Analysis of a position

QUESTION (part of a more extensive email and follow-up): You didn't make any mention of looking at overall market Trend, economic cycles and sector performance. Do these areas matter in your decision to trade or do you simply look at individual stocks Support & Resistance, trend lines etc?

ANSWER: I do look at the overall market trend as a larger guide, but many positions based upon momentum moves on news and the like will not correspond as significantly to the overall market bias, so there are many times when I am trading such securities that I will take them even if they go against the larger market. However, risk will almost always be lessened if that trend is in place to support it. To that extent, economic cycles also come into play. These are more important when trading on a weekly or monthly time frame than they are to most swing and daytraders. When it comes to sector performance, this ties into the trend answer in that the sector's favor, while very helpful, is not always necessary. It depends more upon whether or not the security typically follows the general direction of the larger sector trend. Some do not. If they do, however, I would be less likely to take a position that is at odds with the bias of the sector or goes against what appears to be the bias of the major names within the sector. Just because a stock has better relative strength and is forming a buy setup does not mean it can break higher if the rest of the sector is more short biased. In fact, that stronger stock may easily be the one to drop the hardest in some instances.

Importance of multiple time frames in analysis

QUESTION: I have always been told the importance of looking at 3 time periods before placing a trade. As a novice swing trader, I have been told to identify my setups on a daily chart, use a 60 minute chart for timing the entry and a weekly chart to confirm support and resistance. You also mentioned this in your presentation. Can you explain exactly how the 60 minute chart identifies timing of entry into a trade. What is the danger of not using the 60 minute chart?

ANSWER: I agree completely with this. The danger of not using a 60 minute chart is that you can more easily get sucked into a position that is already quite extended on an intraday time frame. The 60 minute chart shows you where price action is in an intraday trend to avoid entering as often on an exhaustion move intraday. If you also have a base that is breaking out on a 60 minute time frame, then it will assist the swing trade and offer a higher probability setup, so this is another reason. You can also best assess pace or momentum and if the upside is more gradual than the downside within the range or flag or whatever you are trading, then you can tell that it has higher risk for a long setup and vice versa unless the pace shifts.

Trade and Commentary Wrapup 20080804

The following is a wrapup of all my market calls and trade posts for Aug. 4, 2008.

Instructions for Use:

When following along in the chatroom, futures posts are done most often as support / resistance calls with support as buy and resistance as short (or closing out open positions from the other direction. These are pivots. Other patterns are posted according to the pattern forming, such as the Avalanche on the NQ below, and a link showing how to trade the pattern is posted.

Stock calls are breakout patterns unless otherwise stated with bases at highs as buys and bases at lows as short. We use the following template:
http://tradingfrommainstreet.com/images/roomexamples/BREAKOUT_TEMPLATE.gif

There is a link giving instructions for accessing this free chatroom on the lower left side of the page at http://www.tradingfrommainstreet.com/


WRAPUP

11:23 Toni: futures still weak but Nasdaq hit Friday's support at lows
11:25 Toni: getting a lot of overlap here at the lows on a 400 tick chart int he futures which can assist a pop
11:33 Toni: market popping
11:42 Toni: futs pop now coming into resistance on the 15 min
11:47 Toni: PCLN went a little nutty
11:47 Toni: futs resistance holding well
12:08 Toni: not seeing much at the moment
12:08 Toni: futures still holding the resistance we nailed
12:17 Toni: energy stocks still hitting lows
12:36 Toni: CALM 15 min avalanche potential
12:46 Toni: STLD is basing at lows but extended 30 min
12:48 Toni: CALM off watch as short.. channel broke higher
13:46 Toni: STLD just creeping

Signs of Strength for August, but Momentum Remains Uncertain

Important Announcement:

Good day! I have an announcement here today regarding my Market Action Letter. As many of you know, I just picked up my kids from my parents place this past week where they've been hanging out and living it up for summer vacation. Now that they are back, however, and I'm also on a deadline to complete a book about developing a trading plan/system, I've reached the conclusion that I needed to free up some time to spend with my family and get my project completed. Both of these need to be done outside of market hours. As a result, I am going to be converting this column into a weekly column for the immediate future. I will resume it on a daily basis once the kids are settled back into school and my project is complete. Until then, an extended version will be released each weekend beginning next week with a larger time frame outlook for the week and a wrapup of the prior week's action. I will continue to include the earnings and economic reports for the week ahead as well. Starting next week I will also be resuming the Weekly Market Action Video describing current market action and outlook from a technical standpoint to supplement the written column. Thank you so much for your understanding and I hope you enjoy this new version!

All my best,
Toni


Signs of Strength for August, but Momentum Remains Uncertain

This past week was a momentous one for both earnings and other major news announcements. Heading into Monday I had been bearish, expecting selling to dominate the week, followed by a reversal higher into this week. It began by holding that bias with a sharp continuation lower almost from the start Monday morning. The session concluded with the Dow Jones Industrial Average ($DJI) off by 240 points, or 2.1%. The Dow ended the day at 11,131, just off the intraday low of 11125. This took its three-day loss to just over 500 points. In the Dow, only Alcoa (AA) posted gains, up 2.7% on news of up to an 8% buyout by Highfields Capital Management. The financials had weighed down the session, with Merrill Lynch (MER) coming in as one of the weakest of the group. The S&P 500 ($SPX) ended Monday lower by 23 points, or 1.9%, at 2,264. Meanwhile, the techs held down the Nasdaq Composite ($COMPX), which closed off by 46 points, or 2% at 1,803. Shares of Apple (AAPL) shed 4.8%, while Microsoft (MSFT) dropped 2.5%. Yahoo (YHOO) fell 4.8%, and Google (GOOG) lost 3%.

Oil, on the other hand, began to show signs of a developing recovery on the daily time frame. The pace of the selling, which had begun with sharp drop during Bush's address on the 15th of July, slowed in the prior week of trade and started to round off at support from May's levels. Although hesitant, crude oil closed higher last Monday by 1.2% at $124.73. It slipped lower again on Tuesday to close at $122.19, but the volume was light and this merely served to round off lows even better, allowing it to recover more rapidly on Wednesday. Crude closed at $126.77 a barrel on Wednesday, up 3.8%, when the technical reversal pattern was assisted by news that domestic gasoline supplies had fallen unexpectedly the week before.

Another development came on a political front which also could have influenced the move. Israeli Prime Minister Ehud Olmert announced that he would not be running for re-election in September, which opens the door for a more hawkish leader to come to the fore-front of the Israeli political arena. Comments regarding Iran by Israeli Deputy Prime Minister Shaul Mofaz pushed crude past $128 a barrel for a weekly high on Friday, but it failed to hold the gains and closed at $125.10.

While oil played a game of cat and mouse throughout the week, ending the session on Friday not far from where it began on Monday, so too did the rest of the market. Shares recovered to a greater extent on Tuesday that I had expected would occur going into the week. The financials were largely responsible. Merrill Lynch (MER) managed to recover from a nearly 10% morning loss to close higher by 7.9% after it announced that it would raise $8.5 billion in stock sale and sell off some of its hard-hit mortgage securities. Bank of America (BAC) gained 14.8% on Tuesday, adding 34 points to the Dow, which closed higher by 266 points total, or 2.4%. The rally continued into Wednesday with energy stocks taking over from the financials to lead the Dow and S&P. The Dow added another 186 points, or 1.6%, but the Nasdaq only managed to tack on an additional 0.4% to its 2.5% gain from Tuesday.

Dow Jones Industrial Average ($DJI)


The market succeeded to establish a slightly higher high into Thursday morning as compared to Wednesday morning and this created the beginning of what would become a 2T reversal setup on a 60 minute time frame. A 2T is a form of double top where a slightly higher high creates a type of bull trap. Since the momentum was strong into the second high, however, the reversal was not a rapid one to begin with. Instead, the pace of the price action needed to shift in order to bring on the start of a stronger break lower. This took place on Thursday from the late morning throughout most of the afternoon. After a brief, yet rapid, pullback into noon, the market began a slower recovery higher on light volume. The gradual pace of the buying, accompanied by a lack of strong participation, were the two strongest elements contributing to a late day breakdown in the indices. This breakdown pattern, which was an Avalanche break out of a 60 minute head and shoulders pattern in the Dow and S&Ps, continued sharply lower into Friday morning.

Poor economic data, which had also been plaguing the week of trade, provided a negative influence on the market on Friday as well. Nonfarm payrolls dropped another 51,000 in July, for the seventh straight month of losses amounting to approximately 463,000 jobs, while the unemployment rate jumped to a four-year high of 5.7%. Economists had expected a rise to 5.6% from 5.5% in June. The selling continued after the Institute of Supply Management data came out at 10:00 ET. Although up slightly from the month before, the ISM manufacturing index came in at 50, failing to break the 50 mark, which would indicate expansion. Instead, the it showed that the higher costs and mixed demand have kept levels flat for the past month.

S&P 500 ($SPX)


The extreme selloff on Friday morning left the market uncertain what to do for the remainder of the week. The downside was exhausted on the smaller intraday time frames, but the bulls were not ready to jump back in on the heels of one of the most volatile weeks of trading year-to-date. The Dow Jones Industrial Average ended the week lower by 0.5% at 11,326.32. General Motors (GM) was among the biggest losers on Friday, falling 7.6% after it posted a $15.5 billion loss. The S&P 500 eked out a gain for the week by 0.2% and closed at 1,260.31. The Nasdaq Composite ended flat on the week at 2,310.

