Closing Stats

I couldn't make this up! Remember yesterday I outlined a level the SPY needed to break to entice longs back in the market? I said, The shorts were already squeezed, now it's the long's turn" to be set up in a bulltrap. I even said volume should pickup when the SPY breaks out. This was the breakout level  I showed you.

And here are the Price/Volume relationships for today:

All NYSE components: Dominant P/V relationship=Close Up/Volume Up, 3042 followed by second place, Close Up/Volume Down, 2225.

The DOMINANT relationship was close up and volume up, meaning, what was expected to happen on a break of resistance, did happen, the longs came to the party.

All of the averages today had the same dominant P/V relationship-Close Up/Volume Up.

The DOW 30= 19 stocks
The NASDAQ 100= 64 stocks
The S&P-500=252 stocks
The Russell 2000=1027 stocks

Normally, Close Up/Volume Up is the strongest, most bullish Price/Volume relationship, but you must always look at the relationship in the context of the market. The context we were looking for was a breakout above a resistance level which would draw the longs in and set them up for a bulltrap; today that happened. Does that mean it's over? It could be, or they could set up a larger Bull trap, but what is important is what was expected to happen on a break of resistance did happen.

Going through the charts today, I also saw a lot of breakaway gaps to the upside, they may be considered exhaustion gaps, it's too early to tell, but much like a capitulation gap down, an exhaustion gap up often tells us we are nearing a point of saturation or a level of overbought. As I said yesterday, many of the shorts who were squeezed over the last week and a half, likely entered the market today as longs, putting them in peril of becoming 2x losers. If there's one thing about the market that rings true throughout, it's that Wall Street will always find a way to make as many people wrong as possible.

The Miner Trading System Update

OK, we have 1 change tonight. System 1 which is a bit faster, but has a few more false signals just gave a signal to sell NUGT and buy DUST tomorrow morning on the open. System 2 has not crossed the signal line, but is heading in that direction.

Remember all trades are executed the morning after the signal on the open (tomorrow morning) and the stop loss (on a closing basis) is 3% below DUST's opening price tomorrow morning.

Red=Signal Line, Green=System 1, Light Blue=System 2

This puts the NUGT gain at about 11+% for this swing thus far.

SPY Follow Up

About 45 mins ago I mentioned what looked like a tower top/reversal in the SPY, it seems to be correct as we move into closing trade.

 Here's what was the hypothetical tower formation, now filled out.

 Note 3C during the two tops of the tower formation has gone in to a deeper negative divergence.

 RSI, also a helpful tool has shown a similar negative divergence.

The 5 min 50 bar has been the average to watch today as t is most days for intraday trade, the SPT has generated quite a bit of sell side volume and s seen here testing support at the moving average. Typically we see bounces back and forth around a support area like this so if it is decisively broken and volume picks up, that will tell us something about sentiment in to the close, which is the most important part of the trading day.

Trade Idea- ISRG (Short)

 ISRG is similar to the last Idea I put up, remember the double top and the possibility of a head fake/false breakout, ISRG effectively did what was option 2 in the last post. Today's break comes on heavy volume.

 For the purposes of the Swing trend identification, ISRG had a solid swing uptrend with 6 consecutive days of higher highs/higher lows with no noise. The 6th day showed a major red flag, not only was this a day above resistance, but it was a Doji candle (open and close are almost identical producing a small almost undetectable candle body). A Doji is an indecision day and being it was found above resistance and after such a strong swing trend, it was a red flag. For our Swing trend identification, note the orange arrow is the signal candle (last day to make a higher high/higher low). Today the high of the day is below the signal candle's low marked with an orange trendline, this s telling us the Swing uptrend is broken and on heavy volume. The volume is part of the snowball effect of longs entering the trade on the breakout, now selling at a loss-"The Bull Trap".

 3C 15 min showing a base and accumulation and a negative divergence at the false breakout, this is what I call a cycle, from accumulation to mark up, to distribution, and now decline, a cycle.

The hourly 3C chart leaves little doubt of how serious this negative divergence is.

As you can see, my Trend Channel set to an hourly chart, held the entire swing move up, thus making it a reasonable stop for a swing trade on the short side. The channel is reflecting a stop around $375. I know this is an expensive stock, but don't get caught up in how many shares you own, what matters is the % move from money invested. Since the stop is only 5 points away, there's about 1.3% risk in the trade, which is a very narrow risk margin. This has nothing to do with the 2% rule, but it affords you the ability to take on more shares as the risk is minimal. You should however consider the possibility of a gap when position sizing the trade.

SPY Intraday

 This SPY 10-min hart looks a bit like a tower reversal, we'll see.

As mentioned earlier, the TIK hart (All NYSE components advancing minus decliners) is looking worse today then yesterday and as observed earlier today, the TICK channel, appears as f it will be broken to the downside. This is just another hint that the underlying technicals of today's breakout are not as strong as price alone would have you believe. It's more or less what I've been expecting to see.

Trade Idea -RRGB (Short)

As I've mentioned, coding a scan for divergences is one of the most difficult things to code because of a series of variables concerning the divergence length and depth vs. the fixed indicators that you have to use to identify divergences. No one has come up with a great way to look for divergences using a scan that works across multiple timeframes, but I've made some progress over the weekend and this is one that popped out of the scan.

 RRGB is at what might be called a double top, although not textbook, it's n an interesting place with regard to probabilities, risk/reward and timing. The stock has rather low volume, but not horribly so and it's optionable. Two setups are apparent, one in which RRGB can't break resistance here and moves lower and the other in which t does break resistance and likely forms a false breakout (which can be confirmed at the time. The second option would be better.

The Daily RSI is negative and Stochastics is overbought, a good signal for a stock topping.

 The hourly 3C chart is negative, so there's apparently some negative action underlying price.

 The 15 and 10 min harts are also negative.

And the 5 min chart is very negative. There's good confirmation among multiple timeframes.

I would set both an upside alert in the case of a false breakout (around $38.60) and a downside alert in case of a failure. If you use the swing method, then look for a closing candle (as of today) with a high below $37.51. Otherwise, you might look for a false breakout or a close below the uptrend line around $37.00

Market Update

The market just took a particularly sharp turn in 3C...

 DIA 1 min

 IWM 1 min

 QQQ 1 min

 SPY  1 mn

The TICK chart also looks like it's about to break an already weaker trend then yesterday.

Going to look for more evidence.

URRE Follow Up

URRE is a trade we've been watching develop, I've written about it many times, the last entry trade was on the 24th of June @ $1.62 for a current gain of about 11%, which is a nice target for a swing trade, although URRE may very well have bigger plans. Actually we had an earlier trade on 6/17, so if you took that trade, you'd have a gain of around 20%, which is double the average swing trade target.

 On the daily hart, URRE has a nice positive divergence, it's been in a downtrend as one of the few underperforming commodities during the commodity run, for nearly 6 months. Note RSI is positive at the lows of URRE's price. I'm looking at URRE in this post as more of a swing trade, but this is one to keep on the long term bullish watchlist. What we've seen over the last several weeks could very well be part of a much bigger base forming; there are solid fundamental reasons concerning supply and demand that underpin the bullish slant on the trade.

 Here's my crossover screen to help prevent false crossovers or whipsaws, the most dangerous part of any crossover based trading system. For a long position to be triggered, the 10-day yellow price moving average must cross the blue 22 day average. In the middle window, the yellow custom indicator must crossover its blue 22 bar moving average and finally RSI must be positive (above 50). In white you an see the long trade signaled, in red, several failed price crossovers that the system picked up and would have prevented you from entering at those whipsaws.

 Typically, once there's a long position triggered, the first pullback will usually be to the yellow 10-day moving average and after further legs up after a pullback, subsequent pullbacks tend to be deeper and target the 22 day blue moving average. URRE is starting to look a little overbought.

Here's a trailing intraday stop that has held the trend well, it's a 50 bar sma on a 60 min chart. The average will continue to rise, but a break of the average would signal a stop out of the current swing long trade.

Finally I want to take URRE as an example of the Swing method I've been discussing lately, as few trends will go straight up and discerning what moves are important and what are noise is important. It's always easy to see in hindsight, but consider our first trade entry in white, the next day we had a slightly lower close, while it may not have been hugely disturbing as it was a slightly lower close, you may have felt this is not a good way to start off the trade. The days marked with yellow arrows are considered noise and the days in green are days posting higher highs/higher lows as well as a higher close. The day of the large green volume spike was another follow up post and trade entry. The following day closed significantly lower. Emotionally, this would have been a very bad feeling to enter the trade one day and the next be sitting on a decent loss, but still the next day down was noise in the trend and not very relevant. We saw two more days of noise in a consolidation before we made our next significant move with a higher high and low (green arrow). Since then URRE has made another 3 trending days of higher highs/lows and higher closes.


This is just an example to help you understand the trend, while in retrospect the trend looks pretty good, sometimes out emotions can be jolted pretty hard on a 1-day move against our position, especially after just opening the position. Hopefully this will help you take a longer view of a trend and help you understand what the trend actually is. Just like with a map, you can't get to where you are going until you first understand where you are.

Market Update

 So far there's no short term confirmation in any of the major averages of today's move higher, which is what I would expect to see. Here's the DIA 5 min.

 The DJ-20 (Transports) on a 5 min chart are also not confirming and are significantly underperforming some of the other averages. This recent triangle in the DJ-20 should be watched for a directional move (remember, the first move is not always the real move-as in our Crazy Ivan shakeout).

 The IWM is not confirming on the 1 min hart showed here, nor the 5 min chart.

 QQQ 5 min

SPY 1 min as well as the 5 min chart.

Trade Idea -MPEL (Short)

MPEL is one that just popped up on one of my scans. As you can see there's plenty of downside for MPEL so no need to rush in to the trade. 

 RSI was healthy through 2010 and in to 2011, making higher highs with price, but the recent parabolic move up (red rectangle) is a red flag as is RSI's failure to make a new high with price, which is an RSI negative divergence.

 MPEL saw 9 consecutive days of higher highs and higher lows, no noise in the trend which taken with the parabolic rise, probably indicates some short squeeze has taken place.

 On an hourly chart, the linear regression channel sent up a red flag around 6/30 when prices moved to the upside of the channel, this type of activity, although seemingly bullish, often precedes a break of the LR channel as we see today on increasing volume. Both MACD and RSI which had been bullish and moving up with price, both went negative around July 1st. The next day a hanging man (bearish reversal candle) candlestick was put in followed by a star (indecision candle). A star forming after such a strong uptrend is another red flag.

 On the 15 min chart, one again MACD and RSI went negative as MPEL tested the 7/5 highs.

 The 30 min 3C chart has worked well in the past, calling a negative divergence at the late May highs, it's currently in an ugly negative divergence.

 The 10 min chart which had already gone n to a negative divergence at the 7/5 highs grew worse on the 7/7 test of the highs.

As for the trend reversing, there are many ways you can enter this trade, the swing method I've been talking a lot about this week would show a trend reversal with a closing candle in which the high is below the signal candle's lows (at the red trendline). If and how you enter the trade is up to you, there may be a snap back bounce offering better positioning, but even if you wait for the swing trend to change, as I pointed out early in the post, there's a lot of potential downside for MPEL.

And Here's the ECB's Shot Back at Moody's

The ECB wasn't about to let Moody's scuttle their bailout of the EU, so they did what any person or organization with unlimited funds would do, change the rules in the middle of the game. From the ECB:

"The Governing Council of the European Central Bank (ECB) has decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the Portuguese government. This suspension will be maintained until further notice... The suspension applies to all outstanding and new marketable debt instruments issued or guaranteed by the Portuguese government."

USO Update

USO has had an overall, very bullish bias to it. Yesterday I was concerned whether USO could hold above support being there was very little volume on the break above, it seems as the day progressed it was most likely due to the fact USO was consolidating as you can see in this triangle (consolidations are known for diminishing volume as they mature). You can see this morning's break higher out of the consolidation and pretty much at the exact right time as the triangle came to an apex. 

 It's more difficult to see with a candle stick hart because of the gaps, but using a line chart, you can see a clear inverse head and shoulders bottom in USO, which it has now broken out of. The minimum price pattern implied target for USO is $39.75, I think USO should be able to accomplish that with little trouble. Interestingly, the IEA's strategic petroleum release which has gone up for bid, seems as if it is being bought by the likes of JPM and other investment banks which will store the crude off shore in tankers and bring it in to sell it at a higher price when the time comes, so the move seems to be very poorly thought out. It makes for nice headlines for the average population that doesn't follow events beyond headlines in the paper, but otherwise, other then possibly provoking OPEC in to cutting production, it also seems this crude, meant to lower fuel costs is being used as an investment and will likely have little effect for the average energy consumer.

This 30 min chart (the 60 min looks good too) shows why I have a intermediate term bullish bias on the black gold. This is a very strong 3C chart and reminiscent of the SPY charts as the SPY and broader market were in daily peril of falling even further. This chart also gives some evidence that the H&S bottom which is more difficult to see using candlestick charting, was under accumulation through the entire bottom.

SPY Open

In this post yesterday, I showed you the resistance line the SPY would need to move above to generate some buying interest and earlier I mentioned how it would be ironic that shorts recently squeezed out of their trade, would likely end up buying a break of resistance and possibly become 2x losers.

 Is it just pure coincidence the SPY gapped above the resistance level pointed out yesterday as needing to be broken to attract the longs?

This 15 min chart shows the volume on the breakout, not too bad so far.

EEE Market Gift

Today is certainly a day in which I would be taking some or partial profits on EEE. My rule of thumb for &D trades in double digit returns and I want to take as much profit as I can to get close to at least a break even trade if all goes wrong, or even lock in some profits.

Because EEE was a stronger situation with a daily positive divergence, most C&D trades don't see that much accumulation, I've kept the idea of a trailing stop in mind to allow it to amass further gains if possible.

If you bought on the original trade note on the 17th of June, you should have at least a 30% profit.

If you are interested in trailing stops, which right now is tricky because of the big gap, email me and we'll look at some ideas that may be appropriate for your position and style.

Open

Yesterday  showed you some daily resistance levels and the SPY in particular that should be broke, as I said earlier in the week, the shorts were squeezed, not it's the bull's turn. It looks like we'll get an opening above the SPY resistance level which should bring in buyers courtesy of the ADP report coming in much stronger then expected, it more then doubled consensus of 70k jobs.

Initial clams were 418k, just below consensus of 420k. Continuing clams just edged out consensus as well for a small beat, so the ADP report should move the market.

In a not so surprising move, the ECB has fired back at the downgrade of Portugal yesterday which put their bonds in junk status and unacceptable as ECB collateral. The ECD changed its rules allowing Portuguese bonds to be accepted as collateral despite their junk status. This effectively nullifies Moody's downgrade yesterday that would have otherwise thrown the bailout mechanism in to chaos.