1
Oct

Fast Fall for Ford Shares into Key Target

Ford shares (F) broke a critical support level and collapsed instantly toward the current key level where we’ll be watching for a reaction.

We can study this textbook example (of a sudden yet telegraphed market reversal) as we focus on the current pivot support.

Here’s the Daily Chart with breakdown:

Shares rallied most of 2014 from the $ 14.25 level toward the $ 18.00 per share “double top” peak.

Price rose for a “Last Gasp” rally to start September after the full test of the $ 18.00 per share resistance.

Note the lengthy negative divergence in both momentum (3/10 Oscillator) and volume along with the “Kick-Off” new momentum low to start August – these are classic signals ahead of likely market reversals.

Again, price bounced up to test the prior high yet fell shy in a “Failure Test” or what I like to call a “Last Gasp” rally ahead of the sell-off or collapse in price.

While selling pressure was strong going into September – and volume showed clear distribution signals – the selling did not reach a fevered pitch until shares broke the rising 200 day SMA and the $ 16.00 per share confluence.

This is when bears became aggressive as buyers liquidated positions rapidly.

We can see the picture expanded – and the current price level to watch – as seen on the Weekly Chart:

While there’s a lot to see, let’s focus our attention first on the lengthy negative momentum divergence that took place throughout 2013 (another good example).

Shares retraced all the way back to the key pivot point – the 38.2% Fibonacci Retracement Level – which is exactly the same level that we’re watching currently as shares challenge this price once again.

The 2014 rally took price back to $ 18.00 as reversal candles formed (along with the Daily Chart Divergences) which set the stage for a potential sharp sell-off.

The sell-off was more violent/volatile than expected and once again shares challenge the $ 14.50 key support level.

Our focus should be on assessing whether another “Support Bounce” rally can emerge off this key inflection point (bullish short-term if so) or else if sellers continue the momentum and distribution of shares which opens up additional sell pathways toward $ 13.50 and perhaps the $ 12.50 per share level.

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Corey Rosenbloom, CMT
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29
Sep

EMA Compression Breakout Trade Forming in Chipotle CMG

Chipotle shares (CMG) are forming an “EMA Compression” trade set-up which is a specific type of breakout pattern.

Let’s see the chart, note the trigger levels, and plan a strategy for those interested in this high-priced stock.

A few things jump off the chart at us at first glance.

First, there’s the price pivot point at the $ 600 per share level (yellow highlight) which serves as a downside target on a bearish breakdown.

The second factor is the retest of the gap near $ 645 and the current “EMA Compression” pattern.

The “EMA Compression” pattern refers to price holding support at the rising 50 day EMA (blue) but finding resistance slightly overhead from the declining 20 day EMA.

As the saying goes, “Something’s gotta give” which means that traders can use breakout strategies on a firm movement above the falling 20 day EMA or beneath the rising 50 day EMA.

The simple “Bullish Breakout” (and trend continuity) pathway suggests a rally toward or even above the prior high above $ 680 while a “Bearish Breakdown” (steeper retracement) pathway targets the $ 600 support confluence.

Treat breakout patterns as neutral and don’t assign a bull or bear bias until price “proves itself” and forces traders to act on the breakout (rather than trying to predict the breakout while price remains in consolidation).

We can see the picture clearer on the intraday chart:

A pure price plus Fibonacci Retracement grid shows the key inflection point now – along with the 50 day EMA – is the $ 650 level which is the 38.2% Fibonacci Level as drawn.

Again, it is also the “gap fill” price from August 22.

In sum, a bearish breakdown (that isn’t a bull trap) under $ 650 suggests an immediate downside play toward the $ 637 “halfway” point, then $ 622, and finally the $ 600 per share level.

And of course the upside breakout pathway with a trigger beyond $ 670 suggests a play to the highs near $ 690 per share.

Focus on these levels and the breakout/impulse trades that may benefit from a successful breakout and movement toward one of these targets.

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Corey Rosenbloom, CMT
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).


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27
Sep

Studying the Stealthily Strong Trender Disney DIS

You may not be aware that Disney (DIS) is one of the strongest trending stocks in the Dow Jones and S&P 500 right now and has been since its breakout in mid-2012.

Let’s start with the Monthly Chart (where the magic is) and study this stock from there:

I wanted to focus this post on the purity of the price trend in motion for Disney (DIS) shares.

