The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month Good Morning, Traders. We came into the session yesterday morning, full of vim and vigor, and armed with a watch list of about 20 stocks that we felt were at technical lows and had made reversal candles on their dailies in the context of Monday's swift afternoon reversal off of the lows. A reversal that came on the heels of breadth at 100 to 1 negative and a NYSE a/d line that just stayed locked onto -3000 like a pitbull to a mailman. No offense to any postal workers who may be reading this. We bought nothing. We are sure, however that some did. Those few people left on the earth who don't trade with thinkorswim and who probably don't have access to our <i>Squawkbox</i> and <i>Focus Report</i>. We pity these lost souls. Basically, it's like this. You have to look at every anticipated move in the context of what just happened. In this letter you have often heard us talk about the "disappointment" play, that being some technical situation where the chart just screams "look, look, if the price doesn't go to HERE, then all THESE PEOPLE from HERE are gonna ________. (Either sell, cover their short, or buy, you fill in the blank. -- the game remains the same, only the faces change.) Yesterday's morning action was a perfect example of this. You have a grossly oversold market, a record Dow crash, followed by another bearish day. Inside of that bearish day when the sellers completely exhaust themselves, you rally at the end to close at the highs. At this point we are scanning. What's touching down into support? Some retailers? What's got really strong balance sheets and making money hand over fist while their shares get pummelled? Didn't that raving lunatic who throws the chairs say <b>FWLT</b> has $10 of cash per share in the bank and is selling at $30? Yes, yes, yes yes, of course it's gonna be short lived but let's trade! On top of all this, and their timing is always so good, isn't it---the Fed steps up to buy commercial paper, in effect unfreezing the credit situation. Futures rally like mad into the open and the bell rings. At this point we're thinking darn it, all the good stuff is gonna gap up! Some does, some don't. Then trading begins. Right off the bat you are looking at internals. The thought process is that you put the news together with the prior day's reversal plus the most important fact that this reversal came off of a $VIX that almost hit 60 with the aforementioned internals plunging into Hades, and you are thinking this market is gonna recover at least 500 Dow points in this very session. We bought nothing. It's all about the internals. We stress this breadth, a/d line thing so much because it tells the tale. Not only should the market have been ripping off of the open yesterday, but the statistics under the hood should have been stellar. They werent'. In a word, immediately the internals were poor. Right off, you should know something is up. If the NYSE a/d doesn't register over 1,000 very early in the session on the whole setup that we just described in detail, then something is off. Breadth should open positive and power up to at least a 3:1 plus ratio within the first 30 minutes of trade. The Breadth Ratio should have been registering +90 coming off of Monday. Instead you got a feeble run to about 78 and then a hasty retreat! The facts are as follows: NYSE a/d briefly flirted with +1,000 on the open and by 10:00am EST was at the zero line. Breadth, same thing. Flirted with positive territory in first 15 minutes and quickly retreated to parity. At the same time, you already know from the chart we posted the night before in the <I>Focus Report</i> that there is a nice gap just above on the <b>SPY</b> that by all intents and purposes should act as a strong magnet and suck the market right up into it. Did we mention that there was Fed action pre-market? Unreal. All of this and yet the market does nothing. There is no play, you simply do NOT buy stocks when the market should be doing one thing and is clearly not. We sincerely hope you weren't fooled either.
