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 market is at a vital area going into today's trading. Let's review the overall market and then discuss the management of two <i>ShadowTraderPro Advisory</i> trades that were sent out yesterday. <img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090108Dan.GIF"> Above is a daily chart of the S&P 500 Index ETF (<b>SPY</b>). Because we closed above the orange trend line, the rally that has taken place since November 21, 2008 is still alive. You can see that we have been making higher highs and higher lows during the course of this rise, but we continue to stress the fact that this price action has taken place with the backing of limited volume. Although volume has improved over the last two days, this rally will only stay "alive" if larger traders begin to participate. If the orange trend line is broken, we would look for a retracement to the next level of support at 87.33 (black line). If price continued lower from there and penetrated the last higher low (HL) at 85.49, then we would know the overall rally is broken.<br><BR><img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090108Dan2.GIF"> Above is the chart of JP Morgan Chase (<b>JPM</b>). The stock has been on our watch list as a possible short after the higher high failure (HHF) on December 17, 2008. From there it made a low and then a lower high and today a new lower low (LL) closing a hair below the previous higher low on December 12, 2008. <b>JPM's</b> rally from the low on December 21, 2008 is broken and we think the stock is heading lower. Yesterday we issued a <i>ShadowTraderPro Advisory</i> setting a sell stop at 28.60 which was 5 cents below the low on December 24, 2008 (white dashed line). Our target on this trade is 26.15, just above the low of December 1, 2008 (magenta line). The volume yesterday was above average during the first part of the day. This emboldened our "shot" to the downside, but by the end of the day total volume was near average. We need to keep a close eye on this trade and tighten our stop, or exit the trade entirely, if the market tells us that our analysis was wrong. We are optimistic, but we will not marry ourselves to any position.<BR><BR><BR><BR><img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090108Dan3.GIF"> The last chart is of Computer Sciences Corp. (<b>CSC</b>). We entered the trade after the previous days low had been taken out. Our thinking is that traders who initiated their long position during the steep run up over the past <b>8 consecutive days</b> would be easily persuaded to sell to either take profits or cut losses once price started to come back down. We took the huge volume and large red body that developed yesterday as a signal that the process had begun. The black line on the chart represents our short trade entry point.<BR><BR>The green area on the chart represents our target. Today we had it set at 35.09, just above the high on December 19, 2008 (blue line), a point where support starts to come into play. What we want to illustrate here is the target price will reise as we move through time. If several days go by and the rising orange trend line is above 35.09, then the level on the orange trend line will become our new target in lieu of the original target of 35.09. The overall market will have a very large influence on the direction of these two stocks today so we will be need to be on our toes ready to execute our plans whatever direction it decides to go.
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. Does history tend to repeat itself? Let us look at the price action on the <b>SPY</b> from 2002 and 2003 Bear Market to dissect the possible January Effect. On the <b>SPY </b> chart below we have enlarged the two year time frame 2000 to early 2002, and marked with as red line a strong downtrend. <img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090109SPYa.gif"> At the same time, we have an oval in green marking a bullish rally which has taken place during the first few trading sessions of January 2002. Observe how diagonal short-term support was broken in the second week of January and the SPY went lower. Now let us look at the next year (2003) January Effect on the <b>SPY</b>. <img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090109SPYb.gif"> On the <b>SPY</b> chart above, we can observe a very similar scenario, the short-term diagonal support and horizontal resistance of 87-ish. Again an orange oval marks a strong bullish rally which failed to take out the 87 zone, and in the third week of Jan we went lower. Now let us go to the present, and see how similar the price action of the SPY is to its past. <img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090109SPYe.gif"> On this third <b>SPY</b> chart, we again have a diagonal short-term support and a failed attempt to take out the resistance of the 92-ish zone. With a blue oval we have marked a bullish rally which took place at the end of 2008 and in the first few sessions of this year. The moment we break that diagonal line, and start making the lower highs, the uptrend is over. Keep in mind that the price could trade below the diagonal support but not close below it, for it is the close that matters.
