GS - Wolfe Wave Watch

Goldman (GS) has had a rough 2011, down 50% at its low of 84.27 on October 4, when it reversed off a possible Bullish Wolfe Wave downside Fakeout/Breakdown (Black #5) and closed on a Bullish Engulfing candle.

At Monday's close, GS was poised to break out of the pattern, needing to take out the top of the pattern (Black #2-#4) at 97.08, then last Friday's high of 98.07.



GS opened yesterday Gap Down and was off two dollars, but it came right back and broke out, taking out both 97.08 and 98.07.



The stock rallied to 98.66, then broke below a little H&S Top (pattern in yellow). The Bears weren't doing much to knock it down, and after an upside breakout like GS had, H&S Tops often morph into a Falling Wedge or a Falling Channel (pattern in white). Connect the high of the Head and the high of the Right Shoulder for the upper trendline.

I bought 1,000 GS for 97.55 and sold them for 98.62-98.63, just below the session high of 98.66, to defend against a possible Double Top there.



GS went just a little bit higher (white arrow), to 98.8099, had a selloff, then traded sideways for the remainder of the session. The Bulls tried to stick the close above the 97.08 technical breakout, but failed.



That presents "Ye Olde Knuckle-Biter" to The Bulls since the technical breakout didn't hold on a closing basis. Earnings for GS are due out on October 18 according to Yahoo Finance.



Gain: $1,050

FCX: Falling Wedge

This daily chart of FCX is as of Friday's close. Thursday's candle was a "possibly" Bearish Doji Star, and it was followed on Friday by a Bearish Engulfing pattern. The close was 34.01. Any Bears who shorted wouldn't want to see Friday's high of 35.72 get taken out to the upside because that would negate any short-term implications from Thursday's and Friday's candles.



Yesterday morning at the opening gong, The Bulls came out of the gate on a Gap Up, to 35.17, and at 9:40AM, FCX printed a high of 35.735, a penny and a half above Friday's high of 35.72 (horizontal white line).

That kind of nominal takeout of Friday's high isn't real convincing, but by 10:21AM, FCX had printed 36.14, which was much more convincing, clearly indicating that Thursday's and Friday's bearish-looking candlesticks wasn't any kind of top.



FCX is notorious for "Gap And Crap" openings, in which the opening gets sold, the gap is filled, and sometimes more than that. On the selloff from the new Crash Recovery high of 36.14 (White #1), The Bears were looking for the "Gap and Crap" to play out, but the upside takeout of Friday's 35.72 high suggested that it might not.

The early selloff came down in a Falling Wedge, the top of which was twice validated resistannce (the two white arrows), an upside breakout of which should have "some" significance if The Bulls could pull it off. I liked The Bulls' chances, primarily based on the upside takeout of Friday's 35.72 high, and bought 5,000 FCX at 35.35.



The Bulls broke out of the Falling Wedge and took FCX back up to the highs at White Data Point #3. I considered taking profits on half the position there, but decided instead to hold and raise my mental stop to below the lows at 35.52 and 35.525 (red arrows), locking in a winner, and giving the trade a chance to be more profitable if The Bulls could take FCX back toward the 36.14 morning high.



The selloff and failure at the EMAs (red arrow) suggested that my mental stop was going to get hit, so I threw it in at 35.53-35.55.



My stop did get hit and The Bears managed to take FCX down to 35.31 around 3:25PM, but in the final half hour of trading, with (1) the opening gap NOT filled, as they had expected, and (2) the early session Crash Recovery high of 36.14 clearly indicating that a top was NOT put in on Friday, The Bears got a little nervous and many of them covered their shorts going into the close of 36.04.



Gain: $900

FCX: In Crash Recovery

Late Spring, and throughout the Summer of 2010, FCX formed a Cup & Handle base that had a Bull Flag nested within it. To the left of that solid base, there was a Bearish Rising Channel that had formed during the Winter and broke down early Spring, but it didn't represent a lot of resistance because the September 3, 2010 breakout of the nested Cup & Handle pattern occurred near the upper end of that Bearish Rising Channel. Once the 44.15 high of that Channel got taken out to the upside, everyone who had been trapped in it, holding the stock long, was made whole and was holding a winner. The lack of selling pressure contributed to FCX being able to score a gain of 116% off the July, 2010 low of 28.35.

