Below is a chart of the $SPY that was posted last week BEFORE the upside break of this upper black dotted trend line, along with my thoughts posted on the chart. Well, we have now broke through, and we are a bit overbought. Going sideways/flat is quite healthy and exhibits healthy progress.
In fact, the significance of this upper black dotted trend line is quite significant and anything but a rest here after an upside break would be suspect. So as of now, the $SPY is doing exactly what it needs to be doing if we want to test that upper purple trend line.
Below is the daily chart of $EBAY. Notice the inverse head and shoulders continuation pattern potential inside of bullish rectangle base pattern.
As well, fundamentally, they seem strong to me. They have very little competition in the U.S. and are now going to be competing with Groupon, delivering emails featuring deals. They have a significantly stronger user base than Groupon and can target their already existing user base with these electronically sent coupons.
Moreover, they have over 5 billion in CASH, and a dominant business that could support this venture easily. But what I think is very big for $EBAY is that they recently acquired Hunch.com. Hunch.com is a site that presents a quiz to its members in order to determine their shopping interests and uses that knowledge to recommend items that the customer may buy based on their answers and previous choices. This acquisition by Ebay of Hunch.com costed $EBAY 80 million. Relatively minuscule for $EBAY( they have 5 billion in cash).
$EBAY can now step up the electronic coupon business into personalized electronic coupons. I am a member of Groupon and Living Socials and I am uninterested in 98% of what they send. With this move by $EBAY and their game changing acquisition ( not to mention, their user base, their popularity, and the fact that their main source of revenue is widely established), I love $EBAY.
Pair that with this daily chart of $EBAY, and I like it long here:
Below is a daily chart of the $SPY ( ETF of the S&P 500). As I have marked on the chart, there is reason why traders may look at the below chart and conclude a retracement to roughly 111 will result in a bullish inverse head and shoulder patter, with right shoulder outlined in green, the low being the head, and the target for the right shoulder outlined by a green rectangle in the lower right hand quadrant of the chart.
Now, before we make any conclusions, we must acknowledge an extremely important factor of this formation, and that is the neckline. The neckline of an inverse head and shoulders pattern is the level where the left shoulder peaks at and begins to go down again to form the head, and the head pauses at the same level and retraces to form the right shoulder. perhaps the neckline is best illustrated with a picture of an ideal inverse head and shoulders pattern:
The line that puts the cieling on prices during the formation is the neckline. So a breakout of the neckline tends to mean the formation was successful.
But, what would make an inverse head and shoulders even more potent is a downward slanted neckline. A downward slanting neckline is especially bullish because all of the sellers are trying to put pressure forming a very tight range, and still, the lows cannot be tested. So in short this is bullish because all of the present sellers are showing their hands during the right shoulder formation, and still the sellers are not strong enough and a higher low is made.
So, logic may dictate while a downwards sloping neckline adds bullishness to an inverse head and shoulders pattern ,that an UPWARDS slanting neckline extracts bullishness from this pattern. Reasoning being the opposite of the downwards slanting neckline. In the case of the upwards slanting neckline, the bulls are putting upwards pressure breaking out of the range to the upside, but has little strength, and cannot make a new high. So here too, buyers are showing their hand too early and using up a lot of energy on an unsuccessful attempt to make a new high.
So both tweaked necklines, is a case of bulls (upwards slanting) showing their hands too early and not making a new high , and bears (downward slanting) showing their hand too early and not being able to make a new low.
