Thursday, June 30, 2005

Multiple Head & Shoulders Patterns

Finally the market has broken out of its boring funk and has established a direction - down. Which is what I've been waiting for the past two months.

The graph above is particularly interesting. It's of the NYSE Composite index (symbol $COMP), and I've found not one but three head & shoulders patterns (I have marked the shoulders with S and the heads with H to make it more clear). Remember, these can be both bearish (the normal kind) or bullish (the inverted kind).

The first two you seen, which I've highlighted, are inverted, and you can see the subsequent price increases. The third, and most recent, is the regular head & shoulders, although this pattern is still forming and has not yet broken the neckline at 3,195. A break below this should lead to a fall to at least the 2,900 level.

Monday, June 27, 2005

Breakout for APCS

The market fell hard last Thursday and Friday. I think it's going to be in a consolidation/slight recovery mode in the short term before falling again in earnest.

In the meantime, check out APCS. It broke out of a dish pattern today to a new high on good volume. All the elements of a good stock to buy.

Thursday, June 23, 2005

Market Getting Squishy

Today was the first really good day for bears in about a month.

As I mentioned recently, the Russell 2000 - which I've been following closely, pushed above its descending trendline a few sessions ago. I mentioned that if it moved upward and didn't get beneath the trendline again, the nature of the line would clearly have changed from resistance to support, and the bears among us would be in trouble.

What has in fact happened is the indexes all moved down hard today, and as you can see in the chart above, IWM (the ETF for the Russell 2000) is once again beneath the descending trendline. This is bound to be disappointing to the bulls, because after an entire month of "winding up for the pitch", the ball didn't go out of the stadium but simply plunked back down to earth.

Kyphon Breakout

A stock I have been following for a while - Kyphon (ticker KYPH) broke out of a saucer pattern in a big way today. This saucer has been shaping up for a while, but it got the push through that it needed due to a favorable patent ruling.

There are a number of things in favor of this stock moving higher: one, the breakout from a saucer pattern; two, it did so on enormous volume; and three, it reached a lifetime high. KYPH is definitely a stock worth watching!

Wednesday, June 22, 2005

Up with ADEX

Just a quick one today - although I usually comment on the market as a whole, it's become so boring (just HOW long can it stay within this range?!?!?) I'll turn my attention instead to a single stock: ADEX.

Long story's a long, not a short. This is a nice breakout stock on good solid volume. It's particularly encouraging that it's performing in an otherwise lame-o market.

(Follow-up on July 11th - ouch - this stock got creamed about a week after this post)

Monday, June 20, 2005

Broken to the Upside

Every chart tells a different story. The index charts these days are no different. You could look at $INDU, $SPX, $COMPQ, $NDX, $OEX, $UTIL, $TRAN, $RUT, $MID, etc. and discuss each of them differently. But let's focus on the Russell 2000, the $RUT (whose ETF equivalent is the IWM), since I've been writing about it most recently.

I pointed out last Wednesday, June 15th, that the IWM had finished the day in an extraordinary candlestick formation which was very bearish. Thursday's action negated that candlestick. The market opened higher, push through the descending trendline, weakening the case for the bears (like yours truly). To worsen matters, the next day IWM reached a high above its March 7th high, thereby negating a notion of a market reaching "lower highs" (in other words, a stair-step down pattern). It only got a penny above the March 7th high, but all the same, it pierced that former level. This does not make for the kind of market swoon a bear would want to see.

But the market isn't out to please either the bulls or the bears. It just does what it does. It is in a never-ending process of price discovery. It's up to us to try to anticipate what price it's going to discover next!

Today, Monday June 20th, the market did fall, but it did not fall beneath the trendline which was broken last week. This could be a set-up for further strength. Remember how trendlines switch the "support" and "resistance" coat. The descending trendline, formerly resistance, may now be support. IWM would have to fall beneath this trendline to negate this bullish set-up (and if it did, we might as well erase the trendline, because it's being hopped across so many times as to render it pointless).

Oh, one last thing before I close - check out ADEX. It's one of the few good looking bullish charts out there. A relatively conservative stop price on this issue would be $26.20.

Wednesday, June 15, 2005

Now THAT is a Candle!

First, since I haven't mentioned it, you should note that clicking on any of these images will make a nice big version of the image show up. Because I realize these charts are pretty small.

Anyway, the market continues gyrating up and down, with a bias toward 'up.' Some of the indices - like the S&P 400 - are nearly 30% higher than they were at the highest point of the 2000 bubble. So in some cases the market has out-bubbled the bubble.

The 'candle' I am talking about appears in a number of major indexes, but the example I am showing above is symbol IWM, which is the ETF for the Russell 2000. There are three really strong reasons to indicate that this is a top.

ONE, the inverted head & shoulders pattern spanning from mid April '05 to mid May '05 had a target upside of 63.50. That upside was met almost to the penny today.

TWO, the prices are coming up against a descending trendline that spans back for months.

THREE, I have rarely seen a candle pattern quite so clearly. In fact, this is an almost perfect Dragonfly Doji pattern, which is considered quite bearish.

If IWM gets above 63.50 tomorrow and the market is generally bullish, it's going to make this argument fall apart. Indeed, the market has been in the throes of this tight trading range since May 19th, and it has got to break at some point. Either direction, it's going to be a strong move.

Tuesday, June 07, 2005

Sputtering Out of Gas

The chart above is the past ten days (on an intraday basis) of the Dow Jones Industrial Average. As you can see, the trend is that there is no trend. Up. Down. Up. Down. And so forth.

Today was a perfect example. The markets shot higher, stalled, and fell right back down to the flatline again (more or less - some lost, some tacked on a bit). But the market's ability to convincingly rally is, for the moment, simply not there.

There's a new stock I like - KYPH - with a nice saucer-in-the-making. The volume on this stock is handsome. I remain by-and-large bearish, with a particular bearishness on the $RUT (which you can trade via index options, the IWM, or options on the IWM itself).

Friday, June 03, 2005

Is the Tide Finally Turning?

A weak jobs report finally knocked the strength out of all the indexes. Across the board - SPY, DIA, QQQQ, IWM - indexes sank throughout the day. Nothing dramatic, but definitely encouraging for the bears among us.

The $COMPQ (NASDAQ Composite) chart shown above has a myriad of forces that stopped the upward assault dead in its tracks. The markets are so universally high at this point, my optimism for a collapse in the market is growing again. From a seasonal perspective, markets don't tend to fall apart until September, but looking at just about every major index, I am far more inclined to bet on a drop in the market instead of a continued rise.

I've become somewhat disenchanted with the MDY and have found the IWM is a much better instrument for this kind of trading. It's far more heavily traded, and it doesn't jump around nearly as erratically as the MDY, even though a market plunge would benefit either ETF equally.

Wednesday, June 01, 2005

MDY: End of an Error

For over a month now, I've been patiently waiting for the MDY (S&P MidCap) to fall to pieces. It has not done so. Not even close. Indeed, it's trudged higher, and although until yesterday the technical story was still intact, that story got pierced today when the price of the MDY went above its trendline.

This is still not a healthy market, to be sure, and you would be hard pressed to find good stocks to buy. But my case for a slam-dunk short on the MDY is gone now, and we are back in wait-and-see mode. It's disappointing, to be sure, but the power of technical analysis is that it tells you when you are wrong, and the good technician listens and obeys!

GLW Breakout

Last Friday (May 27th) I pointed out Corning (GLW) was the one stock chart I really liked for a long position. So far, so good - it has climbed nicely since then, even outperforming the all-powerful Google (GOOG) today. The chart looks even better than ever.