Note the typical sideways long-term consolidation from the 2000 peak to the 2002/2003 low into the peak near 2007 and the retest of the bottom of 2009.

Many stocks show a similar pattern (top in 2000, bottom near 2002, top again in 2007, bottom again in 2009) and other stocks also share breakouts to new all-time highs in the 2012/2013 period, but there’s something special – if not magical – about Disney shares.

The strength and persistence of the strong uptrend that took place in mid-2012 carried price almost straight up into the current $ 90 per share level (doubling from the $ 45 per share resistance).

This isn’t a pattern we see often and it’s certainly not a pattern we see for the typical Dow or leading S&P 500 stock (or a company as well-known as Disney).

Nevertheless, the stock speaks to the strength of uptrends and the preference for pro-trending strategies such as buying retracements or breakouts (instead of trying to call that illusory top or bottom… which is possible but extremely difficult).

The weekly chart further confirms the trend strength over the last few years:

Remember the $ 45.00 level as the multi-year resistance high and then note the breakout – then pullback to this level – then second breakout during 2012.

This breakout set the stage for the persistent (strong) uptrend that actually began with the 2011 price low but continued with the bullish money flow after the breakout to new highs.

In a strong trending stock, we often reference the rising 20 or 50 week EMAs (which is the case now in the S&P 500 as I wrote earlier in the week).

A pullback to this level can offer a favorable risk/reward entry into a swing trading (or longer) position (placing and trailing the stop under the 20 or 50 EMA depending on your risk tolerance).

We do note divergences in a lengthy trend which tempers the bullishness and we’re currently seeing another pullback (retracement) to the rising 20 week EMA it would appear.

The Daily Chart also shows persistent strength and shorter-term entry signals (bullish swing trades) into a strong trending stock:

The chart above details the breakout and pullback ahead of the 2013 sustained rally (green uptrend).

Yes, we’re still seeing negative volume and momentum divergences yet the trend remains strong and there is no sell signal until price firmly breaks under the rising parallel trendline channel or a weekly EMA level.

Watch the current pullback cautiously to see if support holds or else fails and otherwise be sure to study the charts as a reference for the concept of “Strong Getting Stronger” in terms of simple strategies to join a trend rather than fight against it.

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Corey Rosenbloom, CMT
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).


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26
Sep

Weekly Pullback Planning for SP500 and Dow Jones

Following up from the prior “Pullback Planning Update,” let’s take a quick look at the broader S&P 500 and Dow Jones to note the logical pullback (retracement) toward the rising weekly targets.

Let’s start with the S&P 500:

Focus our attention on the price, upper Bollinger Band, and rising 20 week EMA (green).

I highlighted each time recently (2013 to present) where price retraced into – and pulled back away from – the upper Bollinger Band and then traded back to the rising 20 week EMA as a target.

At this point, price is once again repeating this pattern where price is pulling down away from the resistance toward the rising 20 week EMA support target – it’s currently trading at 1,955.

Notice each time price has retraced to this level (as a target) and then rallied back to continue the stimulus-fueled uptrend.

We can’t assume price will repeat the pattern with 100% accuracy, but we will reference the 1,955 level as the key pivot where we’ll plan aggressive bearish strategies (deep pullback that could target 1,900) underneath the level and continuation of the stimulus-fueled uptrend above 1,955.

The logic is similar in the Dow Jones Industrial Average:

The pattern repeats in the Dow Jones average and the key level we’ll be highlighting as a potential downside sell targeT (initially) is the rising 20 week EMA at 16,850.

Note that the Dow – unlike the S&P 500 – has fallen under the 20 EMA to find spike-intervention support (reversal candles) at the rising 50 week EMA.

Among all the other indicators you can study, focus your attention at least for a moment on the rising 20 week EMA targets.

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Corey Rosenbloom, CMT
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).


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24
Sep

Bouncing Market Update and Trending Stock Scan for Sept 24

Right on schedule, price rallied up from a known support target level and we have yet another Trend Day in motion.

Start with this morning’s S&P 500 Support Bounce Rally post and let’s now take a look at our intraday update.

Let’s jump into today’s update with an update on the S&P 500:

Take a close look at the two recent S&P 500 updates so far from the week:

Planning the Pullback in the US Stock Market

“Support Range Bounce for the S&P 500″

With those in mind, we currently see the market rallying up – as was expected – from the 1,980 confluence target level as positive divergences further suggested higher odds for a rally.

