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 often said that the best barometer of a market's health is the weekend scanning routine. For those of you unfamiliar with it, it goes more or less like this: Step 1 - Get as comfortable as possible, preferably in hammock with WiFi laptop. Step 2 - Pour beverage of choice. Have closeby at all times. Step 3 - Fire up watch lists or scanning software. Step 4 - Scan through about 1,000 stock charts and about 30 sector charts on weekly timeframes. Step 5 - Make lists of bullish & bearish setups. According to how many names in total come up as playable patterns and then how many of those fall into either category, can tell us what type of market we are dealing with. Are there tons of bullish flag "pennant" type formations, many inverted weekly hammers, lots of dojis, etc, etc. The current weekend's haul was skimpy at best. Very few stocks made either list and most patterns out there on the weeklies just look like what we call "splashy", meaning that they are messy and have large ranges. Most are at new lows, but not many at prior support levels which would give the confidence to pick up a few for counter-trend bounces. It remains a very short-term traders market. The major averages all reversed course at the end of last week, turning a bullish start into a bearish ending. This bodes well actually for a possibly playable breakdown in any of the major ETF's such as <b>SPY, DIA, QQQQ, or IWM</b>, as all of the above made bearish inverted hammers on their dailies and are flirting with minor uptrends which if broken should be the catalyst for an increase of downside momentum. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081020IWM.gif"> We chose <b>IWM</b> which is the tracking stock for the Russell 2000, simply because it showed the most relative weakness on Friday, down almost 2% while the Nasdaq for instance was only off by less than half of one percent. The top circle would be the first short point, with an opportunity to add to the position if the second circled area is reached. The stop would be in the red circled areas. Some stocks that have similar patterns 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 <div align="right"><div align="center"><div align="left"> <!-- leave these style definitions here --> <style> a.st { color:#ca2f35; } table.shadowTraderTable { font-size:9pt; font-family:verdana; line-height:14pt;width:600px;text-align:left;} div.footerStyle { font-size:7pt; font-family:verdana; line-height:11pt;padding-top:30px;} table.shadow {font-family:Verdana, Arial, Helvetica, sans-serif;font-size:xx-small;width:600px;} table.shadow th {width:7%;background-color:#CCCCCC;} table.shadow td.fullBorder {border-right:1px solid #CCCCCC;border-bottom:1px solid #CCCCCC;vertical-align:middle;height:40px;text-align:center;} table.shadow td.leftSide {border-left:1px solid #CCCCCC;border-right:1px solid #CCCCCC;border-bottom:1px solid #CCCCCC;vertical-align:middle;height:40px;text-align:center;} table.shadow td.positions {background-color:#eeeeee;vertical-align:middle;height:20px;text-align:left;font-weight:bold;border-left:1px solid #CCCCCC;border-right:1px solid #CCCCCC;border-bottom:1px solid #CCCCCC;} table.shadow td.noBorder {border:0px;vertical-align:middle;height:40px;text-align:center;font-weight:bold;} table.shadow td.comments {vertical-align:middle;height:40px;text-align:center;border-right:1px solid #CCCCCC;border-bottom:1px solid #CCCCCC;text-align:left;} table.shadow td.arrow {vertical-align:middle;height:40px;text-align:center;border-left:1px solid #CCCCCC;border-bottom:1px solid #CCCCCC;text-align:left;} table.simpleTable {width:100%;font-size:9pt;} table.simpleTable th {text-align:left;} table.simpleTable tr.headerRow {height:40px;background-color:#ca2f35;color:#FFFFFF;} table.simpleTable td {text-align:right;} table.simpleTableNoAlign {width:100%;font-size:9pt;} table.simpleTableNoAlign tr.headerRow {height:40px;background-color:#ca2f35;color:#FFFFFF;} table.simpleTableNoAlign td {padding:15px 0px 15px 10px; } span.smallText { font-family:Verdana, Arial, Helvetica, sans-serif;font-size:xx-small;} span.blue { color:blue; } span.red { color:red; } h1 { border-bottom:1px solid #ca2f35;font-size:9pt;padding:20px 0px 0px 0px;margin:0px; } div.redLine { border-bottom:1px solid #ca2f35;font-size:9pt;height:2px;margin-bottom:20px; } </style> <table class="shadowTraderTable" border="0" cellspacing="0" cellpadding="0"><tr><td> <strong>ShadowTraderPro Focus Report for October 21, 2008</strong> The <strong>ShadowTraderPro Focus Report</strong> is your every morning dose of market reality brought to you from the resident geniuses at ShadowTrader. Overseen by Chief Equity Strategist, Peter Reznicek, each issue contains a full report on the prior day's action, including market internals, technicals, and what sectors were hot and cold. Each issue also includes the ShadowTraderPro Model Portfolio, which updates members on what stock plays STPro is currently engaged in officially, as well as provide a daily list of long and short setups for more self-directed traders and investors. If you have any questions or comments regarding commentary or plays in this newsletter, please email to <a href="mailto:focusreport@shadowtrader.net" class="st">focusreport@shadowtrader.net</a>. <!