This week's video: <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/Xstbk9k0NpU&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/Xstbk9k0NpU&hl=en&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></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 the adage "as the first week of January goes, so goes the year" is true, the market will certainly end lower for the year. Today we are not concerned where price levels will be at the end of 2009, but what we are concerned about is where they are headed in the near term. From what we can see, the market is giving us signs that it is heading lower. For the first time in 8 weeks NYSE and NASDAQ breadth finished in the red for the week. It is worth noting because the negative breadth level last week has not been hit since mid October 2008. Volume continues to remain average providing little fuel for any attempt to move higher. There is another very interesting indication that stocks could head lower this week. After the close of each trading day, we scan over 800 stocks looking for the best set ups to list in the <i>ShadowTraderPro Focus Report Bulls and Bears</i> section and for possible <i>ShadowTraderPro Advisories</i>. Each weekend, we perform an additional scan utilizing weekly charts. The result of the scans performed this weekend yielded 1 long set up for every 3 short set ups. This ratio is another indication of near term weakness. Let's look at the daily chart of the S&P 500 (<b>SPX</b>) below to examine it's price action and what it means to us going forward.<BR><br><BR<BR> <img src="http://assets.shadowtrader.net/charts/090112Dan.GIF" width="560" border="5" height="650"> Friday's price bar closed below the orange trend line, below the 20 day MA and formed a bearish engulfing pattern (aka bearish harami). It is now sitting on the 50 day MA, a close below this would add to the list of bearish indications. Without much support until 873.74, we are looking for the S&P 500 to continue lower. Once it reaches the 873.74 level, it will need to trade back up above the last higher high of 943.85 (January 6, 2009 (HH)) for this rally to remain "intact". If it trades below 857.07 on the SPX before reaching a new HH, the up trend from November 21,2008 would be broken.<BR><BR>Now let's look at the chart below to review a stock that caught our eye this weekend. <img src="http://assets.shadowtrader.net/charts/090112Dan2.GIF" width="560" border="5" height="650"> Above is a weekly chart of Sina Corporation (SINA), a Chinese company. As you can see, the stock has been in steady decline since July 2008. The On Balance Volume (OBV) has been declining with the stock and is now at a level not seen since 2005. What caught our eye was last week's large red body that closed below the most recent low (black line) and engulfed the previous weeks bottoming tail. <img src="http://assets.shadowtrader.net/charts/090112Dan3.GIF" width="560" border="5" height="650"><BR><BR> We then moved to the daily chart (above) for closer examination. This chart confirms that the stock has been under strong selling pressure and it continued to build Friday with higher than normal volume. The blue oval on the price chart is circling the price bar that was at the same level that SINA closed on Friday. Now observe the blue oval on the OBV chart. Notice that OBV was much higher than it was on Friday (green circle) though prices were at the same level. This divergence indicates more weakness in the stock now than when the stock traded at this level in October 2008. <img src="http://assets.shadowtrader.net/charts/090112Dan4.GIF" width="560" border="5" height="650"> Because we were not seeing any resistance below Friday's close on the 1 year chart to determine the trades upside potential, we pulled up 7 year monthly chart (above). It was surprising to see that this stock is so close to challenging the 18.88 price level from August 2004. If this price were violated, the next place of any consolidated support is 8.28.<BR><BR>This trade is an aggressive one because the daily price range for this stock is significant and we would classify it as a momentum play to the downside. Here are two price entry options for consideration. The first is to enter a short trade just below Friday's low (21.19 -.10 = 21.09) at 21.09 with a stop just above the orange trend line 24.66. Remember, you should only initiate this trade with a number of shares that would limit your risk to an amount of money you could tolerate loosing. The second option is to let the stock trade up to 22.00, its low on December 12, 2008 and the approximate middle of Friday's body. This entry level would eliminate some of the risk, but you then take the risk of not being filled before price moves lower. The thing to do in this case would be to let it go. If you miss the trade, there will be another. Put SINA back on your watch list for another set up. This trade is listed in the Bulls and Bears section below with the entry level set as a range between these two options.<BR>