How far may this rally continue?  We’ll focus initial attention just shy of the 2,000 level and if price breaks through that target, we’ll extent upward resistance levels toward the 2,010 level again.

Sector Breadth confirms the bullish upswing:

Stealthily, the strongest sectors today are the defensive Staples and Health Care sectors (notice the weak performance from Energy and Utilities) while we see a strength cluster in the offensive group (Financials, Technology, etc).

So far, the message is mostly bullish but would be fully bullish were it not for the top performing Staples Sector today.

As I mentioned, not everything is bearish today – here are our bullish stock candidates for the session:

Chipotle (CMG), Hasbro (HAS), Biogen (BIIB), and Dupont (DD).

In addition to the bullish candidates, we have these bearish prospects:

Ensco (ESV), Chevron (CVX), FirstEnergy (FE), and Comerica (CMA).

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Corey Rosenbloom, CMT
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).


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24
Sep

FT: Regulating dark pools

It has been a tough year for dark pools, but according to Seth Merrin, Liquidnet chief executive, they provide a valuable service. He talks to the FT’s Josh Noble about regulatory interest in dark pools and the benefits they can bring to Asian markets.

FT Trading Room

24
Sep

FT: Regulating dark pools

It has been a tough year for dark pools, but according to Seth Merrin, Liquidnet chief executive, they provide a valuable service. He talks to the FT’s Josh Noble about regulatory interest in dark pools and the benefits they can bring to Asian markets.

FT Trading Room

23
Sep

Triangle Trade Setting Up in Apple AAPL

With all the attention focused on the iPhone 6 this weekend, traders may be missing an iTriangle Pattern forming on the stock chart of Apple (AAPL) shares.

Let’s take a look at the Classic Chart pattern, note the boundaries, and trading tactics we may use as this pattern develops.

Shares continue a strong bullish uptrend as evidenced by higher price highs and higher price lows.

We also observe the most bullish orientation possible in the moving average structure of price in the trend.

Initially, we’ll focus our attention on the confluence of the $ 100 per share “round number” area with the rising 20 day EMA (today’s low so far).

We can also see that Apple shares have a recent tendency of breaking slightly under the 20 EMA and testing (touching) the rising 50 day EMA.

If this pattern continues, the lower 50 day EMA intersects $ 98.00 per share (key support).

However, let’s focus our attention for now on the Triangle Price Pattern which sets up a breakout opportunity.

The intraday chart shows the compression (triangle) pattern clearly.

A lower rising trendline intersects the current low near $ 100.50 per share while the falling upper trendline connects the $ 102.00 level.

Price has bounced or played ping-pong between these boundaries throughout September (despite the announce – then launch – of new products).

A breakout – bullish trend continuation – trade will trigger above the $ 102 level (bullish to target above $ 105).

On the other hand, a range expansion bearish breakdown trade triggers initially under $ 100.50 but preferably – to be safe – under the key confluence $ 100 per share level.

The $ 100 per share level reflects an overlap of the 38.2% Fibonacci Level (as drawn), trendline, and “Round Number” $ 100 level.

For now, focus your attention on these price levels for short-term trade entry and management strategies.

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Corey Rosenbloom, CMT
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).


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21
Sep

New Highs Again and Trending Stock Scan for Reversal Day Sept 19

Perhaps not surprisingly, the stock market pushed yet again to another intraday high today as the non-stop bullish uptrend continued, yet this time we saw a quick retracement down to the rising trendline.

Let’s start with our updated, uptrending S&P 500 intraday chart:

A stable rising trendline pattern contains the progressive higher highs and higher lows and it should be our market reference point until proven otherwise with a breakdown under the rising level.

Today’s session low represents the lower boundary near the 2,007 level and it will be our focal point (bull above; bear beneath) going forward.

Perhaps as a result of the morning weakness, Sector Breadth is slightly Bearish/Cautious:

While we have moderate sector performance (most sectors show 50% of stocks positive), we do see that Utilities tops the performance of the day and that’s a bearish sign.

Relative strength – though not by much – still concentrates in the Staples and Health Care (the other defensive names).

Potential bullish trend day continuation (buy retracements) stocks include the following:

Vertex Pharma (VRTX), Mallinckrodt (MNK), Dr. Pepper Snapple Group (DPS), and Verizon (VZ).