Nasdaq Composite ($COMPX)


July began with a build-up of volume as the market continued its weekly selloff. This created an exhaustion move on the larger weekly time frame which has led to the correction attempt off lows that has taken place over the past several weeks. Although it has not materialized quite as I had hoped by forming a little more downside earlier this past week, the market still has room on the larger time frames to continue to hold the weekly exhaustion and support and head higher into the new month. I am expecting a choppy start to the month, but if the chop shift momentum slightly on some downside congestion, then the indices can pop higher more quickly. Otherwise, continued chop as the market makes its way higher is more likely.

I have sketched out several scenarios on the weekly charts of the DIA and QQQQ to show how the momentum coming off the weekly lows will most likely impact upcoming price action. The thick blue line represents the move lower in June and into early July, while the thinner blue lines represent the waves of action coming off the lows and how the pace of those moves will typically need to shift in order to see any stronger upside price action. The dark red trend line and the 50 period simple moving averages will be the strongest resistance levels. The moving average is also displayed in dark red and is currently corresponding to the trend line in the SPY. Despite the congestion at lows Friday, my bias into the new week is also higher on the 60 minute time frame, since the correction from an extreme move lower can build on itself and easily gain momentum on the upside once the upper channel line from the congestion off the lows breaks.

Economic Reports for the Week of Aug. 4, 2008

Monday, August 4, 2008
8:30a.m. Jun Personal Income: Expected: -0.3%. Previous: +1.9%.
8:30a.m. Jun Personal Spending: Expected: +0.5%. Previous: +0.8%.
10:00a.m. Jun Factory Orders: Expected: +0.6%. Previous: +0.6%.

Tuesday, August 5, 2008
7:45a.m. ICSC Chain Store Sales Index For Aug 2: Previous: +1.2%.
8:55a.m. Redbook Retail Sales Index For Aug 2: Previous: +1.2%.
10:00a.m. Jul ISM Non-Manufacturing Composite Index: Expected: 48.3. Previous: 48.2.
2:15p.m. FOMC meeting and interest rate decision, Federal Funds Rate: Previous: 2%.
5:00p.m. ABC/Wash Post Consumer Conf For Aug 3: Previous: -47.

Wednesday, August 6, 2008
7:00a.m. Aug 2 MBA Mortgage Application Survey Refinancing Index: Previous: -22.9%.

Thursday, August 7, 2008
8:30a.m. Initial Jobless Claims For Aug 2 Week: Expected: -23K. Previous: +44K.
10:00a.m. Jun Pending Home Sales: Expected: -1.0%. Previous: -4.7%.
10:00a.m. DJ-BTMU Business Barometer For Jul 19: Previous: -0.3%.
3:00p.m. Jun Consumer Credit: Expected: +$6.0B. Previous: +$7.78B.

Friday, August 8, 2008
8:30a.m. 2Q Prelim Nonfarm Productivity: Expected: +2.4%. Previous: +2.6%.
8:30a.m. 2Q Prelim Unit Labor Costs: Expected: +1.7%. Previous: +2.2%.
10:00a.m. Jun Wholesale Trade: Expected: +0.6%. Previous: +0.8%.

Earnings Announcements for the Week of Aug. 4, 2008

Monday, July 21, 2008
Before: EYE, ALY, CMED, CHD, CTB, DISH, ETM, FNM (?), RAIL, GWR, HUM, HYC (?), ICE, MDU, MCY, MSTR (?), NTE, GAS, OWW, ORBK, SBAC, SIX, STEC, TM
After: ACTS, ACTU, ADLR (?), AIMC, ASEI (?), ASCA, APC, ARRY (?), ATHN, AXS, RATE, BAS, BLKB, CLDN, CSR, CVLT, CRK, CUTR, DVA, ERES, GSX, HCKT, HGIG, HVT, HE, HCP, HE, HCP, HMA, HL, HIMX, HLTH, IBI, KNXA, LF, LQDT, MKL, MASI, MWY, ODSY, ASGN, OEH, OTTR, PKY, PBI, PPS, PFG, PSB, QGEN, RACK, RTEC, SAFT (?), SLXP, SNTS, SMTL, SM, SUPG, SYKE, SVR, THRM (?), TNS, THS, TMWD, UDR, VVUS, WWWW, WBMD, WGL

Tuesday, July 22, 2008
Before: ACW, ADES, ALD, AHCI, AMSC, APAC, ADM, AACC, ATRC, BBG, BLT, EAT, CSE, FUN, CEDC, CHTR, CKP, XEC, CZN, CMS, COV, COWN, DNR, DXYN, DTG, DHI, DUK, EMS, EPL, NPO, EXPD, GET, GLBC, GLBL, WOLF, GBE, GTXI, HNR, HNT, HPY, HSIC, HEW, HURN, ICON, IFLO (?), IIVI, IDEV, IRC, IPGP, JRCC, LEAP, TVL, LIOX, MMP, MVL, MTRX, MXGL, MEDX (?), MGM, TAP, NNDS, NURO, NSR, NGPC, NI, NTMD, GLT, PKD, PCAP, PDX, PPCO, PXD, PG, RRI, RDC, SCR, SKH, JOE, STXS, SHOO, THC, TLCV, TDG, GTS, UNT, VNDA, VSAT, VICL, VNO, WTI, WEN, WST, WLK, WY, GR, WWE
During: SNHY
After: ABCO, MDRX, ACAS, AMKR, ARNA, ATN, ATO, BIDZ, BMRN, BIO, NILE, SAM, CELL, CBM, CBOU, CBL, CBF (?), CTLM, CRL, CHDN, CSCO, CNL, CCRT, CSC, CCRN, DEIX, DXCM, DRRX, ENTR, XCO, EXEL, FCH, FOE, FIS, FST, GHDX, GGC, GLUU, GOLF, HRS, HCN, HLEX, HLS, HLF, HME, INSP, INAP, IO, JCOM, JBX, KCP, LNDC, LTRE, LOCM, LOOK, MCHX, MMLP, MRX, MOLX, MSCS, MFLX, N, NWS.A, OKE, OKS, ONXX, OPWV, OPNT, OSUR, ORA, PACR, PZZA, PCLN, PL, QSFT, RENT, RMD, RUTH, SONE, SMSI, SNCI, BID, SGY, SHO, SNCR, TEAM, TX, TIE, UPL, UNTD, USU, VTR, VOLC, WMC, WFMI, WMS, ZGEN

Wednesday, July 23, 2008
Before: TDSC, AGU (?), AKNS, AMRI, LNT, ALTI, ABK, WTR, ABTL, AVT, BCE, BX, BRS, CALP, LSE, CNP, CINF, CWEI, CLHB, CGX, DF, DVN, DSCO, RRD, EP, EE, ENZN, XJT, FWLT, FRE, FTO, FCN, GEL, GNA, HSII, HLCS, HGG, HOC, HSP, HPT (?), ICFI, IHR, KNDL, KLIC, LAMR, LCRY, LINC, LOJN, LL, MFB, MMC, MDH, MGAM, MYL, NDAQ, NEWS, NICE, OZM, ONNN, OPTR (?), PTI (?), PQ, PCG, PNK, PXP, PLA, PLUG, RL, PWR, KGS (?), KWK, Q, RSTI, SNH (?), SPIL, SBGI, SIRO, SKYW, SE, TRK, S, SMA, TTES, TKLC, TICC (?), TWX, TWC, RIG, RMIX, WRES, WPI, WPTE, XRIT, YGE
After: JOBS, AAP, AIRN, ALNT, ALJ, AIG, ARII, ACF, AMSF, AHS, ANEN (?), ANDE, AHT, CAR, BBBB, BZP (?), CPE, CECO, CBEY, STV, RIO, COGO, CNO (?), CPII, CUB (?), DCGN, HILL, DCP, EGLE, DIET, BAGL, EMKR (?), EAC, EVC, EXLS, FVE, FLML, FNET, FBN, GGB (?), GERN (?), GIVN (?), GDP, GXP, HIL, HRC, TEG, INET (?), INXI (?), JRT, LRN (?), LPSN, LMIA, MGA, MXWL, MSSR, MEAS, MRN, MR (?), NCMI, NFS, NHP, NKTR, NTLS (?), OPXT, PEIX (?), PRXL, PVA, PVR (?), PAA, PLNR, PRSC, RJET, RUBO, WINS (?), SALM, SVNT, SCI, SINA, STAN, BEE, SUNH, SUN, TK, TS, TRLG, TXCO, UTI, URS, UTSI, VRAZ, CHIP (?), VRSN, WCAA

