, which was the lows of the Symmetical Triangle, in green (the middle horizontal red line), and if that breaks, a test of the low of The Head (the bottom red line). The Bears scored on all three of those support levels, taking them all out to the downside. UGH.

When there's absolutely nothing bullish to recommend a chart, I like to try to remain objective and to look for something that is bullish. What "could be" bullish in this chart, potentially, is that the takeout of the Inverse H&S pattern is a "Fakeout/Breakdown," and that The Bulls will reverse it and race back to that critical breakdown at 123.50, which coincidentally also is where the top of the Falling Wedge came in yesterday.

I wanted some evidence, though, that The Bulls at least had a chance.



Well-ll, the stock didn't tank after the takeout of The Head, and The Bulls broke out of this little Bull Flag. Hmmm-mm...

There was plenty of time still on the clock. The Bulls had a chance here if they could successfully defend the top of this Bull Flag on a pullback, then start climbing back to the 123.50 breakdown. I bought 2,000 BIDU at 122.03 on the pullback. The Bulls either had game, or they didn't, and I'd soon find out.



Curses! Curses! CURSES!!! Weak-kneed, lily-livered Bulls! LOL.

The Bull Flag breakout was an obvious failure, so I threw it in on the little bounce back to the top of the flag (white arrow), in the 121.50's.



That's a shame. The session high was 123.40, below the 123.50 low of the Right Shoulder in the intraday chart, and right at the 123.389 top of the Channel in this daily chart. UGH. The Bulls have dug themselves a bit of a hole and need to get back above there.



Loss: $1,000

BIDU: Back Above The Falling Wedge

From the weekend on BIDU:

"The first order of business for The Bulls on Monday, January 23, is to: (1) get back above 123.02-123.05 resistance, (2)then the top of the Channel, which will come in at 123.808 and, (3) then knock out Friday's high of 124.54, which would trigger a repeat Buy Signal from the 13/21RSIs and the 21/34RSIs."

Bang! The Bulls came out of the gate at the opening gong and scored all three objectives in the first minute of trading.

I was wanting more of a pullback to get long, but when The Bulls took it higher, I placed an order for 2,000 shares at 124.35.



No luck with that. BIDU rallied almost to 126.00, so I cancelled the order. I accepted the disappointment with my usual dignity and aplomb.

Curses! Curses! CURSES!!!

Back to the drawing board. Sigh...




At this juncture in the session, The Bulls were looking like they wanted to make another bid for the highs. The lows here were right at the 124.54 "Buy Pivot" which had been triggered by the RSIs and, basis the 5-minute chart that we'll look at in a minute, there was an Inverse H&S forming. I bought 2,000 BIDU for 125.06.



Little upside breakout here, to the neckline of the Inverse H&S.



An attempt at a breakout, but then a pullback to retest the top of the little Ascending Triangle. That's fine, but GIT GOING. I had "paid up" for the stock and I wanted results. I wasn't much for "Ye Olde Knuckle-biter."



Oh, geez. A nice breakout with plenty of open field running available, but The Bulls buckled and allowed The Bears to take the stock back below the neckline for "Ye Olde Knuckle-biter." UGH.



Another breakout above the neckline...then ANOTHER "Ye Olde Knuckle-biter." I had a paper gain of well over $3,000 on the breakout. "Maybe" the little Falling Wedge (in white) was going to breakout to the upside, but this was so sloppy, "maybe" the danged thing was going to come back in my face. I had had enough of weak-kneed Bulls and decided to TAKE THE MONEY. Sold in the 125.60's.



Sloppy play sometimes turns out alright, but this H&S Top that The Bears put in is good example of what can happen if/when upside breakouts get sloppy. At the white arrow, The Bulls failed to get through the broken neckline, validating the H&S Top breakdown, and down she went.

The yellow line, by the way, is the Right Shoulder of the Inverse H&S pattern in the last chart. That 123.50 low "shouldn't" get taken down. The late session low was 123.50 exactly.



Despite the sloppiness from The Bulls, technically, they stuck the close slightly above the upper trendline of the Falling Wedge, but they need to do something better than that.



Gain: $1,100

AKS: Double Nested Ascending Triangle

Along with US Steel (X) and other sector-related stocks, AKS has been trying to recover, not only from its 2011 Smackdown, but from a multi-year bludgeoning.

After a stock crashes, it normally needs time to build a base and to recover. Bear Market rallies can be vicious and can result in big percentage gains, but if there isn't any base-building along the way, they usually fail and get called back for some kind of retest of the crash low, which sometimes gets taken out to the downside.