Right now, on the $SPY, we have a case of the former. The neckline is slanting up, implying that bulls used too much energy and showing their hand too early, and failing to make new highs while breaking the range. Showing that their ammunition was deeply dipped into and revealed to the bears. Here is the first chart showing this:
Now, since the bulls have wasted alot of energy too soon, they may not have enough energy to defend the lows of this year, and a new low may be made before the bulls can gather more strength,, which may turn into a broadening bottom formation :
So we see a pattern here. When the volatility expands or contracts to quickly, it skews the results. When we break to the upside before completing the formation, we cause an upwards slanting neckline, inviting the possibility of exhausted bulls allowing a new low to form. When volatility contract too soon before the formation is complete, bears exhaust themselves causing a downwards sloping neckline and a more explosive upwards breakout can occur. Note that with a broadening bottom, even though a breakout to the upside is slightly in favor(53%), an inverse head and shoulders is wildly bullish (95%), so this new development of an inverse head and shoulders turning into a broadening bottom does massively hinder the bullish connotations (a 42% decrease)
Below are two possible scenarios. One is bullish, based on a pattern, and one is bearish, based on trends. Both are equally possible. Neither should be considered more likely than the other. The best way to " foresee" the likelihood of a possible scenario is to look at individual leading stocks. Here is the bullish chart, followed by the bearish one:
On days like today, while the trading is hard, it enables focused traders to take notice of the strong names. The strong names that posses relative strength. When the market recovers, these strong names are names to look to:
Below is a trade I am patiently waiting for, ready when it presents itself. If it presents itself. As of now we have a bearish rising wedge. What am I waiting for is the break below, everyone to get short, and it hits the purple line-support, so I can buy. The breakdown ends up being a fakeout, like is happening fairly often, and a vicious bounce follows. My buy target is the green box on the purple line support. Maybe not an extremely high probability trade, but low as hell risk, as long as size is kept small and stop is appropriately positioned. maybe 122.80 stop, 1/2 size.
Sometimes, when a stock gets hit, it may be profitable and prudent to play support bounces. However, sometimes, even if there is a bounce opportunity, the risk outweighs the reward potential so much that it is simply a trade I cannot make.
Take Abecrombie & Fitch. They reported dismal earnings, however, looking at the margins and debt, they are a wonderful company, and this drag on the economy is causing the stock to get pummeled. However, seeing as the company is growing beautifully in general, this may be a great opportunity to get great book value for very cheap market value. The holders of $ANF are disgusted by the recent earnings, and selling out for fear the growth is over.
This might present a rare buying opportunity for cheap. However, as a technical trader first, when a stock breaks every level of support like a hot knife through butter, we are being told that this stock is being killed for a reason. And if indeed big money sees value in a great company caused by minor earnings bumps, than bids would indeed hold this support. And they are not. So maybe, this theory that, this "temporary" earnings disappointment is merely a reflection of global economic woes, and this company is still poised for speedy growth, is not true, and the slowdown is for real. As we can see from the speedy support slicing like dominoes, value funds do not see a reason to bid for $ANF. So while a bounce happens many times off support, these realities make the risk far too poignant. Thus, this is a trade I simply cannot make.
We are looking at a decent gap down this morning, and yet again, there is panic in the air. However we must, as professional market participants, simply sit back, and look at the big picture. As you can see on this daily chart of the $SPY, we are holding true within this bull flag formation, and bumping against both the top and bottom range is not only normal, but it's essential in attributing more credence to this formation.
Moreover, I would like to direct your attention to the big bullish hammer candle on August 3rd. Yes, we continued downward, but this candle does not by any stretch signal an immediate reversal, it simply signals a possible new buying presence that is beginning to take control possibly. And and this case, it signaled that the forced selling was pretty much done, and a significant bullish force has now stepped in on August 3rd.
So those prices provide a key reference point for the future. That level from August 3rd where the bulls stepped in must prove that there are new bulls coming in. Meaning its normal for that area to be a major congestion level, as the bulls who stepped in on August 3rd will indeed take profits here. But we want proof that they are not the only buyers. We want to see that even with the bulls from August 3rd selling because they are now seeing profits, we want to see new bulls taking the reigns at that 124 level.
So even before the bottom of the bull flag is tested, that 124 level should show us whether new buyers step in, or everyone who bought at August 3rd 124 is gone, and there is no one left. Here is the daily chart, followed by the 60 min chart for a closer look:
So watch this level, keep the reference points in mind, and relax. It is more than fine to miss a trade, but fatal to chase a trade. So have a cigar, and wait.
My first blog post titled "long idea" was a bit half assed and rushed and it was a mistake on my part. My sincerest apologies to all ,but mostly to myslef. I would like to elaborate on the long $APKT idea here. As you can see, the stock has been killed this past year. As my friend and a really great trader @stocksage1 Rober Sinn pointed out recently, technicals confirm fundamentals. A technical analyst who really applies himself is looking for signs of big money and what they are doing. The big funds will normally accumulate stock that has a fundamental reason why they are buying or selling, whether it is because of value/growth/catalyst potential. So as technical analysts, we can see those footprints in the price action. A stock that looks technically promising looks that way because some big money believes the stock may be fundamentally promising. I guess the best way to really drive my point home is by showing you a chart of $APKT and at the same time, pointing out the fundamentals. My fisrt chart of $APKT shows you that $APKT was destroyed this year.