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. Good Morning, Traders. For those of us who really <b>love</b> following the market, it could be described as reading the greatest novel ever written and the story never ends. Yesterday added to the intrigue and we can't wait to see what will be written on today's page. Breadth for both the NYSE and NASDAQ marched lower without much of pause yesterday while declining stocks outnumber advancing issues by a wide margin. What should give the bearish observer pause though is the lower volume. We have stressed this point so often in recent <i>ShadowTraderPro Focus Reports</i> that we are almost sick of typing it, but we can't ignore its glare. Today however, we want to turn the discussion of volume on its head and examine why we think yesterday's trading lead us to the most definitive point we have seen in months. Please observe the SPDR S&P 500 ETF (<b>SPY</b>) chart below. <img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090113Dan.GIF"> Recall that on Friday the <b>SPY</b> closed below the rising orange trend line. Following that close, we drew a secondary trend line (purple) which was broken yesterday by the close below it. Notice also that yesterday's price level closed well below the 50 day MA and the 87.33 mark, two levels we thought might at least provide some short term support. (Remember that the purple line and the 50 day MA now become levels of resistance on the <b>SPY</b> going forward.) Now let us look more closely at the area of support between 87.33 and 85.49 that the <b>SPY</b> has just entered. We have shaded the four days in December that make up this support area on the price chart and corresponding volume chart. If you thought volume was too low yesterday for the price action to mean anything important, take a look at the volume levels shaded in blue. What this picture says to us is that the underpinnings of this support level are weak. Another way of looking at it is the last two trading days down were a heck of a lot stronger than the days of the support area shaded in blue. We ask you, if volume is so important to market technicians today, then shouldn't it have the same weight when analyzing the December support level? We think so. <BR><BR>We're sure you could find enough people to explain why we are wrong and we very well could be, but we don't think this support level will hold. We aren't saying it will fail this week, although it is possible, but this could be an overlooked part of a bullish argument. The main thing that could confound our theory is a bounce, just for the sake of a bounce after a -5.37% decline over the last two trading days. If this were to occur, this support level could easily be retested and as we know, with every test the odds of the support level's failure increase. If 85.49 (the last HL level) is breached, game on for the bears. Now just because we think we have a wicked, kick butt theory doesn't mean we are foolish enough to believe the market will go <b>where we think it should</b> - <i>just because we think it should</i>. We have our theory, but we stand ready to adjust our positions according to <b>where the market decides</b> to go and reassess at the end of each trading day.
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 to our attention yesterday that a technical issue prevented the graph in yesterday's <i>Big Picture</i> section from being available to view. We thought the point we made yesterday was important enough to include the graph (below) again today along with a short summary of the discussion. Please observe the following SPDR S&P 500 ETF (<b>SPY</b>) chart.<BR><BR><img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090114Dan-spy.GIF"><BR><BR>Let's look closely at the area of support between 87.33 and 85.49 where the <b>SPY</b> has just entered.<BR><br>We have highlighted (in blue) the four days in December that make up this support area on the price chart and corresponding volume chart. If you thought volume in 2009 has been low, take a look at the shaded volume levels. What this picture says to us is the underpinnings of this support level are weak and we think there is a good chance it will not hold.<br><BR>Notice also that <b>SPY</B> broke below both the secondary trend line (purple) and the 50 day MA on Monday. These two events may, at some point, come back into play as both levels now become resistance for <b>SPY</b> going forward.<BR><BR>Now, let's review where we stand regarding two current trades in the <i>ShadowTraderPro Model Portfolio</i>. The first stock is Harley-Davidson Inc. (<b>HOG</b>).<BR><BR><img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090114Dan-hog.GIF"><BR><BR> We entered this trade once the price had moved below what we thought to be the last level of significant support. We believe we are on the right side of this trade because price gapped down on heavy volume and was then followed by a lower close on strong volume the next day. This offers good protection against price retracing sometime soon to fill the gap.<BR><br>The price is now beginning to trade into the large body (magenta oval) which offers little support against further declines as those who bought the stock at this level will be inclined to take profits or avoid losses as price moves down. <BR><BR>Our stop loss is placed just over the bottom of the gap, so if we are wrong and <b>HOG</b> begins to fill the gap, we will be taken out of the trade before any real damage can be done.<BR><BR><img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090114Dan-dri.GIF"><BR><BR>The second trade is a short of Darden Restaurants, Inc. (<b>DRI</b>)<br><br>We took the trade when we noticed that price was moving into the previous gap. Like <b>HOG</b>, the gap happened on heavy volume, but unlike <b>HOG</b>, it was followed up with only average volume. This tells us that the gap up on very high volume may have been a "blow off" after a move up of over 100% from mid November to early January. <BR><BR>Our target is set just above the bottom of the gap and we will adjust our stop loss down behind the orange descending trend line as time moves forward. Greater volume on a down day would give us a more secure feeling in this trade and is the one thing missing from the last two days of trading in <b>DRI</b>. We do believe we are on the right side of this trade, but as always, we will keep it on a tight leash in this environment as market direction can change at the drop of a hat.