AKS has done some decent base-building during the past several months. On December 15, the stock established Data Point #4 for TWO patterns: (1) the small Symmetrical Triangle (in blue) and, (2) the large Ascending Triangle (in black), at 7.30. That's now KEY SUPPORT.

The AKS Bulls got 2012 off to a nice start with a breakout of the Symmetrical Triangle on a Breakaway Gap, putting an upside target of 10.75 IN PLAY. There's a gap left in the chart from 8.23. Gaps always are bothersome because they leave us wondering if they're going to get filled, or not. "Common Gaps" tend to get filled rather quickly. "Breakaway Gaps" out of a pattern tend not to get filled as quickly. They can take weeks or months to get filled, and sometimes they don't get filled for years, if at all.

After the breakout, AKS temporized with highs in the high 8.80's and low 8.90's (horizontal green line), establishing a small Ascending Triangle, just below the top of the larger Ascending Triangle (in black). On January 10, the stock broke out above it, putting a target of 10.77 IN PLAY, very near the 10.75 target IN PLAY from the Symmetrical Triangle breakout (pattern in blue).

On January 11, AKS broke out the big Double Nested Ascending Triangle on an upgrade to $12 out of Credit Suisse. The "Double Nested" is my own terminology, meaning that there are two smaller patterns within the larget Ascending Triangle that have broken out.

Credit Suisse's price target of $12 and timeliness of the call, right after AKS broke out of TWO patterns, has me wondering if they're leaning more toward the technicals than the fundamentals because we can see that horizontal resistance is "right there," from 11.34-11.96, and the Ascending Triangle target of roughly 13.20 gives them some room. They stepped up to the plate with the call before the release of earnings, too.

Cramer didn't like the call out of Credit Suisse, which might have had something to do with the more tempered response from the market in the days following the breakout. Who knows, huh?! To date, AKS has pulled back to the a low of 8.93, just above the top of the smaller Ascending Triangle (in green), and has held up, so far. The targets are IN PLAY as long as the stock trades above the breakouts. Back below them, it's "Ye Olde Knuckle-biter" for the AKS Bulls and the targets go ON HOLD unless/until the stock gets back above the breakouts.



Bigger picture, we can see that the $12 target from Credit Suisse is a bit of a "gimme" if the AKS Bulls have anything at all. The technicals have shaped up nicely and are good to go if AKS can announce decent earnings which, according to Yahoo Finance, will be released before the market opens tomorrow, January 24. Check me on that, if you're interested.



Bigger, BIGGER picture...we've looked in the past at many examples of "Ye Olde Parabolic Rally...Ye Olde Parabolic Return," but this is one of the more stunning of them. They even took out the low of the Cup & Handle before AKS bottomed, erasing ALL of the gains for anyone who bought inside that pattern, or at any time thereafter. Have mercy!

Market Lesson: "Know when to fold 'em" (Use some kind of stop loss exit strategy, before you're bled to death).

US Steel (X) - After The Smackdown

I often have been asked why I don't consider stock fundamentals and why I only look at the charts. The answer is very simple: analysts' opinions of value can be very, very wrong, and company CEO's are paid to cheerlead the stock and to keep the waters calm. I only am interested in the markets REACTION to the fundamentals.

Witness: Last April, at the release of earnings, the CEO of US Steel made positive comments about Q2 being positive. Technically, though, the chart had just broken below a sizeable H&S top. Uh-oh.

In June and July, 2011, Deutsche Bank, Morgan Stanley and S&P Equity all put out buys on US Steel, Deutsche saying that it was cheap relative to its peers. US Steel fell another 10%, the H&S Top target of 40.39 got MADE, then...



...Yeesh. US Steel fell another 50% from that point, to a low of 18.85!

"Cheap can get a lot cheaper."

The US Steel Bulls tried to stand their ground by forming a Nested Symmetrical Triangle in the late summer of 2011, but it was no good. Instead of breaking it out to the upside, The Bears busted it and the stock tanked to its 18.85 low. UGH.

In my early days of writing this blog, I said many times, "We can't expect exactitude from technical analysis, but it can be astonishing how nearly exact it can be."

Witness: The December 19, 2011 retest of the bottom of the recent Rising Wedge (Black Trendline #1-#3). The successful retest was within less than one penny, and US Steel is up over 10% from there, in one month's time. That beats CD rates by a mile, doesn't it?

We never know if a trendline is significant or not until a breakout/breakdown target gets MADE, or reasonably approximated, or until Ms. Market validates our trendline with a "hit," like she did on December 19. Always excluding a horrible gap down which can happen to any stock, particularly at earnings, buying at a validation of support is a very low-risk entry. If it gets taken out, sell for a small loss. The potential gain far outweighs the risk involved (i.e, it's a very good risk/reward).