-- charts measure 569 x 684 pixels when measured b4 snapshotting --> <!-- font color="#FF0000" --> <h1>The Big Picture</h1> Good Morning, Traders. Rally yesterday that traded up deeply into the shadow of the prior day's inverted hammer bar, threatening a violation to the upside. Ouch, we hate it when that happens! This is actually a good thing, though. Had the market succumbed to selling pressure yesterday, it would have made the chart that much more messy and would have possibly broken down below the uptrendline support (labeled below) ahead of schedule. When we say 'ahead of schedule', we mean that the downtrend has not been tested. Enough words, let's look at some pictures already. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081021SPY2.GIF"> <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081021DIA2.GIF"> In both of the charts of the <b>SPY</b> & <b>DIA</b> above, both the upside shadow violation (temporarily bullish), and the proximity to the downtrendline are readily apparent. The circled areas will be strong resistance where we will be looking to short relatively weak stocks that have underperformed over the last few days as the broad market is leading up into resistance. There will also be possible counter-trend rotations up against resistance in some stocks that have used the recent bullishness to 'bump their heads' into confirmed areas of supply. As always, check your <i>Bulls & Bears</i> section daily for ideas. Whenever you have bullish action that is still in the context of a larger bear move, always be looking for underperformers, resistance hitters, trendline breakers & doji makers. Basically, if your analysis shows that the market is soon to run into a troubled area, you want to find the stocks that are only being held up by the buoyancy of the market. They will surely sink at the first sign of major averages turning red. The very short term trend is up with the main trend still firmly down.
The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month Good Morning, Traders. As we get closer and closer to the downtrend line in the daily charts of the major averages, many sectors continue to do a push-pull. Some acting bearish, some bullish, some running right up to resistant areas and some staying flat while the market undulates. The strongest sector out there, <b>$XAL</b> or Amex Airline Index is probably screaming to be shorted but how can you do that in good faith when it would be the same thing as buying oil. Where's the bottom? <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081022XAL.gif"> As for the rest of the sectors, divergence abounds. We're seeing <b>$BKX</b> (Banking) and <B>$XBD</b> (Brokers) essentially flat recently but not showing us whether they are a triangle ready to break downward or an inverted head and shoulders that is holding up for another leg higher. We still think overall that although it looks messy, it has to be assumed that the next large (read: playable) move would be down. Yesterday the market rallied very early to fill the gap, yet the NYSE and Nasdaq breadth readings never got positive, nor did the a/d lines. Although the market had an out of character lunchtime rally, sellers smacked it up into the close which is bearish. All in all, the downtrend is intact and the next major move should still be lower, however the market seems to want to make us wait for that, at least until the current downtrend in the <b>S&P</b> is tested which remains closer to the 1,000 level.
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. Market got poleaxed yesterday on a gap and subsequent trendline break. Internals were extremely negative all day with declining volume outpacing advancing by <B>25 to 1</b> on the NYSE. Whoa! Below are two charts showing the S&P break and where we think its going. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081023SPY.gif"> The first one above is the daily showing the triangle being resolved to the dowside. We took a small position of <B>SPY</b> short just as the lower line was breaking and have placed a protective stop very loosely above the highs of the upper line. If the market favors our analysis and continues lower, then we can just move our stop down along the upper line. We are keeping risk low on this trade so that our subscribers, many of whom are new to the markets, can follow along and stay with the trade during this period of outsized volatility in both directions. As we stated in the trade email that went out yesterday afternoon, the market would have to break trend here which would be difficult for it, in order to stop the trade out. If so, that is fine. The small size allows us to give it the leeway it needs to work itself out. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081023SPY2.gif"> The second one is simply just stepping out to the monthly timeframe to revisit the '02-'03 low pivot so that we can keep things in perspective in these times of +/-500 Dow days. The outlook both short and slightly longer term remains bearish with an S&P target of just under 800. Outside of the airlines, which we discussed at length yesterday, there are probably very few stocks still up at any swing highs to short here. Obviously long stock is out of the question, unless your timeframe is measured in years.
