CNBC Street Signs--1/29/10

By: Scott Redler

Today I went on Street Signs talking about the complexion change in the market. Below is a video from that segment, as well as my preparatory notes.

• This month we started to watch for a composure change—look for technical signs to add up for a change in market complexion. It first started when GOOD EARNINGS were sold—JP Morgan (JPM), Intel (INTC), Goldman Sachs (GS), etc.

• The sell-offs have come on high volume and the bounces on low volume—this is UNHEALTHY! Leading stocks started breaking important moving averages while the market was sitting just below highs—another unhealthy sign.

• Then, on January 21^st, we started to sell long positions—clean up our portfolio in anticipation of what should be at minimum, a 10% correction. The complexion was changing and we had to react. When the market broke 1,128-1,132, the UPTREND in place since July broke. That was time to trade from a net short, as opposed to net long, position.

• Right now, the market is short-term oversold. So, 1,080-1,085 on the S&P is trying to hold. We will see how weak the market is by the size of the bounce. If the market cannot take back the 1,115-1,120 area then we will have confirmation that a significant change has occurred and a move down to 1,040—the 10% retracement zone—is in the cards. If policy starts to fail, we do think the lowest level this market can see is 880-910, but you need to measure the move as it transpires.

• Investors need to manage their portfolios. This will be the year of the active trader. The market is in the spot it was ten years ago, but there are stocks that are up 750-1000% and others that have gone bust. Investors need to see where the money is rotating to and use options in order to hedge positions. NEVER CHASE BUBBLES—do not pile into the herd mentality. That's how investors get burnt.

• We will be in for a ROLLING RECESSION—there will be times to buy stocks and times to be short or in cash. Now is one of those times. They say so goes January, so goes the year—I would not look too much into that statement. Just look at last year for a prime example. Watch the action of the stocks and trade accordingly.

Market Feeling Heavy

By: Brandon Rowley

The S&P 500 has traded in a rising channel for about 6 months being bought on the low end and sold on the high end. Channels are some of my favorite technical patterns because they're very basic and give traders an idea of how to approach trading from a general strategic perspective. My view is that markets and stocks are either trending or consolidating. In up-trending markets, look to a buyer on pullbacks and in down-trending markets, look to sell rallies. The market has been trending higher for months but the picture may have changed in the short-term.

Last week's aggressive sell-off brought the market to the low end of the range and we are hovering. While there's been lots of reasons to rally, the market just isn't rallying. Apple's blow out earnings left the Street unimpressed and the iPad was met with lukewarm reviews, yet only relative to previous product releases. Bernanke's re-confirmation was sold yesterday afternoon. Basically, I'm just not seeing the market rally like I would expect. It seems that we have fallen to the low end of the range and we are not bouncing, at all.

A break through yesterday's lows at about 1,080 in the S&P will forecast a move to the 1,000 level given the technical rules of ascending channels. As Laz always says, a rising channel while increasing in price has bearish implications upon a break to the downside. The measured move will be the width of the channel to the downside and finally provide us with the 10-15% pull-in many have been awaiting.

The Market Will Try Again

By: Scott Redler

The market will try and bounce from its extremely oversold state again. Yesterday's up open met some QUICK selling pressure. 1,080-1,085 is hanging by a thread.

This morning we got a good GDP number and some positive earnings reports. This just might hold up the market for now. I see a ton of technical damage, BUT that does not mean we cannot trade short-term bounces.

The Rundown:

• The banks were a bit stronger than the market yesterday and have some room to rally.

• Tech is very erratic right now.

• Apple (AAPL) looks like it wants to break $198-200 for a move lower, but the action is erratic and frustrating.

• Amazon (AMZN) is opening near resistance in the $130-133 area after a huge earnings report and the announcement of a share buyback.

• Microsoft (MSFT) was a great long for us into earnings--it worked well, but I would sell the open.

• SanDisk (SNDK) is opening down after great earnings, but weak guidance. I would avoid it now.

• Research in Motion (RIMM) is poking its head at the descending trendline. It's worth a look, as the stock exhibited good relative strength during the weak market days.

• Commodities are very weak. Hopefully all shorts have been covered in Freeport McMoran (FCX) and U.S. Steel (X). It's time to find some kind of bounce.

A Great Newsletter for Active Traders

By: T3Live

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Scott Redler Quoted in IBD

By: T3Live

Scott Redler was quoted in Investor's Business Daily yesterday recommending to buy the XLF--the financial sector ETF--against the $14 level as support. Yesterday, the index held that key support level and today it put in a higher low at $14.11 before moving higher. Here's an excerpt from the article:

Scott Redler, chief strategic officer at T3Live.com, recommends buying XLF as it bounces off prior support at 14 for a potential move to 14.80 to 15. It faces resistance at 15, where it broke down after Goldman Sachs (GS) reported earnings, he said. Goldman accounts for 6.5% of XLF.

XLF has shed 2.71% so far this year after returning 15% last year.

No Relief Rally Yet...

By: Elliot Turner

Shortly before the Bernanke confirmation vote, I wrote that we could possibly see a relief rally should the "yays" win and Bernanke get reconfirmed. The Senate called for a 3:20 vote on cloture--the procedure to end debate and proceed with the real vote--and somewhere around 3:45 the result came in. At first instant, the market shot up; however, before I could sell out of any of my long positions, we quickly reversed and pulled in hard. After accepting my small loss, I moved on and decided to wait it out until Amazon (AMZN) earnings.

All morning I had made money long Amgen (AMGN) while the market tanked. When the market finally bounced, I added to my position, anticipating that the market's short-term strength would add an extra boost to Amgen's breakout. Sure enough, as the market bounced, Amgen faded back to the breakout level and I had given away a good chunk of my gain in the process. This afternoon, the SPYs held the test of the important $108 level and provided some decent long opportunities, although the rally was rather muted and failed at around $109 on the SPYs--our most recent support area.

We can clearly see past support levels capping rally attempts. Caterpillar (CAT) opened the day right at $54, it's multi-month base, and aggressively sold off in early trading . JP Morgan (JPM) made several attempts to retake the $40 level and failed each time. As long as this dynamic continues, then I will continue to search for shorting opportunities against prior bases. I do not like shorting as the stock moves up towards the past base. Rather, I wait to see if the prior levels works as resistance, and once I receive confirmation, I then initiate a position with a stop above the level.

Today the financials exhibited relative strength, while commodity stocks continued to get annihilated, yet for some reason, when the market bounced, the financials could not rally. We had our first higher low in the XLF since the aggressive sell-off began and the sector exhibited relative strength throughout the day. Look to see if that higher low can hold. If so, we just might get that "relief rally" we have all been waiting for.

Fast Money Halftime Report 1/28/10

By: T3Live

Today Scott Redler appeared on the Fast Money Halftime Report talking about key levels to watch in the S&P and offering his opinion on Microsoft (MSFT) ahead of its earnings report this afternoon. Check out the report here for more.

Buckle your Seatbelts...

By: Elliot Turner

Over the last week, volatility has come back with a vengeance. We have a host of new and old buzzwords moving this market in violent swings every which way: iPad, "extended period", State of the Union, etc. Coming up in the next hour, we have perhaps the most significant news-based event of the week--Helicopter Ben Bernanke's cloture vote in the Senate set for 3:20 this afternoon.

Considering there are only two possible outcomes at this point, it's worth quickly running through the "if...then" setup for the post-vote trade. The question of whether Bernanke will be confirmed or not has been weighing heavily on this market. Uncertainty with regard to the future, generally speaking, weighs on the market. This particular variety of uncertainty is dangerous. When market participants do not know what to expect with regard to the future course of monetary policy then they do not have a clear picture as to how best to deploy capital. Should the vote affirm Bernanke, it's very possible that we can see a "relief rally" take hold in the market.

If, on the other hand, the Senate were to vote against Bernanke's cloture, then an even greater amount of uncertainty would loom over the market. This is a hypothetical that not many want to contemplate; however, should that happen, I will look just about anywhere for short setups.