Thursday, July 24, 2008
Before: FLWS, ABH, ACMR, AIXD, ACM, AER, AES (?), AGYS, ARE, ARK, ANSS, AHR (?), ARD, ARCC, STST, ARIA, ARQL (?), ARE (?), ALC, ATPG, BKUNA (?), BRL, BCRX, BBI, BORL, BRNC (?), CNQ (?), CAH, CATM (?), CRZO (?), CPHL, CDL, CCU (?), CCO (?), CHCI (?), ED, CNSL, CEP, CXW, CMLS (?), CYCC, DK, DPTR, DTPI, DTV, DRQ (?), DYN, EPB (?), EMAG (?), EBS, ENG, FRP (?), FIG, GEO (?), GOK, GILT (?), GCA (?), GPX, GPOR, HEES, HDIX, ITWO, ICTG, IDA, IMAX, IDCC, VTIV, IONA (?), IDID, JMP, KALU, KBALB, KG, KOP, LXP, LCUT, LINE, LIZ (?), MAC, MIC, MLM (?), MMS (?), MCGC, MDTH, MCCC, MDCI, MPW, MED, TMR, MESA (?), PCS, MF, MEND, MINI, NGS, NRF, NOVN (?), CHUX, OMG, OHI, OFIX, VITA, PTIE (?), PEI, PRFT, HK (?), PNCL (?), PMI, POL, POR, PBH, PDE, PGN, QCCO, ROLL, FRZ, RIGL (?), RMG (?), RIV, SBH, SLE, SGK (?), SRE, SIRI (?), SNN, SUG, SBSA, SEP, SPH, SUP (?), SWSI, SURW, SFY, SXCI (?), TECH (?), THI, TWGP, TRMP, USPH, URBN (?), USM, VTAL, VG, WRC, WMG, WNR, WON, WMB, WPZ, WATG
During: ASFI (?), DIOD, EPEX (?), NCT (?), RAME (?)
After: NDN, APKT, ANW (?), ACS, AIRM, ALKS, AMCP, AGNC (?), ARP, ANSV (?), AGII, AGO, ATW, BLTI, EPAY (?), BRKS (?), BLG (?), CPKI, CHINA, CENT (?), CHLN (?), CLWR, COGT, CCIX, COSI, CROX (?), DAR, DCT (?), DECK, PROJ (?), DNDN (?), DWRI (?), DNEX, DIVX, DM, DTSI (?), ELX, ENOC, ESE, FVRL (?), FMD (?), ROCK, GUID, HANS, HLYS, HTZ, HYTM (?), IFON (?), IUSA (?), IPAS, ISTA, JSDA, JUPM, KFN, LMNX, MVSN, MNKD (?), ME, MIDD (?), MIVA (?), MOVE, NABI, NFG, NLST, OCNW, OPTV, PRX, PLLL (?), PARL (?), PDLI (?), PSPT (?), PCR (?), PMC, POWR, PGIC (?), PRO, PSA, QLTY, RAE (?), RSCR, SD, SAPE, SOMX, SPC, SRSL, SNS (?), SPSX (?), SYMM (?), KNOT, NCTY, TMA (?), TRMS (?), UNCA, UEIC, YSI, VITL (?), WES (?), WEDC, INT, ZIPR

Friday, July 25, 2008
Before: AYR, AIT, BECN, CAPA, CNK, CDE, CCOI, XTEX, XTXI, CRYP, CYPB, DMRC (?), UFS, EIX, FGXI (?), HALO, IAG, LPNT, MBI, NOOF, NAT (?), NVAX, OFI (?), RBA, SMBL, TTI, TRGL, WCRX, WR, WIN
After: ACLS, LNG (?), XOMA (?)

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

Target Levels

Question:

Great presentation last night (Wednesday's webinar), as a newbie I found it very useful.
One area I am having difficulty with is exit strategy. I find that my gains turn into small wins
or even losses. In the webinar you mentioned exiting in three stages, do you always do this?
If so how do you exit if the move fails to make target 1, or makes target 1 but not target 2,
or target 2 but not target 3?

Answer:

I do often exit in 2 to 3 stages, however, this is certainly not always the case and I often will add back into positions in which I have taken partials as a continuation pattern forms. The real trick to this is to identify the larger trend placement and pace action. Depending on this traits, there will be the potential for larger gains in certain cases than in others.

Unfortunately there is no quick way to go into details on this.

You will find the support and resistance sections dealing with equal moves to be particularly helpful for most circumstances (referencing the CD course he purchased and was discussing).

The greater the momentum out of a setup, the greater potential it will also have.

Also, the less resistance, the higher the odds.

If the overall market is also favoring the direction of the setup then the odds will be higher as well, unless it is something like energy or oil which can trade against the larger market.

These are some of the basic things I will look at to determine not only what a likely target will but, but also how willing I am to hold part of the position past an initial resistance level to hit the targets. I hope this helps to some degree!

News & Event Driven Price Action

Question:

Technical Analysis vs. News & Event Driven Price Action. Perhaps I’m over-analyzing this issue however, it seems that price action is usually driven by the events of the day. How can one rely upon historical Technical Analysis as a predictor of the future when events are so unpredictable?

Answer:

It is true that price action is a reflection of the sentiment of the day, but think in terms of psychology: Similar triggers create similar responses. If a loved one becomes sick you will start to worry. As their condition deteriorates your emotional reponses will also heighten. Should they pass away then you will also react in a predictable manner which psychologists call the stages of grief. The markets are merely a reflection of human emotions. Charts show the visual progression of this range of emotions as market participants react to the current sentiments. As such, technical analysis is a highly valid means of measuring and predicting price action which is merely a reflection of repetitive human nature.

Trade and Market Commentary 20080725

The following is a wrapup of all my market calls and trade posts for July 25, 2008.

Instructions for Use:

When following along in the chatroom, futures posts are done most often as support / resistance calls with support as buy and resistance as short (or closing out open positions from the other direction. These are pivots. Other patterns are posted according to the pattern forming, such as the Avalanche on the NQ below, and a link showing how to trade the pattern is posted.

Stock calls are breakout patterns unless otherwise stated with bases at highs as buys and bases at lows as short. We use the following template:
http://tradingfrommainstreet.com/images/roomexamples/BREAKOUT_TEMPLATE.gif

There is a link giving instructions for accessing this free chatroom on the lower left side of the page at http://www.tradingfrommainstreet.com/


WRAPUP

12:12 Toni: energy is the leading sector

12:21 Toni: BIIB base at lows
13:10 Toni: BIIB still basing at lows
13:14 Toni: BIIB trying
14:21 Toni: first BIIB support
15:13 Toni: those holding partials on BIIB move stop over 70.10 on the rest
15:33 Toni: BIIB stop over .90 now
15:47 Toni: .83 (over) for trialing on BIIB now
15:47 Toni: not much time left...
15:47 Toni: was hoping for 69 today
15:47 Toni: but hmm...
15:55 Toni: over. 75 now on biib trailing
15:56 Toni: but really can just start to look to take the rest off since we only have a few min
15:56 Toni: the pattern intraday is ok for an overnight hold but things are gappy these days and the daily is iffy
15:56 Toni: so wouldnt take the risk
15:57 Toni: if the upside pace had not been as steep on the daily it would have been better for a hold




12:25 Toni: 12:25:18 Market Alert: futures watching for 5 min bear flag
12:29 firstbrain: @Toni: I'm new here, Could you explain a bit further what your last comment means. pls?
12:31 Toni: sure thing
12:32 Toni: it just means that in the index futures I am watching for a bear flag to form. This is a lower level range or slight upside move on lighter volume than the selloff
12:32 Toni: when the channel breaks it would trigger a short
12:32 Toni: you want the upside off this support overall, however, to be more gradual than the decline
12:32 firstbrain: on a 5 min timeframe?
12:34 Toni: correct
12:34 Toni: this would be about the 400 tick chart
12:34 firstbrain: ah ok thank you very much
12:35 Toni: yw
12:45 Toni: so far the upside pace is a bit stronger than i'd like to see for a bear flag in the futures... would need to see it hold here and fall more sideways




13:19 Toni: i get the feeling the market is just going to chop around the rest of the day


13:27 Toni: CB low-leve base
13:44 Toni: CB first bit of support
15:33 Toni: CB coming off second support level




14:09 Toni: NQ resistance in here prior highs and third push on a 50 tick
14:28 Toni: nice scalp off the futs resistance




13:46 Toni: COLM low-level base
15:34 Toni: COLM still pretty much basing

Chart Patterns Guide

Dear Trader,

I am away on holiday until August 3rd, so in the interim I shall be continuing the Chart Patterns series to be sent automatically each day to my email list while I am away. Here is the first of the week's lesssons. Sign up at http://www.tonihansen.com/ on the left to receive the rest!

All my best,
Toni Hansen

Toni's Market Action Newsletter : Special Chart Patterns Edition #10

For more information, go to http://www.swingtrader.net/


Breakout Buy Setup

Description: Also called a “rectangle”, this pattern is based upon a sideways trading range breaking higher. It is most commonly traded as a continuation pattern which is then called a consolidation, but a sideways range can at times also break in the direction opposite of the trend that had been in place heading into the trading range. In this description the traits will be discussed as if they are in a continuation buy setup, but they can easily be reversed in order to use them in a short setup.

Criteria: The criteria for a rectangular breakout pattern from a sideways trading range is very similar to a triangle range breakout. Most of the same criteria, as well as pros and cons will apply. The difference is that there are more comparable highs and lows, as opposed to a narrowing range or trend channel. There must be at least two highs and two lows within the range to be identified as a trading range if there is back and forth action. If there is just a lot of overlap from one bar to the next, then these waves of buying and selling will be more difficult to discern.

Entry: As in a triangle pattern, there are several entry techniques that work well on this pattern. The technique which is the most widely taught is to draw a line connecting the highs of the range to each other and connecting the lows of the range. In the case of an upside range breakout, the trigger would occur when that upper trend line breaks higher. This is one of the least preferred methods to entering a breakout, second only to taking a breakout from the absolute highs of the range.