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. Volatility continues to be the name of the game. Not too much to report today due to yesterday's choppy action whereupon what used to be a month in the S&P was rebounded in the final 90 minutes of trade. How do we go from being $5.00 in the money on our <b>SPY</b> short to underwater in less than 2 hours? We repeat, for the umpteenth time, this not an investor's market. <br><br> Dow showed some relative strength yesterday and actually closed itself back up into the wedge or triangle that has formed the bear flag pennant in the markets. This is just a sign of ongoing huge volatility, so we remain that unless there is a close over the top line of the pattern, the bearishness should continue unabated. Chart is below... <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081024DIA.gif"> Internally, things improved a bit off of the lows which is what caused the run-up rally to be as strong as it was. Although the market went lower than the prior day, look what was happening "under the hood"... <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081024BREADTH.gif"> The purple line represents the amount of volume flowing into stocks moving down. The green/red line is the amount of volume flowing into stocks going up. Note the divergence here as the spread was actually wider on Tuesday, yet the market went lower on Wednesday. This is known as positive divergence. You can clearly see how on Wednesday, the buyers were barely registering on the radar as the <b>$UVOL</b> was just bottom feeding all day like a sea cucumber. This is normal on a day when the market is getting crushed. Keeping a chart like the one above up all day boosts your confidence on the short side when daytrading or entering new shorts on a day like that. The interesting phenomena happens the next day on Thursday. If you want a reason as to why the market rallied so hard at the end, its because it was not as bearish to begin with. The positive (read: not as bad) divergence in the breadth relationship tells the tale. When new two day lows are made and the market internals do not confirm them, then those lows often snap back and close surprisingly strong. In the bigger picture, it takes more than one day of such divergence to signal lasting bottoms, but regardless, it's a very important phenomena to be aware of. That's why we teach it so much in the <i>Squawkbox</i> and in this newsletter. If you want to investigate the use of these indicators some more, our own <B>Peter Reznicek will be conducting a free workshop on this very subject on November 7th at the Washington DC money show.</b> Come by the ShadowTrader booth (#202) and say "Hi".
ShadowTrader Video Weekly for 10.26.08 <object width="425" height="350"> <param name="movie" value="http://www.youtube.com/v/7c9D_Rj_-as"> </param> <embed src="http://www.youtube.com/v/7c9D_Rj_-as" 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 $20 per month Good Morning, Traders. If Friday's action is not enough to convince you that what you think a market is supposed to do and what it actually does are so often mutually exclusive, then we don't know what will. After going limit down into the opening of the session (-60 on the <B>ES</b>), futures (and the market with it), managed to actually close well off of lows after a chopfest that took the <B>$VIX</b> to a hair under 90. Whoa. One would think that the break of the triangle as shown below would have been enough to nail the market down to those '02-'03 lows but apparently not. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081027SPY.gif"> The lower end of the circled area above would be what we sometimes refer to as the "backside of the trendline". This is a common occurrence in technical analysis where trendlines break and then rally back to touch the opposing side of the trendline one more time before continuing onward with the main trend. This could be the case with Friday's strange "strength". Either way, be aware that the gap has not yet filled, so the complete filling of it (which would be right up into the circled area above) could be an excellent area to intiate new shorts. <img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/081027SPY2.gif"> The overall picture remains bearish. Odds currently favor both of the above scenarios, ie: a filling of the gap (second picture) which would then correspond with the "backside of the trendline" (first picture). Our weekend scans turned up mostly all bearish patterns that are already destroyed, with very little bouncing up to any sort of resistance area that could be shorted. We'll continue to do our homework and report whatever we find here and in <i>Bulls & Bears</i> below. Remain cool.