IRE Trade Idea (long)

While I'm running some scans, I've been just browsing some charts and came across IRE. I wouldn't think I would find a bullish chart that had the words, "Bank" and "Ireland" in the name, but you take what the market gives.

 My Trend Channel on a daily basis has held both the down and up trends very well (I used an average entry point and the TC's exact exit point). Note volatility at the top in the bottom window. The small red arrow is the Chanel's stop or buy to cover.

 RSI is positive at the bottom, which has the look (flat price and low volume) of an accumulation zone. There's also been a recent break out.

 The X-over Screen did its job and rejected the first price crossover signal, but recently went long w/ a pullback to the 10 day s.m.a.

 Here's a closer look at the Trend Channel stop and this is what I would use and calculate my risk management to in case of a deeper pullback.


While I don't have my main 3C layout open because of the scan I'm running, there is confirmed accumulation on the 60 min chart right where I'd expect to see it. I would almost treat this as a position trade with the wider stop, which means fewer shares initially, but if the trade moves in your favor, averaging up a winner is a winning idea.

Member Submitted Charts

They say those who can't do teach, well I traded exclusively for a living with no other income source and taught and as much as I learn every day from the market, I learned just as much in teaching. I first realized that teaching is a great way to learn when I was in my teens and gave other kids guitar lessons.

In teaching Adult Education for our county school system, I learned a lot too. First because I probably had over 300 students during the 3.5 years, I was asked a lot of questions and nothing forces you to really clarify your position like being asked a question in the middle of class. I also learned a lot in just going back to the basics (preparing lessons each week).

With the number of WOWS members and the diversity, I often hear interesting ideas that may spark additional ideas and thoughts. So I just received these two charts in an email from a member, I like them first and foremost because they focus on the big picture and cut out the noise of the daily or intraday gyrations. In using standard indicators, I almost always use non-standard settings and 90% of the time, they are much longer settings as clearing out the noise uncovers the trend.

So thanks George for sharing these charts with us. You can expect a little something in the mail, I don't know who it will be from or what it will be, but I'm sure you'll find it in your mailbox, I just hope you like it!  ;)

 These are long term moving averages of 200/300/360 days. This chart is especially interesting to me because the bear market counter trend rally crossover in 2008 is the same area that I find to have numerous similarities with the current market; I've posted charts highlighting the two areas dozens of times.

And here's a long term view going back to 1993. Note the Macro price pattern, especially in the context of my view that we will likely see the first ever secular bear market in equities born from the 2007 market top.

Chi-Town PMI

Goldman's own Dave Kostin said the economy has turned for the worse, probably annoying Goldman's trading desk as they issued a long Russell 2000 note, which simply means they are selling the R2k to their clients.

Chicago PMI thus far is validating Kostin, while the R2k is down a half a percent since the GS long call.

Released on 1/31/2012 9:45:00 AM For Jan, 2012

Prior Consensus Consensus Range Actual Business Barometer Index - Level 62.5  63.0  59.0  to 65.5  60.2

The expectation was for Chicago PMI to beat the previous print of 62.5  with consensus at 63, it came in below both at 60.2.

The particulars show the employment component falling, the order backlog falling in to contraction (which isn't good news when everyone just restocked -remember Q4 GDP had it's biggest gain in restocking and now the orders have dried up, which doesn't bode well for Q1 GDP at all), new orders also fell, production fell (not good for employment).

From the comments section of the report, a decline in defense spending by the Federal government was hurting one respondent, another said that their orders were "uncharacteristically slow". Another said the "Talk indicates a busy quarter, but there seems to be some hesitation in getting orders out".

The devil is always in the details.

AAPL Where are the buyers?

AAPL just posted blowout earnings after posting a rare miss, rare because AAPL is known throughout the market to issue VERY conservative guidance, which they easily beat, it's the "Scotty" principle for any Star Trek fans, when the warp drive of the Enterprise fails during a Klingon attack, Captain Kirk asks the Chief engineer, Scotty, "How long before the warp drive is back up?" Scotty answers, "15 mins Captain", all the while knowing he can fix it in 5 minutes and appear to be the hero. It's a concept I've used in management as well.