So far today, the financials exhibited good relative strength. This is a sector that will be front-and-center on my radar, along with some of the oversold commodity stocks.

Best of luck this afternoon and hope for the best with Helicopter Ben's vote.

A Quick Note

By: Scott Redler

If yesterday's bounce into today's up open was the counter-trend move or "oversold bounce" then this market is in some big trouble. Early on, the market feels very heavy--Qualcomm (QCOM), Motorola (MOT), Apple (AAPL), Potash (POT), Google (GOOG) and the commodities are all having their early troubles.

The line in the sand to keep this range in tact is 1,083-1,085. So far this morning, that area is holding, so there is some cause for optimism. Under that area, 1,072 is the next support zone and a 10% correction would take us to 1,040.

How Far Can we Go?

By: Scott Redler

Yesterday we came in with a plan to get long. We bought the SPY on a reversal pattern and entered some financials long. The question now is: HOW MUCH CAN WE BOUNCE? There is a small level of resistance in the 1,104-1,107 area on the S&Ps and a WALL of resistance in the 1,120-1,125 area.



The Rundown:

• Google (GOOG) was a good long against the $535 level. Now it will be interesting to see if it can break above the 4-day pivot of $548-550. If so, then it has room to get to $565.

• Baidu (BIDU) held some of its news gap and the 100-day moving average. It still looks pretty good.

• Apple (AAPL) survived its "NEWS EVENT OF THE CENTURY" and impressively did not succumb to the "sell the news" phenomenon. Now it needs some time to consolidate this upper range between $198-215 area with an inside range of $204-210.

• Research in Motion (RIMM) has been a good long the last two days and will be testing its descending trendline at around $65.50.

• Amazon's (AMZN) squeeze is on after a big decline. They report earnings today after the close. I would be careful.

• Microsoft (MSFT) also reports after the close. I do think this report will be STRONG. For those who speculate, you can be long into earnings. If you can hold it, you can probably trade out of it without too much pain over the coming months if you don't get the report you want.

• SanDisk (SNDK) reports after the bell today. The way it's trading suggests that a BIG UP MOVE may be in the cards--much like we had in Cree (CREE) and VMWare (VMW).

• The banks finally bounced--I am long Goldman Sachs (GS), JP Morgan (JPM) and the XLF against yesterday's lows. The FAS could get up to the $77-79 area before it hits some big resistance. Take a look at the chart of JP Morgan below for a visual of the trade setup.

• MGM held up GREAT during this decline--excellent relative strength compared to Wynn Resorts (WYNN) and Las Vegas Sands (LVS). I would look to see if it can get going above $12.30-12.50.

• The OIH and USO have similar room to the S&P.

• U.S. Steel (X) and Freeport McMoran (FCX) have both been badly beaten since their respective earnings reports. Both are up a bit this morning and have some room to the upside.

Post-Fed S&P Chart Update

By: Scott Redler

Here is yet another updated chart of the S&P--a lot going on lately! So much so that things might change by the time I post this. BUT, we did get triggered long in the post-Fed trading. Earlier, we had covered our shorts in the 1,095 area on the S&P and we had been patiently awaiting a long trigger in the 1,085 area.

We had RedDog reversals across the board today. We established long positions on the break above $109.04. When you see an oversold market like this, the risk/reward profile changes in favor of the long side. We need to see where this bounce takes us to in order to assess whether to look long or short in the near future. Watch the 1,120-1,128 area closely to see if it can contain this attempted bounce. If we cannot reclaim that zone, then it will once again be time establish short positions.

Ahead of the Fed

By: Elliot Turner

Well this morning was some volatile, choppy, and schizophrenic trading. This morning when I woke up, I knew I would be trading Caterpillar (CAT). CAT had been a high flyer and recently broke support after a failed breakout attempt. With earnings out this morning, I knew there would be a catalyst for a move, but did not know which direction to look. CAT gapped down big, then tried to rally to $54--it's most recent strong support level. When the rally failed, I initiated my short position and patiently traded out the move. That helped keep me somewhat sane amidst the chaos.

In sticking with my plan, the middle of the day, as is the plan on any Fed Day, calls largely for inaction. I have a small position left in my early CAT short and will leave that some room to run with a trailing stop. Other than that, I will not initiate any new positions and will patiently await the Fed's announcement due out at 2:15.

In anticipation of the Fed, I like to prepare several "if...then" scenarios and to have a planned course of action. Typically there are far more potential variables when the FOMC rate decision is due out; however, considering the recent past and short-term expectations, the scope of possible outcomes is rather narrow. I fully expect nothing too surprising. The key to this Fed Day are those two magical words: "extended period." This of course refers to the Fed's stance of maintaining aggressive monetary policy and low interest rates for some time. As long as those words appear somewhere in the statement, then the liquidity pump remains open and the Fed remains concerned about near-term deflationary pressures.

On the other hand, should those two magical words disappear from the Fed's statement, everything changes. While that is unlikely, it's important to be prepared. If that were to happen today, then this already oversold market could come under INTENSE selling pressure. Again, I reiterate, this is highly unlikely! I mention it solely with the intention of preparing myself for all POSSIBLE outcomes.

Often times, after a Fed announcement, the market makes several false moves before picking a direction and sometimes the real directional move takes another day to develop. Be patient and do not get chopped up in those initial moves. If you are a scalper, there should be some great opportunities, but be wary of holding onto any positions too early in the post-Fed chaos.

Best of luck to all on this Fed Day!

RedDog Reversal in JP Morgan

By: Scott Redler

A lot of people ask me how exactly a RedDog reversal trade works. To highlight this setup, I think it's best to use a real life example. Take a look at the daily chart of JP Morgan (JPM):


JPM has been crushed over the past week or so. I came in today looking for potential reversal trades, and JPM, along with the banking sector, was one of my specific targets. JPM opened slightly above yesterday's low of $38.28 and quickly traded down through that level. When prices could not hold below that low, I initiated a long position with a stop just below today's low of $38.07.

This setup often leads to excellent intraday trades and can sometimes set us up for a multiday swing trade.

AAPL: A Pattern Within a Pattern

By: Evan Lazarus

I would like to highlight two charts of Apple (AAPL) to analyze the POTENTIAL pattern developing in one time-frame that could lead to the development of another, more powerful pattern on a higher time-frame. I call this a pattern within a pattern.

If you take a look at a short-term chart you can see the ominous head and shoulders reversal pattern developing that could ultimately lead to a clear break of the support line in the near future.

Should that play out, this trade projects a move down to the mid $190s. Active traders should keep a close eye on this trade for today, as the short duration of this pattern will most likely lead to a resolution in the near future.

In chart two, I have highlighted the same stock, with the same potential pattern developing; however, this time, over a much longer time-frame.


In this example, should AAPL trade back to the neckline, that would complete the "head" structure of the much larger H&S pattern. While this pattern will take longer in time to develop (if it does actually develop), it forecasts a much larger potential move down over the coming months ahead.

Charting is like a puzzle in that all time-frames should align and a clear story should always make sense.

Oversold--But No Rally Yet?

By: Scott Redler

The market is pausing in an area worth trying for a small oversold bounce--1,080-1,085 on the S&P was the compelling spot to watch. We are here, but the market remains erratic and hard to trust. Take a look at my updated S&P chart posted yesterday.

Goldman Sachs (GS), JP Morgan (JPM) and the banks were a part of the reason that the markets could not sustain its upmove over the past few days. Both GS and JPM trader through key support levels late in yesterday's trade. When GS reported, we highlighted the negative bearish head and shoulders top. Sure enough, the stock broke both its neckline and 200 day moving average. Take a look at my marked up GS chart from yesterday--this $150-152 level could be worth a shot for a short-term bounce. This area is the key support/breakout level from July 15th.