In the current time-frame, the picture is quite different.



As we approach year-end, there is a huge overhang of selling pressure from the initial crash from the 56.78 high of the Bearish Wolfe Wave to 41.20, which broke the 2011 Falling Wedge, and then nearer-term, from the second crash that occurred from the 48.60 high of the weak base that The Bulls tried to establish after the Falling Wedge breakdown, to the 28.85 low of the Bullish Key Reversal on October 4.

The Bullish Key Reversal low of 28.85 could end up being significant if it holds up because it would mean that any Bears waiting for the Summer, 2010 low of 28.35 to have a better retest would be disappointed.

If The Bullish Key Reversal low of 28.85 does get taken down, that could spell trouble for The Bulls because it "shouldn't," and they likely would lose confidence.

In my view, The Bulls would do well to spend the remainder of 2011 establishing a nice base from which to launch a rally into all of that overhead resistance, which likely will be daunting. Year-end tax loss selling won't help, either. Some players will sell FCX and take the loss to offset gains in other stocks. The Bulls need to "have game" to attack the resistance.

For example:



Late Thursday afternoon, The Bulls established at Triple Bottom at 34.40 ...34.38 ...34.40 (red arrows at the horizontal red line). That resulted in a pop to the upside at the open on Friday, but it was a "Gap And Crap." The gap got filled and The Bulls rallied again, but the effort was no good. Off the 28.85 Key Reversal low, the Bulls had rallied 23.8% and ran out of steam. The Bears broke the 34.38-34.40 Triple Bottom, and down she went.

After taking a breather, though, The Bulls formed an Ascending Triangle (pattern in white), a breakout of which would put a target of 34.81 IN PLAY.

34.19 - The more conservative of the 34.19 and 34.20 highs
33.57 - The low

34.19 - 33.57 = 0.62 points of upside on a breakout.

34.19 + 0.62 = Target: 34.81 IN PLAY

After Data Point #4 got put in, The Bulls temporized around the EMAs (up arrow), chomping on spinach to gain some strength for the rally. I liked that and bought 5,000 shares at 33.92.

The pattern can't "know" when it breaks out that there is IMMEDIATE resistance at 34.38-34.40 from the mid-session breakdown. It's just a pattern that gives us the suggestion of a target, based on a measured move using the math above. We, as analysts, have to decide how likely it is that the target will get MADE, based on what else we're seeing that the pattern CAN'T see.

"Former support 'should be' resistance on any rally." I sold at 34.39, at the 34.38-34.40 resistance, not expecting the 34.81 target to get MADE.



It didn't. The Ascending Triangle rally high of 34.46 (red arrow) got put in seconds after I sold, then FCX tumbled back below the breakout, failed on an attempt to get back above the breakout (yellow arrow), then sold off again.

The Bulls have some work to do, building good bases and breaking of them. The base-building process can be slow-w-w, but again, the Bullish Key Reversal looks good if it holds up.



Gain: $2,350

GOOG: Rally To Neckline Resistance

From the past two days on GOOG:

"Key Resistance overhead is roughly 509-515."

And, boy was it ever in yesterday's session!

I liked GOOG's chances for a rally into that resistance for a broken neckline retest, at 514.821, after the "Gap And Crap" opening above 507.77-507.80 horizontal resistance (horizontal red line).

On October 5 before the opening gong, Stifel Nicolaus downgraded GOOG, the market response to which was to send the stock back for a retest of 480, unwinding the prior afternoon's late day short squeezing Screamer to the upside. Rather than tank on the downgrade, GOOG double bottomed at 480 (the two white circles), then took out the 503.44 pivot high of Wednesday's upside Screamer. I liked that, and I liked the upside takeout of the 507.77-507.80 horizontal resistance.

I also liked the fact that on the pullback from yesterday morning's Gap and Crap opening, the EMAs just below it were properly threaded with the fastest 13 above the 21, and the faster 21 above the 34. I bought 500 shares of GOOG at 504.75 on the pullback.