In any case, with Steve Jobs gone, the question is, "Will the amazing innovation at AAPL continue?"

Blowout earnings aren't always the best thing for a stock because as mentioned earlier, it's not about what you did, but perception of what you will do moving forward and a blowout quarter looks like a high bar to beat, if the perception is "They can't do better then this next quarter", the stock will sell off and in AAPL's case, that's a market moving event, at least for the NASDAQ 100.

 Being that AAPL's gains all came in extended hours trading after their earnings (which we know smart money is not going to be buying-and lets not forget AAPL gapped up, but opened significantly lower then the extended hours trading highs), AAPL hasn't done much of anything since earnings. That divergence in RSI (Wilder's Relative Strength Index) is not a relative strength divergence vs the market, it's vs. AAPL's own relative strength.

 60 min 3C

 30 min 3C-Both of these charts seem to indicate that smart money has their doubts about AAPL moving forward.

 Today's open (5 min)

 2 min

 Longer term 1 min trend.

 Long Term Quarterly Sell signals, the first saw AAPL dip at least 10%, the second over 51% and now we have the largest signal yet.

 It's not just 3C, but Don Worden's Moneystream is saying the same, this is the man who invented tick volume which all other money-flow indicators were derived from.

 Long Term Volatility, remember an increase in volatility often marks a turning point.

 This is a 10-day average of where AAPL has closed within its daily range.

This is the same indicator on a weekly basis, moving up is good (green arrow), closing in the lower end of the range tends to be a negative.

Keep an eye on AAPL at $453, $451 and $450, especially watch volume should those areas be hit. One thing about a bear market rally is that it pulls in dumb money, creates a false sense that dumb money is missing out, it appeals to their sense of greed. This is an especially interesting effect in AAPL. Have you ever been to an AAPL message board? Try it sometime.  You won't find many traders there, you will find a lot of buyers who are in love with the stock. I LOVE Apple products, I love my wife, I love my job, I never fall in love with a stock. Upon a bear market rally break down, AAPL will easily be the most intriguing stock and probably trade as well.

Trade Idea PFE (Short)

PFE reported today, they beat EPS by $.03 with in line revenues, but they lowered Full Year 2012 guidance. You've seen it many times, a company beats and sells off or the miss and rally, it because what they did doesn't matter, except within the context of sentiment regarding what they will do and lowering guidance is a very clear way for analysts to make up their minds without a bunch of guess work, as such, PFE is being punished today, but it looks like just the start.

 This flat range with small bodied candles is indicative of distribution, the fact RSI went negative is a bonus, and the large volume spikes from last week, a possible earnings leak.

 Stochastics which has been embedded, is now crossing down.

 Cutting through the noise, a 6-day chart of my custom De-mark influenced buy/sell indicator has hit the bottom and every top thus far and is giving a sell signal now.

 Price Volatility was large at the last minor top and large at the bottom, it has been very narrow through the period of distribution I mentioned before, but seems to be picking up again now.

 The X-over layout just gave a short/sell signal today, usually we will get a decline before the first pullback to the 10-day average, so PFE might not be so bad right here.

 The Trend Channel gave a sell signal last Friday, now that the earning wild card is out of the way, this looks to be a high probability, fairly low risk trade.

 The daily 3C has shown distribution has been very heavy at the recent top.

 The 60 min chart confirms it and suggests a lot more downside off this top then the previous two.

 The 30 min 3C chart confirms the same and shows PFE in a very ugly situation. It looks like smart money has left the building.

 A more detailed view on the 15 min chart also shows distribution in the flat area I mentioned.

 Here's a closer view of the 15 min.

 And the 5 min shows the same with a head fake new high being distributed .

 On the open today, the gap up was quickly sold off in underlying trade.

The Trend Channel would suggest a stop of $21.95, although you can email me if you want to look at stops more appropriate to your trading style.

I would consider a partial position here of maybe 50%, if we get any bounce then you can add, but make sure your risk management is set up before you enter the trade with that in mind. There's also nothing wrong with adding to a trade that moves in your favor, or you could add on the first pullback.

Keep an Eye on 1300

$1300 is the Psychological level on the SPX that will likely be the line in the sand, below $1300, I would expect to see volume increase as stops are hit. Yesterday's lows in which the market bounced off of, were $1300.49!

Note the direction of the moving average and $1300 close by.

FADING THE RALLY

Over the last several weeks there have been numerous fleeting glimpses of the market's change in character.

Earnings have been a disappointment and thus after earnings forecasts were already severely slashed before the season kicked off.


Earnings Analysts who once expected profit growth of 14.6 percent had cut their estimates all the way down to 6.8 percent by the time Alcoa kicked off earnings, so the bar was lowered substantially.


Dave Kostin of GS contradicts GS's trading desk call for a long Russell 2000 trade made last week when Kostin reported that after trimming all of the fat from corporations, Q4 earnings have shown that margins are declining and this time we can't blame inflation in commodities. In Kostin's view, "The economy has peaked and is rolling over."

As of last Friday, with 39% of the S&P having reported, positive earnings surprises are near record lows.  One Hundred and ninety five companies have reported, they represent 53% of the equity market cap. of the S&P-500. The percentage of firms beating consensus EPS expectations by more than one standard deviation (the definition of a positive surprise) is well below the historical average. The number of firms missing by more than one standard deviation (a negative surprise)  is above the historical average. The ten year historical average of beat and misses equals 41% and 13%, respectively. So far this quarter just 24% of firms beat expectations and 17% have missed and this on already slashed expectations by analysts.

As you know, last week the Dow slipped to the first weekly loss for the year, as I pointed out this week the declining rate of change in price.

 As I have been saying, this in my opinion is the infamous bear market rally that occurs after a major top is broken as we saw in late July of 2011. Bear market rallies are meant to look strong, convincing and to get bulls back in the market, that is the only reason they exist. The 1930 bear market rally after the 1929 crash, gained 45%! After that the market tumbled for several more years taking the Dow from $383.90 to $40.60.

 Remember the days when a 1% gain in the Dow was an average day? We haven't seen the Dow gain or lose 1% in 18 days going on our 19th now., the Blue indicator below shows the % change with the 10-day (2 week) average of the Dow's % change coming in at -.04%, not even 1/10 of a percentage point!


The S&P over the same last 2 trading weeks is currently at a gain of just about half of one percent!

There have been numerous glimpses (we often find the most meaningful information in fleeting glimpses) showing a change of character in the market, and this with extremely high dumb money bullish sentiment and extremely low bearish sentiment, it's the perfect match for a bear market rally.

CASE-SHILLER MISSES

Released on 1/31/2012 9:00:00 AM For Nov, 2011

	Prior	Consensus	Consensus Range	Actual
20-city, SA - M/M	-0.6 %	-0.4 %	-1.1 % to 0.0 %	-0.7 %
20-city, NSA - M/M	-1.2 %			-1.3 %
20-city, NSA - Yr/Yr	-3.4 %			-3.7 %

 As you can see the CS Home Price Index has missed again, this is the 7th decline in a row. Of 20 cities, all but 3 contracted. The composite index is now at the same levels seen in February of 2003.

David Blitzer, chairman of the index committee at Standard & Poor's, said in a statement. "The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand."


So is SRS finally worth a trade? It's kind of unreal that this ETF has done so poorly considering the environment.

 Recent capitulation?

 Intraday gap

 30 min 3C accumulation

 15 min 3C accumulation

 5 min 3C accumulation

The red arrow is the pivot, the next day is the siganl candle with a long at a break of that day's highs which came yesterday. A stop can be placed below the pivot lows around $32.00 (I'd use $31.90).

I think SRS may be worth a shot here, I would initially treat it as a swing trade and let the market tell you where it is going, if it offers more then a swing trade, a trailing stop can be put in place.

PEIX Still on the radar...

One thing I've noticed just before or at major market turns is the number of "Cats and Dogs" trades that pop. Cats and Dogs are low priced, often low volume stocks, they are not pink-sheets/OTC/etc.

I believe it also has to do with extremes in investor sentiment, which is most often a contrarian indicator, for example, when a high percentage of dumb money is bullish, it often marks a top in the market. As per last night' post, the bullish dumb money sentiment is very high and the bearish dumb money sentiment is very low. Human nature being what it is, a lot of traders will see a bullish market and feel like they missed it, so near the top, they tend to want to get involved, but do they buy quality stocks with high P/E ratios? Generally no, they look for a sale, something cheap as most investors think that the number of shares they can buy will increase their returns rather then focus on the percentage gain that can be achieved with a quality stock.

While PEIX may or may not be a stock that falls in to the above described category, it certainly is a C&D stock and these stocks can really move, albeit you are best off taking profits quick as they tend to evaporate just as quickly. That being said, I like PEIX's chances and a simple trade alert can offer a low risk trade with the chance of very high returns in a short period of time.

 This is the long term PEIX daily chart, I wanted to show this example because it features a bullish ascending wedge. Almost all technical analysis books will tell you that when the wedge reaches its apex, there should be a bullish break out and the wedge should retrace its base, that would be a target of about $7.00. However after observing hundreds of these wedges, both bearish and bullish, I've noticed that they are a lot more likely to form a lateral base or top then they are to breakout. Some will even stage a false breakout/breakdown. PEIX is such an example. Note the lateral base, this kind of price action (or in action) is often an accumulation area.  PEIX did make a run and has formed a bullish continuation triangle consolidation.

 To illustrate the gains in these C&D trades, I took the average price during the accumulation period (it's actually around $.31) and have shown the move of 440% on an intraday high and 338% on a closing high, the point is, they can really run.

 Here's that accumulation period.

 After initial confirmation (green), there was profit taking/distribution (red), since we have seen some accumulation within the consolidation (white).


 We saw a quick breakout (yellow box) and that saw distribution, so it was a head fake. Most amateur traders will give a trade one shot and if it doesn't work, they walk. Professional traders will give a good looking trade multiple shots as long as they keep their losses small, they can do this. This 5 min chart also shows some recent accumulation after the head fake move.

 The 1 min chart confirms everything seen on the above chart.

 A 3-day Trend Channel has held the major up and down trends, that would include a downtrend of -95% and an uptrend of up to 440%. The current Trend Channel stop would be $.93, which could be used, but a tighter stop can also work.

If we treat the entry as a swing trade entry, then Friday made the last lower low/lower high and is our pivot. The next candle (Today's) is the signal candle. The idea would be to go long on a breakout through the signal candle's highs ($1.06 is today's high, so a  move to $1.07). Then simply place your stop just below at either the pivot or signal candle's low ($1.02 and $1.01 respectively), but we want to stay away from whole number stops as they are WAY too obvious for a shakeout/stop fishing expedition. I would consider a stop of $.97 or so.

Being a speculative trade, I wouldn't invest more then 10% of my total portfolio value before margin and maybe less.

For risk management and position sizing, lets assume a portfolio of $10,000 and our investment of 10% of portfolio ($1,000). At $1.07, lets call it $1.09 just for slippage, we can buy 917 shares. I like to keep my loss on any one trade at 2% of portfolio and on spec. trades, sometimes less, but lets assume 2% ($200). With a stop at $.97 and we'll call it $.95 for slippage, we have risk of $.14 (entry @ $1.09 /stop at $.95=$.14 accounting for slippage). Multiply $.14 (risk) by 917 shares and our risk on the trade is $128.38 which is about 1.2% of portfolio.

Our potential upside based on the consolidation and not past gains, is around $2.15, from an entry of $1.09 that's $1.06 in profit. So our reward:risk factor (which should never be less then 3:1) is about 7.5:1 or double our minimum r:r factor. That makes PEIX an interesting trade.