US Steel is slated to report earnings at the end of the month. That's always a "wild card."

BIDU: Ye Olde Knuckle-biter

From yesterday morning:

"If BIDU had bounced off the 123.00 low and CLOSED back above the top trendline of the Channel, it would have looked alright, but the CLOSE back inside of it presented The Bulls with the dreaded "Ye Olde Knuckle-biter" going home."

I didn't have any appetite yesterday morning for joining the BIDU Bulls in a knuckle chew on the opening Smackdown, in sympathy with GOOG's earnings miss, but I did begin to lick my chops when I saw:

1. The rally back to Unchanged
2. The successful retest of the opening low
3. The move to a new high of 124.54, which also was back above the 124.227 top trendline of the Channel in the daily chart, and
4. This breakout of a Falling Wedge

Although The Bulls still were involved in "Ye Olde Knuckle-biter," below 124.227, I liked that they were showing this kind of gumption here in the early going. I bought 2,000 BIDU at 123.24 and promptly stuck my knuckles in my mouth to show that I was sincere about aupporting The Bulls in their plight ;)



After I entered long (white arrow), The BIDU Bulls formed two Right Shoulders for a DOUBLE Bullish Inverse H&S pattern. Quite lovely. As we know, these multiple patterns/nested patterns can pack some punch on a breakout, which in this case, would put the early session high of 124.54 and a bit beyond that IN PLAY.



The Bulls broke out of the DOUBLE Inverse H&S and ran to 124.00, which was very nice.

What potentially WASN'T nice is that the two pullbacks from 124.00ish were rather deep, and a possible Bear Flag had emerged (pattern in white). Especially since The Bulls still were below the 124.227 Channel basis the daily chart, I didn't want to see any weak-kneed Bulls here, allowing The Bears to break this flag to the downside. That would suggest at least a retest of the DOUBLE Inverse H&S neckline, in which case I wasn't at all interested. I wanted to see some of those upside screamer bars showing up, like on the early rally to the the early high.

I decided to sell if the 123.60 low at White Data Point #4 got taken down.



UGH. The Bulls allowed The Bears to morph the Bear Flag into a H&S Top, then break it to the downside. No-o, thank you, and lemme outta here! I threw in my 2,000 shares at 123.58.



It's a good job of it that I did...YEESH. The Bears scored on every pattern that The Bulls tried to establish after The Bear Flag/H&S Top breakdown (white arrow), until The Bulls finally were able to break out of an Ascending Triangle (in purple), which was very sloppy. After the upside breakout, the Bears were able to move the stock back below the flat top of the pattern, willy nilly.

The horizontal red line (123.05) is the low of the Right Shoulder of the DOUBLE Inverse H&S. That support "shouldn't have" gotten taken out to the downside. It became resistance going into the final gong.

As bad as the afternoon was for The Bulls, they've still got a chance of coming out of "Ye Olde Knuckle-biter" alright.




While we never like to see a close back below a breakout (or above a breakdown, if it's bearish), it can end up being a bit of a Grande Deception that catches players off guard.

Look at the false upside breakout of the Symmetrical Triangle back on November 15. The Channel (in black) had broken down, but the Bulls formed and broke out of the Symmetrical Triangle (in blue) and it "looked like" they were headed for at least a retest of the recent high. Nope. The Bears reversed the breakout, back inside the Symmetrical Triangle, then...Whack!

In the current time-frame, although Friday's session is the second CLOSE of "Ye Olde Knuckle-biter, back below The Channel breakout, the candle is a "possible" Bullish Doji Star Hammer which also is sitting right at the bottom of Kumo (Cloud) support.

The first order of business for The Bulls on Monday, January 23, is to: (1) get back above 123.02-123.05 resistance, (2)then the top of the Channel, which will come in at 123.808 and, (3) then knock out Friday's high of 124.54, which would trigger a repeat Buy Signal from the 13/21RSIs and the 21/34RSIs.



Friday's close puts both the 13/21RSI and the 21/34RSI pairings at Bullish Synchronicity (readings that are in close proximity). I use a penny above that session high as the "buy signal" (the stock also must close higher), but this is only one indicator and always remember that indicators only "indicate." These indicators only are indicating that they're good to go, like we saw last week in AMZN when we got a repeat buy signal in the RSIs. AMZN took off to the upside after it knocked out 184.65-184.80 resistance. It's up to the analyst to have a peep at the chart and decide whether or not the chart looks good enough to take action based on any given signal.



Gain: $650