Hey, it’s probably nothing and I should be charged with a felony crime for pointing it out, since every sell-off we have seen this year has immediately lifted to new highs. But I would still be remiss in not pointing out the bear flag potential being setup here not just on the 30-minute chart of the S&P, below, but also other indices and sectors on similar timeframes. Bear flags, meaning slight reversions which are simply continuation patterns of the initial bout of selling, designed to trap in dip-buyers. The notion of a bear flag within the context of a multi-month bull run is as tricky as it gets, since as I mentioned one man’s bear flag is another man’s V-shaped bounce to all-time highs.

Once again, if this market is truly going to change character/attitude, then these types of bounces should roll back over within short order. Otherwise, we may have already seen the worst of the selling.

That said, I like using these 15 or 30-minute charts to look to see how the market reacts to potential bear flags. In 2013, so far, they have been as good a contrarian buy signal as any.

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The “Big Boys” are likely winding down positions here with the long, three-day holiday weekend fast approaching, getting ready to take the helicopter out to the Hamptons. Meanwhile, retail traders will have the house all to ourselves, pretty much, complete with “petty cash.”

It will be interesting to see whether the market simply “goes dead” after yesterday’s reversal, this morning’s gap down and now the bounce.

Beyond small cap stocks, I am watching which relatively large firms that are liquid are being supported on this market pullback. One example would be CNX in the coal space (with natural gas exposure, too). I am still long this name and am impressed with how it has been acting, overall and today. If it can continue to show good strength I’d like to add back to the position inside 12631.

As always, paying attention to relative outperfomers in a bull run is a worthwhile endeavor.

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I write the title of this post tongue-in-cheek, since you will recall last November I penned a post titled: “Hewlett-Packard: Value Trap or the Best Black Friday Bargain Out There?“ and then in December: Hewlett-Packard: Value Trap or the Best Post-Christmas Bargain Out There?. 

Back then, HPQ was trading in the low/mid-teens and was despised by just about everyone. However, I noted the monthly chart, updated below, where the major 2002 dot-com crash lows came into play. And those lows did indeed hold handsomely as price had strong memory.

Currently, Hewlett is tight tightening up on weekly and monthly timeframes, attempting to make the all-important higher low to cement a major double-bottom spanning over a decade.

After Memorial Day, I will provide an update looking for another long-term entry point.

(I am looking at $19 to be the new “floor” of support for the stock. Below there, and I think the value-trappers have a colorable argument again)

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I am looking to see if the market follows-through not just in terms of price closing lower today, but the way in which it happens. After yesterday’s high volume reversal, followed by a dramatic overnight session around the world, there is certainly a feeling the we have been here before and the dip has always been bought for a V-shaped rally to new highs.

Therefore, if this market is going to be different, then we should see intraday bounce attempts aggressively foiled by bears. A simply 5-minute chart of the S&P, first below, is a good visual for seeing how quickly bears would pounce on bounce attempts. The longer the bounce lasts, the more likely it is we see yet another V-shape.

I am also still watching EXPE for a short entry below $57 preferable, out of that bear flag.

JMBA is a small cap long idea holding up like a champ.

And I hope at least one of you took the RUE long setup I charted each of the past two days–They received a huge buyout today.

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The types of price swings with very heavy volume seen in Home Depot and Lowe’s on Wednesday tend to be what you see either at the beginning or the at the end of a trend–You just do not see that type of action in the middle very often, barring an exogenous event.

Now, we know the housing complex has been in a multi-year strong recovery. But breaking down the bull run into intermediate-term trends (weeks, months) is likely correct for traders in light of this type of action.

As an example, look at the price action and volume for Home Depot back in late-February, with a sharp upside price reversal and the accompanying massive volume after a month-long correction dating back to late-January. Now consider Wednesday’s action with a shooting star potential reversal candle on very heavy volume after a steep multi-month rally, which begs the question of whether looking out weeks and perhaps months the housing complex is closer to the beginning or the end of this specific leg in its rally. They have had a wildly impressive run, going much higher for much longer than I thought possible.

But the main point here is not necessarily to call a top but rather to recall the famous George Soros quote:  “When a long-term trend loses it’s momentum, short-term volatility tends to rise. It is easy to see why that should be so: the trend-following crowd is disoriented.”

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