At this time, the quarterly operating income was erratic at worst, and stagnant at best, take a look at operating income for the past three quarters:
Operating Income
12.83 22.6 21.26 22.11 16.34
Meanwhile, operating income for 2010 was more than double that of 2009. So the parabolic rise in 09-10 was caused by growth smart money trying to profit from this growth And we see that the money that caused the rise started selling out after this awesome number came out, in early 2010, and the euphoric crowd that saw these amazing growth numbers caused the price to inflate so high, that once we saw that 2011 numbers were slowing down, they all sold out.
So what possibly happened was that the big value/growth funds who profited from these great margins, took profits in early 2010, and all that were left was the rest of the crowd hoping this performance would continue in 2011. Once the margins reported by $APKT came out, pretty dismal numbers, everyone else piled out, killing the stock. And the price was in the 80's so the insane disconnect between market price and value was too wide, causing them to sell.
Now, however, the once growth stock is also a value stock, at a price of 37 dollars, and there are some metrics, such as price to sales ratio, which hint that this stock might be cheap at these prices. Check out this chart and you can clearly see that there is big money bidding in support for $APKT.
Remember, the big funds will only buy a position that has value and/or growth, as their positions are way too large to simply trade in and out. So it cant ake months to accumulate a full position, and months to get out. So they look for fundamentally safe and healthy stocks generally. So a healthy chart signals that it is possibly a fundamentally strong company.
As you can see from this 10 min chart of the $SPY, we cleared this descending channel, after testing the bottom of channel rather smartly earlier today. With rising 195EMA, which is the 5 period EMA on a 10 minute basis, we are looking for horizontal resistance at 127:
I would like to profile Acme Packet here $APKT. I will attempt to combine fudamentals with technicals. Below is the annual income statement. What I really like is the rapidly growing operating margins over the past 3 years ( operating income/net sales) Normally with that kind of growth, the growth rate of SG and A and COGS expenses will grow at a similar pace, but the growth of those expenses is very contained relative to the operating margins, and the revenue growth. Using normalized 3 year growth rates, there is a speculative target based on these metrics of a 52 dollar target, but that is speculative. I'm young and new at this. Probably not very good, but this is my first post incorporating fundamentals. I am still learning. Below is the Income statement for $APKT. I realize that there are many many metrics with which to measure value/growth, please realize and don't judge me too harshly here, as this is a "feeler position". Thanks.Again, please note, I based these numbers on the past three years:
This blog has nothing to do with war. I am not a politician, I am a trader, and while I have strong opinions regarding political events, they have zero to do with each other. But hey, at least I got your attention. Anyways, I just wanted to show you a quick 60 min chart of the $SPY. As you can see, and as the legendary trader and amazing person @traderstewie pointed out on the S&P 500, we formed a massive head and shoulders top on the $SPX 60 min.
I noticed a very similar,pretty much identical developed on the $SPY. Well, obviously they are similar, the $SPY mirrors the S&P500. Anyways, I just wanted to point out the power of reference points. What is the neckline of this massive head and shoulders pattern is also the UPTREND LINE FROM THE LOWS OF THE YEAR. As you can see, reference points represent significant points of stock changing hands, and are often relevant for longer than we think.
Since 1994, on the $SPX monthly chart, we have closed the month below the 20SMA twice (Before September of this year). Each time we closed beneath the 20SMA on the SPX monthly since 1995, it resulted in a slight retest of the 20SMA GENERAL (but not even close to the actual 20SMA) area, but could not come close to getting back above it or even retouching it by any stretch whatsoever, and subsequently declined over 50 percent each time.
This September was the third time since 1995 we closed beneath the 20SMA on the monthly chart. Odds say, we would decline 50 plus percent, right? Well, for the first time since 1995, we broke the 20SMA on the monthly chart, and closed safely above it the next month!
