Simple Repeating Top Pattern in the SP500

Mar 24, 2014: 11:36 AM CST

Is the market topping or is this just another in a string of smaller “repeat top” patterns for the S&P 500?

Let’s take a look at a recently repeating pattern and chart the levels to watch if history does indeed repeat.

SPX S&P 500 Top Reversal Retracement

I highlighted three similar periods where the following factors developed on the chart:

  • Retest of prior high (slight new “all time” high)
  • Negative momentum divergence
  • Retracement or “sell-off” against the new (weak) high

One could also add Negative Breadth and Volume Divergences along with the 3/10 Momentum Oscillator.

In each even from July 2013 to January 2014, price retraced in a sell-swing down against the new “retest” high.

Friday saw an incremental new “all time” high for the S&P 500 ahead of an intraday reversal that carried forth with additional selling today (Monday, March 24).

After each yellow highlighted “Failure Test” pattern, I also included the red highlighted “sell swing” or retracement against the uptrend.

With the exception of January 2014, price completed a shallow but stable retracement down toward – or just under – the rising 50 day EMA.

For now, we’ll continue to focus our attention on the 1,875/1,880 pivot high and potential for yet another possible repeat outcome from the “Weak New High” or Failure Test pattern that developed three times recently on the Daily Chart.

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Corey Rosenbloom, CMT
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Bearish Signals from the Sector Performance Grid in March

Mar 24, 2014: 9:48 AM CST

With the S&P 500 tipping to a weak all-time high Friday, what does the Sector Performance Grid reveal about the health or weakness of the market?

Let’s take a quick glance at the Sector Rotation Model and the message it is sending year-to-date:

Sector Rotation Sector Performance 2014

According to the Sector Rotation Model, we separate the nine major AMEX Sector SPDRs (ETFs) into “Offensive” or Risk-On groups (those that tend to do well during a bull market) and “Defensive” or Risk-Off groups (like Utilities) which tend to outperform during a retracement or bear market (relative to other stocks or sectors).

With the year-to-date performance, we see clear strength in Health Care ($XLV) and Utilities ($XLU).  To expect higher prices in the stock market, we would prefer to see strength in Financials, Cyclicals, and Technology (offensive names) instead of two of the three defensive names.

Nevertheless, Utilities are up 7.5% with Health Care not far behind (5.3% gain) so far this year.

While the S&P 500 is up 1%, Cyclicals (Consumer Discretionary $XLY), Indrustrials ($XLI), and Consumer Staples ($XLP) all trail the S&P 500 (and all other sectors).

Financials ($XLF), Technology ($XLK), and Materials ($XLB) form the “Middle of the Pack” with gains of 2.0% to 3.0%.

The Sector Performance Grid shows a mixed picture with clear bearish or defensive overtones.

Continue watching the grid – and the strength in defensive names – closely with the market diverging at new highs.

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Corey Rosenbloom, CMT
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Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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March 21 Intraday Sector Breadth and Trending Stocks

Mar 21, 2014: 12:27 PM CST

What is Sector Breadth revealing about the health of today’s rally, and which stocks are the best candidates for possible trend day trading strategies?

Let’s start with Sector Breadth and go forward from there:

At the moment, 73% of S&P 500 stocks are up during today’s session while 67% of Dow Jones stocks are higher.

Our strongest sectors include Financials (again), Materials, and a sleeper/surprise sector – Utilities.

Keep in mind that Utilities have rotated from a top sector during the sell-off to a bottom sector during this week’s rally.  Today, they rise to the top of the Sector Breadth list with almost all (97%) of S&P Utility Sector stocks trading higher.

See my prior post “Sector Strength in Sleeper Utilities” for additional background.

Now, let’s turn to our intraday potential trend day candidates:

Our ‘big intraday names’ today include Entergy Corp (ETR), CarMax (KMX), Joy Global which also topped the downtrending list from March 19 (JOY), and finally Edison International (EIX).

Our intraday downtrending – or bullish reversal (depending on how you use this scan) – stock lists includes Alexion Pharma (ALXN), popular name Biogen (BIIB), Lennar Corp (LEN), and Perrigo Co (PRGO).

Have a great weekend and enjoy the rest of Friday’s trading session!

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Corey Rosenbloom, CMT
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Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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Exploring a Hidden Resistance Level in Amazon AMZN

Mar 21, 2014: 11:59 AM CST

On the surface, Amazon (AMZN) shares triggered a mini-Bull Trap on a break through daily resistance, only to collapse against a hidden wall.

Let’s take an advanced view of the longer-term chart then step inside the recent reversal to plan the next price swing and possible targets for shares.

Amazon AMZN Andrews Pitchfork

The chart above shows two Andrews Pitchfork tools overlaid on the two larger retracement swings in 2012 and the end of 2011.

I don’t remember seeing a similar pattern where two different price retracements (swings) produced an almost identical Andrews Pitchfork grid like this.

Nevertheless, I color-coded each Pitchfork and highlighted the midpoint overlap in red.

I then copied and pasted a zoomed-in version of what’s going on right now into the “hidden” $380 per share level which is where two converging lines meet.

So far, price has traded down against this trendline overlap (confluence) level.

The most recent price low (reversal) developed off the lower trendline above $345 per share.  That will be our focal point if indeed shares do continue to trade within these two “hidden” trendlines.

Here’s a classical Daily Chart for comparison:

AMZN Amazon Daily Chart Technical Analysis Trade Planning Bull Trap

After a lengthy negative divergence going into January 2014, shares collapsed lower to the $340 per share level (note the Andrews Pitchfork chart above).

From there, positive divergences occurred at a critical horizontal support level near $345 per share and price traded up toward the falling EMA targets ($370) and then broke above them for a potential breakout play.

The breakout trade failed this week with a return under the confluence (cross-over) of the 20 and 50 EMA which is occurring in today’s session.

The short-term implication from a ‘trap’ scenario is that if price can’t trade back above the 20/50 EMA overlap ($370 for easy reference), then it likely sets in motion a sell-swing of liqudation from the buyers/bulls who are trapped, as short sellers enter new bearish positions.

Again, the simple target would be a return to the $345 per share support… or a breakdown lower than that.

Finally, here’s another perspective of the intraday landscape and why the current support sets the stage:

Note the impulsive breakout on March 13th with higher volume and momentum.  So far, that price was the short-term high and shares have met “unexpected” resistance into the $380 per share wall.

An Ascending Triangle consolidation pattern formed and shares recently triggered a breakdown impulse under $376 per share.

The target was the $365 area which was achieved today.  It’s the $365 level that draws our focus for any short-term trading strategies in Amazon.

A breakdown under the highlighted support likely sets in motion a continuation sell-swing toward the $355 prior swing low then into the $345 higher timeframe parameters.

Otherwise, look for shares to trade around the $365 to $380 rectangle region or value area.

Incorporate these levels into your trading plans for Amazon (AMZN) shares.

Andrews Pitchfork Content (background):

S&P 500 Andrews Pitchfork and Gann Levels “Chart Art”

Andrews Pitchfork Update for the S&P 500

Gann and Andrews Pitchfork Update (S&P 500)

Andrews Pitchfork Trendline Channel Update on the Euro (EURUSD)

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Corey Rosenbloom, CMT
Afraid to Trade.com

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Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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The New Options Trading Secrets Free Video

Mar 21, 2014: 5:04 AM CST

If you’re new to options trading, it can be helpful to learn as many strategies as possible before focusing on a tactic (or set of tactics) that you understand and can implement consistently.

Options strategies range from the simple (buying a put or call instead of buying or shorting shares of a stock) all the way to complex hedging or directionless strategies that take advantage of time decay.

Similarly, one must study as much as possible before trading options because they carry significant risk, especially when selling “naked.”

Please do your due diligence and lots of research before jumping into the option trading arena.

I did want to highlight a new, free video from my affiliate Trading Concepts which serves as another bit of education shared from current option traders.

Todd Michell and Doc Severson discuss some of the ways the options markets have changed recently and how they have adapted (with respect to volatility).

Doc reveals that multiple strategies are preferable to single strategies (many traders just use one strategy in all market conditions, with mixed results).

In something that was interesting to me, he mentions how to adapt positions when the market moves against your position.  Specifically, he discusses “defense” when trading options.

The free email registration page (linked above) provides you a 5-min ‘teaser’ video that sets up a broader webinar that you can attend on four selected dates (March 25th or March 27th at 12:00pm EST or 8:00pm EST both days).

As is often the case, you’re simply asked to provide your email to access the video and webinar, and have no obligation to purchase additional material unless you find the free content beneficial to your educational journey and would like to learn more.  As an affiliate, I receive no compensation unless you do decide to purchase training or additional material from Trading Concepts (affiliate networks help support the Afraid to Trade free blog).

Corey

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