The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month Good Morning, Traders. Today's commentary could easily be a repeat of yesterday's because basically it was the same situation. For the second day in a row, there was Fed action which rallied the futures premarket, then stalled close to the open and closed weak. Again, there was negative NYSE a/d line on the open and throughout the session in sharp contrast to the green on the <i>top line figures</i> that was seen for most of the day. Although you probably don't need to hear this from us, we'd like to make clear here how difficult the current situation is. As evidenced in the chart below, there is still no sign of any sort of hourly reversal that is holding. The market needs to at least make a higher low on the hourlies in order to even play for a short dead cattish type of bounce. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081009SPY.gif"> And at the same time you absolutely cannot short. You can, but how and where with 6 days down now and no bounce? Beyond that, the market action in the face of these bold brushstroke Fed moves is completely unheard of. In yesterday's commentary, we marvelled at how Tuesday's commercial paper announcement did nothing for the market. Yesterday, they cut rates by a half point pre-market and again nothing. Whether you believe they are out of bullets or not, it's obvious that their gun is of the BB or squirt variety and the weapon of the sellers is more of a Howitzer or Gatling type. For this reason, we continue to sit on hands and enter no position. You'll note that for two days in a row now (unprecedented in the history of the <i>Focus Report</i>) there are no potential setups in the <i>Bulls & Bears</i> section. Although we have no way of knowing if the news cycle has come to an end, we will be willing to dip a toe in on a half postion of <b>SPY</b> and/or <b>DIA</b> if we can get an hourly reversal on better internals that looks like it's going to hold. That for now would be the only play out there. If we do enter we will send an email alert before we see the hourly bar close with a full write-up as to why the high of that bar could be the key to a bounce. The play will be on half-size and with a very tight stop under the hourly reversal bar. A lot will have to come together, however, to make this possible, not the least of which would be some strong internal readings, including some steep drop in the $vix.
The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month Good Morning, Traders. Wow! You can get a load of the obvious from many different sources so you don't need to hear it here. You can check the <i>Under the Hood</i> section below to survey the carnage. There are only two questions you should be asking yourself right now if you are still trading. The first is, where and when is this going to stop, and the second is where do we get long for a quick bounce which is highly overdue right now. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081010INDU.gif"> The chart above may be a clue to the first question. If you zero in on the green area, you can see there are three swing lows there on that monthly chart. From left to right, those bottoms were 7532.66 (July '02), 7197.49 (October '02), 7416.64 (March '03). Being that the Dow closed at 8579.19 last night, we are about 1,000 points away from the first level. Keep the above numbers in mind, as we could be there in two days at the pace we are going. The answer to the second remains the same as we have been alluding to in all of the <i>Focus Reports</i> of this week. That being that we need to see just one higher low on the <b>hourly charts</b> before we can enter long for a bounce with any degree of comfort. As of this writing which is about 8:50pm EST, the <b>ES</b> are gapping down 22 points. Tokyo is hammered already and is probably closing lower later. We have now been down heavy for seven days in a row and it looks like we are going to gap further. One place we would be looking at is if the market goes lower off of the opening gap (which it should), there may be a pretty safe entry back up at the top of the gap if we can retrace to that area. That and the hourly reversal bar is something we would be looking for today. If we see it developing we will get an email out as far ahead of it as possible with buy stop triggers in the <b>SPY, DIA, and QQQQ</b>.
The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month Good Morning, Traders. We have started to see at least the first sign of reversal to the upside in the markets on Friday afternoon as the range in the Dow was over 1,000 points from low to high on that day and we managed to close down less than 150. Some green on the "top line" would give the TV people more to talk about but it's not very important. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081013SPY.gif"> Although the move up was in the last hour on a Friday, it is still significant. We can look at it in relation to the downtrend which may be broken on a gap this morning. As of this writing which is on early Sunday evening, the <b>ES</b> futures just opened up about +32! This would put us relatively close to the trendline. The lows of the bar in the orange circle need to hold and the green circle is definitely an area we will be watching closely. The perfect scenario would be some sort of test of this trendline which would fail, then a rally back up to pierce it. This piercing would, in our opinion, set up a very violent short-term rally as it would be moving off of the first higher low in a major bear move and a trendline break at the same time. If the market does pull back a bit in early trade today, the thing to do is to monitor how far down into the orange circle bar the retracement goes. Anything up to 50% is ok, anything more than that probably means we go lower today. One concern that we would have with the above breakout scenario is simply the lack of stocks that are at any type of "buy setup". There were a number of tails to the downside on Friday's close, but the size of the tails due to the volatility is huge. In a scan of the roughly 30 sectors that we follow, only the $DJUSCL or Coal Index seemed to be at any meaningful level of support. A chart is below. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081013COAL.gif"> We are featuring the monthly above to show the swing lows from mid-2006 which was a start point to a large rally. Although we are at a major support area, the outlook for crude oil which action in coal purveyors has seemingly followed is still bearish as the correction there is not showing any signs of abating just yet. Either way, however, a break in trend in the $DJUSCL at the 229 area (just a bit over Friday's high) would signal a buy point for <b>ACI, BTU, MEE, CNX, or PCX</b>. In closing, we'd like to wrap up with another look at the monthly Dow to note the swing lows from 2002-2003 on that long-term timeframe. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081013DOW.gif"> Friday's low was just over 7882 which is starting to knock on the door of this major low that kicked off the last major upward move. Knowing where these lows are is also excellent for keeping in mind that we while we have plunged a lot recently we still seem to have further to go. Note how the highest of the three monthly lows is at 7532.66. In the meantime, look for some short-term relief if we see the scenario of the first chart above play out.
<object width="425" height="350"> <param name="movie" value="http://www.youtube.com/v/el-ocm12VT0"> </param> <embed src="http://www.youtube.com/v/el-ocm12VT0" type="application/x-shockwave-flash" width="425" height="350"> </embed> </object> enjoy... shadow
The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month Good Morning, Traders. It came in a gap and basically didn't let anyone in unless you had it from Friday's close. Frustrating, but we think that there will be an opportunity to the downside at least half as big. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081014SPY.gif"> The circled area above, right at <B>SPY</b> 105 should be an optimum short point. Note how the 50% retracement of the down move corresponds closely with the downtrendline. Futures are gapping up strongly as of this writing, so there is a chance that we open close to that area. We are planning on hitting some broad market ETF's there along with a few names that have rallied up to test prior lows or even prior highs. We don't forsee breakouts happening in this environment, so the counter-trend tests coupled with the broad market setup into resistance should be a tasty combination. There are basically two ways to play this short and we will try a smattering of both. Firstly, you can hit anything that was relatively weak yesterday, the thought being that the weakest on the strongest day will fall first on the weak day. In this market that would be <b>Banking ($BKX), and Homebuilders ($DJUSHB)</b>. While the market was up over 11%, the banks eked out a 5% gain and the builders were ahead by only 2.25% off of their open by the closing bell. The other strategy would be similar to what is described above, which entails shorting stronger stocks which have run up into resistant areas, either to prior lows or highs, betting on the failure of the breakout. <b>Airlines ($XAL)</b> immediately come to mind along with other names, some of which are listed in the <i>Bulls & Bears</i> section below.
The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month Good Morning, Traders. The expected pullback happened yesterday as of the open on a gap that was just screaming, "fill me". The question now is to take stock of the pullback and take a look at its "personality", ie: bodies of candles, volume, internals, etc. to discern whether or not the rally was a two day affair or something that could have another leg higher. Let's go with charts of all three majors: <Br><br> <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081015SPY.gif"> <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081015DIA.gif"> We've labeled the <b>SPY</b> chart as well as the others below with "LS" for left shoulder and "RS" for right shoulder. The pattern is basically an inverted head and shoulders pattern which is extremely powerful. In fact, its quite rare that these fail. We do have a problem with the market going to close to those prior swing lows (7,500) on the Dow and not touching, but for now we have to deal with what is right in front of us. For now the pattern is bullish and we must watch any movements around the right shoulder for signs. Internals on the NYSE yesterday were not very bearish at all. The gap filled fast but sellers did not outnumber buyers by any huge margins. Also note above that the gap filled right to the left shoulder low and held that area. Breadth was only slightly negative at the close and advancers still out numbered decliners at the bell by about 250. All in all, this is the type of action we would want to see for the pattern to "cement" itself in and set up a move higher. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081015QQQQ.gif"> The Nasdaq 100 showed major relative weakness yesterday which tends to make sense to us as the <b>$NDX</b> tends to lead moves. Note how the neckline of the pattern on the <b>QQQQ</b> is upward sloping as opposed to the first two which are more horizontal. So even though yesterday's numbers were weaker 'under the hood' in the Nasdaq, the prior advance was stronger than the others, causing the slight uplift to the neckline. Breadth was decidedly negative in the Nasdaq and the a/d line finished at -700. Note as well how the hourly bodies in the chart above are slightly different from the ones in the first two charts. Bigger bodies which show more emotion on the downside as opposed to the myriad number of dojis on the <b>SPY</b> and <b>DIA</b> pullbacks. Again, nothing more than the Nasdaq 100 asserting itself as the leader. The plan here is to hold pat on trades today as we expect more chop while this right shoulder builds itself out. A nice undercut move to the downside would be excellent and then have it finish strong somewhere in the upper part of the right shoulder. This would be the prime setup for buying stocks on Thursday which would take us right into expiry which is usually bullish.
The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month Good Morning, Traders. <Br><br> <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081016SPY.gif"> Any hopes of an inverted head & shoulders bottom in the markets may have been dashed yesterday as we fell and closed well below the 61.80% Fibonacci retracement in the broad market as measured from the last swing low to the top of the gap up on Tuesday in the picture above (circled areas). In a word, this stinks because now we have to wait for another bounce to get short again. In yesterday's <i>Focus Report</i> we said that it was going to be important to watch the pullback of this 'right shoulder buildout' in the developing pattern to see what type of internals, candle shapes, and volume it was coming in on. It's safe to say the market failed on almost all counts miserably. Although overall volume was down a bit yesterday and failing to officially register "distribution", what was going on "under the hood" was as bearish as it gets. Check the figures in the section below of the same name. NYSE breadth ratio less than 3? Breadth coming in at over 35 : 1 negative on both exchanges? What's up with the bailouts? Shouldn't it all be kicking in by now? Isn't that supposed to make the market go up? Last three sentences are complete sarcasm, just checking if you are still reading. So the odds of a retest of last week's lows are strong now. A scan of all of the sectors we cover produced nothing in terms of anything at a pivot. Everything is just a violent move up with an almost equal move downwards. Although we chose to short <b>ALK</b> as a counter-trend move over the last two days, the move was not all that great due to relative strength in the <b>$XAL</b> or Airline Index. In fact, this is probably one of the strongest sectors out there right now. This is, however, only due to the fact that crude is getting destroyed daily and is plunging to levels that nobody imagined just a couple months ago when we were so far over $100 per barrel. We would not recommend a long in the sector, we are just pointing out what we feel was actually a mistake on our part so that we can all learn together. The trade was closed for a $2.00 gain, but not nearly as much bang for the buck as something in another sector would have been. Bias remains firmly down, volatility remains sky-high. Go easy, step lightly, stay free.
The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month Good Morning, Traders. Markets staged a stealth rally into the close yesterday, which was followed by a positive earnings report from the mighty <b>GOOG</b>. Stock ratcheted up $30 as of this writing which is just after the close. That sentiment along with options expiring today could put the markets into a more bullish mood, at least temporarily. Expiry Fridays tend to act rather weird, as lots of stocks get "pinned" to various strike prices. Expect a flatter afternoon and moves to sputter out a bit as we get closer to the close. Almost all sectors created some sort of bottoming tail hammer or other reversal type bar on their daily charts, however, we would be more inclined to keep closer tabs on those that acted relatively weaker and didn't rally much at all. Being that we must assume that we are still in the firm grips of a long-term bear, you want to be looking for what is going to fall first on market weakness rather than what is going to go up first on market strength. If your timeframe is short, ie: just intraday today, then probably the latter is better. If you have a more longer term approach, then assume the trend is your friend and stay bearish. Retail was a bright spot yesterday, led by a huge advance in <b>WMT</b>. The sector has double bottomed on its dailies as shown in the chart below. Although we would not be committing to positions today ahead of options expiry, we felt it was worth pointing out since it was not only a reversal but a double bottom. If we are strong today, there could be follow through in the sector in names like <b>WMT, TGT, JCP, etc</b>. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081017RLX.gif"> In the bigger picture, again, assume the trend is still down. Market internals were not blazingly bullish by any means during yesterday's advance and subsequent green close. Feels like nothing more than some pre-expiry buying which should fizzle early next week. A rise in stocks would be welcomed as another shorting opportunity for next week if we get confirmation. If so we would again be looking for stocks that have run up into resistance of prior lows as shorting points. We'll of course report our findings here and in the <i>ShadowTrader Video Weekly</i> on Sunday.
ShadowTrader Video Weekly for 10.19.08 Short-term charts still pointing to down Dow could test 7500-7200 this week New F/X Trader service coming soon. <object width="425" height="350"> <param name="movie" value="http://www.youtube.com/v/_BVCSAd4vnE"> </param> <embed src="http://www.youtube.com/v/_BVCSAd4vnE" type="application/x-shockwave-flash" width="425" height="350"> </embed> </object>