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. Yesterday was very exciting. We felt gratified as our short positions in the <i>ShadowTraderPro Model Portfolio</i> either gained ground or hit our projected target and were closed for very nice profits. Our target in Harley-Davidson (<b>HOG</b>) was missed by just two cents and subsequently traded higher. It may take some time for it to decline again to our target, but today we are confident that it will before we are stopped out of the trade. We added UNH to the Portfolio yesterday and it almost hit its target on the same day. You have to thank the trading gods when those kinds of trades happen.<br><BR>Let's look at the chart of the SPDR S&P 500 (<B>SPY</b>) (below) to determine how yesterday impacts us going forward. <img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090115Dan.GIF"><br><br>As we thought would happen, the 87.33 to 85.49 did not hold up as the SPY nearly gapped right over the entire area to close below it. Most importantly, it closed below two of the most recent higher lows (red ovals) ending the rally that began on November 21 and peaked at 94.55 on January 5, 2009. Volume was the stongest we have seen so far this year and every member of the <i>ShadowTraderPro Core Sector List</i> was down. The next level of support on the <b>SPY</B> is 83.14 which was tested within the first 15 minutes of trading yesterday. After that the last real level of support is 81.86. If we break this point, we will be back to wondering if the markets are testing the bottom of November 20, 2008 or will actually surpass it. <br><BR>The first hour of trading today will give us good indication of whether the bears will continue to romp or take a rest. Whatever they have in mind, we remain flexible and will continue to trade what is in front of us. Speaking of "trading what is in front of us", let's look at the weekly chart of Black & Decker Corp. (<b>BDK</b>) below. <br><br><img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090115Dan2.GIF"> Our scans over the weekend for possible trades turned up this beautiful, heaven sent large topping tail with huge volume and declining OBV on a weekly chart. What were we thinking? We should have been all over this trade Monday morning at the "correct entry" indicated above.<br><br><img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090115Dan3.GIF"> What happened instead was after we saw the weekly chart, we followed normal procedure and checked the daily chart. Somehow we convinced ourselves that once price opened Monday morning, it had a lot of support to work through, so we decided to set an alert to notify us when the stock traded below the last of the support at 39.25.<br><br>The alarm went off on our trading desk yesterday and we promptly put out a <i>ShadowTraderPro Advisory</i> and placed a trade in our <i>Model Portfolio</i>. The two miscues we made on the trade were 1) getting in much later than we could have on Monday and 2) gettting short after five straight down days (red oval). Because we decided to get involved in this trade that is "long in the tooth" to the downside on the daily chart, we now have to watch it like a hawk, ready to exit at the first sign of reversal.<br><br>We still have confidence that the trade will work as there are a good number of bearish indications. The risk reward ratio is good too, but it could have been a whole lot better if we would have listened to that gorgeous weekly topping tail and not second guessed it or ourselves.
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. Dealing with whipsaw is part of the job as a trader. Whether you successfully navigated it yesterday or not, something very important happened that you should remember the rest of your trading life. Yesterday started off very bearish once again. By 12:30 the markets had hit their low for the day and shorts were feeling invincible. The internals we use (breadth, AD line, $TICKS, and the core sector list) appeared to be telling us that the market was pausing, and they were not giving any definitive indication that the market was getting ready to rip higher later in the day If you use the market internals as we instruct on our website <i>ShadowTrader.net</i> in the video archives or hear Brad Augunas talk about them everyday on <i>ShadowTraderPro Squawk Box</i>, you know just how powerful these tools are in providing a front running sense of where the market is headed. But we have always said whether you are swing trading or day trading there is one other item that you must have on your check list when monitoring positions. It is this question: <i>"Where do I stand in relation to the Big Picture?" </i> Please examine the daily chart of the SPDR S&P 500 (<b>SPY</b>) below so we can show you exactly what we are talking about.<BR><BR><img border=5 width=560 height=650 src="http://assets.shadowtrader.net/charts/090116Dan.GIF"><br><br>At 12:30, yesterday's price bar was actually a large red body, very encouraging to shorts. But if you stepped back from the micro of the day's trading and observed the day as it fit into the last three months of trading, you might have been astonished. You might have noticed that during the previous 36 hours, the market was putting on the finishing touches to its complete inhalation of the rally that took 30 trading days to build. More specifically you may have observed that by 12:30, the SPY had surpassed all three of the previous rally's higher lows (red circles) <u> in just 1.5 trading days</u>!!! Did we really think it was going to go even lower intraday??<BR><BR>By observing this you might have been given the strength to over ride the euphoria of successful short positions and forced yourself to take profits and run, right then and there. It was not until 2:50 that the internals began to give indication that it was time to reconsider holding shorts much longer. All seasoned and successful traders have overstayed their welcome in trades, but they learned from moments like this and are better traders today because of it. <b>Sear this experience into your trader brain because it will serve your benefit in the future.</b> Always know where your positions stand in the larger market landscape and remember no one ever looses in trading by taking profits. Now what does yesterday's action mean to us going forward? Well, you don't need to be Paul Tudor Jones to see yesterday's long tail and large bullish volume (green ovals just in case). This indicates that Friday will likely be an up day, but it is options expiration so all bets are off. Then we go into a three day weekend which is probably a good thing because we can take time to catch our breath and think about where this market might be headed next.