I will be looking for some type of RedDog Reversal today in GS using yesterday's low of $150.70 as a level. If the market tries to push it towards those lows, you can nibble in front of that area with a TIGHT STOP, just in case it can't break it. Should GS break yesterday's low, stop at the $149.50 area and trade back through $150.70, then you can buy it with a stop at today's low and see if a bounce finally shapes up. This is the strategy to use when you want a calculated bounce in a very oversold scenario (you can't just keep buying and buying and averaging down--that's how you blow up!). You can use this same strategy in the other banks--JPM and BAC in particular.

If Goldman never turns back up, we will try again another day. The macro pattern actually tells me we should see $135ish in the coming months.

The Rundown:

• I will also be looking for potential RedDog reversals in U.S. Steel (X)--which has been CRUSHED lately, and for Freeport McMoran (FCX). Both are very oversold. That does not mean a bounce will happen just yet, but it's worth putting on the radar.

• It seems like Google (GOOG) is trying to hammer out short-term support in this area. You can trade it long against the $535 level. Research in Motion (RIMM) had a small reversal yesterday and could continue higher. Amazon (AMZN) has earnings out tomorrow. It's been very erratic and was a great long yesterday, but then got weak. This morning it was again upgraded and is up $2 plus points.

• VMWare (VMW) had great earnings and a huge gap, but no trading action during the day. It needs some time to digest that large move. Watch yesterday's low for some opportunity. This reminds me of Cree (CREE) just a few days ago after its earnings report. Look at both charts and you can see some of the similarities shaping up.

• SanDisk (SNDK) is consolidating up in the $30 area. With earnings out Thursday, my gut tells me they will be good and we could get a big gap up. If you want to make a play on this, I would do so with options, not with the stock. You can better quantify your risk with options than with equities when dealing with a stock like SNDK.

• This morning, Caterpillar's (CAT) earnings were soft and it's down $2+ points. $54 is a big level, with a lot of air below. Watch price action this morning around that area. Boeing (BA) also had soft earnings, but it's trading up nearly $2.

There are lots of headlines today:

• Geithner is on the hill.

• The Fed's announcement will come at 2:15.

• The highly anticipated tablet announcement is due out from Apple (AAPL), which had a very erratic day on HUGE volume following their earnings report. This is generally a sign of a minor correction coming soon.

• The State of the Union is tonight.

With so much news on the horizon, trade accordingly and patiently await opportunities.

Updated S&P Charts

By: Scott Redler

Many traders are trying to figure out if this 1,080-1,085 area is "BUYABLE." As of now, we are holding it, but there has not been much conviction on the bounce. Combine that with some technical damage in some of the market's leaders and it looks like we might have our first 10% correction since "The Rally" started last March. Below are two charts that basically sum up the latest action in the S&P.

This first chart displays the area in the 1,080-1,085 area that was worth a try long.



This next chart shows where we stand after today's close:


As you can see, this market is holding on by a thread.

Goldman: Before and After...

By: Scott Redler

The potent down day following Goldman Sachs' (GS) earnings report was a serious day to take note of. It was an opportunity to either sell GS longs, or to even get short, especially when you combine the earnings reaction with the President's statement on the banks.

The stock broke its neckline and 200-day moving average at around $160-162 and is now approaching $150-152. It could find some short-term support here, but the pattern measures a distance to about $135-140 as a downside target.

Take a look at this before and after breakdown:

Key Levels in the S&P

By: Scott Redler

We warned many times that the complexion of the market was changing--the time to exit longs and to get short was around 1,130 in the S&P. That was a chart I isolated many times on this blog and on the Fast Money Halftime Report.

We covered our macro shorts for a "fast money" 40 handle move. Now we will be testing longs into our first zone of 1,080-1,085 on the S&P.


This will BE THE YEAR OF FAST MONEY. Traders will have to actively manage their positions. Be strategically long at times and short at other times in order to outerperform this market. Sector rotation will be king.

So, exiting at around 1,130 was the way to go—and getting short was even better. Now it’s time to watch levels to test for an oversold BOUNCE.

A Lot Going On

By: Elliot Turner

Yesterday I was very excited for the trading opportunity in anticipation of Apple earnings. Sure enough, not only were shares halted ahead of earnings, but then came an accounting change from Apple which clouded my ability to clearly assess the strength (or lack thereof) of the earnings report. I took a stab at scalping the QQQ's short off of a top in Apple, but could not stick with the trade. I decided to take my small loss and put together a plan for today's market.

Apple's (AAPL) earnings report is one of the more talked about events on Wall Street; however, it just might be overshadowed by the several other news and earnings events this morning and due out over the coming week. U.S. Steel (X) reported a $1.86 loss per share, well below the anticipated $1.43 loss. X enjoyed a rapid ascent from it's low of $33.25 in early November, to a high of $66.45 in January. As of now, the stock is indicating to open below Friday's low of $54.30. Should that level hold as resistance on a bounce, I will look to establish a short position. If the stock just runs away from me on the short side, I will gladly pass on the trade and seek out other opportunities.

Today the U.K. reported what can be summed up as an awful GDP number--a mere 0.1%, instead of the expected 2% growth. The U.K GDP number coupled with S&P putting Japan on credit watch negative put immense pressure on the futures overnight. After yesterday's action, we have a small two day base in many of the stocks we follow. Watch price action closely as we approach these levels. If prices hold, then we have a great level to establish long positions against; however, should the S&P takes out Friday's low at around the 1,090 level, then watch out for intense selling pressure to come into the market.

Two stocks I will be watching for directional tells are Freeport McMoran (FCX) and Goldman Sachs (GS). These are two of the market's leaders, whose earnings reports were big catalyst behind Thursday's aggressive sell-off. For the better part of a day and a half, GS has been trading in a $4 range, from $154-158. A break of that range should presage the next move for the financials. With FCX, a move outside of yesterday's range of 74.32-76.09 should offer a tell as to the direction of commodity stocks.

With a Fed Day tomorrow and Bernanke's reconfirmation looming over the market, be cognizant of the newsflow and prepare for some volatility.

T3Live Calendar of Events

By: T3Live.com

Following this Friday's Open House, we have several labs and seminars lined up over the coming months. Below is a calendar of the scheduled labs and seminars lined up over the next couple of months.

Please remember, an RSVP is necessary to attend the Open House, so do not hesitate to confirm your attendance by emailing sales@T3Live.com. We look forward to seeing you there!

New Strategies

By: Scott Redler

For the past year, we have been buying dips, buying bullish technical patterns, and shorting the extremely extended moves (remember the strategy of shorting the S&P every time we cleared new highs by about 20-40 handles? That was our only successful shorting strategy). Every time traders shorted a 4-5% pullin, they were toast.

The metric for the validity of this breakdown will be the size of the bounce. If the market cannot reclaim the 1,119-1,121 level, or the extreme line in the sand at 1,128-1,130 area, then the market should get its first 10-20% correction since the March bottom. Over the past two weeks we have watched all the poor technical action add up in leading into the breaking of the 1,128-1,132 area. Hopefully all of our readers out there took note and had cleaned up their long positions--and even SHORTED--in anticipation of the move.

Moving forward:

I think you can only buy VERY oversold levels, as we saw into Friday's close (after three big down days). Implement the RedDog reversal strategy for nice day and a half long bounces. As far as shorting, you can look for sell set ups at resistance levels and breakdowns of support. For example: if Goldman Sachs (GS) gets back to the $158-162 zone, you look to short on a sell setup. JP Morgan (JPM) at around $42 is a similar level. In tech--Amazon (AMZN) was a great short ever since its double top, and was an even better short as it broke $125-125.50 on Friday.

Now it's worth trading long, but as the market tries to pick itself up and retest the key levels, look for a sell setup. Baidu (BIDU) was a great short on Friday as it broke $425. Now, if it bounces back to the $422-425 area, see how it reacts and await a trigger to short for a reentry. You can use this type of strategy in any sector, BUT you must watch price action closely with the futures in order to confirm the plan.

