The markets headed lower on Monday as anticipated, but instead of continuing lower out of the open and reversing late in the day as expected, it fell into a very narrow range right away. The range tightened going into the noon hour as the Nasdaq hit lower highs and higher lows to form a symmetrical triangle and the S&P 500 hit lower highs with comparable lows, creating a descending triangle. When you have a trading range such as this in the morning, it will almost always break in the afternoon and at times will do so over noon, making it one of the few occasions it can be worth while to stick around during the time zone traders typically refer to as "the mid-day doldrums." Triangles can often cause the most problems for traders. There are a few generalities, such as symmetrical triangles usually resolve themselves in the direction of the trend and descending triangles will most often break lower . While these held true on Monday, there are a number of times these "generalities" do not hold true. The most common exceptions to these are when, in the case of a downtrend, there is strong support after a great deal of selling. While the market has been bearish for several weeks, there was not yet much along the lines of strong support, such as a 200 day simple moving average, to keep it from breaking lower. Another common problem traders will run into is that often triangles, especially symmetrical triangles, will give false breakouts only to reverse and move strongly in the opposite direction. So, it helps to have a better reason than "the trend line of the triangle broke so I'm going to enter." Monday we were fortunate in that the breakdown from the triangle was not only in the direction of the downtrend, sticking to the "general rule," but also did not give a false breakout higher before continuing lower. It helped that the triangles formed under the 15 minute 20 simple moving averages. Even had a false breakout occurred you should still consider it higher risk until the moving average, in addition to the trend line of the triangle, breaks. Once the lower trend line of the Nasdaq triangle had broken and the S&Ps hit new lows, triggering a short, the Nasdaq fell into support from Friday's lows and the the S&P 500 made new lows on the year. This was followed by a brief pullback to the 5 minute 20 sma. The first pullback after a consolidation breaks is almost always tradable and the swing off that resistance led to the Nasdaq breaking the yearly lows with the S&Ps moving lower still. This trend continued into the close in the S&Ps while the Nasdaq managed to pull back up to close breakeven on the day, forming a doji. A doji is a candlestick chart pattern used to indicate indecision. It can serve as a reversal bar or a continuation bar, depending on where it occurs in a trend. For instance, on Thursday it was a continuation pattern when it broke lower on Friday. In this case though I am more hesitant on shorting than I have been in recent days. The further along a trend is, especially one which consists of not a single bullish day in two weeks, the higher risk it becomes to trade in the direction of the trend. The weekly charts still have plenty of room to move, as do the monthly charts, but they need a bit of a breather, so I would start to use a lot more caution on both intraday and daily charts. I am still not finding a great deal of swing setups I like. Most of the setups I am finding are still in the small and midcaps and have very little average daily volume. For swings overall I would start to look for those showing relative strength to the overall market, pulling back only gradually to support or basing at highs while the market has pulled in. You want to be sure they are not contrarian stocks, however, that typically trade against the overall market. Such gradual pullbacks will tend to have the best chance on a bounce off lows when they occur. If we can manage to rally or pull gradually higher for about 5-7 days I would start looking for bear flags as swing trade shorts. Intraday one setup to watch for off lows is when the market starts to round off, with each wave of selling being less and less dramatic as the previous one. Then look for a pull up into the 5 or 15 minute 20 sma. Look for that sma to hold for about 4 bars and then buy a breakout. This is a pattern I call the Phoenix. Individual patterns that fall into this category include a Cup-with-Handle and a Reverse Head and Shoulders Pattern. It can also occur off a Double Bottom. Usually volume will decrease as it rounds off at lows, pick up as the lows break higher, drop off on the pullback at the 20 sma, and then pick up again as the moving average breaks. 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[11:06] {Brandon} 11:06:10 BUY ALERT : FCEL above $16.90. Stops under $16.50. Trap play on the daily, has held its gap well and is basing nicely.
You can't trust breakouts in this market. See FCEL and BBOX just don't move. BBOX daily looks great though. Anticipating is very difficult but that 's the way to make money. I'd rather stick to my basket, if the fut move I know they will move too and fast, with the scans you end up with stocks that don't trade with the market.
taking 2/3 of the position off the table $47.09 and going to a breakeven stop on the rest of it. Brandon