This week's video: <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/4ceSB_-AE9c&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/4ceSB_-AE9c&hl=en&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></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. Friday closed a week of intense market action, which also provided more clues for future price movement. We have not strayed from using the SPDR S&P 500 (<b>SPY</b>) as our main view of the market in recent <i>ShadowTraderPro Focus Report</i> because it has provided the information we have needed to be on the right side of the trade. We're sticking with the <b>SPY</b> this morning because it is again showing the most important points we want to illustrate going into this weeks trading. So let's visit our reliable friend below, the daily <b>SPY</b>. <img src="http://assets.shadowtrader.net/charts/090120Dan.GIF" border="5" width="560" height="650"><br><br>We now have two consecutive bottoming tails from trading on Thursday and Friday with very impressive volume. Because of this, we think the <b>SPY</b> will likely break the orange descending trend line and move higher early this week. Looking beyond this pattern however, there are other meaningful indications lining up to keep in mind as we go forward. First, please observe the 81.89 price level. Beside November 20 & 21, 2008 the <b>SPY</b> has touched it three times and subsequently bounced off it to higher levels during the last ten weeks. During this same time, the <b>SPY</b> has also touched the 92.39 area four times and bounced of of it to trade lower, so one can conclude that the market is in a sideways pattern between these two levels. Now, let's go a step further and look for indications within this channel and decipher what they might be telling us. We have three price points marked with colored ovals along with their corresponding volume. These are the points where the <b>SPY</b> bounced off of the 81.89 level to trade higher. What stands out is each time the <b>SPY</b> reached this lower level, it reversed on strong volume. This tells us big money buyers have been willing to step in and buy stocks at the 81.89 level and the low of November 21, 2008 may not be surpassed. But we do need to be cautious because according to our trading "play book", the more times price bounces off a point of support or resistance, the more likely it is penetrate that level if price returns to it in the future. This is true for the topside of this 10-week range as well. Until one of these levels is breached, on heavy volume, followed by confirming price bars, we will remain in this trading range. <br><br>Next we looked at the CBOE Volatility Index (<b>VIX</b>) to determine the level of fear each time the <b>SPY</b> went to these lower levels. We have indicated, on the chart above, the high of the <b>VIX</b> for the three times the <b>SPY</b> bounced off the 81.89 level. As you can see, the <b>VIX</b> high has decreased each time. This divergence tells us that either investors are becoming more accustomed to this lower price level (i.e. it is less shocking) or they truly believe that the probability of price breaking below it is less likely, or both. Whatever the reason, less fear leads to more buying which of course is bullish. <img src="http://assets.shadowtrader.net/charts/090120Dan2.GIF" border="5" width="560" height="650"><br><br> Finally we looked at the weekly charts above which shows NYSE breadth (top) and NYSE AD (advancing - declining issues) (bottom). The time frame of this chart covers the ten-week period highlighted on the daily <b>SPY</b> chart we just discussed.<br><br>This chart gives us another pause to becoming overly bullish. We pointed out in a i>ShadowTraderPro Focus Report</i> at the end of 2008 that the year ended with a period of seven straight weekly NYSE breadth and AD green bars giving us some optimism for early 2009. But the first week of trading in 2009 was very bearish and resulted in the end of the seven week green streak. This made it apparent that challenges facing the market continue.<br><br>What is so interesting about last week's NYSE breadth and AD is they both were horribly negative up to the later part of the week, but instead of staying down, which has been the pattern during hard sell offs over the past five months, both bars ended with two large stems on each side of their green bodies. These candles reflect how both Breadth and AD came back from deep negative levels to trade all the way up into very high positive levels before closing at respectable positive levels. In simpler terms, it was a bloody, week long battle between bulls and bears where the bulls came back from a very harsh beating to win the battle in the last 1.5 days. <br><br>On it's own, this is bullish. But what the overall form of the last bar also shows is that uncertainty remains in the market as neither the bulls nor bears could hold their respective highs or lows in the level of volume breadth or advancing v. declining issues last week. So we conclude that prices will push higher early this week, but the possibility of sudden whipsaw like reversals still lurke due to lingering uncertainty of both bulls and bears as we trade inside of this 10 week price range.<br>