1. Another method in the case of a buy setup is to enter above the previous high once at least two highs are established.


2. A third setup, which is the one that will generate the highest reward compared to risk, is to watch the moves within the range and monitor the pace of each of the moves. When the security pulls back more gradually off the highs then before, or hugs the upper trend line, then use a break higher from that smaller downtrend or sideways trend within the larger trading range for an entry trigger.

Stop: Under the last pivot low within the range, or if it bases on a smaller time frame within the larger trend channel, then a stop can be placed under the lows of that smaller range. Use greater caution when keeping a tighter stop such as this if the security is very volatile, meaning there is a lot of back and forth action and overlap even as it trends, if the pace has yet to change within the range when it breaks, or if the security is thinly traded.

Target: The targets on a breakout will depend upon whether they are continuations or reversals of the previous trend.

• In the case of a continuation buy pattern, when the pace or momentum on the breakout move is comparable to that of the move heading into the trading range itself, then a target is an equal or measured move. This involves taking the move into the range, from the lows of that move to the highs at the start of the range, and then comparing that to the lows at the start of the breakout and projecting them higher. If the momentum is slower than the previous rally, then it will be more difficult to hit that equal move and it will be necessary to identify closer resistance levels. If the momentum is stronger than that previous move, then a larger than equal move can form.


• When the breakout from the range is a reversal pattern off lows, however, then monitor the price and moving average resistance levels overhead. If a downtrend preceded the base at lows and then it turned around and headed higher, then the level at which a previous bear flag broke lower would be resistance and a strong initial target, as would a resistance level such as a 200 period simple moving average, although any number of major moving averages can come into play on multiple time frames to serve as resistance. The resistance will be much stronger if several resistance levels are hitting at about the same time.
  

  Toni Hansen's Online Bookstore As you know, my online trading room, classes, and market articles are all free. One way I make this possible is through my Trader's Library affiliated bookstore. Every month they provide special offers not available anywhere else on the net, often beating Amazon's prices, so if you are looking for your newest free reading title in the markets or some more interactive resources, please check it out! Click here to view the current specials.

  
  
  Ideal 5 Tech Tools Traits on a Breakout from a Trading Range:
  
  Pace: As a trading range begins, it is common for the initial downside move(s) to be average or stronger than average. As the range progresses, however, the odds are highest when the pullbacks from the highs are more gradual than the upside moves within the range. A base near the highs of the range or move with only a very slight downside slant off the upper end of the range is preferred.
  
  Volume: Watch for declining volume throughout the pattern's development with higher volume on the upside moves within the range and lighter volume on the downside as the pattern progresses. The best ones are when the volume is at its lightest level of the day just prior to the breakout as it bases at highs or pulls back gradually (in the case of a daytrade).
  
  Correction Periods: It is ideal when the last pivot low within the range, or the breakout from the range occur at the same time as a correction period.
  
  Support/Resistance:
  
• As a continuation pattern this setup is most ideal when it forms into the uptrend line on a larger trend, or moving average support such as a 20 period sma. Check to see if that level was also support on a previous correction, or if this is the first correction in a new uptrend, then look to see what the previous moving average resistance level was that broke to create the first higher high.


• If there is strong resistance on a larger time frame, such as the range forming intraday on a 15 minute time frame and there is a 50 day sma overhead that will be hitting for the first time in the trend move, then that level will have a more difficult time breaking. The same is true if it forms on a 5 minute chart and has a 5 minute 200 sma shortly overhead.

Trend Placement/Trend Development: A breakout is typically considered to be a continuation pattern, but can also be a reversal pattern.

• As a continuation pattern, it is best if the uptrend has only has one or two waves of upside.


• As a reversal pattern it helps if the pace of each of the downside moves in the previous downtrend is slower then the one that preceded it and that there were three waves of selling within that downtrend.


• A typical breakout tends to take place on the third or fourth test of the upper trend line for the trading range.
  
  
  The material presented in this email are expanded upon in Toni Hansen's in depth Trading Made Simple CD series. To learn more about this course, go to http://www.swingtrader.net/. Included is a pdf file detailing all setups in the Chart Pattern Editions of this newsletter (titled Successful Market Timing Guide). Thank you for your support!
  
  
  

© 2008 Trading From Main Street. All rights reserved.

DISCLAIMER: Trading in securities may not be suitable for all individuals. Consult your broker or other professional to determine your suitability. The discussions provided by Trading From Main Street are for educational purposes only and should not be taken as a ecommendation to buy or sell the referenced security. Past performance is not indicative of future results.

Market Reclaims Most of the Week's Gains

Good day! The indices were hugging their 15 minute 20 period simple moving averages heading into the open on Thursday. This congestion had formed throughout the second half of the day on Wednesday and it created a bearish bias going into Thursday morning on a 15 minute time frame. As I mentioned in yesterday's column, if the breakdown from this pattern followed through gradually, it would have created a bullish pattern to push the indices into larger daily resistance from about a month ago before creating the daily pullback off resistance. The breakdown, however, ended up being stronger than the decline late Wednesday morning in both the S&P 500 EMini futures contract (ES) and the mini-sized Dow futures (YM). Although the Nasdaq EMini (NQ) was more gradual overall, the rest of the market weighed heavily upon it and the market failed to create a two-wave pullback buy setup on a 15 minute time frame.

The economic data which came out on Thursday was not very favorable. The biggest of these was the 10:00 ET existing home sales data. The market had triggered the 15 minute short setup shortly after open. These losses deepened, however, when the National Association of Realtors reported that resales of U.S. single-family homes and condos fell 2.6% in June. This brought it to a seasonally adjusted annual rate of 4.86 million, which is the lowest level in about 10 years. Resales are now down 15.5% over the past year and down 33% since they peaked in 2005. Sales of single-family homes fell 3.2%, while sales of condos rose 1.7%.

In a separate report, the Census Bureau stated that about 25% of housing units available for rent that were built in the last decade are vacant, while about 10% of homes are. The median sales price fell 6.1% in the past year to $215,1000 while the inventory of unsold homes on the market rose 0.2% to 4.49 million. This is an 11.1-month supply at the current sales pace and is the second-highest inventory level since the 1980s. About 1/3 of current sales are distressed sales, meaning that they are either foreclosures or short sales.

The House approved legislation on Wednesday aimed at assisting the flailing housing market. It includes support for Fannie Mae (FNM) (-19.9%) and Freddie Mac (FRE) (18.4%), assistance for homeowners needing to refinance high-interest loans, and a $7,500 tax credit for first-time home buyers. FNM and FRE had opened higher on the session, but then trended lower following the 10:00 ET data throughout the remainder of the day and ended up being the third and fourth worst performers in the S&P 500 ($SPX).

Dow Jones Industrial Average ($DJI)


The selloff in the indices which took place immediately after the housing data found support by the 10:15 ET correction period. They then fell into a low-level base as volume dropped off into 11:00 ET. This created a strong short setup leading to new lows into 11:30 ET. The Nasdaq EMini (NQ) hit support at Wednesday's afternoon lows at this point, while the S&P 500 (ES) hit support from Tuesday's mid-day highs. This pushed the market into another correction over noon. The Nasdaq continued to show the greatest relative strength, but the S&Ps and Dow paced lower.

The 5 minute 20 period simple moving average served as resistance throughout the entire session in both the S&Ps and Dow, although the extent of the selling declined mid-day. The market then broke sharply lower again, however, coming out of 14:00 ET when that correction period hit. A final bear flag developed into the last hour of the day with the Nasdaq finally joining the S&Ps and Dow. All three of the indices closed at the zone of the day's lows.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) fell 283 points, or 2.4%, on Thursday and closed at 11,349. 26 of the Dow's 30 industry components finished the day in the red. General Motors (GM) fell 11.1%, while Boeing (BA) shed 6.3%. The five financial stocks in the Dow, however, accounted for more than 1/3 of the Dow's decline (108 points). These were American International Group (AIG), American Express (AXP), Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM).

The S&P 500 ($SPX) dropped 29.65 points, or 2.3%, and closed at 1,252. As you have probably guessed, the financial sector fronted the losses. It was down 7%, while consumer discretionary followed with a 4% loss. Information technology dropped 3%.

The Nasdaq Composite ($COMPX) lost 45.77 points, or 2%, and closed at 2,280. Share of Qualcomm (QCOM) took off after settling a patent and royalties dispute with Nokia (NOK). QCOM gained 17%, while NOK rose 2.2%. Amazon was up 11.6% after it reported better-than-expected earnings for the second quarter. Among the top losers in the Nasdaq were Sirius Satellite Radio (SIRI) (-9.7%), Broadcom Corp. (BRCM) (-9.65%), Wynn Resorts (WYNN) (-8.24%), and Sandisk Corp. (SNDK) (-7.21%).

Nasdaq Composite ($COMPX)


Thursday's session ended at support in the indices from the end of last week and the beginning of this at prior highs and congestion zones. This creates higher potential for a bounce in the morning. On the whole though, I am favoring further downside into next week for that larger daily flush lower that we had been looking at forming going into this week. The S&Ps and Dow can both easily drop back into the zone of the month's lows before they are able to bounce back again.