Today we have a gap-up open. I took some longs home on the close Friday, figuring that every trader in America was hoping for a down open. I did so with a plan: I would add into the 1,080-1,085 area since that to me is a level to look for an oversold bounce. The overnight bounce in the futures changes my morning plan, but I am not complaining.

I feel like to be a trader now, you need to be on top of way too many things going on in Washington. It frustrates me, because as I read everything coming out of the Hill, it makes me more and more angry with our system. Under the surface, the Supreme Court ruled that corporations can now contribute as much as they want DIRECTLY to politicians. Yeah, that's a great idea considering what is already so wrong with America--isn't this already how our officials are elected?

Anyway, I will look to see if $111-111.50 on the SPYs contains this bounce in the short-term. Be patient and wait for a setup in that area.

Come Meet T3's Top Traders

By: T3Live.com

Join us for cocktails and come meet T3Live's top traders, including Scott Redler and the rest of the T3Live radio crew at our Wall Street office on Friday, January 29th from 4:30 p.m. to 6:30.

Are you currently an active trader or interested in starting a career as an active trader? If so, come join us at T3 Live's New York City headquarters for a brief presentation on active trading strategies for 2010. You will get the chance to meet successful traders and tour T3's state-of-the-art trading floor and training rooms.

The office is located at 1 State Street Plaza on the 10th floor. An RSVP is required, so please email sales@t3live.com in order to attend.

If you have not done so already, sign up for a FREE TRIAL of T3Live.com and check out the Virtual Trading Floor--an amazing vehicle for active and swing traders to acquire a taste and feel for what traders on Wall Street are trading and thinking. On the Virtual Trading Floor, members can hear our top traders talk through their trade executions and see all of their positions in real time. Be sure to take a look.

1128-1132 Broke, Hopefully You Were Prepared

By: Scott Redler

Goldman Sachs (GS) went red after reporting earnings and then the market collapsed through the uptrend line we've been honing in on for the past few sessions. Now that the uptrend line has been broken, the market's complexion has officially changed in my mind. There were many technical signs leading up to yesterday's move that such a decline was in the cards that we have consistently been covering on this blog. As of now, hopefully you already have cleaned up your positions and even made some money short in the decline.

The S&P is now testing its 50-day moving average (approximately 1,113), which makes sense considering the market's leaders broke through theirs. 1,110 is the 61.2% retracement of the move off of the early January highs.

As for today, I already bought some Google (GOOG) at around $557 and think it can bounce back to at least $570-573. I will watch Goldman Sachs (GS), which is down about a dollar, to see if I can play some type of bounce. The banks technically look like they are headed lower in the longer term. As long as GS stays under $164-165 over the next few sessions, there is a good chance it can work its way down to $130-135 over the next month or so.

Rino (RINO) is up $2.50 this morning--I lost a lot trying to buy it for a bounce yesterday on its 7th down day in a row. Figures the move happens preopen without me.

If you missed the shorting opportunity, there usually is a retest of a trendline after the break. If we can get a bounce back to the 1,128-1,132 area, that will be your chance to lighten up on longs and to enter some short positions.

Have a great weekend!

Fast Money Halftime Report 1/21/10

By: Scott Redler

Today on the Fast Money Halftime Report we talked about the technical action in Goldman Sachs (GS) and the changing market complexion over the last week. I also offer my take on Google (GOOG) ahead of earnings. Check out the recap here or watch the video below.

A Large H&S in Goldman

By: Evan Lazarus

Take a look at a chart of Goldman Sachs (GS) and you can see the formation of a large head and shoulders on the daily timeframe. Traders need to pay attention to this ominous reversal pattern in GS. The pattern suggests a move down to the $130 area over the next few months (if not sooner). While we believe short-term, the stock may bounce, this is something that needs to be watched closely as GS has been a market darling and can be a driving force for the market's direction moving forwards. "As goes Goldman, so goes the market."

Being Prepared is Key

By: Scott Redler

I couldn't say enough over the last week how important it was to be cautious right now. There were clear signs that market dynamics were changing. I hope that the past week or so of posts helped you all tighten up positions, get hedged, and maybe even slightly short. We now broke the uptrend line on the S&P that has been in tact since July and got a 30 minute candle to close below it.

This is a significant technical development and the trade has officially changed.

Hanging on by a Thread

By: Scott Redler

The uptrend that's been in place since July was tested yesterday, and held for the time being. The level to watch closely is in the 1,128-1,132 range. Watch for a 60 minute or daily close below that level for some more pressure to come into the market. I have inserted a chart today highlighting the important levels in the S&P.


You still can't "short lows" or trade from a net short position, but if you have not done so already, it's time to clean up some long positions and get very flexible while this uptrend is getting tested for the first time in 2010.

Goldman Sachs (GS) reported a earnings numbers, on somewhat light revenues. Watch how it trades in the first hour for clues on the banks. Most bank earnings are now out and they were largely treated with a yawn. FAS looks good, but that could change quickly if GS doesn't sustain its recent upmove and the rest of the group follows.

The Rundown:

• Commodities were under pressure with the Dollar's move higher and the rhetoric out of China on curbing bank lending.

• Gold broke to the downside of its tight wedge and is testing its previous breakout. I might look for a morning bounce (just as a daytrade) to see if it shows its face.

• Tech continues to act poorly. Google (GOOG) reports after the bell today and will be a big influence on the market. It has come down and lost its 50-day and the fight with China is serious. Watch the post-report action.

• IBM got hit on a solid report, as did Intel (INTC).

• Apple (AAPL) is the only one really holding onto its strong technical pattern, but it's getting erratic.

• Amazon (AMZN) is trying its best to hold $125.

• Research in motion (RIMM) is testing its 50-day.

I don't see many long technical setups--couple that with the recent technical damage and three distribution days in 2 weeks and I am now VERY cautious. I am in 90% cash and am just trading intraday right now.

This action forced me to clean up my macro longs. If the S&P breaks its uptrend line and closes below that level, I will start trading from a NET SHORT position. I have been consistently NET LONG for almost a year, so such a change would be a big one.

Today Is an Interesting Day

By: Elliot Turner

While most traders will focus on Goldman Sachs (GS) and Freeport McMoran (FCX) following their early morning earnings reports, I am going to throw out a curve ball today. The Oracle of Omaha, Warren Buffet, has gifted us traders with a 1-for-50 stock split of the Berkshire Hathaway (BRK.B). Over the years, Buffet expressed his distaste for share splits; however, in order to facilitate the stock component of the purchase of Burlington Northern (BNI), he needed more shares in the float (don't believe that he did the split solely to attract small investors; a major cause was the need for more shares to exchange in the BNI deal).

In anticipation of the split, the "B" shares rallied aggressively over the last two days, closing yesterday just under the top of its half-year range on massive volume. BRK.B traded nearly 250k shares yesterday, while on an average day, shares rarely changed hands much more than 50k times in a day.

It will be interesting to learn how much of a premium can be added to the share price based on the enhanced liquidity that comes along with a modestly priced stock. Some investors shied away from Berkshire, despite its solid fundamentals, because of the risks that come with a light volume investment combined with an innate fear of large numbers. With a lower share price, Buffet can now attract a wider array of investors and traders, and will now be eligible for membership in the S&P 500. An insertion in the S&P to replace BNI will attract investments from the many funds that track the index and can provide a nice catalyst for a move higher.

Today, I will look for Berkshire to hold yesterday's "close" of $69.52 for a long. $70 will be an important level in the early history of Berkshire as a tradeable stock, as it corresponds to the $3,500 pre-split resistance. Watch price action around that level and look for an entry. My plan for today mostly consists of familiarizing myself with the stock and how it trades, as I believe over the coming weeks and months this stock will become a favorite of traders.

