Pattern Watch

After Friday's dip, I believe there's a good chance the S&P tests 1150 early in the week. If that level fails to hold, we could see prices at 1130 in a hurry. As you'll see in the chart below, the shortest term moving average is now acting as resistance and only the 10 dma stands to act as support before a test of 1150...

For the DOW, prior highs were able to provide support late in Friday's session. The rising 10 dma still stands nearly 100 points away, but I don't see much support until 10,500 if we should get a breakdown early in the week...

Interestingly, the Nasdaq was the first index to test the 10 dma despite being the relative strength leader for the majority of the recent climb. That support line provided a bounce late in the session Friday, but nearly any weakness from here should see that 10 dma begin to roll over and give us the long awaited short signal we've been watching for...

The Euro was forming a rounded bottom pattern that now looks to have completely failed...

Dollar strength against the Euro would likely be a strong headwind for equities and make it a difficult continued climb from here.

Despite my continued bearish bias, I did find several breakout candidates for this week, as well as a couple of head and shoulder patterns to watch for breakdowns. First up is this ascending triangle on AMED. It attempted to breakout on Friday, but reversed back into the consolidation near the close. I already own a little piece of this one...

CHKP - Cup & Handle

DE - Cup & Handle

NUS - Breakout Retest

RAI - Cup & Handle

DBRN - Horiz. & Diag. Support

VRTX - Cup & Handle

COG - Head and Shoulders

LRCX - Head & Shoulders

Click Any Chart To Enlarge

Quick Note

I really wish this market would offer more to blog about, but there's really very little to say regarding the current price action. The S&P tagged 1170, which was the price target for the inverse head and shoulders pattern on the 60 minute chart. Whether that proves to be the short term top (doubtful!) or not, this has been one relentless rally...

On the Nasdaq chart, I've decided to give you a visual as to what I'm looking for before getting aggressively short. I'm not calling for the top here, simply trying to illustrate my plan, regardless of the level at which it occurs. I first want to see prices below a declining 10 dma and try to enter shorts on the first retest of that declining average. I highlighted the same set-up below in mid-January...

Here's my view of the DOW and note how it continues to grind higher using the shorter term moving averages as support...

Click Any Chart To Enlarge

The bearish divergence on the McClellan continues...

Chart Courtesy of http://stockcharts.com/

A quick note on the portfolio. For me, 2010 has gotten off to nothing less than an absolute disaster of a start. Embarrassingly so! I've said it before and I'll say it again... when you lose your discipline, the lesson can be very expensive. I lost my discipline and it has cost me considerably. I know better and to my loyal readers, you deserve better. However, I WILL get this ship turned around and will continue to cut the cancer out as needed, if nothing other than to completely regroup. On the bright side, all of my largest drawdowns have been immediately followed by significant outperformance. I expect nothing different this time. Last year's nearly 7% drawdown was followed by a 30% gain in less than 3 months. While this hit is greater, so too shall be the recovery and you'll have a front row seat. For the record, while certainly "out of sync", there's no lack of confidence here. Discipline? Yes. Confidence? Absolutely not! I want to thank you for your continued support and I'm looking forward to again proving my worth over the remainder of 2010.

More Potential Longs...

ANR - Imminent Breakout

NFX - Breakout Retest

UIS - Imminent Breakout

VPRT - Breakout Retest

Click Any Chart To Enlarge

Out Of Hibernation...

Looking at the /ES channel, prices are sitting near the 50% line and there's plenty of room for a big move in either direction...


However, if the bears are going to come out of hibernation and make a stand, this could be the spot. I mentioned the bearish divergences in the McClellan and the New Highs/Lows in prior posts. As you'll see in the chart below, prices have paused here at the January highs and there's plenty of room for a pullback before testing the 10 dma...

The Nasdaq also has over 40 pints of room to dip before testing the 10 dma...

Here's the laggard, the DOW...

We're going into an option expiration week with a very low Put/Call ratio on the equity trader's side. If history is any indication, I don't expect all of those recent call purchases by the "dumb money" to be in the money by Friday...



Despite Friday's bounce, we're still looking at one of the lowest readings in the $CPCE over the last two years...

Chart Courtesy of http://stockcharts.com/

I still don't have any plans to go long, but for those of you who need/want some long exposure, you may want to keep an eye on BUCY. It may be etching a handle to finish off this cup pattern...

On strength, CTSH may be a solid long candidate here as well...

Click Any Chart To Enlarge

The fact that I could only find a couple long opportunities may also bode well for the bears going into this week. Trade well!