Finally

For at least two weeks now I have been pointing out the most basic and fundamental principle of the market and technical analysis, Dow Theory, which isn't so much theory as it has proven itself time after time, but in a world were technical traders are on a non-stop search for the 'holy Grail" of indicators, they forget the basic principles of Technical Analysis.

Above is the Dow-30 in green vs the Transports (Dow -20) in white, this divergence joins the many others including the Euro, Commodities, Credit (of all sorts), rates and more.

I would also point out the IWM (Russell 2000) divergence with even the Dow, not to mention the NASDAQ, as the R2k should be the leader of risk on rallies (Just ask Bernanke, he testified to nearly as much before Congress).

 The Russell is in green, the Dow-30 in white.

Here the Russell has not made a new high with the market and is actually down .46% over the last 15 days or a day more then 3 trading weeks.

A couple of weeks late, Grant Williams of "Things that make you go hmmm..." posted this chart of the Dow-30/Dow-20 (Transports0 divergence. If the market is and economy is humming along, then the transports that deliver all those goods should be leading the market, not lagging it.

As for Friday, Bloomberg reports that it was the lowest NYSE trading volume in a decade (excluding holiday trade).

ES is flat from Friday's close, apparently the G-20 meeting didn't do anything to inspire the market. The Euro is nearly flat as well on early FX opening trade, however 3 a.m. EDT is when European markets open so I'm not reading much in to that, other then the weekend news and G-20 didn't lift the market's spirits.

Friday only had 1 dominant Price/Volume relationship and that was in the R2k-Price Down/Volume down which isn't surprising given Thursday's very dominant Price Up/ Volume down which I said is not only the most bearish of the 4 relationships, but also acts as a short term overbought signal and the market's P/V relationships or lack of them seem to confirm that.

Close Down/ Volume Down is usually the most benign relationship and the most common in a bear market, but all relationships need to be interpreted within the trend. Given the nASDAQ / SP-500 move to a slight new high, this isn't the relationship that inspires confidence on that kind of a technical move, even though it was questionable at best as seen in the daily price candle/close.

Friday's NASDAQ 100 close. Internally, 50 (half of the NDX) closed down (both volume up and down).

I'm off to do my husbandly duty and pretend that I'm interested in the Oscar's Red Carpet dresses, then I'll be back to the charts.

Earnings Play Monday After-Hours

I just went through 28 stocks' charts that are reporting after-hours tomorrow looking for the tell-tale anomalies that are associated with earnings leaks. Just to be clear, there aren't usually that many stocks that exhibit signs of an earnings leak, but in the past we have found quite a few. One earnings quarter I wanted to show members how corrupt wall Street was and posted before earnings how I thought the stock would react to earnings (not whether they would beat or miss, just the reaction as we have seen this last few weeks stocks can beat and still be sold off0. I found 22 candidates and posted what I found before earnings, 19 of 22 were right, although I probably looked at several hundred stocks.

Of the 28 I looked at today, I found 10 possible candidates with 3 being higher probability ( I assigned them a rating of 1-5, 5 being highly probable) with a rating of 3, they included PCLN, AMRS and HGSI.

I'm leaning bearish on PCLN and bullish on AMRS and HGSI. However, I learned not to judge too quickly as a few quarters back we nailed GOOGLE, but it only gave a strong tell-tale sign 15 minutes before the close with earnings after the close, so I'll monitor all of the candidates tomorrow and if there seems to be a very high probability trade, then it will be posted before the close as these all report after the close.

Here are some example charts thus far...

PCLN...

 There's some accumulation in this 60 min chart back in November sending PCLN higher, and another smaller zone more recently, since then it has turned negative. If you were Wall Street with inside knowledge, you'd want to sell as high as possible or short as high as possible. The 2nd accumulation zone wasn't as strong as the first, it seems it was just there to push PCLN up higher.

 Near term we see the same short term support to elevate PCLN, but distribution that is stronger.

 This 2 min chart puts a finer point on it as does the 1 min chart below.  We'll see how it reacts tomorrow as to whether it will make for a good earnings play.

HGSI-If the basics of what I said above about selling in to strength apply, then HGSI, if there were positive earnings news leaked, would be accumulated at the lowest prices possible.

 On this 60 min chart HGSI was distributed in to a head fake in yellow, a head fake is one of the easiest ways to move a stock down quickly. However on this long term chart we also see recent accumulation. Since this is a biotech, we can't assume with certainty that this is earnings related as it could be a leak from the FDA as well.

 The 30 min chart shows good confirmation of the same starting with the head fake in yellow.

 All of the charts are confirming like this 15 min...

 A leading positive on the 5 min

And a very impressive leading positive on the 1 min. I actually like this chart a bit better then PCLN, but we will wait to see what changes may occur tomorrow, as I mentioned, we nailed GOOG, but not until 15 mins before the close-probably not coincidentally either a that tends to be when smart money is most active.

There are other candidates as well, I'll be watching those and if they start looking more promising, post them tomorrow as well.