A Technical Take on Google GOOG

Dec 10, 2008: 10:34 AM CST

I haven’t discussed the technical picture on Google (GOOG) in a while, so let’s take a moment to look at the weekly and daily price structures for Google and what might be in store for the near future.

Google (GOOG) Weekly:

The dominant structure I’m seeing is a (potentially) completed “ABC” large scale corrective phase which took price sharply from $750 to $250 in a year – a devastating chop for investors.  Remember that each Corrective Wave itself subdivides, and what we had here was a large-scale “Zig-Zag” pattern (where Wave A was 5 fractal waves; Wave B was 3 fractal waves; and Wave C was also 5 fractal waves).

With that structure behind us, what is the current technical picture?

Price has formed a large-scale positive momentum divergence into the $250 price lows on what appears to be a selling climax (similar to what we saw at the end of Corrective Wave A) and so barring anything majorly unexpected, we should expect to see a push at least to test the falling 20 week EMA around $370 per share.

Notice also that two bullish candlesticks have formed at the support zone of $250 (one a hammer-like pattern and the other a bullish reversal doji).  The current week is confirming this pattern and could lead to higher prices in the short term – but keep in mind these are officially counter-trend rallies, and it would take a move over $600 to change the trend structure back to ‘up’ officially.

Google (GOOG) Daily:

It would appear that this chart leaves much to be desired for the bulls, but there are signs of hidden strength.  First off, price has formed a ‘mini-reversal,’ having formed a higher low and then formed a higher swing high – that’s bullish alone.  Also, price has broken officially (and closed) above the falling (now flattening) 20 day EMA.  Before you get too bullish, I might suggest waiting for conservative traders to wait for a close above the 50 day EMA for further confirmation.

Just like the weekly chart above, we see a positive swing momentum divergence forming under price, and a key doji day (candle) when price nipped beneath the $250 support zone.  All this Google ‘bullishness’ is contingent on price remaining above this $250 level, so that would be a logical place to insert a stop (or write bullish put credit spreads) underneath that zone.

Continue to study Google through your own analysis for further potential trading opportunities.

Also, take advantage of the Market Club’s two-month trial membership if you’ve not joined already.  From them you receive education, analysis, scans, signals, and insights from their team.

Corey Rosenbloom
Afraid to Trade.com


Intraday Action for Tuesday

Dec 9, 2008: 10:07 PM CST

Let’s take a look beneath the market to see what ‘idealized trades’ set-up within the intraday price structure of the DIA for Tuesday’s trading – then let’s view the day through the lens of a 5-minute Elliott Wave count that could have helped guide our trading day.

DIA 5-min chart:

First, the day began with an overnight gap which was quickly filled – with the exception of the bearish bar around 9:30.  That bar is an argument for wider stops in this volatile environment – and a little guts and patience.

With the gap fade complete just before 11:00am, we had four long-legged (upper shadow) bearish candles – which you could have called dojis or shooting stars – but you should have gotten the gist that those four candles (long wicks) were quite bearish, when coupled with the fact that price was testing and failing to rise above yesterday’s close.  That signaled a high probability, low-risk short-sell trade, which worked out perfectly.

Price then rallied into EMA confluence resistance two times, setting up potential fresh short-sell entries 9though again, it would have taken a slightly loose stop slightly beyond the 50 period EMA).  Keep in mind that price was supporting about the $88.00 per share level, which was broken just after the 1:00pm hour, triggering a potential support-break short sell.

Price then rallied sharply (one bar) into the falling 20 period EMA which set up yet another low-risk, high probability short-sell entry (given that the trend – and moving average orientation – was confirmed as bearish at this point).  Price did indeed make new lows on the day before forming a quick rally into the 50 period EMA resistance, forming a shooting star which was immediately – and confusingly – followed by a ‘hanging man’ candle also at EMA resistance, before plunging yet to new lows on the day into the close.

Let’s put the above into the context of Elliott Wave to see if fast Ellioticians had any clues as to what the short-term structure might be developing during the day.

DIA 5-min chart with Elliott Waves:

Hint – it’s always easier to view Elliott Waves from a closing basis rather than during the trading day, but the more you see these patterns and structure, the better you’ll be able to recognize it and count possible wave structures as they develop and form in real time, allowing you trade entries and risk management.

After Monday’s positive day, we began Tuesday in the middle of a corrective impulse down (no clue yet that it was indeed Wave 1).  There was a 5-wave sub-structure which terminated around 10:00am as price sauntered upwards to fill the morning gap, doing so in a choppy fashion.  Again, the bearish long-upper shadow candles formed, hinting that the upwards move had come to an end.

Still unsure of the count, price moved to the downside and formed support about the $88.20 level in a choppy corrective pattern before breaking down to new lows after 1:00pm.  Savvy Elliotticians could have recognized the charicteristics of a possible Wave 3 “Elliott’s Dream” wave in the making, but particularly when Wave 3 completed its impulse down into new lows at 2:30.

Suspecting a Third Wave had terminated, one could have played the corrective move as it occurred (quick reflexes were required) into EMA resistance, but the easiest play – to me at least – is always the final (terminal) Fifth Wave if you can properly count (or reasoably count) the prior four waves in real time.

In this case, the Fifth Wave formed a truncation into the close on a positive momentum divergence.

As always, viewing ‘ideal trades’ and comparing your trades/fills to the structure when it is completed by the close can help you improve pattern recognition skills and enhance your real-time trading through viewing multiple specific trade set-ups and the ideal entries/exits.

Corey Rosenbloom
Afraid to Trade.com


Airlines Showing Relative Strength with Crude Oil Down

Dec 9, 2008: 12:16 PM CST

One of the beneficiaries of lower crude oil prices has been airlines companies, as evidenced by the $XAL Airline Index.  Let’s take a look at these developments and what’s happening to the Airline Index right now.

$XAL Airline Index Weekly:

The index is currently testing against overhead resistance via the flattening 50 week EMA, but there’s a multi-swing positive momentum divergence that has been building almost for the entire duration of 2008.  Price is consolidating currently, coming off a pervasive and destructive downtrend.  Although we’ve established higher lows, we’ve yet to establish an official ‘higher high,’ and so the official trend remains down until price can break above the weekly 50 EMA and form a higher high.  Until then, we’re in ‘no-man’s land’ until we get that higher high… or price fails and forms a lower low, reconfirming the established downtrend.

Also, notice that the $XAL has been showing relative strength to the S&P 500 since July when Crude Oil topped above $140 per barrel (which was devastating the airlines due to high fuel costs).  Though price is not making a series of higher highs and higher lows, the Relative Strength line is doing so, hinting at underlying strength perhaps yet to come.

One has only to imagine the price hikes and fare increases the airlines set in place as a necessity to combat higher fuel costs remaining in effect after the price of fuel has fallen dramatically – it’s like a double blessing to cash-strapped airline companies, adding a little fundamental strength to the developing technical picture.

Let’s look briefly at a comparison of Crude Oil prices and the $XAL itself – it’s almost a full inverse relationsihp… almost.  Keep in mind that the weakening economy is somewhat decreasing commercial and personal travel.

$XAL Airline Index Weekly compared to Crude Oil:

The airlines continued down while crude continued up… then in July 2008, the trends were reversed, though only to an extent.  Again, a weaker economy put pressure both on company stock prices and ticket sales in the form of reduced passengers – that’s one reason the relationship has not continued strictly inversely to the present.

Still, lower (in this case, drastically lower) fuel costs have a bullish result on company prices, which may be a reason these companies are showing relative strength to the S&P.  For sustained bullishness to return, we’d need to see a break above the $25 level in the $XAL, along with corresponding strength in many of the key stocks that make up the index.

Continue to scan here for potential opportunities, but watch out if crude oil prices begin to rise suddenly any time soon.

Corey Rosenbloom
Afraid to Trade.com


Crude Oil Finds Longterm Support and Buy Signal at $40

Dec 9, 2008: 10:42 AM CST

We’ve witnessed absolute destruction in the price of crude oil and in other commodities in such a short period of time.  However, the situation might be changing and aggressive speculators might find a significant low-risk opportunity should crude oil find support at the well-established level of $40 per barrel.  Let’s see this and how it might play out into the near future.

Crude Oil Monthly:

A log-chart would show this better, but would also compress the most recent data and obscure the near vertical price rise (and inhibit the simple Elliott Wave Count) so be sure to view the $40 level from a log-chart in your own analysis.

Crude bumped the $40 level the first time in late 2000 and then oil fell as the economy went into recession (through the bear market of 2001-2002) before rising in early 2003 to challenge the $40 per barrel level yet again… only to find strong selling pressure there as well.

Crude finally broke above this significant barrier in mid-2004 and then the contract surged to new highs, doubling to $80 per barrel two years later. Price fell into an Elliott Wave 4 correction down to $50 per barrel in early 2007, only to rise rapidly (and almost unchecked), almost tripling in price to $144 earlier this year… only to plunge faster, further, and more devastatingly than the bumpy ride to the top.

Wall Street has a saying:  “Stocks (or commodities) take the escalator up and the elevator down.”  Look no further than crude to see this in action.

That being said, we just tested the $40 per barrel level and it appears we have found significant and strong support there – so much so that aggressive traders (or perhaps investors) could establish a solid buy position there with a stop around $38 per barrel or so to play for a large, possible upside target.  Swing traders would be even more apt to profit from an inflection point off this level – though do your own analysis before making any trading or investing decisions.

If you don’t trade futures, you might want to see if a key stock like Exxon-Mobil (XOM) or Chevron (CVX) is setting up a buy signal, or more appropriately, you could try to trade one of the oil ETFs such as DIG (ultra-oil and gas) or my preferred oil ETF, The US Oil Fund (USO).  Let’s look at its daily chart for a moment.

USO – US Oil Fund:

Who would want to buy such a hideous chart that has been in such a pervasive down-trend?  Is this appealing at all to a buyer?  Not really from a trend or ‘classic’ chart analysis perspective, but that’s why this could be considered appropriate for aggressive traders – because it goes against the grain of the well-heeled established downtrend.

However, there are bullish signs of possible life.  There is a multiple-swing positive momentum divergence forming as price continues to make new lows, which often precedes reversals – though a reversal is not guaranteed from that one indicator.

Second, we see a mini-hammer candlestick that formed on Friday’s trading (where the $40 per barrel oil was tested officially) which adds a little bullish fuel.  Generally, hammers alone aren’t enough reason to turn bullish, but taken in the context of a larger picture, they can add weight to an argument, particularly at expected reversal points off support.

Third, we see a major volume surge in the ETF, with the most recent surge going above 25 million shares.  Whether people (funds) are aggressively buying or aggressively shorting (or just bailing out of long positions) is unclear from this chart, and I’m not quite ready to call this ‘capitulation selling’ necessarily, but taken with other evidence, this could be a significant turn-around.

Continue to study the charts and crude oil for your own insights, but also realize that we could be experiencing a major or at least intermediate reversal off these levels.

Corey Rosenbloom
Afraid to Trade.com


SP500 Fibonacci Price Clusters and Confluence Chart

Dec 8, 2008: 2:15 PM CST

Here’s a chart you might want to save as a reference in terms of overhead possible Fibonacci resistance levels and their respective confluence zones.  The graph takes the S&P 500 swing highs and runs corresponding Fibonacci retracement grids all to the most recent 750 spike low in November and highlights areas of Fibonacci clusters.  Let’s see the grid.

S&P 500 Fibonacci Cluster Grid:

You can click the image for a larger chart to appear.

I’m using a hybrid method of Constance Brown (Technical Analysis for the Trading Professional) and Carolyn Boroden (Fibonacci Trading: How to Master the Time and Price Advantage) for this grid – namely Connie Brown advocates avoiding ’spike’ highs/lows in drawing Fibonacci grids (in favor of more meaningful, closing basis reference points) while Carolyn Boroden describes how to trace multiple Fibonacci grids to a singular swing high or low and how to analyze the grid properly – no, I won’t give away the secrets in this post… merely the grid itself.

I’ve taken each meaningful swing high and drawn a corresponding Fibonacci grid via StockCharts to the 742 S&P 500 swing low in mid-November.  The middle of the chart – all the lines – represent each Fibonacci retracement grid drawn automatically off that key swing low.  This chart and the analysis to be made from it will only hold IF and only if the 742 low is not taken out anytime soon.

This is a more formal way to answer the question, “How far might the counter-rally (or Elliott Wave 4) go?”

Also, this is a roadmap to note key areas of possible short-term resistance as price tries to make a move higher – these zones can be particularly helpful for intraday traders as price tests these upside boundaries and either finds resistance at them (setting up exit targets… or potential entries) or breaks through them (setting up long entries into fresh trades).

Now, one can do a lot with this grid, but I wanted to keep it simple, provide it as a reference, and comment that the two most obvious zones of Fibonacci confluence lie at the 1,085 and 1,162 areas.  Keep in mind that this grid does NOT take into account longer-term Fibonacci grids (something you might want to do yourself).

The Blue grid will provide more significance than grids of smaller magnitudes, as it represents the key retracement zones of the entire bear-market price move (so far).

Apply your own analysis to the grid and feel free to share any insights in the comment section you discover for the benefit of other readers.

Corey Rosenbloom
Afraid to Trade.com

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