Today’s downtrending stock scan includes the following bearish candidates today:

Garmin (GRMN), Corning (GLW), Flir (FLIR), and Fossil Group (FOSL).

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Corey Rosenbloom, CMT
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).


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20
Sep

About that Death Cross in the Russell IWM…

I’ve been hearing a lot of discussion about the “Death Cross” in the Russell 2000, particularly in the IWM ETF.

Let’s identify what a “Death Cross” is and then test out prior performance of “Death Crosses” specifically in the IWM Russell 2000 ETF.

Here’s a current chart – and we’ll step inside it all shortly:

First, let’s define a “Death Cross.”

A “Death Cross” – that’s such an ominous sounding name – occurs by definition when the 50 day Simple Moving Average (SMA) crosses under the 200 day Simple Moving Average.

It simply means that a shorter-term moving average has crossed under a longer term moving average.

A Moving Average adds the closing price of every day – for example 50 days – and then divides that number by 50 days (or however many days have been added).

The goal is to find the “average” price over that period and we plot this on the chart as a line which we call a “Moving Average.”

That being said, when a shorter-term average crosses under a longer-term average, it could signal a trend change in price.

As such, we can program a strategy to short-sell the market when the 50 day average crosses under the 200 day average, or also buy the market when the shorter-term average crosses above the longer-term average.

In the chart above, I’ve done exactly that using TradeStation and initiated a strategy BUY when the 50 day SMA crosses above the 200 day SMA and then a short-sale (flip and reverse) when the 50 day SMA crosses under the 200 day SMA.

The Green and Red lines above simply connect the price-based entries on the chart (green is for when the trade made money; red is for when it lost money).

We can see that currently, we remain on a “Buy Signal” from mid-2012 and we hear the chatter about the potential “Sell Signal” that may trigger soon if price does trade lower and the 50 day SMA does go on to cross under the rising 200 day SMA.

For reference, I plotted the 50 day SMA as BLUE and the 200 day SMA as RED.

Let’s zoom-in on the price and strategy action:

We see the period from the market bottom (March 2009) until the beginning of 2012 to clarify the cross-overs (signals) during this period.

There were TWO Death Cross signals during this time:

July 29, 2010 and August 15, 2011

You can see these on the chart above with the red box.

Both times, the market went on to trade higher to continue the uptrend – price did not reverse – and thus both trades were closed at a loss (black line).

I would like us to take a closer look at the 2010 period to learn a valuable lesson about Moving Average Crossover Strategies (and Analysis):

Here are those same two Death Cross signals – red lines – and the outcome.

This time we can see the price action clearly and let’s focus our attention on something you don’t see until you actually trade these strategies.

Notice the distance price is trading away from the averages when they cross-over.

For example, during the Bullish (also called “Golden”) Cross on October 26th, price was roughly $ 5.00 above the cross-over point near $ 65.50.

I think this distance or conundrum is clearer when studying the “Death Cross” Signal that triggered on August 15, 2011.

Price literally collapsed from the $ 84.00 per share level all the way down to $ 64.00 BEFORE the moving averages generated its official “Sell Me Now” signal with the Death Cross.

The short-sale trade officially triggered near $ 70.00 per share.

Yes, price did trade lower all the way to $ 60.00 per share but there isn’t a way to use moving averages to “call a bottom” (or a top, for that matter) using this strategy.

In fact, even though the market did trade lower, the “reverse and exit” signal triggered when the averages crossed bullishly – the Golden Cross – on February 9, 2012.

If you look closely at the chart, we see that the official exit price at the $ 83.00 per share was clearly ABOVE the cross-over signal then intersecting the $ 76.00 level.

Here’s the main idea about Moving Average Cross-over Strategies:

They experience significant delay.

Remember that price has to move BEFORE the average can turn up or turn down, and in order to generate a signal from a shorter-term average crossing a longer-term average, price often has to move a considerable distance.

In other words, don’t get too excited when you see official moving average cross-over signals.

My advice is to use them more for analytical (analysis) purposes rather than as stand-alone trading signals or programs.

It can be interesting – and it is – to talk about Death and Golden Crosses, but do your research before using these as independent trading strategies.

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Corey Rosenbloom, CMT
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Follow Corey on Twitter: http://twitter.com/afraidtotrade

Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).


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