After the pullback, The Bulls took GOOG higher and knocked out the Gap and Crap high, formed this Falling Wedge, then broke out of it. Lovely. I moved my mental stop up to 508.00, the low of that pattern (horizontal red line), locking in a winning trade.



The Bulls then formed a Symmetrical Triangle (pattern in white) with the Falling Wedge (in yellow) nested within it, then broke out again on a strong rally to 514.03. It looked like the neckline retest (daily chart) at 514.821 was a slam dunk.

The only thing that got slammed and dunked was Melf Elf! I wanted to give The Bulls a lot of leeway to get to the target since I was locked into a winner with my 508.00 stop, so I did NOT sell the breakdown below the Symmetrical Triangle near its apex (white arrow), and I did NOT sell the failed attempt at a Double Bottom (orange circle). I held until my 508.00 stop obviously was going to get busted and threw it in at 508.06, after having had a paper gain of about $4,600 when GOOG was at 514.03.

Arrrrrrrrrrrrrrrrrrrrrrrrgh!!!

I decided never to have truck with those wimpy GOOG Bulls again, until...



...I saw that they were forming a Bullish Inverse H&S pattern! Okay, I forgave them and bought back my 500 shares at 509.36.





The Bulls not only broke out of the Inverse H&S, they formed and broke out of a little Bull Flag (pattern in yellow), and successfully retested the top of it (yellow arrow)! How nice is tha-a-at?

I put my mental stop at 510.44 (red arrow), the low of the Bull Flag, locking in a winning trade, and got ready for LIFT OFF for the 414.89 neckline retest. Oh, boy!



WHAT?????????????????

The GOOG Bulls have to be joking. Those bums let The Bears bust my stop? Okay, I sold my shares at 510.37 and resolved never EVER to back the GOOG Bulls again.

Unless...



...I saw them take out the high of a Right Shoulder (horizontal yellow line) of a putitive Head & Shoulders Top that The Bears were trying to put in ;)

After being yanked around TWICE, though, I wasn't about to go in again with 500 shares. I bought 200 shares at 510.75. Stop below the neckline.



Oh-h, buddy!

The Bulls morphed The Bears' putative H&S Top into an Ascending Triangle (in yellow) with a little Falling Wedge (in orange) nested within it, then broke out of it to the upside. If The Bulls could hold up and not get weak-kneed like they did on the earlier breakouts, The Bears were very badly positioned short the breakout and were very vulnerable to a late day short squeeze.



After the Ascending Triangle breakout, there was a pullback for a retest of the top of the little Falling Wedge (first yellow arrow), another breakout, a pullback for a successful retest of the top of the Ascending Triangle, then...

...LIFT OFF!!!

I intended to sell near the 514.821 neckline, but The Bears were so panicked to cover their shorts and GOOG pounded higher so fast, I hung about momentarily and got an excellent fill at 515.02-515.10.

If you've read this far, you see what I meant about Key Resistance: 509-515. There was some serious head-banging, getting to the top of that resistance. Whew!



The session finished at 514.71, with The Bulls parked eleven cents below neckline resistance.



Gain on the session: $3,000

GOOG: Unwound - FCX: Key Reversal

From yesterday on GOOG:

"Key Resistance overhead is roughly 509-515."

Tuesday's late afternoon short squeeze got completely unwound in the early going yesterday morning. GOOG retraced all of that rally. The Bulls dug in, though, then managed to climb back out of that hole to a session high of 507.80, just below the bottom rung of Key Resistance, at 509.00.



In FCX, the 2011 Falling Wedge target of 30.61 officially got MADE on September 30 and that target was exceeded at bit at the October 4 low of 28.85.

As often is the case, the analyst community, in general, got this one terribly wrong at the July top, giving it upgrades and booyahs and such. That's usually what occurs at the top of a Bearish Wolfe Wave, the hallmark of which is to catch the majority of players "wrong-footed" at the upside Fakeout/Breakout, and boy, did it! That Bearish Wolfe Wave was more like a Bearish Tidal Wave. FCX got sent down nearly 50% while the benchmark SPX has been down only about 20% since July. UGH.

When targets get MADE, particularly a sizeable one like this 2011 Falling Wedge target of 30.61, they can continue much lower, but they sometimes reverse somewhere near the target, or at least have some kind of rally. The rally can come from "out of nowhere," like the Tuesday afternoon short squeeze in GOOG, or they can come from something that is identifiable in the charts.

In the daily chart, FCX put in a Bullish Key Reversal candle on October 4, which also was one of Erik Hadik's (sp?) 3-Close Reversal candles, meaning that the stock put in a new low for the move, then reversed and closed higher than the closes of the three prior sessions.

After something like that, we want to see signs of follow-thru that suggest that some kind of low might be in, if not THE low for the move. We got some of that in FCX yesterday.



FCX sold off at the opening gong, but came right back and climbed steadily higher. Early afternoon, it formed and broke out of this Symmetrical Triangle, putting an upside target of 34.00 IN PLAY.

On the pullback for a retest of the breakout (white arrow), I bought 5,000 shares of it at 33.46.



After the retest, FCX then formed an Ascending Triangle (in yellow) that had a Triple Top at 33.62...33.62...33.62, which broke out to the upside, giving testimony to the fact that Triple Tops are not always bearish. That breakout put 33.87 IN PLAY, in bit below the Symmetrietcal Triangle target of 34.00.

33.62 (highs) - 33.37 (low) = 0.25 + 33.62 = Target: 33.87 IN PLAY.



I wasn't best pleased with "Ye Olde Knuckle-biter" pullback below the 33.62 highs of the Ascending Triangle (white arrow), but I liked Tuesday's Key Reversal in the daily chart and these two pattern breakouts in the intraday well enough that I sat for it, figuring it for a minor shakeout (a move against your position in an attempt to get you to throw in your hand). It was.

After the shakeout, a THIRD bullish pattern emerged and broke out, the Symmetrical Triangle (in orange). Lovely. FCX rallied out of that and I sold my 5,000 shares at the more conservative target of 33.87.



On that move off the Triple breakout, FCX got only to 33.97 (white arrow), three cents shy of the 34.00 target IN PLAY, then had a selloff. I had finished for the day, but the Bullish Inverse H&S breakout (pattern in green) was a FOURTH bullish breakout on the afternoon and was another nice entry long for the 34.36 target that went IN PLAY and got MADE near the end of the session. The high was 34.45.



Gain: $2,000.

GOOG: Short Squeeze

From yesterday on GOOG:

"In the interim, downside targets of 390.86 and 368.42 are IN PLAY. The math for the H&S Top target is at the top of the chart."

The Rising Wedge target of 490.86 got MADE on the gap down opening yesterday morning. From the "Ye Olde Knuckle-biter" high of 547.05 five sessions ago, GOOG was down over 60 points at the early session low off the Smackdown from the retest failure of the broken Rising Wedge.

That isn't a reason to go knife-catching, but it's been fairly one-sided in favor of The Bears, so I was looking to see if The Bulls could come up with anything from which to launch a countertrend rally or a short squeeze.

This Ascending Triangle (in white) with a "nested" Falling Channel (in yellow) looked real decent. I liked the fact that the low of the Channel held above the ascending line. I got long 1,000 shares at 489.50.

When The Channel broke out, that put 492.82 IN PLAY.

490.36 (high of the pattern) - 486.42 (low) = 3.94 points of upside on a breakout.
488.88 (breakout) + 3.94 = Target: 492.82 IN PLAY

An Ascending Triangle breakout would put a target of 497.47 IN PLAY.

490.36 (high) - 483.25 (low) = 7.11 points of upside on a breakout.
490.36 + 7.11 = Target: 497.47 IN PLAY




"Nested" patterns and multiple patterns tend to pack some punch when they breakout, but if it's a breakout against the dominant trend, it's a good idea to reduce expectations. Targets against the dominant trend are less likely to get MADE.

Ascending Triangle breakouts in a bearish trend, or at the end of a bullish trend, often "morph," or change, into Bearish Rising Wedges/Channels. I sold the 1,000 shares in the 493.50's, between the two targets, to defend against the possible morph (pattern in red). I wasn't looking for much since I was playing against the trend.