61.8% Time Retracement on the Dow

By: Elliot Turner

We often talk about retracements and consolidation. Typically we are referencing price moves; however, we can also talk about time. When a stock (or index) makes a powerful move in one direction, it can digest that move without changing much in price. That being said, today, the rally in the Dow Jones Industrials reached it's 61.8% retracement in time--it has now rallied for nearly 2/3rds the amount of time that it spent trendling lower from the October 2007 high.


While it may not mean much, it is something worth watching. In many respects, time is as important as price and we need to take note when important thresholds have been reached.

We Need to Watch this Closely

By: Scott Redler

Take a look at a daily chart of the S&P going back to July. The trendline in place since the mid-July low has withstood several tests on the way up. Today and tomorrow collectively will provide an important tell as to whether that trendline can continue to hold. A daily close below 1,128-1,132 in the S&P could trigger a move to the 50-day moving average at 1,113, or to the larger support area in the 1,080-1,085 range.

Another Distribution Day

By: Scott Redler

With distribution days adding up, we have to start asking some questions. This morning we're seeing some Dollar strength, as well as the breakdown in some commodities. Decent earnings have been sold off--this started last week with Intel (INTC) and JP Morgan (JPM) and has continued with IBM (IBM).

Tech is having a lot of technical trouble right now. One day we see Apple (AAPL) plow higher with no sellers, the next we see it sell-off without any buyers. This is just one example of that choppiness highlighted this morning.

With China pulling back on bank lending and JAL filing for bankruptcy, we are not seeing bad events having a negative impact on the market for the first time in a while. This market has been incredibly resilient in shrugging off bad news. This 1,128-1,132 zone is VERY important as it coincides with the uptrend that started in early July. Prudent traders took their size down in the last few days and hedged some of their exposure. Now we need to learn whether this is a complexion change, or merely a pullback, before taking the next step.

America Speaks! About Time...

By: Scott Redler

GO SCOTT BROWN--(you can read between the lines as to how I think). Anway, lots of charts repaired themselves yesterday, but the lack of volume was a bit concerning. Last night, China's government said that banks should not lend for the rest of the month. This, coupled with Euro weakness is causing a Dollar bounce and some selling in commodities. Also, JAL was allowed to enter bankruptcy. While I don't hear much talk about it, I do believe the bankruptcy is a big deal.

Today the market needs to hold at least HALF of yesterday's move to validate new highs for late this week. That would require that somewhere in the 1,124-1,125 area on the S&P holds as support. Watch closely as the S&P approaches this area.

The Rundown:

• Banks are up a bit this morning--Wells Fargo (WFC) was good, Bank of America (BAC)...blah, and Morgan Stanley (MS)...blah.

• IBM reported solid, but not blockbuster numbers and is selling off lightly on the news.

• Casinos continue to hang around. I will hawk them for any sign of an follow-up move.

• Apple (AAPL) looks ready for new highs--I am long and will add if we can get a 60 minute candle to close above $215.50.

• VM Ware (VMW) looks ready to break out again from the $46-47 area. It NEEDS VOLUME.

• Amazon (AMZN) staged a mini-reversal. I will look long for another small up move.

• Baidu (BIDU) must be watched to see if it can hold that big gap up at around $425-435. It was a nice short yesterday, then an even better bounce.

• Google (GOOG) earnings come out tomorrow so this could be tricky until then. The company did say that they would hold back two phones in China, so I will be looking at stocks like Research in Motion (RIMM) to see if they can get a lift.

• The Oil Service Holdrs (OIH) is also hanging tough, with stocks like Apache (APA), Schlumberger (SLB) and Flowserve (FLS) looking to breakout. BUT, we need to see what happens with oil today.

• Gold had a very tight wedge. As of now, it is opening to the downside. See if the selling intensifies.

The trade is getting a bit choppy. In the beginning of the year, stocks would close on highs and continue the next day, or close on the lows and open down. Right now it's more of a mixed bag--there is not much consistency on a day-to-day basis. The market is trapping traders in both directions and it's getting on people's NERVES.

Be patient, wait for patterns, and DO NOT get caught in the choppy action.

Free Webinar on T3Live.com

By: T3Live.com

We at T3Live.com would like to invite our readers to join us for a very special opportunity. On Wednesday, January 20th at 4:30 p.m., Marc Sperling will be conducting a FREE webinar entitled Position Management: How a Pro Would Trade Your Portfolio. Managing a position is one of the most important factors in trading. Most investors buy a stock and forget about it until they decide to sell. Successful traders understand the power of scaling into and out of a position; having a small position when the stock triggers and increasing the share size when the trade begins to work out. In this webinar, Marc Sperling will reveal his "Tier System" and how he uses it to profit in every market environment.

Our position management post in early December continues to be one of our most well-read blogs to date. Through this webinar, you can obtain a much closer look into the structure and theory behind the Tier System. For all those interested, please take advantage of this rare opportunity to gain a clearer understanding of how we manage positions in order to minimize risk and maximize reward. To access the free webinar either signing up for a free trial of T3Live.com, or head over to T3Live.com and click on the "Free Webinars" logo.

We look forward to seeing you there.

Emerging Themes of Late

By: Scott Redler

I wanted to take a moment and highlight one of the emerging themes this year: stocks make quick moves and then stop or reverse on the dime. All in all, the trade just keeps on changing. Traders must continue to find strength, capitalize quickly, and then move on. Those looking for a second move, either give back their earnings, or lose precious opportunity cost anxiously waiting.

This market is dividing stocks into the "haves" and the "have nots." Apple (AAPL) looked damaged and week, until this morning when it took back all of its technical damage. Google (GOOG) took a beating on the initial news out of China, but as time goes on, the negative impact slowly fades. Prices are now back above the 50-day moving average in this important market stock. The banks continue to be hit or miss. Goldman Sachs (GS) provided a nice trade after retaking Friday's lows, but as of yet, there has been no second move.

We have been and will continue to say it: this is a stock specific market. Those who make their money trading one or two vehicles are struggling right now. Traders moving around to find the quick hits are profiting. Stick with us and we will help provide a guide for navigating these choppy markets.

The Euro Breaks Its Bear Flag

By: Elliot Turner

Today the Euro broke down from that bear flag pattern highlighted here last week. Relativity is an important concept in assessing currency valuations. It seems at this point that the Dollar's strength is being fueled more by weakness in the Euro than by strength in the dollar. Although U.S. monetary and fiscal policy remain aggressive, the contraction of leverage in the private sector, combined with a deteriorating situation in the Eurozone adds up to a relatively strong looking dollar. Couple that with the Dollar's status as the world's primary reserve currency and we have another catalyst for dollar strength.

Since a large portion of the latest leg down in the Euro happened over the long weekend for U.S. traders, I would prefer to wait for a backtest of the bear flag before adding to my initial short position.


Using the UUP as a proxy, we can see that the dollar is making a bull flag at this point; however, while the Euro has broken down from its flag, the dollar has not yet broken out. A Dollar breakout from this bull flag might provide another chance to establish a currency position--above $23 in the UUP looks like a good level.

I will continue to follow developments in currency markets as they are important indicators of macroeconomic developments. Additionally, with the abundance of ETFs as trading vehicles, currency opportunities offer yet another tool in the arsenal of an equities trader.

Revisiting Garmin

By: Marc Sperling

Early in the New Year, I was closely watching Garmin (GRMN) for a breakout above the $32.50 area. It took a few days for the stock to breakout, but following the gapup on January 8th, we have gotten a quick move higher. Today Garmin reached our first target, prompting us to take some profits. With the remainder of our position, I will leave a little room for the stock to attempt to fully complete that gap down from late October.

A Look at the SPYs

By: Scott Redler

Here is my mocked up S&P chart with the relevant near-term levels and targets. With all the market leaders testing their 50-day moving averages, the market just might follow.

When the Music's Over?

By: Scott Redler

Make sure you're not there when they "TURN OUT THE LIGHTS."

Last week I pointed out some concerning action. It started when some old leaders broke their upper levels. Then, some of these leaders pierced their 50-day moving averages. Overall, we had 2 distribution days last week. Although it usually takes 4 to break an uptrend, we must take notice. On Friday, the market could have applauded Intel (INTC) and JP Morgan (JPM), but instead sold them.

Add these little tidbits up together and the result demands CAUTION! Hopefully you were ahead of the curve in anticipating this action by either selling covered calls, buying puts for protection, or just cleaning up your positions.

This will be a stock picker's market ALL YEAR--there will be times to be long, times to be short and times to be neutral and on your toes.

Big Cap Tech:

• Amazon (AMZN) started it off by putting in a double top. The stock then broke its 50-day moving average. Now it's testing BIG support at $125ish.

• GOOG broke its upper range, then broke its 50-day on the China news. It technically looks a bit broken right now.

• Apple (AAPL) is desperately trying to hold its upper range with earnings around the corner.

• Baidu (BIDU) was a monster last week based on the premise that they could expand if/when Google leaves China.

The Rundown:

• Financials--Goldman Sachs (GS) was like an elevator--a great long from $165-176, but now it's had a round-trip and is back below it's 50-day--that's "not good." JPM sold off on its decent earnings. Bank of America (BAC) and Citigroup (C) are both not compelling right now.

• The casinos had a great run and need a break.

• Oil went from overbought to oversold in just five days. The Oil Service Holders (OIH) needs a break here.

• China Agritech (CAGC), China Automotive Systems (CAAS) and RINO International (RINO) all broke out and then came back down to Earth quickly--this shows you that you have to be on top of your positions.

• The shippers suck--anytime they run it seems like the market is near a short-term top.

• The ags are very sloppy and need some time.

BIG SUPPORT in the S&P is in the 1,124-1,126 area. Then we're looking at 1,119-1,121. The 50-day moving average is at 1,110.

This week we will have A LOT OF EARNINGS--make sure you know the schedule and closely follow the recent trading activity of your positions.

GO SCOTT BROWN--if the Republicans can take the Mass Senate seat, it shows how disappointed Americans are with the "policy" of this new administration.

I try not to think about it, it gets me LIVID!!!!!!!

2 Distribution Days in 4 Sessions

By: Scott Redler

Checking in from the road today, I see that we now have two distribution days within four sessions. This is not a good sign for the market. A third distribution day within a seven day period puts the uptrend in jeopardy. Intel (INTC) reported blowout earnings, yet the stock opened and traded lower. JP Morgan's (JPM) earnings were a nice beat, but the revenues came in short. The negative reaction to the earnings in both key market stocks indicates a larger sentiment shift. The market came into earnings season with high expectations.

When a company like Intel handily beats and cannot trade up, you know that something important has changed in the market. We said just the other day that it is now time for a cautious approach and the market continues to confirm that notion.

Couple this development with other technical factors, and the market looks very vulnerable in the short-term. Google (GOOG) is once again below its 50-day moving average. Apple (AAPL) opened higher and not only could not hold onto its gains, but sold off aggressively. Support in the S&P's from Tuesday's sell-off stopped the bleeding for now, but let's see if that continues to hold.

Two Monster Earnings Reports and Options Expiration

By: Elliot Turner

After the bell yesterday, Intel (INTC) reported a monster earnings beat. Expectations called for $0.30 per share and the number checked in at $0.40 per share. JP Morgan, while beating the headline earnings number by $0.14 cents, saw revenues fall short of the $27 billion estimate. Preopen, Intel both stocks are trading down slightly. This is largely a reflection of the lofty expectations coming into earnings season. We learned that when Alcoa missed and took a a nearly 11% haircut as a result. In this resilient and strong tape, the risk in missing is far greater than the reward in beating.

For Intel, it will be key to hold above the $21/21.25 area for more upside. The stock has essentially traded in a $2 range since September. A hold above that range will have very bullish implications. As for JP Morgan, the $43 area should offer a first level of support. If the stock trades down to that area, watch price action for support. On the upside, $45 offers the first resistance. If the stock can hold positive after this earnings report, we might very well see a break through that area.

Yesterday the SPY printed a new 52-week high by a penny before selling off on some volume. We need to see the SPY hold above $115.00 in order for the market to push higher. See if we can hold yesterday's low for a move higher. If that low fails to hold, the next support is in the $113/113.25 area. With options expiration today, there might be some strange moves. Remain patient and trade compelling setups.

RedDog will be back on Tuesday with the morning game plan. Good luck today, and enjoy the long weekend!

Homework is Fundamental

By: Marc Sperling

When I first started trading in 1994, traders were able to leave the trading floor and forget about the stock market at the end of the trading day, arrive at work moments before the open and start trading just about anything successfully. Quite frankly, since that time the market has changed significantly. I witnessed the tech stock frenzy and subsequent collapse, the low volatility grind higher from 2003-2007 and the implosion of subprime and the financial industry. Exchanges moved from the fractions system, to the decimal system, specialists were replaced with computers running high frequency algorithms, yet as always, traders came and traders went. The point here is that the market is dynamic, and any trader looking to survive, thrive, and make a career as an active market participant must also approach markets in a dynamic way.

No longer do I roll out of bed, stroll into the office and start hammering the keys into positions largely unprepared. About seven months ago, when my second child could not sleep as an infant,I lucked into one of those light-bulb moments. I started intently studying charts every night and created a "universe" of stocks that I liked to trade, was familiar with how they traded, and was comfortable with their important technical levels. My universe consists of a variety of stocks, in a variety of sectors--I have my core stocks to in the financials, the high betas, the energies, the Chinese stocks, the solars, the casinos, etc. Occasionally new stocks will enter my core universe; however, for the most part I hone in on a consistent set of stocks.

Each night, I now devote at least an hour to breaking down my universe's technical levels on multiple timeframes. Starting with the daily chart, I cycle through my core searching for patterns and setups. I then search through the same universe of stocks on the 60 minute charts, the 15 minute charts and lastly, the 5 minute charts. On each timeframe, I seek out patterns that I, as a trader, felt comfortable with trading. Personally I love trading flags, bull or bear. Some people like gap fills, gap and goes, wedges, or any of a host of other patterns. The only way to learn your preference is to familiarize yourself with as many patterns as possible and to watch how they play out on a daily basis.

Each trader has to find their own level of comfort with the stocks they trade, their important levels, and the patterns they see. This comes through hard work. Whereas in the past traders could "fake" knowing their information, hit happy hour after work and slip into the office hungover and exhausted in the morning, now we absolutely have to do our homework. Those who have not adapted and changed with the markets have either left this profession or are on their way out, while those who are putting in the time are finding new opportunities and new rewards.

Nothing Too Compelling Early on Today

By: Marc Sperling

Yesterday the markets quickly recovered Tuesday's losses. Apple (AAPL) hit $204.25ish and stopped going down. The stock went down so begrudgingly and popped itself back up in a few seconds. It should base out around this level and seems like a non-trade right now. The market's important stocks cannot go down and stay down with any conviction. That has been the pattern for several months now. After yesterday's bounce, today is the least exciting day I have seen shape up in the early-going this New Year. Simply put, there are not too many compelling setups right now.

The Rundown:

• The casinos held up very well during the sell off on Tuesday. Wynn Resorts (WYNN) perked up towards the end of the day yesterday and looks good for a trade today.

• After the gap-down yesterday, the bottom in Google (GOOG) should be in for now as prices base out ahead of earnings.

• The financials are awaiting JP Morgan's (JPM) earnings report on Friday. The trading in these stocks could be very choppy until then.

• Similarly, technology stocks might have a slow day in anticipation of Intel's (INTC) earnings report later today.

Take trades when you see a pattern. There is no need to force action when there are not compelling setups. Good luck to all today.

Small Reversal on Some Banks Today

By: Scott Redler

Goldman Sachs (GS) put in a nice outside day. It traded through $167, yesterday's low and then trade back through--the RedDog Reversal Trade. We are now long GS from an average price right around $167 with a stop at today's lows of $166.12. Depending on your timeframe, take trades and lock in profits along the way. We are interested to see if the stock can retake its 50-day moving average at about $169.50. Take a look at the chart below for more detail.

What's Next for GOOG and BIDU?

By: Scott Redler

Last night on CNBC, I discussed trading strategies moving forward in Google (GOOG) and Baidu (BIDU). Today will be a very interesting day assessing the market's response to this developing story.

First Market Distribution Day

By: Scott Redler

During the past few sessions, we have seen some discouraging action. Some big cap tech names traded through their 50-day moving averages and Goldman Sachs (GS) sliced through its 50-day. Although the market's uptrend remains intact, prudent traders were cleaning up their positions in the past few days.

The big story this morning is Google (GOOG) pulling out of China. Does GOOG really think it can negotiate with the Chinese government? Only time will tell. The stock will be opening down below its 50-day moving average. $580 is some type of support. Considering its oversold status, GOOG is worth a long against the first 15 minute low--BUT, do not get stubborn! Trade against your levels and take your out if that's how it goes.

On the flip side, Baidu (BIDU) is opening up through that $444 level after closing yesterday on its lows, with volume. Lots of shorts were trapped overnight. Use the correct intraday strategies as well.

BE VERY CAREFUL--EXPECT THE UNEXPECTED.

The Rundown:

• The banks got hit a bit yesterday--Goldman Sachs (GS) could be an 80-20 reversal for a scalp long trade if it moves through yesterday's low and can't hold down there.

• The OIH was a nice two day short, as was oil. Technically, they could use some time to rest, but with the oil number coming out today there might be a catalyst for another move.

• Gold had a potent down move yesterday and has created what is potentially its first "lower high"--we are still in tier one, but I would avoid it or use the 80-20 strategy with yesterday's low.

• The casinos were very strong yesterday, especially MGM (MGM). Wynn Resorts (WYNN) and Las Vegas Sands (LVS) both held up relatively well in the sell off yesterday.

• I would use a bit of caution moving forward, as the market is under some pressure. Be much more selective when you choose what to trade. A lot of these moves are very stock-specific right now, and being in the right place is the first step to maneuvering through this market.

• First support sits at the 1,132-1,130 area, with the next support coming at 1,124-1,126.

China's Move to Raise Reserve Ratio

By: Feng Dong

China's central bank moved to tighten monetary policy on Tuesday, raising the bank reserve requirement ratio by 50 basis points and slightly increasing the interest rate on its one-year bill by 8 basis points to 1.84 percent.

The credit-tightening moves reflect concerns over a possible rise in inflation this year as China's economy continues to rebound from the global financial crisis. Inflation is clearly a top policy priority and the threat of inflation is taken seriously by the Chinese leadership. After a huge stimulus package to boost the economy during the financial crisis and years of talks about the asset bubbles in some of the big cities, such as Beijing and Shanghai, the increasing concerns about inflation have been hotly debated within the country, more so than foreign commentators could generally imagine. These moves provide further hints on the possibility that China might allow its currency, the Yuan, to appreciate at some point this year. Much of the inflation the country faces is considered to be import-driven, particularly by the soaring commodity prices in international markets, and some proper appreciation of the home currency offers leverage to counter that effect.

However, it does not mean that people could expect much beyond what is most likely to be a mild move adopted by the Chinese government in that direction. The leadership attaches particular importance on issues like unemployment in their economic decision-making process in order to maintain social stability, therefore it has to find a perfect balance so as not to allow currency appreciation to hurt exports where tens of millions of jobs are supported. It is true that the most recent data shows Chinese exports are back on track, but given increasing concerns over a global resurgence of protectionism under harsh economic environment, it is unlikely that the Chinese government would be bold enough to make a big move.

Following up on our Caution

By: Scott Redler

We hope that no one was caught off guard by today's sell off. While the "analysts" keep blaming Alcoa (AA) for today's sell off, the signs were there even before Alcoa reported earnings. Yesterday at around this time, we recommended to clear out of some longs and today the market confirmed our caution. When the market marches up without a pullback, you get pent up selling demand. Amazon (AMZN) is now lower than its 50-day moving average and Google (GOOG) is below its reactionary low from Friday.

Now it's time for traders to get flexible. Either pair off some longs by selling calls, or even get flat and test out some shorts.

More Dollar Strength on the Horizon?

By: Elliot Turner

In looking at a daily chart of the Euro (FXE), we can see the development of a bearish continuation pattern--the bear flag. The FXE index struggled mightily with the $150 level. After what appeared to be a breakout failed above that level, the currency quickly reversed course and traded lower.


Drawing in the Fibonacci levels shows that the recent rally stalled at exactly the 38.2% retracement level of the move from the November highs to the December lows. Aggressive traders looking to anticipate a breakdown can use yesterday's high of $145.30 as a level to short against.

In taking a step back and looking at a monthly chart of the Euro, we see a bearish engulfing bar in December that wiped out nearly four months worth of gains for the currency. The next big level appears at around $140 on the FXE and will be a crucial tell as to whether lower prices are in store for the Euro and consequently higher prices for the dollar.


Several fundamental factors add up to add fuel to this potential move. Firstly, the Euro zone appears to face some significant troubles in the near future. Sovereign debt concerns in the PIIGS nations--Portugal, Ireland, Italy, Greece and Spain--has some talking about a move away from the Euro in the troubled countries. While such a move seems drastic, and is most certainly not imminent, the uncertainty that comes with growing public debt without localized monetary policy control will continue to weigh on some countries in the Eurozone, and vicariously weigh on the Euro.

Secondly, deflation in the private sector in the U.S. remains persistent. Demand for dollars and the need to capitalize outstanding debt are ultimately positive catalysts for the price of the dollar. While asset prices continue to appreciate in price, real demand in the economy remains sluggish. Case in point are the Alcoa (AA) earnings. The Market Guardian summed it up well in a post from yesterday evening:

The primary uses for refined aluminum are automobiles, aircraft, trucks, railway cars, marine vessels, bicycles, and other machines, as well as packaging such as cans and foil, along with construction with windows, doors, siding, building wire, studs, and framing, plus in a range of household items and consumer electronics.

Is manufacturing in any of these areas which extensively use aluminum improving? NO.

Will manufacturing using aluminum increase significantly in 2010. NOT LIKELY.

So, then, why exactly isn’t Alcoa’s stock price reflecting a dramatic drop in the use of aluminum and why isn’t the price of aluminum itself down substantially rather than up due to much lower demand?

The lack of end demand in the economy makes it increasingly likely that the Federal Reserve Bank will not raise interest rates as soon as some may think. The dollar rises when demand for dollars outpaces supply. Should the dollar breakout yet again here (and the Euro breakdown), we will have confirmation that private sector deflation is happening at a far greater rate than public sector inflation. Watch the FXE closely for the next tell.

A Topping Pattern in SNDK

By: Evan Lazarus

Just before the New Year, some of our traders were focusing on a short setup in SanDisk (SNDK). The stock had run up aggressively during the holiday sessions and setup well as an extended short setup once a topping tail appeared on the daily. Now we can see yet another topping pattern take shape in SNDK, this time of the Head and Shoulders variety. Let's take a look at the 15 minute chart.


You can see the neckline level clearly established at around $30 in this formation. With the lower high put in place by the right shoulder, we can start looking for a trade entry. Keep a watchful eye on SNDK to see if it breaks its support (neckline). Should we get a convincing break of this level, the technical pattern suggests a potential move down to $28.

First Test of the Year!

By: Scott Redler

...AA is the Headline Blame--I see Otherwise

Yesterday's action was pretty telling that the market was somewhat tired. Big cap tech bounced on Friday, but was sold off right at the open yesterday. Amazon (AMZN), Google (GOOG), Apple (AAPL), etc. all fell quickly. Early on, Goldman Sachs (GS) broke the bottom of its 4-day range at $174. On the whole, these signs urged me to pare down some long positions and take some risk off the table.

The Rundown:

• The Oil Service HOLDRs (OIH) now has a topping tail-- a sign of a rest. I shorted the open yesterday at around $133 and that trade worked well. It should get to $127-128ish for a cover.

• Oil needs to consolidate up here and rest for a little.

• The casinos were strong yesterday--I guess news leaked early that GS would be upgrading MGM this morning. Most big players are long from $9ish and sold $11 and $12 calls already.

• AAPL $208 is a very important level. If it does not hold, we can get a quick short and easily see $205.50-206.

• GOOG--trying to hold the low $590s as the 50-day moves up (the 50-day stands at $585 right now).

• AMZN remains weak and that $129 area now looks vulnerable.

• Little stocks continue to move around--RINO wasn't quite ready yesterday, but keep watching it.

• Support on the S&P is the 1,130-1,132 area, then we will be looking at 1,126-1,127 as the line in the sand.

Today my focus will be on Goldman Sachs (GS). It is very close to its 50-day moving average. How GS handles the 50-day, at approximately $169.80, will be a crucial tell for the market.

There are three scenarios to watch for in GS:

1. It holds above the 50-day, without ever touching it and goes positive. At that point, we buy for a scalp long back to the $173/174 area with a stop at today's intraday low.

2. It touches the 50-day and holds, then you can buy for a quick long as well, back to the $173-174 area.

3. It slices through the 50-day, shows bigtime weakness and does not stop. In this scenario, that would mean that the market can be in a lot of trouble along with the financials.

The Bonus Strategy--GS slices through it's 50-day, triggers all the stops sitting below and everyone gets sold out. Then later in the day, it reclaims that zone and you can trade it from there.

20 Rules for Trading Success

By: Mike Lee

1. Create a game plan and stick to it! You should have a reason for entering each trade and always have a stop-loss price and a level to take profits before you enter a position. In the long-run, discipline is the key to consistent success.

2. You must learn to adapt quickly to changes. If a short-term trade isn’t working, don’t hesitate to switch sides. The market and stocks can change very quickly, and you must be able to change with them. Don’t be stubborn!

3. Don’t get married to trades! If a stock isn’t working for you and you are losing money, you don’t have to make it back in that stock. Likewise, don’t force a trade in a stock only because it has made you money before. Always just trade the best set-ups.

4. Do not try to bottom fish or pick tops. The trend is your friend; when you find it, follow it. Don’t trade with a bias because you think something should or shouldn’t happen, let the stock tell you what its next move will be. Trying to identify tops and bottoms is a losing way to trade in the long-run.

5. Accept losses, they are part of the game! Prepare yourself mentally and emotionally for this eventuality. Try to limit losses when you are not on top of your game and take a break if you need one.

6. Keep it simple. If a trade is working for you, stick with it!

7. Stay confident and positive. Don’t hesitate to take a step back or ask for help if you are not feeling good about your trading.

8. Be consistent with your game plan, size and execution. Don’t make a winning trade in 300 shares and a losing one in 1,000! Keep your tiers consistent and stick to your game-planned trades.

9. Stick to your trade, believe in your preparation! If you like a trade set-up, stick with it until it works or is no longer compelling. Even if it doesn’t work the first couple times, be patient and keep it on your radar.

10. In a losing trade, if you have an out, get out! The first stop is the cheapest stop in a losing position. Do not give into the temptation to let a losing stock run, because you will usually end up getting killed. Small losses are part of trading.

11. When you are wrong, admit it and move on. Don’t waste time with a trade that is no longer compelling.

12. Give your trade time. If you believe in the trade, wait for it to play out and stick to your game plan.

13. Never let a winning trade turn into a losing one! Take profits when you can, you can always get back in later.

14. Try to capture the full move of a stock. While it is important not to let winners turn to losers, you will make your good money from capturing larger moves. It is ok to give a little back if you have made a lot on a trade, but know when to let it go.

15. Recognize the type of trade it is. If it is a swing trade, don’t impulsively get out. If it is a quick trade, don’t get greedy. If it is a slower moving stock, be patient. If you are on, push yourself. Always be aware of the type of trade you are in and act accordingly.

16. If you are feeling good and happy about your day, it is ok to relax and enjoy the money. Don’t turn a great morning into a losing day. Catch yourself, it’s not worth it. In addition, if you have a bad morning and make it back to flat or a little green, call it a day and declare victory! If you push it, you are likely to end up back with a losing day.

17. Trade the same way whether you are up or down. Traders tend to press when they are down and get careless when they are up. Stick with what got you there.

18. Trade stocks that are in play. Don’t trade something just to trade it, make sure there is a catalyst. Volume is a trader’s best friend.

19. Stick with winners and don’t add to losers. Make sure you capture big moves in winning trades and get out of losing trades quickly.

20. Trust yourself! You will always make more money trading your own strategy than someone else’s.

A Word of Caution

By: Scott Redler

Friday we saw some buyers come support Big Cap tech, but for the first time there was no real follow-through off the open. Apple (AAPL), Amazon (AMZN) and Google (GOOG) all sold off hard early on. While I wouldn't ring the warning bells just yet, these moves are cause for concern. Prudent traders must exercise increased caution considering the latest market action. We will be watching Google as it approaches the 50-day moving average.

not to be alarmed, but let's be noticed. 208/209 in apple, if that breaks, that can add some fuel. GOOG we'll be watching around the 50 day moving average, see how it reacts. Since breaking the 50-day in July, Google has consistently traded above this key moving average, without even a single test. This first test will be very significant in assessing the health of the uptrend in Big Cap Techland. Apple needs to hold the $208-209 area. If not, it could trader lower pretty aggressively.

This morning we had some good risk/reward RedDog Reversal setups in the Oil Service Holders (OIH) and U.S. Steel (X). Each had extended runs coming into the weekend, and each gapped up above its most recent high. The trade back through that prior high triggered our short entry, with a stop at the intraday high. Aggressive traders could have entered a second tier as prices failed to confirm the breakout above the October high of 127.94.

Great Start to the Year

By: Scott Redler

So far our thesis of "FOLLOW THE MONEY" is working out, and maybe even better than anticipated. Since the year started, the rotation has been awesome. There are great 3-4 day moves, then the money moves on, all the while, the indices continue to churn slowly higher.

The Rundown:

• Right now it seems like the banks--which started fast--could use a rest.

• Big cap tech, a laggard last week, got some nice action on Friday. Google (GOOG) was a great buy around the $593-594 area. Amazon (AMZN) also was a nice buy when it held the $129 area. Apple (AAPL) held its prior breakout at around $209, with a new buy shaping up at around $212 and the door open for new highs at around $216.

• HAVE A PLAN--THEN LET THE MARKET CONFIRM IT.

• Oil is pushing to new highs--at this point, the move is hard to buy.

• The OIH is pushing higher--I will look for some type of micro short into this gap open if I see the right divergence.

• The Ags have been strong--Potash (POT) did a push through failure on Friday, ending the day with a doji. It can use a rest here.

• Gold is gapping up today--we sent out two action alerts in the last month. You should have an average cost reflecting about $1,080 on the gold futures and $107.50 on the GLDs. We bought back a tier 2 position with only half left. Sell it based on your timeframe.

• Casinos had a powerful move--they are digesting right now, but seem poised to move higher. Use Las Vegas Sands (LVS) as an example--above $18.60 perhaps that move continues.

• Little bios and security stocks have been on a tear as well--but, you need filters for those.

• Homebuilders, a sector I don't trade, looks very strong.

• CAGC, CAAS--powerful moves, now hard to buy.

• RINO looks great if it can get above $32.40-32.60 with volume. I started the morning by highlighting this setup.

• Next big resistance on the S&P is at 1,155. From there we will then look at 1,160-1,164.