So what to expect? The closest resemblance to this action in 20 years is 1994 when we closed below the 20SMA monthly, closed ever so slightly above it the next month, and than hung around the general area for around a year before we broke out majorly in 1995. So we may see a very similar thing now. Just like in 1994, even though we broke below the monthly 20SMA, there were a ton of bulls who kept a bid for a year until they took control, similar case here where even though we closed below 20SMA for the third time in only 15 years, the case may be where there are still a ton of buyers here, apparent from the close the very next month back above the 20SMA monthly.
So we may have a battle in this range until someone gains definitive control, just like in 1994 ( A green rectangle is around it). Two things to watch. One is that even though we put in a higher low last month, the RSI made a lower low which is a bearish divergence ( The RSI is circled in pink).
Also, The trendline from the start of this long term uptrend since 1994 (pink line) was broken, and this bullish SMA monthly action could mean we retest the underside at 1450. What is also positive is that we had a very successful retest of the broken downtrend line from the year highs at 1500 ( I circled the successful retest in light green). So we can easily test 1450, underside of longer term uptrend line since 1994 when we broke out. So dont fight the trend. Whatever your bias is, watch these levels of reference, and trade accordingly. We have free air up ahead until then. So until than, let it be.Cheers.
I have published several posts of late, some of bearish nature,some of bullish nature. Admittedly, I have been leaning towards the bearish side slightly, and as much as I have always tried to be completely neutral, and "neither bullish nor bearish" I find being neutral nearly impossible. Most people who say that they are completely neutral are full of it, and there are very few people on the stream ( but there are a few) I know of who can honestly claim their complete neutrality.I realize that achieving this state of total neutrality is an absolute prerequisite to being a successful trader, and I am trying harder and harder each day to truly believe and embrace the fact the market never produces good or bad information,it just produces information. Here are two charts, a weekly and a monthly, that have the possibility of producing very bullish results in the near future:
A bearish rising wedge from July 2010 that might have failed could bring a fast move up to top of wedge, which would result in a move to above 1400, breaking the neckline of this inverse head and shoulders:
A break of the neckline of 1400 on the weekly( a possible effect of the failed bearish rising wedge breakdown on the weekly which I pointed out) would mean a break of this monthly descending trendline (which is not coincidentally also at 1400), and a test of this monthly neckline of this monthly huge inverse head and shoulders possibly at 1550 with the additive of a bullish higher right shoulder:
Below are two charts requiring an open mind ( As does everything in trading).The first chart posted below is a chart of the every so significant Shanghai Composite Index. Notice the bullish RSI and MACD divergences occurring hereand the breakout today from a massive falling wedge taking out the 9SMA:
This next chart requires a bit longer of a glance. It compares the SP-500 price history (top)to the price history of the Shanghai Composite Index (bottom). When we have a sustainable and prolonged move higher, The shanghai trends higher nicely (the orange uptrend line), but when the SP-500 moves up while the shanghai moves down, the move is not sustainable and the shanghai negatively diverges from the SP-500 and trends down (blue trend). The last rally in the SP-500 is accompanied by a break upwards out of the falling wedge ( which shouldnt be a "falling" wedge if the SP-500 is moving UP!) and that is the final rally attempt before a large additional long leg lower in the general market. The orange trendlines in the SPX and the Shanghai represent positively correlated moves while the blue trendlines on both as well represent negative bearish correclations. The falling wedges in the Shanghai are also in blue as I believe they are very short lived and bearish.Look what the SP-500 does everytime we get a falling wedge breakout in the Shanghai. Can you say last gap? I dont know, just a thought. See you guys!
I annotated a daily chart of the SP-500 below in detail. I understand and vehemently contend that K.I.S.S is honestly the philosophy of importance in this business,yet for this broader perspective,the beauty and symmetry of this action should be noted. The chart looks confusing, which is why I made each marking a certain color. The red trendlines run parallel to each other, and the red circles reveal the significance of the red trendlines. The blue trendlines run parallel as well, and the blue circles and rectangles reveal the significance of the blue trendline. The fat purple horizontal line is the neckline of the massive head and shoulders top, which we broke in August, and are now looking to retest it. The main point I want to bring to you is the 1265-1275 area. The more points of reference that cluster together in the same spot, the more significant it is. And seeing as we are looking to test the; 200SMA, neckline from h and s top, HUGELY SIGNIFICANT uptrend line from July 2010, and downtrend line from the right shoulder, all in the SAME EXACT AREA of 1265-1275, is massively significant. MASSIVELY. After you review this chart, look at where that area shows up on the weekly, which brings me to post a weekly chart with annotations as well.
