His Whole Life Was a One in a Million Shot

By: Scott Redler


The action in the market this week has been reminiscent of the classic movie, Rocky IV. Rocky takes punch after punch directly on the chin from Ivan Drago but simply refuses to go down. His opponent, tired and despondent, eventually succumbs. A wave of negative economic news stories has hit the airways this week, but this resilient market just isn’t having it. Nothing is going to keep the bulls down. Last week we got a surprise discount rate hike from the Fed. This week we have seen the Greece fiasco boil over, a negative consumer confidence reading, and a dreary jobs report, still the market has absorbed the blows and continued on its path of destruction.

The market bounced strongly since March 2009, topping out in January despite a chorus of doubters. The viability of the economic recovery has been questioned, but we are not in the business of having unfounded biases as to market direction. We let the price action do the talking, and right now, it is giving us some not-so-subtle hints. Since the 9% correction, stocks have clawed their way higher and begun to digest some of the volatile action of 2010.

The S&P is becoming tightly coiled and we see a tight wedge consolidation developing that will need to resolve itself next week. A wedge pattern is a pattern of indecision, so we will wait for the resolution to come before sinking our teeth into trades. But all signs point to that resolution coming to the upside. Tech leaders like AAPL, BIDU and RIMM have refused to break down amid broader market weakness, other perennial leaders MSFT and CSCO now look bullish and new tech names are surfacing to give the sector some additional juice. We have been hammering the table on CREE and VMW, stocks with recent strong reports that broke strongly to the upside out of tight wedges in the last couple weeks. Also, the financials are finally perking up a bit, and Gold has put in a higher low.

If we can get a strong move higher next week on good volume, this market should take off and resume the longer-term uptrend. Again, we will look for confirmation from our growing list of leaders that another strong push is in the cards. The strongest indication of future strength may just be the resiliency this market has shown in the face of possibly damning news. No matter how long the odds, you should never underestimate Rocky. And we have learned since the Spring of 2009, don’t underestimate this market recovery, either.

A Slow Snow Day Friday to End the Month

By: Scott Redler



Stocks continue to build on yesterday's positive reversal. Our 1,080-1,090 buyable zone held well with a low at 1,086. My "go to" stocks posted yesterday after the bell are helping to lead the way higher from the morning's initial down move.

There is some small resistance at 1,112 and then big resistance at 1,119-1,1121. Looks like it will be a slow session today with it being the end of the month and yet another significant snow day in the Northeast.

Comparisons to Weimar Germany are Completely Overblown

By: Elliot Turner


Although the U.S. printing press is now rolling out new Dollar Dollar bills by the day, what the scary hawks out there do not talk about is the fact that as quickly as we are printing money, so too are we destroying it. When a household, corporation or bank either defaults on their debt or pays down debt with cash that is the DESTRUCTION of dollars. In our economy right now, the persistent credit crunch in the private sector is destroying dollars at a far more rapid pace than the printing press is creating them. At some point this can change; however, anyone who analogizes the U.S. predicament to Weimar Germany should instantly lose credibility, as they hinder our ability to have a rational, coherent and forward looking debate as to the necessary steps to fix the future of our economy. Here is why:

More and more these days, I hear people trumpeting that the United States is on the path to Weimar-style inflation, where people will line up with wheelbarrows of cash on food lines in order to purchase a single loaf of bread. What these people fail to tell you is that the world was either in, or on the brink of an economic depression following World War I. Germany was far from immune to the spreading global contagion, as the majority of their industrial capacity was destroyed during the Great War and their fiscal budget had been in shambles from bearing the monetary cost of the war.

These colossal economic headwinds were evident BEFORE Germany was forced to sign the Versailles Treaty that officially ended the First World War. Germany was forced to pay huge reparations in the form of currency, a basket of commodities including about $2 billion of gold a year and a large portion of the nation’s coal capacity, as well as physical transfers of property of the real, intellectual and productive varieties. The gold payments alone amounted to $2 billion a year, which at that time was a large sum (according to an inflation calculator, $2 billion in 1919 is equivalent to $25 billion in 2009 dollars).

In June of 1919, John Maynard Keynes resigned from the British Treasury in protest of the expressiveness of the reparations and wrote The End of Laissez-Faire: The Economic Consequences of the Peace. In many respects this was Keynes' initial rise to prominence in economic theory. In The Consequences, Keynes asserted that the reparations would lead to a crippled German economy. With what had been growing European and global economic integration leading up to World War I, he correctly drew the connection between the imminent hyperinflation and depression in Germany and the global economy at large. Keynes was a visionary, a man well ahead of his time, and he knew that with the destruction of integrated trade amongst even warring partners, the contagion would spread quickly and violently to other parts of Europe and the world (including the United States).

Some of these ideas from Keynes about the economic interconnectedness amongst the European nations would later become a core component of the theory behind the European Union (you can read a little more about the history of the EU in my writeup on the euro). The EU resulted from a series of post-World War II treaties, in which the stated goal was to build economic cooperation and dependence to the point that war would become too much of an economic liability for any member nation to even consider attacking a trading partner. Realizing this connection between economic stability and geopolitical stability showed amazing foresight on the part of Keynes and in many respects, helped shape the next century of economics, global treaties and globalization even before “Keynesianism” became its own entity.

FYI Paragraph: I apologize for this digression in advance; however, it is simply too important to preempt an attack on Keynes in order to maintain the focus of this writeup on Weimar Germany. Keynes entitled his essay The End of Laissez-Faire, because he knew that after World War I, capitalism as an economic system would come under severe pressures from multiple directions. At the time, society was rife with class warfare and European colonies were increasingly bitter about their mercantile relationship with Europe. Keynes recognized that in order to PRESERVE capitalism, a new compromise between the ownership and working classes would be necessary. This is a lost aspect of Keynes’ thinking. People today, reflecting back on Keynes writings from nearly a century ago cannot grasp, and often ignore the role that social stability played in the formation of Keynes General Theory.

Again, sorry for the digression, now back to the original point. The economic plague in Germany did subsequently spread to Europe and the United States. Many assert that U.S. protectionism was a cause behind the depths of the Great Depression; however, what people often leave out is the fact that global trade was in collapse long before the passage of Smoot-Hawley in 1930. In fact, quite to the contrary of conventional wisdom, the fall off in global trade was a proximate cause FOR the passage of protectionist trade tariffs in the United States.

The German reparations following the Versailles Treaty were so destructive that they ultimately led to the rise of Hitler and the Second World War. Estimates about the impact of reparations on Germany establish that the nation would have been paying out 1/3rd of its annual fiscal budget until at least 1988 and in some cases, 2020 had it not been for intervening events. These are HUGE numbers we are talking about and this comes ON TOP of a massive collapse in the global economy. For anyone to assert that such a fate awaits the U.S. is completely and utterly absurd and shows a lack of understanding and knowledge about world history. Yes, inflation is the natural outgrowth of printing money; however, when most of the money in your system was not real in the first place (i.e. hyper-leveraged credit) then the destruction of money and the creation of money ultimately balance each other out. The key is recognizing at which point the printing of money in the public sector exceeds the destruction of money in the private.

You Always Need a Plan

By: Scott Redler

You always need a strategy. Last Friday, I talked about how this market was very OVERBOUGHT at around 1,100-1,115 on the S&P. BUT, the rally off of 1,044 was potent enough that it should be buyable.

On February 23rd, I sent out the following chart on the S&P outlining the 1,080-1,090 zone as a buy area.


It's always tough when the headlines hit and the emotion sets in, but today the market hit 1,088 and since then has bounced over 15 handles. You always need to know your plan, especially when the market confirms it.

Now take a look at the chart following today's action:


BTW--this morning, I DOUBTED MY OWN PLAN--things always look grim as they are taking place. Trust technicals and levels!

Have a nice evening and enjoy the snow!

RedDog

P.S. ALL the stocks below acted great and are still building very strong technical patterns. I will have some charts in the future:

BIDU
AAPL
RIMM
CREE
VMW
GLD
FCX
BAC
JPM

Market Below Near Weak Lows

By: Scott Redler

With today's big gap-down on the open, I figured it would be a good opportunity to post another edition of The Morning Call. We came in this morning and the futures are down below lows from earlier in the week on the negative reports this morning. Tuesday we worked off some of that overbought condition, but yesterday we quickly erased the majority of those gains. This morning though, we are opening back below yesterday's low. It will not be the easiest set-up for traders but continue to stay tuned to the action and there will be opportunity out there.

Going Where Those Chilly Winds Don't Blow

By: Elliot Turner

I am neither a Cramer basher nor an admirer; however, yesterday during his intraday segment on CNBC he said something for the second time in recent months that really got my blood boiling. Since I cannot find the actual quote anywhere online, I will take the liberty of paraphrasing his point (it is along the lines of a point he made on Mad Money recently): “investors are wary to deploy their capital in the U.S. because they fear the government here and worry about wealth destruction. This is why investors prefer Asia, Latin America, Russia, and basically anything other than the United States.” In response, I offer the following “Faking News” piece for Cramericans:

A new survey of portfolio managers revealed a shocking new trend developing in the investment universe: portfolio managers prefer investing in countries with Communist dictatorships, military coups within the last five years, oligarchies who dominate wealth coupled with a former lieutenant colonel in the KGB pulling the strings, and a civic society which largely favors strong-handed rule to democracy than they would the world's longest-standing and most free democracy. Investors cited concerns over “wealth destruction” as the primary catalyst for this shift in sentiment, as they believe only strong-handed rule, with high barriers to entry can adequately protect their hard earned wealth.

Following this alarming survey, President Obama declared that “Although I am not a socialist, after learning the results of this poll, I have decided to ask Congress to put together a bill that would pave the way for a movement towards totalitarian Communism.” Not to be outdone, the Republican National Committee hired Goldman Sachs as an outside consultant in order to explore the availability of former global military and intelligence leaders available at this time to orchestrate a military style coup in the United States in order to attract investments to the slumping domestic economy. A spokesman from Goldman revealed that this is a new line of business for Goldman Sachs and revealed that the opportunity in political orchestration came from a message that G-d left Lloyd Blankfein on his voice mail during the week of January 15th.

In response to these latest developments, stocks initially flew on the news that the United States would explore alternate forms of government. What started as a morning rally turned into an afternoon collapse, as investors expressed concerns over the ability of Democrats and Republicans to reach a consensus as to the most beneficial form of totalitarianism.

This Action Can Drive You to Drink

By: Scott Redler

Thanks God it's Thursday! We had a decently controlled down move on Tuesday that should have given us a little more downside follow-through, BUT yesterday's rally on NO VOLUME took back most of Tuesday's losses. Today the futures are getting hit and we are opening under Tuesday's lows--ARE WE HAVING FUN YET!!! Momentum players are getting killed in this market.

It seems like we will be opening near recent support in the 1,090-1,092 zone. IF THIS DOESN'T HOLD, it looks like we will be testing the break of the descending channel in the 1,080-1,085 area. That could very well happen today.

The headlines remain gross and it's becoming increasingly hard to hold up this market with NO job creation, a continually crumbling housing market, a downgrade of Greek debt and a political agenda stuffed down America's throat. At least Bernanke will keep rates low, because we have anything but a robust recovery underway.

Coming into today, there were some constructive tight patterns that I was somewhat excited about. *IF* today does not turn into a trend down disaster, perhaps they will remain in tact.

The Rundown:

• Apple (AAPL) was strong yesterday. Let's see if it can regroup, and attempts to fill this down gap.

• Amazon (AMZN) closed on highs yesterday and was looking for a breakout above this lower channel. Now I'm not so sure.

• Google (GOOG) looks horrible and trades horribly. With some negative headlines out, see if it breaks $525-528, because if so, we could see much lower prices.

• Baidu (BIDU) is still holding up.

• Research in Motion (RIMM) needs more time--neither a short nor a long right now.

• Palm (PALM) preannounced earnings and yesterday had closed at around $8 after being a $14 stock not too long ago.

• Freeport McMoran (FCX) had three nice down days in a row and is opening lower. I will look here to see if I can buy it for a gap fill.

• U.S. Steel (X) is not that compelling.

• The banks were very strong yesterday. Bank of America (BAC) looks great. JP Morgan (JPM) also acted well. Goldman Sachs (GS) has some moving averages in front of it--so it should be resistance--but, if it were to blast through then the banks would be in good shape.

• Gold has pulled back the last three days and is on its fourth day down in a row.

Traders like breakouts, breakdowns, volume and follow-through. So far this year, this market has been a range bound and choppy mess. We need to be very selective and quick in order to capitalize.

What is the Future of Monetary Policy?

By: Scott Redler

Today I was quoted in the International Business Times and offered my opinion on the expected path of monetary policy as well as my market outlook over the coming year:

Futures contracts indicate that fed tightening will begin the third quarter of 2010, which is at a slower pace than what market participants had expected last summer, said Scott Redler, Chief Strategic Officer of T3Live.

Redler partially attributes the downward revision to Bernanke's repeated statements that economic conditions "are likely to warrant exceptionally low levels of the federal funds rate for an extended period".

"This is good for stocks and bank shares are rallying," said Redler, who recommend traders last Friday to "buy the dip."

"Yesterday's [drop] was buyable," said Redler, "and the market should make new highs this year."

SEC Approves New Short Sale Rule

The Securities and Exchange Commission voted 3-2 today to adopt a rule hoping to slow the decline on stocks taking a beating. Essentially the SEC has reinstated the uptick rule on stocks that have fallen 10% in a single trading session. Once a stock hits the down 10% threshold on a day short-selling curbs will be implemented. Entering a short position will then only be allowed above the national best bid for the rest of the day and the following day.

Clearly, the idea is to slow the rate of decline and limit short sellers from pounding the bid in rapidly falling stocks. This could have interesting implications for stocks that hit the 10% threshold with high short interest. There is the possibility that an artificial short-term floor will be put in at that level. As active traders, it would be worthwhile to be aware of the level going forward as your stock approaches it.

This vote effectively ends over a year of debate about short selling curbs after the rapid collapse of many financial companies in the Panic of 2008. The rule will go into effect 60 days after it is published in the federal register and then companies have 6 months to comply.

Swinging Long Some Amazon

By: Marc Sperling

With Amazon (AMZN) basing nicely above that large breakaway gap from October, we now have a great opportunity for a good risk/reward setup on a swing long.

Take a look at a daily chart to see this action:


The stock broke through that aggressive downtrend line and is now building a solid base. Now let's look a little closer at a 60 min chart:


I am buying Tier 1 long Amazon in this area in anticipation of a break above $120/121, using a $118 stop. On a move through $121 I will be adding an additional Tier, looking for a move into the $125 area.

Meet Trader "X"

By: Evan Lazarus

I know and have worked with many traders around the world. Over the years, I met one individual who is by far, the best trader I have ever met. He is very consistent and makes an incredible amount of money as an active intraday trader. For the sake of anonymity, I will call him “Trader X.”

I still remember the day that I realized just how successful Trader X was at trading. Today I must admit that although I have met traders that make considerably more money, I still hold him in the highest regard as a trader and personal mentor, as he has never deviated from his path. I am lucky to know Trader X and have reaped many benefits from incorporating the lessons I have learned from him into my own trading over the years, so that now I play the part of mentor to many novice and even seasoned traders. I would like to share with you some of the lessons I have learned from him. Although he has never taught me formally (in a teacher/student capacity) as I do with others, these are lessons that I have acquired from observing him trade, that I continuously teach in our T3Live education classes.

1. Patience is Paramount
An important lesson learned from Trader X is that patience is everything. Profitable traders, like Trader X, wait for the perfect trade setup. 90% of all traders who do not consistently make money trade for the sake of trading, as I used to do. I used to look at the markets and ask myself "which way is market/stock going to go?" Now I look at the markets and say "Is there a low risk trading situation developing?" I have learned to be patient, and my profit factor has been consistent over time.

2. Never Follow the Herd as the Herd Consistently Gets Slaughtered
If you think about it, it makes perfect sense - the very best time to buy something is when everyone is convinced that the price is going to fall lower, and the very best time to sell something is when everyone is convinced the price is going to shoot to the moon. Trader X taught me the importance of trading against the crowd. The crowd is reacting to the market, and that is exactly why you must react to the crowd. This simple change in mindset can produce incredible profits if you are willing to look like a fool (in the eyes of others). Now, this is not code for counter-trend trading as a means to success, but rather a mentality I implore the same as when shopping for a car. When you go to a dealership or a car show, the cars all look beautiful and pristine. New car smell, nice paint job, shiny tires, but do you ever kick the tires or look under the hood? Is that beautiful car as healthy on the inside? Being a good technician means not getting caught up in the superficial.

3. Do One Thing, and Do It Well
If there is one simple thing that I have learned from my Trader X, the best trader I have ever known, it is this: to make money trading you only have to become an expert at one type of trade. There is no need to do ten things, or yet worse, ten things at once. Simply concentrate on one thing, and if you trade it well, you can become a very successful trader. Too many traders (especially the day traders) think they need to make multiple trades in a day, or to trade multiple stocks over the course of a day in order to make money. Chances are that the more you try to do, the less successful any of those trades will be--a “jack of all trades but a master of none.” As I tell all of my trading students, “it only takes one lemon to make lemonade.”

4. What’s YOUR Style?
How many times have you heard some expert say something like "technical analysis doesn't work" or "never trade on options expiration" or "scalping is impossible." One thing I have learned from my trading mentor (and from working with traders all over the world) is that the very best traders create their own trading style. This doesn't mean that you must reinvent the wheel to become a successful trader; it simply means that many successful traders have found their way to success by adapting trading strategies and making them their own. It is not important that you trade precisely as other successful traders do, but it is important that your style of trading makes sense to you, as this will ensure that you stick with it over the long haul.
Trader X has a completely unique trading strategy that he has crafted over time by exposing himself to many different ideas and many different traders. His system is unique because it is his, and it makes sense to him. This is important because it means that he is better able to maintain confidence through the drawdowns that inevitably occur.

5. Have An Extremely High Win Rate
There has been a lot written about win rates (what percentage of your trades are profitable), but what some traders do not seem to understand is that it is possible to have an exceptional win rate. 70%, 80%, even 90% is possible. This I have learned from Trader X- he has an incredibly high win rate, and I do too now because I have learned so much from him.

Trader X is continually improving as a trader. He is constantly figuring out ways to get better at what he does. He uses every loss as an educational experience - that is how he sees them. Every loss is a lesson that the market has handed him. I would not say that he embraces losing trades, but he certainly does learn from them.

6. Everyone Has a Bad Streak
Even my Trader X will have the occasional unlucky streak with several losses in a row. This is not that interesting to me, but what interests me is how he deals with these streaks. He does not lose confidence and continues to take the next trade setup, as it occurs, and never questions his strategy. He knows that anyone can flip a coin and get "tails" 4 times in a row, and that is precisely how he views a non-winning streak. He knows that in the long run he will make up the lost money, and then some, so there is no need to panic. He knows with the utmost of confidence that he “is an earner.” Over the long run, he will continually just earn.

7. Being Wrong is Being Human
Trader X taught me that even the best traders, like him, are sometimes caught on the wrong side of the market. There is no need to panic when this happens, but once it does, a very good thing to do is to simply get out. Once you realize that your trade was not a good idea, there is no need to wait for your stop loss to get hit. When you know you have made the wrong move you can simply get out of the market and wait for the next trade. While I always preach about managing risk and evaluating stops, remember, you are a professional speculator and if it seems apparently clear that something with your trade is obviously wrong don’t be afraid to pull the plug early.

8. Let the Trades Come To You (Be Patient)
If there is one thing I have noticed about how Trader X trades (and this is not a unique characteristic, many of the very best traders I have ever traded with also have this characteristic) it is that he does not go looking for trades, he waits for them to jump out at him. This may seem like a weird way to trade, but it is precisely how he takes so many profitable trades. He waits and watches, and when the market gives him an opportunity to jump in to a good situation, he strikes. He never trades simply because the market is open, and he sometimes sits in front of his charts for hours without making a single trade.

I have learned from him that successful trading means being ready for the market to offer you "easy money" - or ideal trading setups. When these setups come along, I know it because I feel like I must take advantage of the opportunity the market is offering. Remember though, these setups come along infrequently and most of the time Trader X spends trading is NOT TRADING. This is very counter-intuitive to what most traders do and how they act. This is also the reason I believe that the trading profession is “hard.” Most traders feel compelled to trade the same way sports gamblers can’t watch a football game without having “action.” In the end, it’s a losers game.

9. Continue The Educational Journey
Trader X has such a high win rate, and is so good at picking high probability trade setups that some people may assume that he knows that he has the markets "figured out." Not so. He is constantly learning, he has many trading books, trading magazines and we are constantly talking about trading strategies. He learns from some of the best institutions and research centers around the world because he has a constant thirst for knowledge. The fact that he is open to new ideas and the fact that he is an exceptional trader is probably not a coincidence. I think that many successful traders are open to new ideas. This doesn't mean that successful traders switch trading strategies every month (Trader X has been trading the same trading strategy for years), it simply means that many successful traders are open to new ideas and new ways of profiting from the markets.

I hope that you have learned something from Trader X, I know I have.

Where's the Confidence?

By: Scott Redler

It's hard to have confidence in this president--the Big Government system--and this economy right now! We can only have confidence in our ability to control our actions, spend time with our family, and live life with the proper mantra. Let's hope that this real grass roots movement continues to bridge the gap between the public and private sector.

Anyway!

The market was clearly overbought as the last squeeze through 1,104 on the S&P stopped out the remaining shorts on Friday and then cleared way for this down move. I hope you were all prepared. There were lots of great shorts yesterday (like that CREE I highlighted). Now is the time to see where we can hold.


I would like to see this market enter the 1,080-1,090 area. This is where we MUST hold in order to maintain the underlying technical strength.


One stock I would like to highlight from the Morning Gameplan today is Ford Motors (F). It has nearly doubled in price since November and now looks ready to breakout from a triangle pattern on the daily. I am especially fond of strong charts that are paired with a fundamental catalyst. In this case, that catalyst is undoing of Toyota's (TM) image is one of the world's safest, most reliable car-makers. I will be looking for support in the $11.50 area and resistance around yesterday's high of $11.63.

Taking a Bite Out of Apple

By: Pej Hamidi


Apple (AAPL) – Some technicians know not to anticipate a pattern, especially this one. At this point, the H&S pattern you are looking at can technically be a massive consolidation pattern where float changes hands, which makes it look like she’s topping out but buyers are carrying the slack. On the other hand, it could be an early warning that Apple, and hence the Q’s and big cap tech, are headed for a pullback. If this pattern is a top, and that’s a big if, the implied first measurement is $165 to $170. Most unnerving is the sharp spike in volume on Tuesday’s selling.

Of the 17 data sets this chart presents, there is only 1 that is bullish, and that’s money flow, which has been diverging the past 4 days. One saving grace for the bulls, which I have not illustrated, is that by default, the right shoulder of this pattern always emerges as a symmetrical triangle. And by default, if prices squeeze past the 2/3 mark approaching the apex where the two points meet, then equilibrium between buyers and sellers has been achieved and prices will flat line. So there could be a big break in either direction; or there could be nothing, just a flat line. Perhaps a head fake below the 100-day Exponential Moving Average at $195 to clear out some stops, followed by a sharp reversal maybe? This should be interesting to watch over the next few days. And forget you not; AAPL has a huge impact on the market. Where AAPL goes, so goes the market. For now.

Revisiting the TLTs

By: Elliot Turner

A lot has happened in a short time with Treasury markets. On February 9th, equities had yet to bounce back much from their late January beating, the Dollar had broken out of a bull flag, and Treasuries seemed poise to breakout of a giant triangle formation. Within a week, equities had rallied sharply off of move lows, and Treasuries dropped (although the Dollar stayed strong throughout!). When the Federal Reserve Bank surprisingly raised rates at the discount window by 25 BPS, Treasuries, using the TLTs as a proxy, broke down through recent support and below the lower trend-line of the aforementioned triangle formation.

The false breakdown of last week was accompanied by very weak volume and could not hold lower with any conviction. As is often the case, after a false move, comes a fast move in the opposite direction. Off of today's dreadful consumer confidence (or lack thereof) number, the equity indices powerful bounce off of the February 5th lows reversed back down with conviction and Treasuries spiked higher in price. It seems inevitable that the TLTs retest the top of that downtrend line and maybe even breakout at this point.

Often times when sentiment shifts to extremes we see a contrarian move. As far as Treasuries go, how many times in recent days, weeks and months have you heard that: "Treasuries are a guaranteed short? Treasuries are the easiest short? If I owned Treasuries, I would sell them all?" Well when it sounds that easy it usually never is. I am not saying that Treasuries necessarily will rise; however, what I am saying is that considering the persistent deflationary pressures in the U.S. economy (again, look at the consumer confidence number and this week's CPI data) and the relative weakness of other nations' sovereign debt (look at the PIIGS, etc.) there remains no safe-haven for investors to park their cash.

Much like with the Dollar reversal, when foreign central banks started buying dollars or curbing inflows of dollars in order to protect their own exchange rates (Brazil and New Zealand are two prime examples of this), foreign demand continues to increase for Treasures. Many point to waning demand from China as a catalyst for downside in Treasuries; however, demand has actually increased from the U.K. and Japan. This is all a relative game, and when the U.K. government and Japan are taking on debt as a percentage of GDP at a much higher rate than the U.S., their banks and citizens will look elsewhere to store their money. Despite the burgeoning U.S. deficit, no debt in the world is safer to own than the U.S. government's. As always with investments, be especially wary of THE sure thing.

The pricepoints to watch are $91.50-92.30 on the upside and the $88.50-89 areas on the downside. Here is the visual:


UPDATED: I just published this, but I realized I should have said something important. Over time Treasuries will in fact go down, as yields and interest rates will eventually rise in the U.S.; however, before that move does happen, there can very well be what some would deem an "irrational" move in the opposite direction. As Keynes said, "the market can stay irrational longer than you can stay solvent." Look no further than Japan. A spike in Treasuries would not be an irrational move in and of itself, as much as it would be a reactionary move to a second wave of credit crunch hitting the United States economy.

The Morning Call 2/23/10

By: Scott Redler

Today on The Morning Call I reviewd buy levels for the pull-in, as well as a short setup in China Agritech (CAGC). I have been talking about the fact that several charts looked very extended. This often provides good risk/reward short entries. Take a look at my chart of CAGC to see one such illustration:



Every morning on T3Live I review the market, as well as a selection of "in play" charts. Here is today's video:

Taking the Trade...

By: Scott Redler

...RedDog Reversal Two Day Trade

Here is the before and after on Cree (CREE). I'm taking most of my trade off, as the easy part is in the bag. BUT, this could be a major inflection point, and if you trade higher time-frames, you can potentially stay with the trade and hold long.

Before:


After:



THIS WAS A GREAT SETUP FOR A TWO-DAY CASH-FLOW TRADE!

A Buyable Pullback

By: Scott Redler

The market has proven to me that dips can still be bought at the right time. The potent move off of the recent low tells me that this market can make new highs this year! Let's hope this is the start of a pullback that takes the S&P to at least the 1,085-1,090 area. That will offer a compelling zone to evaluate the landscape: to see if we can hold higher, and to assess which stocks are providing leadership.

The Rundown:

• Tech can use a rest right now.

• Cree (CREE)--I am short overnight and will add through $66 for a move down to the $64.50-65.50 area (p.s. it was upgraded by JP Morgan this morning).

• Research in Motion (RIMM)--I am flat and want to see where it holds. If it can base under that $72 gap area, it can provide a good zone to buy in anticipation of a move into the gap.

• Amazon (AMZN)--the stock is still trapped between $114-120.50. Be patient and wait to see which way this consolidation is resolved.

• Google (GOOG) has no traction right now, but there will be some news from China this week. Keep your ears open.

• Apple (AAPL) was weak right off the open yesterday and could test the $196-198 area.

• Banks had a big move off of their lows, so see where they hold.

• Goldman Sachs (GS) needs to hold $155ish, JP Morgan (JPM) needs to hold $40ish, and Bank of America (BAC) needs to hold $15.70.

• Freeport McMoran (FCX) and U.S. Steel (X) deserve a rest at this point.

• Gold (or the GLDs) under $108.66 could fill a gap down to $107ish.

• Crude oil looks like a short right about here.

• First Solar (FSLR)--I stated yesterday that this will move below $100. It picked up two sell ratings since then and should be well on it's way to that area.

• China Agritech (CAGC) looks like it put in a short-term top yesterday. I would love to short more to fill that gap at $23.83.

• The market needs to work off this overbought condition. In the next few sessions, we should get a nice buying opportunity. Stay patient and wait for the setup.

A Look at Apple's Weekly Chart

By: Evan Lazarus

What had been one of the market's leaders during the run-up from the March lows now looks weaker than the broader market. In today's Trade for Thought, I took a look at a longer-term chart of Apple (AAPL) in order to gauge which way it will break next.

A Monday Playbook

By: Pej Hamidi

Global Macro Practitioner's Perspective
A BRIEF Monday Playbook

• The NASDAQ and Dow are at 2/3 retracements of their pullback from mid-January. What happens here is crucial. Is there follow-through? Or will there be a test of the February low first, or even perhaps a higher low? Did the Fed tip its hand and give the all-clear sign with the surprise discount rate hike?

• Overlay of the SPX and 10Y TSY YLD blares out a positive correlation between the two. More than with the 30Y TSY YLD Index.

• Special High Risk/High Reward Trade of the Month: Protein Design Labs (PDLI)

• Special Treat of the Month: Schweitzer-Maduit (SWM)--Barely missed the entry parameters and/or the $70 stop kept you safe on this (phew...), but now the stock appears ready to close the gap at $36, 60% cheaper than where we first looked at it and $39 is the 61.8% retracement of the move. Most important of all, nothing has really changed. The collapse was mid-day. The company can't figure it out. They've issued many releases since. They reiterated that there are contract renewals coming up in 2010 but they are the only supplier. The collapse, intraday imbalance looks to me like a forced liquidation, or an unwanted one. A fund had to meet a call somewhere else, and the first to go is the best performer in the portfolio. Keeping a very close eye on it.

Long:

• MSCI (Moody's Commodity Sector)

• Defense Sector

• Internet Software & Sales

• Tech Hardware Vendors

• Vertical Tech Giants (e.g. IBM)

• Chip Stocks

• ISRG and PCLN both possible breakaway upside gaps

Short:

• Gold

• Oil

• Hang Seng (e.g. long FXP)

Scalp Short Cree Against Highs

By: Scott Redler

I am now short a little bit of Cree (CREE) against today's highs. The stock has been one of my favorite longs of late, but it is VERY extended and setup well for a short. I think we can see $63.50-$64.50 at some point this week before the stock starts building a base.

Nice Move in the Banks...

By: Scott Redler

...Goldman Sachs (GS) should see $160 SOOOOON!!!

We keep making a lot of "Fast Money" trades in Goldman Sachs, both long and short. Right now the stock is coiled and seems ready to get back to $160. We entered as it held $154 and have been adding through $157.50.

Outperformance by the Russell

By: Elliot Turner

During the market bounce underway since the February 5th capitulatory move, the Russell 2000 has led the market higher. Since its double-top in October and September, small caps have lagged the broader markets. It took the Russell until late in December to pass its October highs, meanwhile the S&P and Dow had comfortably done so by November. Also of note is the fact that the Russell is now comfortably above its 50-day moving average, while the Dow and S&P are actively engaged in a battle to retake that pivotal level. Does this mark a major sentiment shift? Or is it merely what had been weakest providing the strongest bounce-back?

We should soon find out. If this is a sentiment shift towards small caps and a move away from risk-aversion (sorry for the redundancy in terms of "away" and "aversion," there's just no better way to say it), then I would like to see the Russell consolidate above that September and October double-top in order to push through it's January 2010 52-week highs. Outperformance by the Russell has significantly bullish implications for the broader market. I will be watching this action closely. If the Russell cannot hold above that September-October level, then I will view this primarily as a bounce that should be shorted. Take a look at the chart to see a visual of the relevant levels.

AIG...Everyone Hates It, We Love it...

By: Scott Redler

...as long as its in play.

We have caught the technical trading move in AIG for the past year. HERE WE GO AGAIN! AIG broke its downtrend on February 10th--we traded it through $25. Now it held higher and it looks like the momentum might be coming in. We got involved back around $27-27.50 and see the potential for an easy move up to $32-35.


P.S. many are inclined to call this a "garbage stock"--I agree, but one man's garbage is another man's treasure.

Most Targets Exceeded!

By: Scott Redler

When the S&P 500 was trading at around 1,050ish, we were looking for 1,085-1,095 as a target and now we're at 1,110. It's amazing how this market is like an elevator. We are 70 handles off the lows and everyone says there is no action. With that said, 1,112 is a resistance area, then 1,120-1,125 is huge. I WILL NOT BE BUYING THIS ZONE; as my first strategy, I will look for a short setup as it enters this area.


The market proved that dip buyers will be rewarded--like last year--and stock selection with the right price pattern will generate cash-flow.

Tech:

• Apple (AAPL) is now in a new 4-day range with the support side checking in at $200,82 and resistance at $203ish. See how it handles each area.

• Research in Motion (RIMM) is holding in great--the next action area is around $72. The stock gave us four entries, maybe we get one more.

• Google (GOOG) is opening above its pivot. As long as it holds $543-544 we can see $550-560 very easily.

• Baidu (BIDU) is a monster. I would avoid it for now, as it's extended. I'd take profits on the longs, and if you're quick, look for a short setup.

• SanDisk (SNDK) is back in the game. It needs time to setup, but keep it on the radar.

• Amazon (AMZN) gave us some micro shorts last week, but did not fall apart. It's stuck in a lower range. Look for resolution at some point if volume comes in.

• First Solar (FSLR) seems like within a few weeks it will be trading below $100. It has to get a daily close below $110 first.

My Three Amigos:

• I isolated Cree (CREE), VMWare (VMW) and Intuitive Surgical (ISRG) many times lately--especially when they wedged going into February 11th. These stocks exploded!

• Cree (CREE) is at new highs and I would sell if you went long at around $58 (it's opening at $67 today). I will look to tier in short here for a CASH FLOW TRADE.

• VMWare (VMW) is right at new highs. If you're not long, you missed the meat of the move, BUT it's not a juicy short yet.

• Intuitive Surgical (ISRG) through new move highs. If you're long, sell some here.

• These stocks are all PRIME examples that you MUST TIME THE MARKET. Price patterns work for leverage.

The Commodities:

• Freeport McMoran (FCX) and U.S. Steel (X) both exceeded my targets for a bounce. These are great vehicles to trade in this market. As of now, neither is compelling, as they could use a resut, BUT you don't need intraday tactics to trade these here.

• Oil-reached our bounce targets. I am flat now, but will not short.

• Gold-as long as it holds $1,100, the technicals are starting to get stronger for more attention besides just intraday trades.

The Banks:

• Goldman Sachs (GS) is kind of interesting. It held $154-155 on the Fed move. A close above $157 can take this back to $160-162.

• Bank of America (BAC) had a big move for itself and could use a rest.

• JP Morgan (JPM) is not compelling, but if GS gets to $160-162 then this could see $41-42.

THIS IS A TOUGH SPOT IN THE MARKET. IT'S HARD TO SINK YOUR TEETH IN LONG AFTER SUCH A BIG AND FAST BOUNCE--BUT YOU CAN'T FIGHT THE TAPE EITHER. So, you must be very VERY selective and know your time-frame.

Overall, this type of bounce must make you market neutral and neither bullish nor bearish. Take advantage of setups and market ranges at this point.

A Proposal for an Order Cancellation Tax

By: Sean Hendelman and Brandon Rowley

The mechanics of the equity markets are under constant evolution with the consistent goals over time of increasing speed of execution and advancing price discovery. Participants in the stock market have benefited from increased competition among exchanges and brokerage houses that has worked to greatly reduce commission costs and drastically cut execution latency. But, the major changes seen in the last decade have not come without drawbacks. The prevalence of disingenuous quoting on the visible book is extremely high and we propose an order cancellation tax to remedy this detriment to the financial markets.

Recently, there has been a great deal of talk in Congress about instituting a tax on transactions, the so-called “trader tax”. The goal is to raise needed revenue for the federal government and to force Wall Street to pay for the losses incurred by the federal government in supporting systemically important financial institutions. Yet, there is clearly a problem in that a large portion of the tax will fall on everyday investors as transaction costs rise for mutual funds and pension funds holding the bulk of Main Street’s savings. The transaction tax idea, while impacting Wall Street to some degree, has massive collateral damage by raising costs on retail investors. We are not necessarily advocating increasing taxes rather we are operating under the assumption that the government needs to raise revenue and wants to do it by taxing Wall Street. To that end, there is a more effective alternative to the “trader tax” that also has the positive externality of greater price transparency.

While most retail investors probably have little concept of what high frequency trading is or its impacts, active equity traders have seen its pronounced imprint on the markets. High frequency trading is an entirely legitimate strategy of using computer algorithms to execute trading strategies with ultra-low latency. Yet, the explosion in HFT has led to a major structural flaw in equity markets. This flaw is the abuse of uncharged bidding and offering for shares. Level II traders know exactly what this is as they see it day after day in every stock they trade. The book of bids and offers is supposed to be a top-to-bottom list of the prices every player in the market is willing to buy and sell a stock. In this idealized world, there is price transparency as everyone can see who wants to buy and who wants to sell should the participant chose to place a limit order. The price at any given second then is an accurate reflection of the current supply and demand for shares (ignoring the use of dark pools, hidden orders, etc.). Limit orders are meant to be the showing of an explicit intention to buy or sell shares at a predetermined price. Should a trader not want to show his hand, he can execute market orders or use reserve orders. Yet, the book no longer acts in accordance with the idealized world.

Every single listed stock’s order book is filled with false bids and false offers. These limit orders are constantly used to manipulate prices back and forth to the HFT’s advantage. Nearly every higher volume, lower priced stock has a book that is stacked with offers and bids at nearly every penny increment but the vast majority of these quotes are fake. The HFTs submitting the bulk of these orders do not have the objective of being filled on their orders. The purpose is to manipulate the price in some way. This is clearly a deceptive practice occurring in nearly every stock in the current hybrid and fully electronic markets. The high frequency trader has the explicit goal of tricking other traders into believing there is something real there when there is not. Bidding and offering without the intention of actually filling the order is nothing more than a mechanism to mislead other traders. This game, as played by HFTs, is an obscenely inefficient allocation of resources.

After a quick study with our internal systems, we recorded data on the Nasdaq book for Thursday, February 18, 2010. Volume executed off the visible book was 1.247 billion shares (excludes special block prints, hidden liquidity, opening/closing crossing, etc.). Throughout the day, the Nasdaq book showed a total bidded and offered volume of 89.704 billion shares. That means bids and offers in the amount of 88.457 billion shares were put on the book and subsequently cancelled without being filled. These statistics show that only 1% of the total visible order volume is actually executed. Put another way, 99% of the bids and offers placed on the book go unfilled for one reason or another. We would argue that the largest share of this volume can be attributed to HFT stacking the book to move stock prices for their advantage. This is nothing more than trickery and falls outside the spirit of the laws.

Now, it would be far too extreme to ban order cancellation on the whole. Traders and investors need the ability to cancel orders should they change their mind and part of the 99% is precisely that. The flexibility should not be hindered but there should exist a disincentive for cancelling orders because of the obvious current abuse. Even a very marginal tax would significantly curtail the activity while only hardly impacting Main Street. In a world where taxes must be raised and Wall Street should be taxed for bailout funds, a tax on order cancellations is a clear choice.

Taxing order cancellation has various advantages and limited disadvantages. HFT has many valid strategies primarily based on the speed of execution and, in general, it has benefited the market in terms of price discovery. But, the use of intentional trickery to manipulate prices falls well outside the spirit of current regulation. There is no need to enter and cancel hundreds of millions of orders a day unless the HFT is profiting from the results. In order to curb the deception practiced by HFTs, taxing the cancellation of orders will work to reduce it. The goal is not to eliminate cancellations but to make the cost prohibitive to HFTs entering and cancelling millions of quotes every single day. A key positive externality in reducing order cancellations is the increase of price transparency in the markets. The goal of any market is that the price is accurately reflective of the current supply and demand. The tax will also fall largely on Wall Street firms practicing HFT. Retail investors will be charged for cancelling limit orders but the impact will be negligible contrasted with the impact a general tax on all transactions would have. The government will raise revenue, primarily tax Wall Street without hurting average investors and advance price transparency by enacting an order cancellation tax.


Sean Hendelman is CEO of T3Live and heads the automated/high frequency trading division. Brandon Rowley is an equity trader with T3Live.

A Blow to this Hugh Hefner Economy

By: Scott Redler

Let's see if this economy will perform without the Stimulus. Last night's somewhat surprise discount rate increase will throw some in a tail spin--and, it will give us "new headlines to trade against." It's time for some tough medicine across the board. Let's change this mantra of bailouts around the world to some "tough love." Something we are finally starting to see.

Now it's time to see how the market handles this news.

No matter what we were overbought, considering that we just went from 1,044-1,110ish in two weeks. We retraced over 61.2% of that 9% correction off of highs. So, some weakness or corrective type action (AS I STATED YESTERDAY) would make sense.

We need to see where this market holds--and if it holds higher. If the market proves to hold, we can see some additional upside in the future. I would love to see a pull-in to test the break of that descending channel (around 1,080-1,085). That's where I would take a very close look at the market's composure and try to get back into some longs.

You plan your work and work your plan. With that in mind, I put together this forward looking chart of the S&P in anticipation of what to look for next. Click on the chart for a closer look at the details.


Hope everyone has a great weekend!

The Future of the Euro

By: Elliot Turner

In early 2010, the Eurozone monetary union faces its single biggest challenge to date. In theory, the euro is supposed to create a unified economy in Europe through which people, goods and money flow with ease across international borders. In some respects, that aspect of Union has been a resounding success—there has not been a war between member nations, and there is a growing amount of economic cooperation between the member nations.

It is impossible to contemplate the future of the euro without considering its past. The European Union started as a collection of treaties in the wake of World War II designed to forge a cohesive, codependent economic community of European nations who were formerly military foes. The idea was that in building economic cooperation amongst member nations—originally Belgium, France, Italy, Luxembourg, the Netherlands and West Germany—that economic interdependency could set the foundation for political and military cooperation.

The community of nations expanded to include a larger chunk of Western Europe and the scope of the relationship broadened, reaching its climax with the Maastricht Treaty in 1993, where the European Union was officially born and the goal of a unified currency created. On January 1, 1999 the euro officially came into being as an electronic accounting currency and paper notes went into circulation on January 1, 2002.

Now that we have a very brief outline as to the formation of the European Union and the euro currency, let us consider one of the serious consequences of a currency union. One component of this history that I purposely left out from the brief time-line above was the Treaty of Amsterdam in 1998. The treaty of Amsterdam established the European Central Bank (ECB) to oversee a unified and coordinated monetary policy for the EU member states, based in Frankfurt, Germany, the Eurozone's premiere commercial center. The consequences of this treaty are only now being learned in a painful and economically dangerous way.

In creating a currency union, member nations sacrificed localized control over monetary policy. While economic union has forged a closer relationship between the member nations, there remain vast and considerable difference in the underlying structure of each of the member nations' local economies. Different challenges face the member nations at different points in time, and these various challenges require unique and different remedies. Economies facing troubles in some respects were forced to rely more heavily on fiscal policy with the lack of control over monetary policy.

In July of 2008, as the world was entering a global credit crunch and deflationary spiral, the ECB raised, I repeat: the ECB RAISED, interest rates due to concerns over rising commodity, particularly energy, prices. This could not have happened at a worse time for Greece, as a country heavily reliant on its maritime and shipping sector was suffering severe economic harm from the complete collapse of global trade. This does not completely explain the budgetary troubles in Greece. It was well known that upon joining the currency, Greece suffered from high fiscal debt as a percentage of GDP, and Greece has a history of governmental corruption and inefficiency. However, the monetary action taken by the ECB was not only bad for Greece; rather, it was in stark contrast to what Greece actually needed.

Eventually the deflationary spiral that started with the subprime crisis in the U.S. caught up with Europe and the ECB followed the U.S. Federal Reserve Bank in aggressively cutting rates, yet this action was too little, too late for Greece .and some other troubled nations. All this begs the question as to whether a monetary union is truly beneficial to some member nations. Does the sacrifice of control over monetary policy cause more harm than the benefit derived from the ease of trade afforded by the euro? In some respects, the costs of the harm to countries like Greece must be borne by the relatively healthy member nations regardless of whether they bailout the troubled ones. While no answers are certain at this point, it seems clear that some sort of change needs to happen. As far as what kind of change, that remains to be seen, but maybe the risks of currency unions in slump times far outweigh the rewards in boom times.

Cree Busting the Wedge Higher

By: Scott Redler

Cree (CREE) was a slightly different pattern from Research in Motion (RIMM), but it too worked out very well. Check out what happened to Cree when the wedge broke to the upside. Here is the "before" chart from February 11th:


And here is the after, from today:


These patterns repeat themselves over and over again. Prudent investors/traders love the wedge pattern for its tendency to succeed.

The Anatomy of a Trade--RIMM Edition

By: Scott Redler

Research in Motion (RIMM) has been AWESOME! This chart is a lesson in Technical Analysis by itself.


Buy #1: was the RedDog Reversal on January 26th at $61.17. That was an outside day where the stock pushed through its prior low, triggered stops to steal longs, and trapped chasing shorts (that is the essence of the RedDog reversal).

Buy #2: This was when the stock broke its descending channel in the $64-65 area on February 2nd. Anyone trading this channel must have changed from bearish to bullish as the downtrend BROKE.

Buy #3: The bull flag--a nice consolidation after a move that holds highs and creates a pivot for another entry. This buy came on February 11th at $68.

Buy #4: This one is on the horizon and is the trickiest. When the stock continues higher, it's always prone to some type of failure, BUT a trade through $72 on VOLUME will break this stock into a GAP that's been left open since back in September. This momentum move can be fast and furious and I would take profits on this position into the move as EVERY last short gets squeezed.

This stock has been in my Morning Game Plan with buy levels since mid-January available to T3Live.com members everyday.

Some Schooling from REDDAAAWWWGGG

Lots of Chatter Today

By: Scott Redler

The market went from oversold to overbought in just five sessions. SO if you use a little common sense, you will sell some longs after a 50-60 handle move off of the 1,044 low and maybe even look to test some shorts. Combine that with all the new chatter about Goldman and Greece, JP Morgan and Italy, and you just might get some pressure on the banks today.

Tech was an easy read:

• Apple (AAPL) traded into resistance at $204-206 and was an easy short the up open yesterday. Now it's not so compelling. I will be covering into this down open today.

• Research in Motion (RIMM) is still setting up long, as it continues to hold the $68-69 area. It could soon bust through $71-72 and get into that gap.

• Amazon (AMZN) was a nice short yesterday, but it's not "breaking down" just yet.

• Google (GOOG)--something's wrong here. I got stopped out of my long. It seems like we'll need some clarity with regard to China or some other catalyst in order for this one to get going again.

• Priceline--reported really good earnings and is opening near old highs. See how it holds up at its old high of $231.50. Use that level as a pivot.

I put these three on the radar last week to break "wedge formations":

• Cree (CREE) is a rock star as it's back at old highs.

• VMWare (VMW) is back near old highs as well.

• Intuitive Surgical (ISRG)--not quite at those old highs, but getting there.

The Rundown:

• Casinos are getting some pressure off of Las Vegas Sands' (LVS) earnings report. There might be some opportunities there.

• The banks have a lot of chatter this morning.

• Goldman Sachs (GS) was on the receiving end of a real negative research report and there continues to be Greece finger-pointing.

• JP Morgan (JPM)--the Mob is after these guys as well, saying they misled them. Watch the stock's reaction.

• Freeport McMoran (FCX) and U.S. Steel (X) were great shorts on the open yesterday and giving some follow-through this morning.

• This is how you "trade ranges"

In New Jersey this morning, Governor Chris Christie was awesome. This is the first time I really listened to him on CNBC and I agreed with everything he said. An individual contributes $112,000 to a pension and gets paid out $3 million over the course of retirement. GIVE ME THAT DEAL! State governments are busting the system and there MUST be pension/benefit reform. There is a 70% discrepancy between the average salary and benefit package between the public and private sectors.

Where Do We Go From Here?

By: Pej Hamidi

We are still in Long/Short nirvana, with a stock picker's market. Things are getting a bit tricky with volatility rising, but a little volatility is good right about here. The patient trader will be rewarded and the name of the game is "banking profits." Book those gains and don't give them back just because you're sitting in front of your screens and bored. That's terrible discipline.

A big upside gap in Gold prices (GLD) on Tuesday looks set to follow-through as I write this on Wednesday afternoon. Pressure on the U.S. Dollar, an uptick in energy prices, a noticeable increase in equity volatility and put premiums suggests that the market is behaving defensively. I included a chart of GLD, which shows the gap taking prices outside of the short-term downtrend. Also, note the divergence between prices and the indicators above. During this retracement, the positive divergence in money-flow and momentum are glaring out at you. Tuesday's gap was accompanied by good volume, causing a sharp acceleration in the diverging indicators. Click on the chart below for a closer look.


I see a rotation into specific solar names. One can't trade the solar sector all "willy nilly," as Sperls would say. You have to know what each company does and where they fit on the food chain. For example, I've included charts of Canadian Solar (CSIQ) and Trina Solar (TSL). These two are exploiting the global oversupply of silicon wafers to expand at the module and cell level.

CSIQ:


TSL:
Solar stocks have sold off sharply with the broader market presenting an opportunity to buy emerging leaders. Conversely, for fundamental reasons pertaining to where First Solar sits on that food chain, FSLR has become the hedgies favorite stock to sell hard on rallies, which generally are short squeezes.


With FSLR being another "Beta Monster," if one is long CSIQ and TSL, just a couple hundred shares short FSLR against long several thousand CSIQ and TSL would work, and if you trade around the positions to take advantage of micro-movements, a sharp trader can carve out quite a bit of Alpha. Overhead resistance is $132 for FSLR, which is where one could start building a short line.


Although I'm long-term very bullish on big-cap tech, in the short-term, I'm bearish on Google (GOOG). Her failure to capture any analyst attention with Android's V.2 release is one of the main reasons Google has taken a technical pounding ($110/17%) in the last month.

If you look at the chart I posted, selling pressure leveled off at the 23.6% fib retracement line. Overhead resistance is heavy around $560 and if this base is broken, it's a quick shot to the 200d-EMA at $510 then $500. The next fib retrace (38.2%) is at $485. GOOG is another "Beta Monster" and certainly not for the timid. The bracket to watch is $520 to $560. Trade a "Mean-Reversion" strategy between those two levels until a break in either direction. My concern is the downside gap on January 22nd. It looks to me to be a continuation or breakaway gap, suggesting an equidistant move from the January 4th high of $630. That's at least another $50 or so depending on which level you use on January 21 (the day prior to the gap).

On the other hand, Apple (AAPL) has held up against Google's assault on its flank, instead spinning the PR machine to look ahead at the pending release of Apple's Tablet Computer--the iPad. Until the release of the tablet though, AAPL will remain range-bound between $195 and $215. The trade remains the same here in AAPL in between those ranges. Open a long position in the last 30 minutes, to sell into an opening gap the next day.


Lastly, Wynn Resorts (WYNN) looks like a good long-term position to accumulate. The chart I've included shows the massive reverse head and shoulders bottom and sideways consolidation while all the moving averages converge underneath.


A decisive break above $65 or any weakness to $60 are good reasons to get long. Yes, Las Vegas is a mess with a crumbling real estate sector and massive job losses, but Wynn is dominating the Macau market, where it continues to grab a larger share of the "whales". And, Macau is exploding as a gamblers Mecca (pun intended).

Follow Your Gut...

By: Elliot Turner

Dr. Brett recently wrote an excellent post about the role of intuition in trading. He had the following to say:

...two different brain systems are at work in learning; one is an explicit system based on recall and reasoning; the other, an implicit system based upon the brain's reward system. By dampening the explicit learning system, the tranquillizing drug provided subjects with greater access to their gut.

...it is not necessary to tranquilize oneself to gain access to intuition. It may well be that relaxation, meditation, and focused concentration exercises can accomplish the same thing.

Coincidentally, as Dr. Brett was writing about intuition, I read a great passage in one of the essays in my book du jour--David Foster Wallace's (hereinafter referred to as DFW) Consider the Lobster--about the psychological focus of athletes that affords them the ability to overcome immense pressure. If you haven't noticed already, trading is ripe for comparison to athletics. Here's the passage:

It is not an accident that great athletes are often called "naturals," because they can, in performance be totally present: they can proceed on instinct and muscle-memory and autonomic will such that agent and action are one. Great athletes can do this even--and, for the truly great ones like Bord and Bird and Nicklaus and Jordan and Austin, especially--under wilting pressure and scrutiny. They can withstand forces of distraction that would break a mind prone to self-conscious fear in two.

David Foster Wallace wrote this to contrast the experience of one (himself) who failed at high level junior tennis and one who thrived, prospered and ultimately won multiple Grand Slam titles (Tracy Austin). DFW's self-diagnosed problem was his inability to overcome self-doubt and to silence that ever-present voice in his head. The notion of innate muscle memory, and the suppression of the mind freeing up the body to react from memory, rather than through conscious thought, ties in nicely with the study cited by Dr. Brett with regard to intuition. Top athletes succeed because they can systematically execute without taking that extra second to think: they merely act and react subconsciously as opposed to thinking, processing and then acting. In sports, as in the market, any sort of hesitation can have severe consequences. Success requires intuitive reactions.

This has significant implications for us traders. Let's follow this passage through:

The real secret behind top athletes' genius, then, may be as esoteric and obvious and dull and profound as silence itself. The real, many-veiled answer to the question of just what goes through a great player's mind as he stands at the center of hostile crowd-noise and lines up the free-throw that will decide the game might well be: nothing at all.

How can great athletes shut off the Iago-like voice of the self? How can they bypass the head and simply and superbly act? How, at the critical moment, can they invoke for themselves a cliche as trite as "One ball at a time" or "Gotta concentrate here," and mean it, and then do it? Maybe it's because, for top athletes, cliches present themselves not as trite but simply as true, or perhaps not even as declarative expressions with qualities like depth or triteness or falsehood or truth but as simple imperatives that are either useful or not and, if useful, to be invoked and obeyed and that's all there is to it.

Ok, there's a lot there to digest. In saying that "nothing at all" goes through the head of a great athlete at a moment of pressure is a pretty profound insight. The top performer, in a clutch situation, with crowd noise and all the hoopla, is able to treat that moment no differently than something as simple as shooting hoops at home as a little kid. It just is. It's nothing more than living out the "one ball at a time" mantra (or "one trade at a time"). The idea is to systemically generate a process through which you can access intuition and suppress the self-doubt and ever-present voice in your head and whatever other outside distractions you may face (seeing red P&L definitely distracts people from the trade at hand...ever hear the saying "don't trade your P&L?) from influencing your decisions. It's unclear as to whether this is an innate or acquired skill in athletics, but I think with regard to trading there is a little more clarity.

DFW claims that the ability required to overcome distractions results from the structure provided by a set of cliches. In trading, this is no different than creating and following a code and/or a set of rules. Traders who have a rules-based process and systematically implement those rules without actually having to consciously consider them, are those who tend to succeed at the highest level. This traces back to developing good habits while in the training stages. The more habitual something becomes, the more innate it actually is and the less one has to think about it. Positive reinforcement and repetition are the only ways to develop these skills.

Penetration!

By: Scott Redler

The market penetrated through the 1,085-1,095 area and is now opening up near 1,100. We went from 1,044-1,100 just like that! I will try some shorts in this area, for a trade, that I started around $110.25 on the SPYs and will get bigger as we get to $111.39. This will be my first short since trading from the long side last week.

Most of my stocks have reached their "easy bounce levels" so it's tough to now buy into this up open.

The Rundown:

• In tech, Apple (AAPL) went from the $196-197 area to my resistance zone of $204-206. I am out of my long here and will test a short for a trade.

• Research in Motion (RIMM) needs to consolidate a bit, then it can be a good long into the gap if it holds $72.

• Cree (CREE) has put in a blockbuster move since last Thursday. The stock can still go higher, but it can do so without me, as I have taken my trade and am now out.

• Amazon (AMZN) did not act well yesterday. If it continues to show weakness, it could be a short through $117.

• Google (GOOG) had a nice move yesterday. I am long from $537 and $542 and will add through yesterday's high of $544.13 (It still doesn't act great, so be careful if it breaks $537 and get out).

• Baidu (BIDU) is tricky, but strong. I would avoid it right now.

• The banks finally woke up yesterday.

• Goldman Sachs (GS) broke above the $154-155 that I have isolated many times. That added some power to yesterday's move for JP Morgan (JPM), Bank of America (BAC), Wells Fargo (WFC), etc.

• U.S. Steel (X) is opening at the level I put out there last week. I would sell some longs, as the same mantra applies: the easy move is over.

• Freeport McMoran (FCX) had a nice move from its lower pivot. It could go higher, but will do so without me.

• Gold, and the GLDs, are opening up today, as it fills a gap from January at around $110.50. If you're trading it, and you bought on the February 5th outside reversal day, I would take some profits.
  

The easy bounce is over. The next question is whether the market can hold higher, because if so, we can continue to move on up. What concerns me at the moment is that we quickly went from oversold to overbought, so be patient and let the market give you some clues.

In a Choppy Market One Must TRADE to Get Ahead

By: Scott Redler

Last night I went on CNBC Asia in order to talk about trading strategies through the choppiness that we have seen in markets early on in 2010. Here is that segment, as well as my preparatory notes and charts:



Coming into this year we were looking for a composure change in the market--the uptrend break was it. We said that this year would be a CHOPPY YEAR, a trader's market. Now it's time to consolidate last year's big move, with lots of negative headlines that the WORLD will have to digest--this is very tough news.

The uptrend broke on January 21st, with the S&P at around 1,130 and we have corrected about 9%, down to 1,044. See the chart below for a visual.


The question is, where do we go from here?

On a micro level, we need to see if 1,085-1,095 contains this reflex, oversold rally. If so, and we turn lower, then look for a break of 1,060-1,064. Such a break would confirm a move through 1,044 and a test of the 200-day moving average, which now stands at around 1,025.

Trading institutions and investors must manage their positions and figure out what news is priced into the markets, and what isn't. Tech is acting the best overall, as they have the cleanest balance sheets and the least risk to geo-political headlines.

Here is an example on how to trade ranges--Google (GOOG) was at $620 when it sold off on the Nexus One release/sell-the-news event. Now the stock is ranging between the $535-540 area. It's worth looking to try a long in order to catch the oversold move, using the low end as a stop. Take a look at my attached chart as an example.


We are continuing to buy the semi's, and also Apple (AAPL), Cisco (CSCO), Microsoft (MSFT), Research in Motion (RIMM) and Baidu (BIDU) (I have attached Apple's chart for an example).

Sector rotation is the only way to trade this market and outperform the indices.

We sold gold on December 2nd at 1,210 an ounce, as it went parabolic. I was on CNBC Asia that night and told Amanda Drury that I was done with it and would buy back in at around $1,060-1,080. The buyback came on February 5ths outside reversal day--around $1,060 in the futures and $104-105 on the GLDs. This is a prime example on how to TRADE THE RANGE. I have attached the gold chart as yet another example of range-bound trading.


There is a ton of BAD news in the world--news that markets will have to absorb. Right now, homework is prudent and watching the market reactions is key.

In early January, the market sold “great” earnings, and yet now we are buying bad news like Greece, etc. I do think it would be best if Greece does not get bailed out at this point. I also think CHINA is being very prudent in raising its reserve requirements. TOUGH MEDICINE is the only way the world will move forward. America should learn from this as we need to worry about our own state budgets that are bloated by public sector spending.

We need to live within our means--and it will take time--this is why you MUST trade the ranges of this market and not chase any large directional moves.