NOTE: I will be in Iowa retrieving my kids from a month at the grandparents next week, so the Daily Market Action Letter will not be sent out next week. It will resume on Monday, August 4th. I hope you have a wonderful week and you'll hear back from me then!

Question on Tick Charts

Hey gang... I was not able to get to all of the questions from my webinar yesterday, so I will be answering them as time permits here on the blog. I had a number of question on "Tick charts."

Tick charts are different from time frame charts where each bar or point on the chart represents a certain period of time, such as 5 minutes or 1 day. Instead, they measure the number of trades and mark a point or create a bar for each time that number of trades or ticks has gone off. For instance, on a 100 tick chart it is representing 100 ticks for each bar or point made on the chart. Volume is not helpful on tick charts, but tick charts can even out the charts and show action more clearly than on a time frame chart. As such, I really love to use them as a primary means of charting on the index futures with the time frame charts as supplementary to show me volume activity and I use them to help with timing on stock charts.

One question was whether or not you can use tick charts in forex. Well, technically wouldn't they be called "pip" charts? hmmmm :) Actually, I've never heard of them used in forex. I would assume that you can, but it is going to depend on your charting platform. I don't think I've ever seen this form of charting offered on forex charts, but it doesn't mean they don't exist. As long as you can find them, then yes, they would work well for timing and you are likely to find them more useful than the regular time frame charts in that market.

Another question was whether or not my course (www.swingtrader.net) discusses how to read tick charts. The answer is yes, because everything other than volume is going to apply no matter what type of charting is used. My charts for the No Indicators portion of the course is primarily futures, so that is where you will see the most examples of this method.

Oil Continues to Slide while Stock Prices Rise

Good day! The Dow Jones Industrial Average ($DJI) closed higher by 29.88 points, or 0.3%, on Wednesday. It closed at 11,632.38 with 21 of its 30 index components higher on the day. American International (AIG) led the gainers, up 7% on the day. Boeing (BA) weighed somewhat against the gainers, dropping 3.7% following a reported 19% decline in its quarterly profit.

The S&P 500 ($SPX) rose 5.19 points on Wednesday, or 0.4%, and closed at 1,282.18. Consumer discretionary fronted the gains, up 2.8%, with financials coming in second with a 2.4% gain. It is deemed likely that President Bush will sign the pending housing legislation which has helped boost the financials. Fannie Mae (FNM) rose 11.9%, while Freddie Mac (FRE) gained 11.3%. Energy shares led the downside, falling 4.9%, with utilities down 2%.

Crude oil fell nearly $4 to settle at $124.44 a barrel on the New York Mercantile Exchange, off more than 15% since its high of $147.27 on July 11th. It had recovered mid-day after breaking to new intraday lows on the inventories data, which fell less than expected. This reversal formed a nice continuation pattern in the form of a Phoenix in oil and many of the stocks which trade in tandem to crude, including energy. The recovery reversed in the second half of the session at about 12:30 ET, however, and prices ended at lows. Airlines continued to soar as oil fell. The benchmark index has gained nearly 80% since July 15th. The retail price of gasoline, however, remains over $4 a gallon at $4.042 on Wednesday. It had hit highs of $4.114 on July 17th.

The Nasdaq Composite ($COMPX) climbed 21.92 points, or 1%, and closed at 2,325.88, easily surpassing the gains in the other two indices. Amazon (AMZN) rose 3.8% on the day ahead of earnings due out after the bell, while Yahoo Inc. (YHOO) fell 4.7% after it failed to meet earnings expectations. Shares of AMZN traded higher after-hours after the company reported that second-quarter profit doubled since a year ago to 37 cents a share with a 41% jump in revenue. This was much stronger than the 26 cents per share that had been anticipated. It also guided higher for the third quarter from 29% for the same period last year to 36% this year.

Dow Jones Industrial Average ($DJI)


The session began on Wednesday relatively unchanged from the prior day's close. The indices then congestion for most of the initial 30 minutes of the day, but the Nasdaq peaked its head higher to begin to display greater relative strength very quickly out of the opening bell. It continued to gain momentum over the course of the next hour with the S&Ps and Dow tagging along from about 10:15 ET onward. All three of the major indices continued to rally until striking price resistance on the daily time frame. In the nasdaq this mean last week's highs, while in the S&Ps it meant the highs from the beginning of July. The Dow pushed ahead even further to test the lows from June 24th. Prices peaking just ahead of the 10:45 ET correction period.

The market's reversal was nearly as sharp as its rally. In fact, the initial downside momentum was just as strong heading into 11:00 ET. This correction period held, however, as the indices hit their 5 minute 20 period simple moving averages for intraday price support. They congested along this support on declining volume to form a 5 minute Avalanche short pattern which took the indices down to their opening price levels and their 15 minute 20 period simple moving averages. When an Avalanche hugs its 5 minute 20 sma, the 15 minute 20 sma is a typical target level for the breakdown.

S&P 500 ($SPX)


After such strong upside and reversal moves intraday, the market was left rather uncertain of what to do with itself for the remainder of the session. Prices hugged the 15 minute 20 sma, but instead of triggering an Avalanche on this larger time frame the momentum failed to confirm a shift and continued to hug the support into the close. Part of this was due to the larger time frames at play. The 60 minute continuation which triggered the prior afternoon still has room to move before it hits larger resistance and the two wave correction off highs on a 5 and 15 minute time frame created a bullish pattern into the afternoon, despite the lack of follow-through.

Nasdaq Composite ($COMPX)


We are looking at prices currently in the middle of a congestion zone going into Thursday's session. Within that congestion itself there is a bearish bias in terms of the pace of action since there is only one low on a 30 minute time frame. The market is attempting to pull up into a second high. If it can make a second low on that time frame with lighter volume and a more gradual pace than Wednesday's intraday pullback, then it will allow the indices to break through this week's highs ahead of the weekend. 2400 is the next main resistance level in the Nasdaq Composite, while 11,800 is the Dow's next resistance zone.

Logs and ppt for my webinar: Choosing the Right Trading Strategy

Dear Trader,

I hope that you had a chance to make it to my webinar Wednesday afternoon, titled "Choosing the Right Trading Strategy." The session was extremely well-attended and a wonderful success! I know some of you were not able to make it to the session, so I was able to upload the audio/video logs from the class onto my site for you to view at your leisure. The link is as follows:
http://www.tradingfrommainstreet.com/presentations/video/20080723_Choosing1.html

I also uploaded the power point itself to the site so that you can print it out or use it along side the video for larger versions of the charts shown in the video. The power point link is:

http://www.tradingfrommainstreet.com/presentations/ChoosingRightStrategy.ppt

The class ran for about 90 minutes with Q&A following it. Unfortunately I was not able to catch all of the questions as I was going through the commentary during the session, so for those I missed I will start answering on my blog tomorrow and over the weekend.

There are a number of other question & answer posted throughout the blog, so please feel free to look around! My main site also has a number of free classes:

http://www.tradingfrommainstreet.com

The strategies and techniques that I touched upon in this class, as well as the others I have done over the years can be found in my Trading Made Simple CD Series, featuring my 5 Technical Signals You Cannot Trade Without, located at:

http://www.swingtrader.net

I hope you enjoy the above material! I look forward to presenting another webinar in the near future!

All my best,
Toni Hansen

Market Extends Itself on the Downside With Strong Gap on Weak Earnings

Good day! As we expected, the market opened sharply lower on Tuesday morning following disappointing earnings reports from several heavyweights. After trading lower in overnight trade, Apple (APPL) opened down 12% at $149 after topping its quarterly earnings expectations, yet falling short on its fiscal fourth-quarter outlook. It had closed at $166.29 on Monday. Texas Instruments closed at $28.52 on Monday, yet it opened at $24.89 on Tuesday with continued selling out of the open to hit lows of $23.43 early in the session after it reported lower-than-expected earnings and lowered its third quarter guidance. After stronger-than-expected earnings from financials such as JPMorgan (JPM) and Bank of America (BAC), eyes were on American Express (AXP) and Wachovia (WB), but both disappointed Wall Street.

Dow Jones Industrial Average ($DJI)


As I discussed in yesterday's column, when the market experiences a substantially larger-than-average gap overall, the general tendency is for the gap to fill. The trick to being on the right side following the gap is to stand by and just watch the action for the initial 15-20 minutes of the day. On a sharp downside gap, if the 15-20 minute high breaks soon afterwards, then the odds are favorable that the gap in the indices will fill in AT LEAST one of the major indices within the next two hours. If the 15 minute highs hold, however, and are followed by a break lower, then the odds favor a morning trend on the downside which will often be followed by a trend day lower.

The Dow Jones Industrial Average ($DJI) was down approximately 58 points 15 minutes into the day. The Nasdaq Composite ($COMPX) was down nearly 24 points. The S&P 500 was down about 10 points. The session began at equal move price support as compared to Monday morning's decline. Prices had stabilized following the open as they held this support, creating a base-like formation with congestion in the initial 15 minutes. The momentum was gradual on the downside, creating favor for a break higher out of that range. This took place coming right out of the 9:45 ET correction period.