Here is the weekly chart: See where that 50MA weekly is? 1267!!! same EXACT level, giving it so much more importance by the fact that it is Huge on weekly and daily timeframes! and that huge 1265-1275 level on the daily is the same exact spot where on the weekly all of the following levels appear on this timeframe in one and same exact spot. 50SMA, neckline of a longer term more significant head and shoulders ( i point it out on this chart) hugely significant uptrend line from 2009 (the green one). here it is
Posted below are two charts. Both charts of the SP-500, yet on different time frames, and their respective moving averages reflecting each chart's respective time frames. The first chart displays the daily SP-500. I will dissect that first. We have been performing very nicely, but I believe that the biggest test is yet to come at the 1260 level. It is a HUUUGGGGEEE battle zone with a confluence of some unbelievably important points of resistance: 200 day SMA, historical head and shoulders reversal neckline, former massive support and resistance, down trendline from the highs of the year, and broken uptrend from the 2010 lows. This is at the 1260 level.
Now check this out. This level corresponds to the 13 period SMA on the monthly, coming in at about 1265. The points that are circled on the monthly charts with the 13SMA (second chart) shows what happened each time we broke below the 13SMA for the month ever since we broke out from accumulation in 1994 on the SP-500. Allow me to point this out:When we broke below the 13SMA on the monthly, the only times we fought off a massive decline is if we managed to close back above the 13SMA within three months. If we did not close back above the13SMA monthly within three months after we broke below it, we declined at least 350-500 more SP-500 points.And if we managed to continue a massive bull run and recapture the13SMA, we got back above the 13SMA within three months. We are in October, we broke below the 13SMA in August.If you arent counting,yes, this is the third month that we are below the 13SMA. And it comes in at those same massive reference points which I highlighted in the first paragraph and on the daily charts. And, odds are, these final few trading days in October are make or break it time.Here are the charts
Since 1995, the $SPY has closed below the 20SMA for the month only TWICE. Yes, you heard me correctly, twice. Both times it did, we got a small retest of the 20SMA monthly, but never closed the month above it, and declined over %50 percent both times. Again, after closing below the monthly 20SMA, we havent closed above it again before declining at least 50 percent before we recovered. This past September, we closed the month below the monthy SMA20 for the third time since 1994. Now, odds would say that we will not close above that 20SMA before we take a 50 percent haircut at least. But if we hold out gains through the rest of October, we are for the very first time in almost 15 years, closing above the 20SMA on the monthly even after closing below the monthy 20SMA the month before. Needless to say, the fact that the market is trying to recapture that monthly 20SMA before a decline of any significance ( let alone 50 percent) shows some unusual strength
I noticed the daily chart of The Lorillard Group and the fact that as it was about to breakout from the ascending triangle and the more aged symmetrical triangle, it formed a mini shooting star, but not amplified enough to have overly bearish connotations. So this post is meant to show that as traders, we must not simply scan daily charts, substituting scanning for the real work that is required to be succesful. As much as I believe in formations, whether it be via patterns or candlestick formations, many times those textbook formation hide how the stock really trades, and how it trades can reveal what it may do in the future. So while Friday's candlestick of $LO shows that a breakout may not be imminent, a look at the intraday timeframe reveals that, indeed, $LO traded quite bullishly and may be ready to breakout.
Good afternoon everyone, I hope everyone is having a good day. I wanted to share a thought with you, in hopes of, a) Getting it off of my chest , and 2) Hoping to receive criticism contesting my opinions and learning something from you guys. There is talk of the teevee sets, and in the daily publishings, of a double bottom put in the Standard and Poor's 500 , as well as the other major indices, and we are from here on in headed higher, and combined with the "climactic selling" we saw in early August, this has to be a major low. I would venture to humbly,yet readily dis spell this theory. Firstly, I don't care how many people say its too obvious, but we came off of a historic head and shoulders pattern on the monthly,weekly,and daily timeframes.And to confirm it,we broke the neckline with vehemence. There is nothing else to question about that occurrence. We ended distribution, and began our decline. Second step in a decline is to form a weak volume,feeble, "double bottom" get people hopeful, drift up a bit,and continue our rollover. ( Which I think we will do). Thirdly, the volume on the bounce was exactly what to expect after a vicious top reversal pattern. People are saying everywhere that " volume is an issue, but it's ok" , quickly dismissing volume,as long as the patterns are there. People, let me say this: PATTERNS ARE NOT MAGIC!!!!! Patterns are invalid. Volume and activity are extraordinarily valid. Volume and activity create these patterns, thus making them valid as a forecasting tool. But, hence, without volume, the patterns are not valid. Here, this might make it easier: PATTERNS = 0 , VOLUME= 100 , VOLUME+PATTERNS=100 PATTERNS-VOLUME= NOTHING.