The pattern did morph into a Rising Channel (in white), which subsequently broke down, putting a target of 479.15 IN PLAY.

494.18 (high) - 483.25 = 10.93 points of downside on a breakdown at 490.08.
490.08 - 10.93 = Target: 479.15, IN PLAY.

I wanted it short at 490.25 (white arrow), playing it for a retest failure at the bottom of the broken Rising Channel, but "they" wouldn't let me have it. When GOOG moved down to new post-breakdown low, I cancelled the order and called it a day.



The Bulls made one more rally attempt to retest the bottom of the broken Channel (white arrow), got to 492.31, then The Bears tanked it to a session low of 480.60, about a point and a half above the 479.15 target that was IN PLAY, then...

...WHOA!!!

The Bulls popped open their cans of spinach and said, "That's all we can stands...we can't stands no more!" LOL.

Good lesson on not to be rigid about targets. They're "ballpark/what we're aiming for," not anything precise or guaranteed. For that reason, we want to have a mental stop in mind so that we don't get squeezed half to death like some shorts likely did in yesterday afternoon's late day upside Screamer.

The horizontal red lines are suggestions of "logical stops" on a short trade. As GOOG tanked to the 480.25 low, shorts can ratchet down their stops to the preceding high, as the stock made each new low on the move down. That was a classic, relentless, 20 point short squeeze. Yeeks.

Market lesson for the shorts: "Know when to fold 'em."



Key Resistance overhead is roughly 509-515. That's:

1. The top of the bearishly inverted EMA's (exponential moving averages)
2. The broken neckline of the H&S Top
3. The gap from September 30th.

Anything above that is "Ye Olde Knuckle-biter" for The Bears, like we had on the September 27 "One Day Wonder" close, back above the broken Rising Wedge.



Gain: $4,000

GOOG: H&S Top Breakdown

From the weekend:

"As we've witnessed in the past, Bearish Rising Wedges/Channels (pattern in blue) often morph, or change, into a Bearish Head & Shoulders Top (pattern in black). The Right Shoulder rally, which we got this week, usually is a failure to regain and hold the broken Bearish Rising Wedge or Rising Channel, then the stock comes down and breaks the neckline, which hasn't yet occurred."

Yesterday, The Bears took out the neckline of the "morphed" H&S Top on a Gap Down (red arrow), "Gap And Go" session. The Bulls tried to establish support in the mid-501's (horizontal white line), but it was no good. The Bears took out that support (white arrow) and The Bulls were shut out of it for the remainder of the session.



The downside expectation for the Rising Wedge (pattern in blue) is some kind of retest of the 490.86 low of the pattern. Rising Wedges can be tricky. Sometimes the pullback after the breakdown is more shallow than that, maybe a 50% or a 61.8% of the height of the Rising Wedge, then the stock rallies.

However, if the Rising Wedge morphs into a Head & Shoulders Top, as this one did, then there usually is more downside than that, as we witnessed in GOOG yesterday. A multiple pattern breakdown (Rising Wedge and H&S Top) tends to pack some punch.

Targets only are what a given pattern breakout or breakdown suggests, based on a measured move off the pattern. GOOG should be reporting earnings in a couple of weeks, so the fundamentals "could" trump the poor technicals. In the interim, downside targets of 390.86 and 368.42 are IN PLAY. The math for the H&S Top target is at the top of the chart.

GOOG: Down From Stacked Resistance

From yesterday morning on GOOG:

"The Bears need to take out Black trendline #2-#4 and get moving on the downside, or The Bulls could turn it around. That trendline comes in today at 521.463."

The Bears did a good job of it, opening GOOG at 520.21, below trendline #2-#4, and closing the stock down for the third session in a row coming off stacked resistance after Tuesday's "Knuckle-Biter" close back inside the broken Rising Wedge.

Data Point #4 might have to be moved as the chart evolves, but the breakdown and retest failure of the Rising Wedge suggests some more downside.

For example:




As we've witnessed in the past, Bearish Rising Wedges/Channels (pattern in blue) often morph, or change, into a Bearish Head & Shoulders Top (pattern in black). The Right Shoulder rally, which we got this week, usually is a failure to regain and hold the broken Bearish Rising Wedge or Rising Channel, then the stock comes down and breaks the neckline, which hasn't yet occurred.

The high of this possible Right Shoulder is 547.05, which is a little higher than the 546.30 high of the Left Shoulder, which it "shouldn't be" if we're going to be strict about rules, which I'm not. Since the putative neckline is rising, it has the right look. The important thing is to see if: (1) the neckline breaks, (2) if the 510.50 low of the neckline gets taken down (Blue #2 in the first chart above), and (3) if the 490.86 low of the Bearish Rising Wedge at least gets tested.

The height of the putative H&S Top is about 36 points, so if the neckline breaks, that amount would be subtracted from the point of the breakdown to establish the target.





After yesterday morning's gap down to 520.21 and quick move down to 515.04, I watched for about an hour and decided to short GOOG at 520.25, near the opening price. That wasn't a great entry since there was a big gap that wasn't filled, but GOOG looked very weak, so I went ahead with the trade, planning to scalp a little.

I got squeezed to 524.00 on the rally to fill some of the opening gap. 519.50 (horizontal yellow line) was validated support. 519.50 finally got broken to the downside, but The Bulls established support just below there (horizontal white line), and were threatening to break back above 519.50. I didn't like that, so I covered my short there.



The Bulls managed only a minor breakout above 519.50, then The Bears reasserted themselves, took out minor support (the white horizontal line in the last chart) and took GOOG down.

At the high of the Symmetrical Triangle (pattern in yellow), the Bulls failed in that attempt to regain 519.50. The Bears broke the pattern to the downside and took GOOG to a new session low.

Game, Set and Match to The Bears in Friday's session. We'll have some tennis, for a change ;)



Gain: $800

GOOG And FCX

This is the chart of GOOG as of Wednesday's close, prior to it being called Gap Up at yesterday's open, to 536.00, which was Gap support that The Bears broke in Wednesday's session.

"Broken support 'should be' resistance on any retest," so that opening indication at 536.00 looked marked for a Gap And Crap opening, especially since The Bears had smacked GOOG back out of the Channel in the daily chart after "Ye Olde Knuckle-biter" on Tuesday. However, two factors kept me from shorting the Gap Up opening in GOOG:

(1) In the middle of the chart, 527.87 was the pivot high of a "W"-Bottom, or Double Bottom (synonymous), the upside takeout of which took GOOG up to 547.00. At Wednesday's low of 527.70, "former resistance at 527.87 became support." The Bulls stood their ground and closed GOOG slightly above it.

(2) Not only had The Bulls stood their ground at expected support, they were breaking out of a Channel (the white arrow) at the open, so it 'could be' a Gap And Go opening.

Since the daily chart usually trumps the intraday chart, the case for The Bears looked stronger since they had smacked GOOG out of the Channel, so they had to be favored to defend 536.00, but I had some doubts.

Hmm-m-m...what to do...what to do...

I decided "when in doubt...stay out." I passed on shorting the Gap Up opening.



RESULT: It was a Gap and Crap opening (red arrow). Curses! LOL.



But, The Bulls still might not be finished. Beginning at the September 20 high of 558.52 (Blue #4), that data point also is Black #1 for a "possible" Symmetrical Triangle. The top of it comes in today, September 30, at 540.138. If The Bulls can break out of it, though, they've got to deal with the bottom of the broken Channel, which comes in today just above there, at 540.85, so an upside Symmetrical Triangle breakout wouldn't look quite believable, but we know how deceptive Ms. Market can be ;)

The Bears need to take out Black trendline #2-#4 and get moving on the downside, or The Bulls could turn it around. That trendline comes in today at 521.463.




At yesterday's 30.64 low, the 2011 Falling Wedge target of 30.61 that went IN PLAY on the August 5 breakdown below 46.00 got MADE, within three pennies.

That doesn't mean that FCX can't or won't go lower. It only tells us that the downside expectation from that particular pattern breakdown has been achieved.

Market lesson: "When analysts are calling for higher targets, but we see a chart breakdown, be ver-ry careful, despite low price earnings ratios and despite how cheap the stock looks. Cheap can get a lot cheaper."