Once the gap began to fill, the Dow mini-futures (YM) did not stop until it had fulfilled that goal. It was the first of the three indices to close their gap. This gap closure level served as initial resistance and a minor correction followed. When the 10:15 ET correction period hit the market again took off. This second wave higher closed the S&P EMini gap (ES). Once again the gap closure marked a strong intraday resistance level. A second correction followed, but the magnitude of this second correction was stronger than the first. This allowed it to correct further with a two-wave pullback on the 5 minute time frame. The 5 minute 20 sma acted as support for the ES and YM, holding both waves of correction. Light volume confirmed the continued presence of a bullish bias and the indices broke higher again out of the 11:00 ET correction period.

S&P 500 ($SPX)


The Nasdaq EMini (NQ) was having a more difficult time holding on following the gap since the techs left it with more ground to make up. It had fallen off its 5 minute 20 period simple moving average after running up with the rest of the market and this turn lower took it back into that initial morning breakout territory. This level of action did a decent job of holding as support, so it was able to rally out of 11:00 ET as well. While the ES and YM broke to new intraday highs and positive territory, however, the NQ fell short.

The three indices began to correct again into noon. This pushed the market into a very long period of congestion. The NQ caught a little action out of 13:00 ET on a two-wave pullback on the 5 minute, but it failed to get past earlier highs and was followed by a rapid, albeit minor, flush out of 14:00 ET.

Although the pace shifted on a 5 minute time frame at 14:00 ET, the market's larger price bias remained bullish. Upside pace picked up one the market was able to break its prior 5 minute highs soon after 14:30 ET. A base formed from that point into about 15:15 ET. Volume was light throughout the base, lending itself to a bullish bias for the breakout. By this point Apple and a number of the other strong downside gappers had also formed high-level intraday bases and broken higher. These movers helped hold up the market as it broke the range and rallied into the close.

Nasdaq Composite ($COMPX)


Given the extent of the gap in the NQ, I was actually quite surprised that it managed to make such a come-back. By the close the NQ had managed to fill its gap. The Nasdaq Composite ($COMPX) faired substantially better than its futures counterpart. The Composite closed its gap early in the session with the rest of the market. It was able to tack on a 24 point gain by the close, ending the session up 1.1% at 2,304.

The Dow Jones Industrial Average ($DJI) gained 135.16 points on Tuesday, closing higher by 1.2% at 11,602.5. 21 of its 30 components closed in positive territory. The financials were among both the biggest gainers and losers on the day. American Express (AXP) closed lower by 6.5%, while Bank of America (BAC) climbed 13.3%. Merck & Co. (MRK) weighed down the Dow to some degree with losses of 11.3% on the day after its earnings report.

The S&P 500 ($SPX) rose 17 points, or 1.4%, and closed at 1,277. Financials overall gained 5.9%. Washington Mutual (WM), despite its gap lower in the morning, closed higher by 6.8%. Wachovia (WB) gained 27.4%. E-Trade Financial Corp. (ETFC) gained 11%. Consumer discretionary climbed 3.1%. Energy fronted losses, down 3.3%.


At one point, crude oil was down more than $5 to under $126 a barrel on the New York Mercantile Exchange. September delivery for crude closed at $127.95 a barrel, down $3.09. The Amex Oil Index ($XOI.X) closed lower by 1.6%, while the Amex Natural Gas Index ($XNG.X) fell 4%. Crude and gasoline are both down more than 13% off their July 11 intraday highs. The national average retail price of gasoline, however, has not budged and stands at $4.055 a gallon.

Heading into this week I was looking for a larger daily correction off the 20 day sma resistance which had hit in the market heading into the weekend. The congestion along highs, however, broke on the upside on Tuesday following the gap recovery and it's now looking as though that pullback is going to take a bit longer to develop. The Nasdaq even has an inverse head and shoulders pattern on the 60 minute time frame. Last week's highs in the Nasdaq and the gap from the 26th in the Dow and S&Ps will now serve as the next main resistance level.

Also be sure to register for this Wednesday's FREE webinar! 4:30 pm ET
Choosing the Right Trading Strategy: Position, Swing, Scalping... The list goes on. It is often a daunting task for an individual market participant to determine which style of trading is best suited for their own personality. Join veteran trader Toni Hansen in this enlightening session as she explores the ins and outs of trading on different time frames. Her expertise can guide you to select a style to fit you perfectly. There is no better opportunity than this to learn some of the tricks to successful trading that are unique to each level of market participation, as well as how to employ these strategies for maximum profit! Register https://www2.gotomeeting.com/register/120913682

Slow Beginning to the New Week

Good day! The index futures traded higher in premarket heading into Monday with a sharp spike higher at 7:00 am ET following Bank of America's (BAC) earnings announcement. The company beat by $0.19 for a second-quarter earnings of $0.72 a share. Even though the bank reported a 41% decline in net income for the quarter, it beat Wall Street's estimates and helped further boost the financials, which had initially began to recover early last week. BAC closed higher by 3.89% on Monday. Wells Fargo (WFC), JPMorgan (JPM) and Citibank (C) had similar reports the week before. Two more large regional banks due out on Tuesday are Wachovia Corp. (WB) and Washington Mutual Inc. (WM). The market was already extended heading into the new week as a result of that strong recovery, so it made it difficult for it to hold onto the gains past the open.

The Nasdaq Composite ($COMPX) started the intraday session at a strong resistance level from Friday's highs, creating a two-wave correction off Friday's morning lows on a 15 and 30 minute time frame. This is a traditional short setup, but the market did not turn until the 10:00 ET leading indicators data was released. The Conference Board of leading indicators slipped 0.1% in June, in line with expectations. May's reading was revised lower, however, from a 0.1% gain to a -0.2% loss. The data points towards continued economic pressure as the year unfolds and the market did not take kindly to that thought.

Dow Jones Industrial Average ($DJI)


The market found initial support when the morning's gap zone closed at about 10:30 ET. Volume was lighter than out of recent opens, which, given that it took place following a multi-day run but with strong downside pace, suggested further downside to come. It dropped off even further between 10:30-11:30 ET. The indices formed a two-wave correction off the intraday lows with the 5 minute 20 period simple moving average holding the upper end of the price range. Continuation patterns often form with this two-wave pullback and the declining volume again pointed towards lower prices. The breakdown triggered at about 11:30 and the market sold off solidly for another 30 minutes to mirror the initial turn lower off the morning highs.

Equal move support hit at the same time as the 12:00 ET correction period in the market. The market lacked an exhaustion move, indicating that the bulls were not eager to pick up new positions, while the bears were now willing to hold on. The market did recover to an extent with another two-wave correction. This time it lasted longer and took the form of two waves of upside as opposed to two waves within a range. The first wave brought the market into the 5 minute 20 sma in the Nasdaq and 15 minute 20 sma in the S&P 500 and Dow, while the second wave pushed the Nasdaq through the 5 minute 20 sma with a Phoenix. The S&Ps and Dow had been stronger to begin with, so they had less room to move on the continuation. All three held the earlier congestion from the first correction off morning lows into 11:30 ET as resistance.

The market resistance hit around 13:45 ET. This is not a typical correction, but the price resistance was enough to hold back further upside. The Nasdaq Composite had also hit equal move resistance on the 5 minute time frame at this point, whereby the move out of the Phoenix was comparable in both time development and price development when compared to the initial rally out of 12:00 ET.

S&P 500 ($SPX)


Action slowed down quite a bit into Monday afternoon. Volume declined even more and the market began to experience a greater degree of chop with prices on a 5 minute and 15 minute time frame overlapping to a large extent from one bar to the next. Support hit with the 15:00 ET correction period at earlier morning lows, but the S&P 500 and Dow Jones Industrial Average pushed through these to a small degree to create a 15 minute 2B pattern. This is a form of a double bottom with the second low is just slightly under the first to create a trap pattern. The typical price action resulting from such a trap is a move higher once the channel from the move into the second low breaks. This happened shortly after 15:00 ET, but the setup lacked any volume confirmation and the indices merely chopped somewhat higher into the closing bell.

A lot of market participants were unwilling to hold a great deal on the short-term time frames overnight due to some rather hefty earnings announcements after the bell and ahead of Tuesday's open. Since many of these same players would have also lightened the load into the weekend, it meant that a lot of swingtraders sat out the session on Monday. This "wait and see" attitude partially contributed to the lighter action throughout the day, although the greater reason remained the strong upside exhaustion from the prior week.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) lost 28.99 points, or 0.2%, on Monday to close at 11,467.34. 21 of its 30 index components closed in negative territory. Merck & Co (MRK) led the downside after delaying their second-quarter earnings until after the bell following concerns about the effects of their cholesterol-fighting drug Vytorin. The result was a 6.24% drop in share price, while the fellow drugmaker Schering-Lough (SGP) fell 12.1%. JPMorgan (JPM) came in second with a loss of 3.42% in the Dow. American Express (AXP) followed, down 3.06% ahead of earnings. Following the bell, it reported earnings of 56 cents a share, quite a bit lower than the 83 cents per share that Wall Street had been expecting. Revenue was up 8% to 7.48 billion. On the positive side was American Intl. Group (AIG) which gained 5.82%. BAC came in second, but Caterpillar Inc. (CAT) also had a strong move of +3.3%.

The S&P 500 ($SPX) slipped a fraction of a point again to close at 1,260.00. Financials led the decliners, down 1.4%, while consumer discretionary fell 0.9%. Out of the S&Ps 10 industry groups, energy climbed 3.9%, while materials rose 1.3%. Oil prices climbed thanks to both an exhaustion move lower into the weekend which took it into price support, as well as some increased concerns as a result of a tropical storm making its way into the Gulf of Mexico. August delivery for crude oil climbed $2.16 a barrel to $131.04.