The volume on the head and shoulders reversal was perfect, including the break of the neckline with huge volume. The climactic sell bottom? What climactic volume? Volume was steadily increasing for a week. Huge volume means nothing. RELATIVELY huge volume is important. And the huge volume day was not relatively huge, because the days leading up to the eighth of August had highly increasing volume as well. The double bottom claim? No. What is a double bottom, why does it mean anything? Because the bears try to break support, and lose steam once. Than, they regather their resources, recuperate, and accumulate strength. Than, they try again, stops placed below the prior low are taken out, and the bears still cannot get it done. So the fact that the bears tried once to press, couldnt, took time to re-strategize, tried again, exhausted all their selling strength in the attempt to break lows, and once they couldnt get it done again, only buyers with cheap accumulated shares were left. So the main resaon why a double bottom bears significance is because they took awhile to gather all of their strength, and still were not able to break lows with any strength. So the key factor is the time in between double bottoms. The more time spent by the bears gathering strength to retry breaking lows, the stronger the bulls appear if they still hold bids. The less time in between each bottom, that means that the bears didn't really use any major resources to break lows again, so just because that held, it does not mean anything. Gathering strength takes a lot of time, and without spending time, that means strength was not used. So yes, the bulls held for the second time. But, against what? I mean, how much force did the bears exert? Judging by the lack of volume, no undercut to take out stops and accumulate shares, and the lack of time in between bottoms, not much. The bears are obviously not worried about this "bottom" , not covering, and not wasting strength. When the Miami Heat are up by 25 in the fourth quarter. Why not? Because the Heat want to conserve him, their momentum,for when they really need it,need Lebron. Right now, up 25 in the fourth,the game is already won,so why waste their true power? Save it for when it matters. In a big game,in the playoffs, when they are facing TRUE OPPOSITION THAT MAY DEFEAT THEM each basket matters, so then, they will use every resource they have. Well, the Heat represents the market. If the game belongs to them, they will save their star for the real opposition. And apparently, it aint here yet. Lastly, when does the worst news come out, and when does the best news come out? Exactly. Bad news at bottom,great news at the top. Warren Buffet is saving Bank of America. Buffet Top, anyone?
Good evening all. As traders, one of our main jobs is to look where the big money is flowing, and hop along for a ride. So stock which is heavily owned by institutions could prove very very technically healthy and extremely profitable from the long side. However, I believe that in bearish and scary market conditions, finding stocks that are heavily owned by institutions can be even more profitable, as their forced liquidation, and mass exodus to avoid risk trades, could heavily heavily destroy stock prices. Hence the title of this post, seeing as a heavily institutionally owned issue could provide serious price movements, both up and even more so down. As we all know, when people are buying, they take time to calculate, plan,scale in over time. But when there is massive fear, they cannot leave fast enough, especially when a huge loss of money is possible of said institutions. So when they are forced to liquidate, by clients, margin calls,belief,strategy,fear, or all of them, prices tank faster than you can say "sell!!!). I also believe that companies with a high debt/equity ratio could face some extremely unprofitable times in rough economic times, leading the big whale/value investors, to sell out. Therefore, I developed a new thesis which incorporates a fundamental, yet nontraditional idea into my scanning for this week and the next few weeks, possibly. However, as I am primarily a devout technical analyst, my primary intentions are to find stocks that are in their late distribution/early decline on the daily timeframe, and mid to late distribution on the weekly timeframe, as I do not want to miss the meat of the move and show up late for the party. The other two conditions incorporated in my scanning formulas are : Institutional ownership of 85% or greater and debt/equity greater than 1. Here are just four of the results that came up, out of the many, ripe to short the shit out of:
