Beware the Price Patterns…

Many a wedge pattern has been spotted in my personal weekly watch list.  The three main price patterns I’ve been seeing over the past couple of weeks are ascending triangles, descending triangles, and your infamous wedges.  In many of the 3x inverse ETFs, the descending triangle broke apart and didn’t guide me into any continued strength.  I witnessed this during my FAZ, SKF, TZA, and SRS trades, where as the trade setup looked great, but the descending triangle pattern more often than not fell through on lack of volume and momentum.  Thankfully, I got out of these trades prior to them getting too atrocious.  

My new found cash position, however, allows me to look objectively at these four death machines, in addition to SMNand ERY/DUG.  As seen below in the Sector Search, commodity industries have been doing exceedingly well since the start of this rally:  

20-Day Sector Search (courtesy of Prophet.net)

If a lot of the wedges in commodities break down below their support trend line (or, the bottom line of the wedge) on heavier than normal volume distribution, I may consider nibbling at the inverses again if I feel like more downside momentum is to come.  

My current advice?  Wait for the wedge patterns to give us a short-term market direction.  In my honest opinion, I think we’ll be stuck within an $SPX range this week, thus marking the beginning of our consolidation run until April 16 (if this seems like a random date, it’s not; check out the financial institutions that put out their quarterly earnings on that day).  If I am correct in my thoughts on consolidation, I will stay cash until I can successfully swing trade again.  This will only happen when the market chooses a side, so until then, it’s a day trader’s market.

Below is a 2-Day $SPX Market Carpet, courtesy of StockCharts.com:

2-Day $SPX Market Carpet

Top 5 Setups in the watch list include the following:

• UXG has two scenarios: A possible re-entry into the range between S1 ($2.00) and its descending triangle resistance trend line, or a continuation of a gold industry beat down that drags UXG to S2 ($1.66).
• ACI – Currently stuck in between the wedge resistance trend line and S1 ($14.21) which held nicely today.  Curious to see whether ACI can break out of the wedge.
• ABX – Waiting for S2 ($27.61) retest before putting in a limit buy.  I would love to catch the next gold train.
• Steel Tickers (STLD, X, SLX) – Waiting for a strong RSI-%K crossover on a 60d60m chart to initiate a trade for me.  Otherwise, I’m not buying these tickers into a potential market weakness.
• B.O. Tickers (TNA, UYG, ERX) – All of these tickers have resistance levels that are very close to being broken on the slightest momentum push by the market.  TNA has a resistance of $22.11 in a very strong up-trending price pattern, UYG has a resistance of $3.05 that will move strongly if the financial sector leads the market for another day or so, and ERX has a resistance of $28.68 with a lot of MA levels to bounce off of if Crude brings the heat this week.

Keep your eye on the B.O. Tickers.  These are must-buys if the market pops once more.  When the steam begins to diminish, however, UXG is my number one pick to go long with.  Another thing to wait for when the steam subsides is the VIX to move a large amount in a matter of days, leading most people in the direction of buying things short.

Heads on a swivel my friends, heads on a swivel.

ZM

If you were reading my posts from all of last week, I got slapped in the face by trading the market short with leveraged, inverse ETFs.  This week I’m taking a different approach, and instead of anticipating market movements, I have decided to wait for the patterns that were formed during the month of March to develop and choose a direction.  Come Monday morning at 9:30am, I will be full cash and waiting to see what the tone of the market will be for this upcoming week.  Because of this, I’m going back to my Basic Materials/Energy Sector strategy, filling the watch list with plenty of tickers from these two sectors:

• UXG
• BHI
• MRO
• ACI
• PCX
• ARLP
• ABX
• STLD
• X
• ENER
• JPM
• XTO
• NAL
• TNA
• UYM
• SLX
• ERX
• DXO
• URE
• UYG
• XLU

As well as Energy and Basic Material names, I have also included JPM, NAL, UYG, and URE into the mix for my Financial and Real Estate picks, TNA to encompass the Small Caps 3x Bull, and my sleeper pick of the week, XLU, the Spyder Utilities Sector ETF.  The Utilities sector has been beaten pretty badly during this recession, but has gotten some positive recognition from the current $SPX rally.  Still down 28.13% YTD, I like XLU on a possible pattern breakout if the $SPX can generate enough steam for another 5% run.

Below are three (3) charts of tickers from the weekly watch list that have some interesting pattern setups.  Enjoy:

 

ACI  30 Day, 60 Minute

DXO  20 Day, 30 Minute

UXG  60 Day, 60 Minute

During tomorrow’s trading session, keep these market questions in mind:

• Is the overall market volume accumulating or distributing?
• Is the $UVOL to $DVOL ratio higher than 8 to 1 or vice versa?
• Has the VIX held any major support/resistance levels on a(n) intraday/weekly/monthly/yearly level?
• What sector is dominating?  What sector sucks?
• Where is my money allocated and why is my money allocated there?
• Have their been any ticker breakouts/breakdowns on my watch list?  The MJTT watch list?

These questions should allow you to trade effectively tomorrow.  Do not forget VIX 38; it’s an important VIX support that is a serious force to be reckoned with.  Also, my $SPX target is 850 due to the Monthly trend line that I have drawn out in the chart below.  This declining trend line is supported by the increasing trend line that was created when the current bear market rally began.  A breakout above this 6-Month wedge pattern would be an astronomical feat to accomplish and would lead to the next $SPX resistance level of 877:

 

$SPX  6-Month, Daily

Another blurb before I depart for the night: keep an eye on TNA, UYM, UYG, and NAL for possible breakouts.  These tickers from the weekly watch list will be declared IFF the market shows a considerable amount of volume accumulation and a market momentum strength that is led by the financial sector.

Good luck tomorrow!

ZM

Here are some random pics I think I’ll have close to a thousand pics by the time I’m finished. Obviously, I can’t post certain pics here, but I assure you, everything is going to plan. I’ll try to update here once in a while. See ya!

Good evening iBC!  I would like to thank Chart Addict for giving me the opportunity to take control of his tab for the week.  I know he’s enjoying himself big time in Cancun, and I hope he comes back in one piece and in good health.

Let’s get down to my evening story.  As some of you may know, I was fund raising for the Four Diamonds Fund tonight at my high school.  If you are familiar with Penn State University’s THON, our Varsity Club decided to run something very similar, titling the event “Mini-THON.”  Our target was $33,000.  We raised $38,645.25.  I started off my night doubting the ability to raise enough money to reach our target, but I was very wrong.  Tonight, I ended up putting myself in the shoes of the kids who came to speak to us about their battle with cancer (and when I say kids, I mean kids: 7-12 years in age).  The strength and upbeat demeanor that these children carried with them was absolutely stunning.  I listened to a 7 year old girl talk about chemotherapy and her struggle to survive her multiple surgeries for a grapefruit-sized brain tumor.  She was 2 years of age when she was diagnosed with cancer, and her surgeries lasted from 4 to 6 hours a pop.  This little girl was a cancer survivor, and her happiness she showed to all of us on stage was something that will personally touch my heart for the rest of my life.

I am telling you this story not to make you feel sad, or even upset that people won’t do more for these children.  I am telling you this story to tell all of the people who sign into this community and are active participants in today’s stock market that even when you make an awful trade that ends up in egregious losses, damaging your monthly gains and trucking your capital like Brian Urlacher trucks running backs, remember the simple truth that money is not everything.  Enjoy what you have and the reason why you were placed on this earth, and allow yourself to become a better person through the way you treat your loved ones and most importantly yourself.  Rule #6 of my trading rules is “Profit Correctly.”  The rule is scripted as follows:

There’s something called opportunity loss in the economic world, and what it means is that when you lose money, you’re not just losing a green piece of paper but something more important; a vacation, an enjoyable dinner with your family, a trip to the jewelry store for a deserving wife, or a renovation on the house.  Hence, I shall reiterate not to reinvest right away but instead analyze what you could use your profits for instead.

Enough said.

Tomorrow night, I will be posting my watch list of tickers from the sector I will be trading this upcoming week.  I will also be putting up numerous annotated charts of some names that expand over multiple sectors of Mother Market.  In the mean time, enjoy your weekend, spend time with family, and remember:  Life is too short to let the important memories fade.

ZMoose

..in a few hours.

I have chosen ZMoose, February’s KOPG, as my guest blogger. Treat him with some respect. He is only 18, still in high school, and he is well qualified in the art of reading tea leaves.

I’ll be back in a week with a big smile on my face.

Now, go bank some coin.

Yesterday was very interesting for me. I spent all of last night packing and preparing for my trip to Cancun (I will be leaving later this evening, and no, I’m not finished preparing). Around 2PM, I fell asleep at my desk and woke up at 4:20PM – right after the market closed. It’s great to see that FAZ didn’t go to hell at the end of the day, but I made a fatal mistake. Don’t trade when you’re too tired to function, since it’s like trading when you’re drunk, maybe worse. In any case, I still hold the remainder of my FAZ and I’m willing to play it out as the market consolidates its gains.

There is significant overhead resistance as the market and most sectors are riding along the upper long-term multi-month channel trend line. The line also marks where the 100-day MA is located. We will consolidate here in the 50/100-day MA box until the market makes it’s decision. I’m surprised by how some people “know for sure” what’s going to happen. If that’s the case, go ahead and draw on your credit lines, mortgage your house to the hilt, max out your credit cards, and go make your bet.