The Nasdaq Composite ($COMPX) fell 3.25 points, or 0.1%, and closed at 2,279.53. Shares of Yahoo (YHOO) fell 3.5% after shareholder Carl Icahn was chosen to sit on its board. Apple (AAPL) managed to recover from a strong love lower in the morning to squeak by with a 0.69% gain going into earnings, but the larger daily and weekly charts are in the middle of a two-wave continuation short pattern which began to form mid-June. The company didn't need a technical reason to head lower, however, once earnings came out after the bell. The session closed with AAPL trading at $166.29. It is nearly two hours after the closing bell, and AAPL is trading heavily afterhours at less than $148/share.



I am still favoring a larger correction off the daily resistance zone in the markets which began to hit late last week. The index futures are trading significantly lower following Monday's earnings news, so chances are high for a large downside gap. In such a case, if the market breaks the first 15 minute lows, then odds are higher for at least a trend morning lower, if not a trend day. On the other hand, should the market break the 15 minute highs, then the odds increase that the gap will fill. It will usually do such within the first two hours when this scenario develops. A small base favoring the direction of a 15 minute break, such as a little downside out of the open and then a base at lows ahead of a breakdown and vice versa for the long side will increase the odds of the setup.

Check out my blog at http://www.tonihansen.com/blog for detailed comparisons of the current daily price development to similar occurrences of price development in the past.

Also be sure to register for this Wednesday's FREE webinar! 4:30 pm ET
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Free Webinar - Choosing the Right Trading Strategy

Hey gang!

I am holding a free webinar this coming Wednesday. The details are as follows:


CHOOSING THE RIGHT TRADING STRATEGY
with Toni Hansen


When: Wednesday, July 23, 2008 at 4:30 ET (You can login beginning at 4:00 ET) The class will last for approximately an hour with Q&A to follow.

Where: Go here to registar: https://www2.gotomeeting.com/register/120913682

Description: Position, Swing, Scalping... The list goes on. It is often a daunting task for an individual market participant to determine which style of trading is best suited for their own personality. Join veteran trader Toni Hansen in this enlightening session as she explores the ins and outs of trading on different time frames. Her expertise can guide you to select a style to fit you perfectly. There is no better opportunity than this to learn some of the tricks to successful trading that are unique to each level of market participation, as well as how to employ these strategies for maximum profit!


System Requirements:

PC-based attendees
Required: Windows® 2000, XP Home, XP Pro, 2003 Server, Vista

Macintosh®-based attendees
Required: Mac OS® X 10.4 (Tiger®) or newer

Mixed Trading Ahead of the Weekend

Good day! The market was all over the place on Friday with a large divergence between a strong Dow and a weak Nasdaq thanks to the effects of quarterly earnings reports from the prior afternoon, as well as premarket. A number of major tech stocks disappointed, leading to greater relative weakness in the tech-heavy Nasdaq Composite ($COMPX) on Friday. Google (GOOG) fell sharply afterhours on Thursday after it failed to meet expectations. On Friday it ended the session down 52.12 points, or 9.8%, and closed at $481.32. Microsoft's (MSFT) earnings also fell short, resulting in a 1.66 point, or 6%, price decline with shares closing at $25.86. Another big-name tech stock that lost ground was Advanced Micro Devices (AMD), which fell 12.3% to close at $4.65.

The Nasdaq Composite ($COMPX) shed 29.52 points, or 1.3%, on Friday, closing at 2,282.78. This meant a weekly gain of 2% with the year-to-date loss coming in at 13.9%. A large chunk of the losses took place into the open with a strong gap lower on the earnings data. The Philadelphia Semiconductor Index ($SOX) lost 0.7% on the session, while the Morgan Stanley High Tech 35 Index (MSH) fell 0.5%. Gilead Sciences (GILD) fell 10.60% on the day. Other top Nasdaq losers included Whole Foods (WFMI) (-5.06%), Expedia (EXPD) (-4.57%), and Amazon (AMZN) (-4.15%).

The Dow Jones Industrial Average ($DJI), on the other hand, gained ground once again on Friday. It climbed another 49.91 points, or 0.4%, and closed at 11,496.57. This marked a weekly gain of 3.6% with a year-to-date loss of 13.3%. 19 of the Dow's 30 index components closed in positive territory. The gains were led by Citigroup (C), which was up 7.7% after reporting a better-than-expected quarterly loss. For the week, C gained 19.5%. Bank of America (BAC) followed with a 3.74% gain on Friday. International Business Machines (IBM) defied the tech trend and closed higher by 2.66%.

The S&P 500 ($SPX) was relatively unchanged on Friday. It gained a fraction of a point to close at 1,260.68. This led to an overall gain on the week of 1.7%, which puts it down 14.1% for the year to date. Telecommunication services were up 1.7%, leading the advancers for the day, followed by energy (+1.1%) and financials (+0.9%). Consumer staples fell 0.8%, while consumer discretionary lost 0.4%. In the energy sector, Schlumberger Corp. (SLB) gained 3.9% following second quarter net income growth of 13%.

Dow Jones Industrial Average ($DJI)


After spiking on Tuesday with the downside exhaustion gap in the indices, the volume in the market dropped off quite a bit on Friday. It came in at 1.7 billion shares on the New York Stock Exchange. Advancers outpaced decliners by 8 to 7, while decliners beat out advancers by 5 to 4 on the Nasdaq. Volume on the Nasdaq came in at just over 1 billion shares traded.

In commodities, crude oil futures again slipped lower on Friday, although the selling did manage to exhaust itself in the short term. Crude for August delivery came in 41 cents less than the prior day to end at $128.88 on the New York Mercantile Exchange. For the week overall crude fell 11.3%. Wholesale gasoline was also down 11% for the week, although the average retail price of gas still tops $4 a gallon. Gold futures on the Nymex lost $12.70 an ounce to close at $958 an ounce, down more than 1%.

S&P 500 ($SPX)


From a technical standpoint the market was very sloppy on Friday. After several days of strong upside the indices were exhausted into daily resistance at the 20 day simple moving averages. The upside pace began to turn on Thursday when the gap higher was followed by a correction into the afternoon before the indices turned higher once again.

The S&P 500 and Dow Jones Ind. Ave. both gapped higher into Friday morning. The gaps were minor, however, and came on the heels of a rally into the closing bell. The gap itself took the S&Ps back into the previous day's highs, which served as price resistance. Meanwhile, the Nasdaq Composite experienced a stronger gap lower. This took that index into the zone of the prior day's lows into the open.

The market sold off immediately out of the opening bell. This downside continued steadily into 10:00 ET. Prior lows served as support, along with the 15 minute 20 sma in the S&Ps and Dow. The market rolled over at this support, leading into a Phoenix buy setup on the S&Ps and Dow and a 2B reversal on the Nasdaq. A Phoenix is a pattern whose named I coined about a decade ago to describe a reversal pattern which takes place immediately following a low. It can take place within more widely know patterns such as a cup-with-handle or inverse head and shoulders pattern, or following a "V" style pivot low such as on Friday. A 2B is a form of double bottom whereby the second low is slightly lower than the first and serves as a form of trap.

Nasdaq Composite ($COMPX)


The market followed through strongly when the morning reversal patterns triggered coming out of the 10:45 ET correction period. The Dow was the first to hit the morning highs within minutes of triggering. This allowed it to form another continuation pattern to break to new intraday highs while the S&Ps and Nasdaq working on making their own ways back to highs. This feat was accomplished as the 11:15 ET correction period rolled around.

The sharp upside pace made it difficult for the market to simply roll over. Instead, the Nasdaq managed to create a shallow Avalanche breakdown setup on a 5 minute time frame, where as the S&Ps and Dow slid lower with a great deal of chop and overlap from one back to the next within the pullback.

The indices began to slow at morning support at 12:30 ET, but the S&Ps and Dow added one more slightly lower low on a 5 minute time frame into 13:00. This is another major correction period intraday and, combined with the price support, it led to another correction off lows into the afternoon. The Nasdaq corrected through time, hugging the support throughout the remainder of the day with narrow and choppy trading for well over 3 hours. Things were not a great deal smoother in the rest of the market, but it did experience some slightly better price swings. The S&Ps and Dow both pulled back into 15:00 ET from about 14:15 ET, but then rallied back into the close. That final rally is what took the S&Ps back into positive territory, albeit only to a minor degree.

This coming week is going to be dominated by earnings data. The price bias heading into Monday favors a correction lower on a daily time frame this coming week which could easily return the market to the lows of this past week. The larger bias, however, favors such support holding and leading to another wave of upside which would break through the 20 day sma resistance. I posted several examples of how this price action can play out on my blog at http://www.tonihansen.com/blog.

So far the Russell 2000 and Nasdaq Composite are playing along the best with the templates displayed there utilizing previous examples of similar lead-up price action. The typical pullback tends to be an upside-down "V" or pivot off resistance, but the S&Ps and Dow have not quite done this and are basing instead. This may indicate that they are not yet ready to begin the corrective phase and may push this currently trend a little higher before they join in.

Economic Reports and Earnings Events This Week:

Economic Reports and Events This Week

Monday, July 21, 2008
10:00a.m. Jun Conference Board Leading Indicators: Previous: +0.1%.

