I wanted to highlight an interesting pattern that emerged from a quick comparison of the 2003 – 2007 Bull Market to the present Bull Market beginning in 2009 (and extending indefinitely at the moment).

Let’s see what possible price pathway may be in store if history is a guide, while being impressed at the similarities between the two structural bull markets.

First, the broader Monthly Chart comparison of both bull markets:

I color-coded key monthly swings for comparison purposes.

Note how the present bull market/uptrend has traveled more distance than the prior recovery (current bull:  927 points and counting when compared with the prior bull market 808 points traveled).

Both Bull Markets began with a sustained upward swing to ignite or “kick-off” the trend reversal.

While the 2003-2007 period had smaller monthly retracements, the present bull market had steeper but fewer retracements in the earlier phase of the recovery (new trend).

Toward the end (or at least the end of the 2007 period), both bull markets experienced large upward swings compared to more frequent small or shallow retracements.

It’s this “end of the 2007″ period that grabbed my interest, specifically with respect to the structure of the present rally.

Here’s a special Overlay Analysis chart of both bull markets on the same chart (but different scale):

I copied the 2003 to 2007 price movement and pasted it to the 2009 low to get a sense of the structural similarities – while the upper chart is scaled appropriately, the lower chart (the 2003 – 2007 period) is scaled starting with the 666 low.

Again, we see the strong “kick-off” or sustained upward reaction that began both trend reversals.

From there, we see a steeper 2010 correction than the 2004 period, though both markets continued their uptrends through 2011 (and 2005 respectively).

Again, we see the sharper pullbacks/corrections for the present bull market in comparison with the shallower periods from 2004 to 2005.

Toward the end of the 2006 period, the Bull Market continued with sustained upswings that lasted throughout 2007.

Our current Bull Market also developed strong sustained upward movement through 2012 and of course the present 2013.

While there’s absolutely no expectation that two bull markets will be identical, we can compare their larger similarities, particularly in terms of structure (sequence of highs and lows), distance of swing, and periods of uptrend continuation or counter-trend retracements.

If we look at the current message from 2007, we see a potential pathway for price according to a historical similarity or repeat phase.

I’m focusing my attention on the early 2007 retracement when compared to the late 2012 retracement period, both of which were followed by a sustained, week-over-week rally.

The comparable pro-trend swing from late 2007 rose 188 points while the current swing has traveled 244 points and climbing.

Once again, IF history provides any clue to a possible resolution currently, we see a sharp sell-swing occurring (it began July 2007) ahead of a final peak in October.

We always monitor these type of historical comparison analyses by assessing to what degree the current market “follows a similar structural pathway” as the past along with to what extent price deviates or ‘breaks’ the historically similar pathway.

For now, we will be monitoring for any type of sell-off, and if that does happen (instead of this upward swing continuing to extend well beyond 1,600), we’ll update the comparison to include a potential “rally to a new high” phase.

That’s about as far as we’d want to compare the price pathways for the moment.

Continue monitoring these uptrend structural similarities with respect to the analysis, key levels, and indicators you are using currently.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

Continue Reading…

After a large impulse, it can be helpful to draw a Fibonacci Retracement grid to get a sense of potential target levels or short-term inflection points paricularly for intraday traders.

Let’s take a quick look at a simple confluence Fibonacci Retracement grid for the current rally or ‘bounce’ up in gold (@GC Futures):

I drew two Fibonacci grids from the March 22nd swing high (blue) and the more recent April 9th high (green) which developed just ahead of the breakdown or ‘collapse’ impulse.

We can already see short-term inflections that have developed into the respective 38.2% upside retracement levels on a short-term basis.

A general rule for monitoring price relative to Fibonacci Levels is to use a nearby level as an intraday or short-term target (taking profits into a level) or – for very aggressive traders – using the level as a spot to enter short or ‘fade’ positions, particularly if the lower frame shows negative divergences, reversal candles, or other chart-based sell signals into the higher frame Fibonacci target.

The other way to use these reference levels is to trigger a long or buy trade on the breakthrough of a level, which was the case this morning on the breakthrough above the $1,435 level (the 38.2% retracement).

The impulse took price straight up to the next target at $1,455 or the 50% “halfway” point of the April 9th grid.

For short-term traders, continue to focus on the levels at the moment which include $1,455, then $1,470 (on a clean breakthrough above $1,455) and $1,487 (on a breakthrough higher).

A stall or short-term retracement into the $1,455 resistance level could set up a short-term play back toward the $1,435 pivot (which would now intersect the rising trendline).

In fact, incorporate these Fibonacci Levels with the rising “flag” or Parallel Rising Trendline Channel as highlighted above – price has remained bound within this channel throughout the entire reaction (retracement) up so far.

A breakdown of the lower rising trendline could signal a short-sell or “breakout” opportunity for those who enjoy breakout trades (it would actually be a pro-trend continuation set-up that corresponded with a trendline breakdown signal which could occur under $1,420).

Continue monitoring short-term movement relative to these levels along with the ‘flag’ trendline.

Follow along with daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

Continue Reading…

While we may have heard headlines discussing the out-performance of “Defensive” Sectors, let’s take a brief moment to view the updated Sector Rotation charts and pinpoint where the money is flowing in terms of broad sector performance.

Let’s start with a Line Chart and then move to finer details:

We’re seeing StockCharts data (PerfChart) with the nine major AMEX Sector SPDR ETFs (XLK for Technology, XLE for Energy, etc) on a line graph starting the percentage comparison at the beginning of 2013 (and ending on April 24).

The chart shows relative performance to the SP500, not absolute performance, by which we can compare which sectors are “Outperforming” or “Under-performing” the others relative to the performance of the SP 500.

Take for example the Health Care ETF (symbol XLV) which has outperformed the SP500 year to date by 11%.

As we’ll see shortly, the SP500 has increased roughly 10% this year while the XLV ETF increased 21% (making the relative performance metric 11%).

It’s true what they say – Defensive Sectors have clearly outperformed their Offensive or “Risk-On” counterparts year to date.

The two other Defensive Sectors – Consumer Staples (XLP) and Utilities (XLU) – have outperformed the SP500 by 8.5% and 7.0% respectively.

There are only two additional sectors that have outperformed the 10% SP500 increase this year and the relative strength comes from Cyclicals (Consumer Discretionary – XLY) and Financials (XLF).

All other “Risk-On” or offensive sectors – while positive for the year -  underperformed the SP500, which we can see clearly in the bar chart below:

The bar chart above shows the same data, only we summarize the year-to-date performance with a bar graph instead of a line graph.

The green box represents the Offensive sector group (Financials, Cyclicals, Technology, Industrials, and Materials) while the red box highlights the relative-strength winners Staples, Health Care, and Utilities.

Finally, we can view the absolute performance of all sectors and the SP500 as a reference:

Sector Rotation strategies build on the logic that some sectors are stronger than others at key points in the market and economic cycle while some are weaker and these trends can be identified using performance charts like these (along with following price trends on charts).

By assessing ongoing performance and trends in sector behavior, we can increase odds of a winning swing trade or investment or else use hedging logic (playing strong stocks in strong sectors against weak stocks in weak sectors).

The current picture is not the sign of strength we would like to see during a strong, sustained bull market.  Instead, it reflects widespread caution and defensive postures within the stock market allocation portion of portfolios.

If investors are worried about the economy or stock market performance in the future, they can decide to rotate money out of the stock market (and perhaps into the bond market or into a cash equivalent) or else remain invested (or allocated), yet do so in defensive names which typically have higher dividends and experience less volatility than higher-beta stocks (like technology).

Follow along with daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

Continue Reading…

Traders may have been surprised by the strength of the recent upside gaps in Microsoft (MSFT) and especially Netflix (NFLX) which shattered daily resistance levels into “Open Air” territory.

Let’s put these strong upside gaps into the context of the Weekly Chart and broader trends and gather insights from the higher timeframe structure and levels.

First, the “Big Gapper” Netflix (NFLX):

If you’re not accustomed to viewing Netflix (NFLX) stock, keep in mind that this morning’s big $40.60 overnight earnings gap is almost identical to the big opening gap on January 24, 2013.  In other words, we can’t use terms like “unprecedented” to describe today’s upside activity.

If history is a guide, we saw an initial pause/consolidation (perfectly logical) before price continued higher with a large non-gap one-day surge of $23.00.

At this moment, the intraday session so far is forming a consolidation or pause of the overnight gap movement and we’ll be focused on the final range at the close of today’s session for guidance (bull/bear pivot levels) for Wednesday’s session and beyond.

Given that price broke the recent ‘rectangle’ range from $180 to $200, there are no further reference levels to monitor on the Daily Chart as price ejected into “Open Air.”

Let’s put today’s opening gap in the context of the larger weekly chart and intermediate trend:

I drew a simple Fibonacci Retracement grid from the $304 high (2011) to the $52 low (2012) to arrive at the key focal point into $208 per share.

The $208 level is the important focal point for short-term traders to use as a key reference area, as it is also a “Polarity Price” meaning price has inflected from $208 previously as both short-term support and resistance.

With the break above the 61.8% Fibonacci Level, this suggests that a sustained uptrend is in place and that the intermediate trend has joined the short-term trend in a bullish orientation.

Netflix (NFLX) thus remains “bullishly biased” while it remains above the $208 level.

While not as dramatic, Microsoft (MSFT) shares enjoyed their own upside gaps recently:

Short-term traders in Microsoft have likely been frustrated by the back-and-forth gap activity between the $28.75 and $30.50 region, having endured two days of upside breakout only to be erased completely with a single session after an opening gap (April 11).

After further stagnation/consolidation into the $29 area and rising 20d EMA, we see a fresh series of upside gaps that propelled price to the current $31.00 per share level.

While Netflix burst into Open Air, the picture is not the same according to Microsoft’s Weekly Chart:

This week’s upside gap activity thrust Microsoft shares into the known resistance target near $31 which was a reversal point for shares during September 2012.

Traders should concentrate their attention on the interplay into the $31.00/$31.50 per share pivot.

A continued breakthrough here – and sustained close above $31 – suggests that shares will enter the “Open Air” pocket (and pathway) back to $32 but until that happens, do focus on the short-term and even intraday activity relative to the $31.00 per share price level.

To be precise, the spike-swing high on November 6th, 2012 (also a gap and reversal candle) is $31.61.

While it’s very easy to get excited by intraday gaps, it helps to step the perspective up to the higher timeframe to note any targets that have been hit or key levels that now become in play (which may have been inconceivable the night before the gap).

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

Continue Reading…

With Goldman Sachs (GS)breakdown under the $140 “Round Number” Reference level today, let’s take an updated look at the chart and identify the new key levels to watch.

First, the Daily Chart and initial support break:

We’ll see shortly that we can develop a Bull/Bear Game-Plan for short-term trading tactics (management) in terms of real-time price interaction with the $140 and $138 level.

First, we’ll take a look at the bigger picture uptrend and potential reversal in structure that would signal a new downtrend, particularly if price holds and closes under the current area – in sum, price hangs over the edge of a price support cliff.

The Momentum Oscillator peaked in mid-January while price traded in an uptrend into the $145 area.  From there, price continued to peak just shy of $160 per share while we can see a visual loss of momentum or clear negative divergence.

On the initial downswing from the high, sell-volume spiked while buy-volume declined relative to the recent past, suggesting a potential change in structure or market character (volume weaker on rallies and stronger on declines).

Price then broke the rising 20d EMA to fall toward the rising 50d EMA, only to break that level cleanly in March.

A vicious ‘bear trap’ (a break under the 50 EMA that results in a sudden burst of buying pressure higher, trapping those who triggered aggressive short-sale positions) developed that thrust price into the $150 level – note the clear decline in buy-volume on the ‘trap’ or short-squeeze event that propelled price from $140 to $150.

We’ll focus our attention now on the recent sell-swing in price that was met with a surge in sell-volume along with a new momentum low.

The “risk” is that the short-term trend continues to reverse to the downside which opens the price toward a sell-pathway toward lower support targets including the $125 region which is the current confluence of the rising 200d SMA and horizontal support line as drawn.

Before we turn extremely bearish on Goldman, let’s take a look at a short-term Fibonacci Grid that highlights the key level for this week:

Starting with the December swing lows near $115 and $125, we see two Fibonacci Retracement grids drawn to the $158.50 high on February 19, 2013.

The two spots that draw our attention are the $141.60 level (most recent “bear trap” spike low) and the current $137.50 region which is the current intraday low.

Note the classic interpretation of how Fibonacci Levels work – one looks for a support bounce off a reference level, but if a particular level fails as support, then a trade (or pathway) opens up to the next lower level.

If price doesn’t “bounce” or retrace higher from the $137.50 confluence support region, then an automatic downside targets the $132 level.

A future failure into $132 opens up the Daily Chart pathway toward the $125 confluence – again these are bigger picture concepts and levels.

Individual trades are likely to develop on the lower frames for swing and intraday traders to take advantage of support or breakdown – or even retracement – events that occur in the context of broader frame ‘pathways’ to targets.

Let’s take a final look at the intraday chart to note recent support shelves and breakdowns, and focus our attention on the current level:

I drew highlighted boxes to reflect intraday support shelves that corresponded with positive intraday divergences, but price would later break under each ’shelf’ level to trigger a quick intraday breakdown opportunity which continued the intraday downtrend in motion.

The most recent shelf developed briefly into the $147 level, and the break under that level resulted in the quick sell-off toward the prior $142 support level.

Wednesday’s breakdown sets the stage for the “Battle for $138.50″ which is the Fibonacci Cluster Support level that plays against a potential reversal of structure on the Daily Chart that opens the stock to lower levels.

Keep focused short-term on the interaction between $138 and $140 and keep in mind that sellers have already entered breakdown trades on the support break and have placed logical stop-losses above $140, resulting in a ‘cluster’ or pocket of stop-losses which will trigger on a break higher above $140 and particularly $142 (the green region).

On the other hand, a failure to rally back above $140 (and especially a breakdown under $138)  could result in the continued selling pressure both from buyers/bulls taking profits from prior positions – and buyers/bulls taking stop-losses from recent trades – which would join with short-sellers putting on new positions for an expected breakdown.

Monitor real-time activity relative to these areas and the reversal signal that will develop on the chart in the event that we see a sustained break under $138.

Follow along with daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education, and timely analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

Continue Reading…