Tuesday, July 22, 2008
7:45a.m. ICSC Chain Store Sales Index For Jul 19:
8:55a.m. Redbook Retail Sales Index For Jul 19:
10:00a.m. Jul Richmond Fed Manufacturing Index: Previous: -12.
5:00p.m. ABC/Wash Post Consumer Conf For Jul 20:

Wednesday, July 23, 2008
10:35/35a.m. Crude Inventories
2:00p.m. Fed's Beige Book

Thursday, July 24, 2008
8:30a.m. Initial Jobless Claims For Jul 19 Week:
10:00a.m. Jun Existing Home Sales: Previous: +2.0%.
10:00a.m. DJ-BTMU Business Barometer For Jul 5:

Friday, July 25, 2008
8:30a.m. Jun Durable Goods: Previous: Unch.
10:00a.m. Jun New Home Sales: Previous: -2.5%.
9:55a.m. End-Jul Reuters/U Mich Sentiment Index:


Key Earnings Announcements This Week:

Monday, July 21, 2008
Before: ALDN, ALB, AME, ASTE, BMI, BAC, CACH, CRNT, DSL (?), GBE (?), HAS, HIFN, RX, MRK, NVR (?), PETS, RPM, SGP, UB, WFT
After: AMLN, AAPL, ARTC (?), BSX, CNI, CX (?), EXP, EFX, RE, FNB, FWRD, HPC, HXL, LNCR (?), LOGI, MSPD, MHK, OMCL, OMI (?), PKG, PGI, QLGC, RGA, SNDK, SFG, STLD, TXN, VRTX (?), VLTR, WGOV, ZRAN (?)

Tuesday, July 22, 2008
Before: AKS, AXE, ARB, ALV, AVY, BHI, BIIB, BJS, CP, BEAT (?), CSL, CAT, CE, CNC, CHKP, CME, CPO, DRH, DPZ, DD, FITB, FCFS (?), FMER, FRX, GNTX, HAL, IBKC, ICLR, IEX, IMN, JEC, JEF, JBLU, JRN, KELYA (?), KEY, KVHI, LXK, ERIC (?), LMT, MICC, OMC, OXPS, PCAR, PMTC, PNR, PAS, PTEC, PCP, DGX, RJF (?), RYN, RF, ROK, RCL, SWK, STI, TLAB, UAUA, UNH, UPS, LCC, USG, WAB, WB, WAT, WU, WTNY, XTO
After: RNT (?), AMSG, ANAD, AXYS, BXP, BRCM, BTUI, CHRW, CAMD, CRI, CXCD (?), CEC, CERN, CSGS, DFG, DST, ETFC, EW, WIRE (?), EPIQ, FULT, HBHC (?), ILMN, INFN, ISRG, JLL (?), LRCX (?), LLTC (?), MANH, MEOH, MRH, NBR, NARA, NSC, ORLY, PTV, PNRA, PLT, PTP, PPDI, SEAB, SIAL, STM, SUPX, TRMK, USNA, VMW, VOCS (?), WM, WCN, XL (?), YHOO, ZHNE

Wednesday, July 23, 2008
Before: APD, ATI, ALGT, ABK (?), ABFS, ARW, T, ATMI, BA, CEVA, CNH, COP, CVG, CYBI (?), DOV, EMC, ETH, FCX (?), GD, GENZ, GSK, HSY, LII, LECO, MPX, MCD (?), MNC (?), NYT, NIHD, NWA, NYB, BTU, PEP, PFE, PM, PX, PDS, PRSP, RDWR, RIMG, RES, R, SEIC (?), SLGN, SLAB (?), SLM, SPNC (?), SY, TCB, SNAK, MDCO, TRV, UIS, WLP, WHR, WYE, ZBRA
During: BUD
After: AEA (?), AEIS, AFL, AEM, ARG, ACL, ALL, DOX, AGP, ARBA, ASIA (?), BIDU, BZP (?), BDN (?), CBT, CDNS, CRA, CTHR (?), CHIC, CMG, CRUS, CTXS, CNS (?), CVGI (?), CPTS, CNW, CLB, EXBD, DGII, EGP, EQIX, FFIV, FIC, FNF, FADV, FR, GDI (?), GGB (?), ROCK (?), GGG, GKK, GSIC, IKAN, BLUD (?), ICO, ISIL, IRBT, KRC, KEX, KFN (?), KNX (?), LHO, LSI, MTSN, MCK, MLNX, WFR, MMSI, MOH, MTSC, NTGR, NFX, NHWK (?), NE, NTRI (?), NUVO, NVEC, OMTR, OSIP, PNSN, PSSI, PHM, QCOM, QDEL, RMBS (?), RRC, RHI, RRR (?), RUSHA, RYL, SANM, SSW, SCSS, SWIR, STMP, SRDX (?), TISI (?), TER, TEX, TNB (?), TLGD, TMK (?), TSCO, TRMA, TQNT, TUP, VARI, VAR, VASC, WRB, WSTL

Thursday, July 24, 2008
Before: MMM, AMG (?), ALK, ABC, ABI, ACAT, (?), ARTG, ASH, ASPM, AGIX (?), AUO, AN, BLL, BKUNA (?), BDX, BDC, BHE (?), BBI, BMY, BC, BBW, BG (?), BNI, CCMP, CSH, CELG, CPS (?), CBR, CXG (?), CMCO, CCUR (?), CNMD, CNX (?), CBE, CVTI (?), CFR (?), DAI (?), DO, DHX, DRAD, DDE (?), DVD (?), DOW, DSPG, DEP, ELON (?), ECL, ELN, LLY, EMCI, ECA, ESV, EPD, SSP, EXC (?), FSNM, FLIR, F, FCL, BEN (?), GMT, GR, GHL (?), HHS (?), HTV (?), HUBG, HUB.B (?), ICTG (?), IKN, IPCC, IDC, IVC, IVZ, IVGN, IONA (?), ESI, JAKK (?), JNS, KEI (?), KMT, KMB, KCI, FSTR, LLL, LH, LEE, LM (?), LVLT, LTM, MBI (?), MNI, MWV, MHS, MEDE (?), MSTR (?), MKSI, MNRO, MWRK (?), NCC, NEM, NCX, OXY, ODFL, ORI, OHI (?), PTC (?), PCCC (?), PENN (?), PCZ, PFCB (?), PLUG (?), POT, PCH, PLD, QLTI (?), RSH (?), RTN, FRZ (?), REDF (?), RGC (?), ROH, RBCN (?), SCHL, POOL, SMI (?), SI (?), SII, SNA, LUV, SPAR, SPR (?), HOT, STFC, STE (?), STRA, SU, SNV, SYNT, TASR, TDY, TRA, TMO, TSCM (?), TRAD (?), UTEK, UNP, USAP, UST, VDSI, VIGN, WCC, WMAR, XRX, ZMH, ZOLL (?)
During: COHR (?), EGN (?), GRC, HTLD (?)
After: ABAX, ACTS (?), ACXM (?), AFFX, AYE (?), AMX (?), ANSV (?), ANGO, ARNA (?), AVID, BEZ, BBSI (?), BJRI (?), BMC, BKHM, BUCY, BLDR (?), BLG (?), COG, CLS, CENX, CPHD, CHRT, CAKE (?), CIM (?), CB, CYN, COBZ, COHU, COLM, CPWR (?), CCI, CW, CYBS, CYMI, DDUP, DECK (?), DDR, BOOM (?), EMN, ESIO, EPIC, EZPW, FALC, FII, FLEX, FTI, FDRY, GNW (?), GPN, HITT, IM, INSU, IBNK, ISSI (?), IBKR, IWOV, XXIA, JJSF, JNPR, KLAC (?), LDSH (?), LCRD (?), LSCC, LDIS, MTD (?), MCRL, MCHP (?), MSCC, MTX, MCRI, NTY (?), NETL, NTCT, NUVA, OLN, PCTI, PKI, PXLW (?), PLXS, PRAA, POWI, PWER, RMTR, RSG, RVBD, RCKY, ROP, SGMO (?), SBCF, CKH (?), SIMG, SIRF, SKX (?), SONO, PCU (?), SOV (?), STNR (?), SRCL (?), SYMM (?), TCO, TNL, TZOO, TRMB, TGI, TYL, VSEA, WOOF, CHIP (?), VISN, VLCM, WDC, WYNN, YRCW

Friday, July 25, 2008
Before: ACPW, ALEX, AXL, ACI, B, BEC, BLC, BDK, CRDN, SUR, CVH, FSS, FO, IDXX (?), LNCE, MBFI, MOG.A, NFLX, NS, NWN, SAIA, SRP, TROW, VVI
After: PAR (?), GU (?)

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

Comparative Price Action - Potential for Upcoming Market Move

Hey gang... Here are some charts showing comparative price action for the daily Nasdaq Composite. This gives us an outlook for the next couple of weeks should the pace of the market action on the daily time frame repeat the intraday pace. It is something to keep an eye on! The downside on the daily NQ was obviously more substantial than the intraday action in the first example, so I would not expect as strong of a reversal off lows as seen in the bottom chart, but the overall template remains in play. The final chart here shows an example of a cont. on the downside with similar price development.



Another similar development:



Similar development which led to a break lower as opposed to seeing the support hold:



Close-up of the support failure:



Another variation without the pullback from this point lasting more than what would be a day or two: