ShadowTrader Focus Report_2008

This weekend's video:

Breadth and advance decline lines bouncing to subsequent lower highs as market has been bouncing since 7/15

Financials and Oil stocks in divergence but we thinks down...

USO (crude oil) setting up for a bounce trade and how to play it...

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Good Morning, Traders. Earnings and a slew of news last week wreaking havoc on the markets and causing some sideways action on Friday. The "unwinding" (we hate terms that are "hip") of the long oil, short stocks trade seems to be beginning. We've been discussing it a lot as of late because its of note, we feel. Again on Friday, oil fell to new swing lows down to the June support and failed to spark any interest in stocks as they just chopped in a narrow range. As we've been mentioning this is due mostly to the surprise support for the dollar that has now held up over the trendline for 3 days now. Surprising? Yes. Makes any sense? No. Is what it is? Definitely. Until we see some softness in the greenback, the situation should stay the same. Given the nature of the beast, there are good odds that some bounce is coming that is going to happen all in one day as the dollar gets hammered for some reason or other. This is a trade, not an investment. Let's draw some trendlines together on the <b>USO</b> and see where this might be so we can set some buy stops :).

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080728USO2.gif">

Entry above the breakpoint of either trendline above should offer good risk reward as the <b>USO</b> has been in a straight downward move for some time. Tight stop with good upside potential. Exact entry points listed in <i>Bulls and Bears</i> section below.

The S&P is either setting up for a large long trade or a large short trade given the nature of the consolidation as shown below. We feel the pattern in the hourly is speaking volumes and with the recent market internal readings is pointing more to the short side. Let's take a look at the three hourly charts below to present our case.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080728SPY.gif">

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080728SPY4.gif">

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080728SPY3.gif">

The case is pretty well laid out above. The <i>ShadowTrader Video Weekly</i> of July 27th which is available <a href="http://www.shadowtrader.net/videoArchive.html">here</a> if you aren't yet subscribed to receive the Sunday emails has more information on the trade. Basically with the head and shoulders formed above, there is good risk reward on the short side. The pattern should create a lot of what we like to call "overhead pressure" if it follows through.
 
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Good morning, Traders. We might actually be breaking a prior swing high in the markets with yesterday's add-on to Tuesday's bear slaying rout. More importantly the markets did it while crude opened flat and then gained $6 intraday and closed at highs. So the decoupling is of note. Now it seems that people might actually want stocks for the right reason and not just as the inverse to a commodity move. The reason being, of course, that they think they can sell them for more later on. That's what keeps a rally going and not this one day up one day down or only go up if oil fades, etc.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080731SPX.gif">

Chart of the S&P above shows the recent improvement and no follow through to the selling of 7/28. These "non-follow through" days should be looked upon the same way as reversal bars. If anything even more powerful because they bringh the element of disappointment/surprise into play. The ideal situaion here would be for the market to fail once more at the swing highs area (circled above) and build up steam for the push through which would then take the S&P to 1315 tout de suite. That said consolidation would probably bring buying opportunities in more than one sector.

If we do get this setup, then you should probably stay away from the four letter symbols as the Nasdaq is now playing the laggard and seems more mired within its consolidation range than looking to breakout like its listed brethren. You can see the relative weakness in sectors like Internet ($DJUSNS) and Semiconductor ($SOX). The $COMPQ isn't that bad looking but the $NDX looks like such a chop-fest that its apparent that leadership is not going to come from there if we are indeed changing trend here. Charts of <b>AAPL, EBAY, AMZN & GOOG</B> are not inspiring to say the least. <b>RIMM</b> may be an exception as it has a little inverted head and shoulders going on it's daily that we are watching. Could be a standout amongst $NDX names and take the stock to about $130 area which were strong prior lows.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080731RIMM.gif">

Entry on the Crackberry purveyor would be above yesterday's high with a stop under lows of right shoulder.

Visa (<B>V</b>) reported earnings after the close yesterday and the stock is trading notably higher. Current trade as of this writing has the stock at just under $80 which is interesting due to the long term trendline resistance which is right at that area.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080731V.gif">

Snapshot above shows the trend in the stock which has great prospects and could easily be a long term hold depending on the price action at the trendline. Tomorrow may just power the stock right on through since it will be newsdriven. Expect buyers at any point over the downtrendline to be in a feeding frenzy. The more volume the better. Short term momentum traders stop her under the low of the day which would be the breakout bar. Longer term traders can take smaller size and maybe go somewhere under this week's low at $70.

Don't worry if you are not long anything just yet. We aren't either and it's not bugging us in the least. All we have to go on so far is that there was a reversal day on Tuesday which was the non-follow through to Monday's bearishness. Bottoms of big body candles are always technical stop points though so its good that we got one recently and on a good increase in overall volume (Tuesday) which is bullish as far as accumulation/distribution signals are concerned. An uptrend that could actually last for a little while would be excellent here. Tomorrow's edition will have some monthly charts of broad market and sectors, many of which could be "hammering" here which is a pretty powerful and somewhat rare signal when we get it. More on that tomorrow and in the <i>ShadowTrader Video Weekly</i> this Sunday.
 
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Good morning, Traders. Recent bullishness has created some monthly hammers on the charts of the major averages. For those of you who are in still in Candlestick Kindergarten (and we all started there at one point), monthly bars close on the last trading day of the month, that being yesterday. Remember that the longer the timeframe when doing bar or pattern recognition/analysis, the more "power" or higher odds of follow through it has. If you don't believe this, please try and daytrade using candlesticks on 1 minute charts and see how many worthless patterns there are. (Peter's favorite emails are the ones from crack addicted, ADD, futures traders who send in annotated snapshots of one minute charts).

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080801SPX.gif">

The chart above shows a clear area where the S&P could go on a bounce here if price moves over the high of the monthly hammer. Note that this target is a bounce to a line which defines a pretty long term downtrend, so its not a pie in the sky prediction by any means. It would be a movement of about 70 S&P points (roughly 700 on the Dow) from here to there. 1293 in the <b>SPX</b> would be a clearing of the high of the monthly bar and set it off to the upside.

As far as shorter term action goes, the movement in the markets in the last two days has to be viewed as pretty good if this pattern is to develop. As per the chart we showed of the S&P yesterday showing the resitance at the 1290 area. If the market is to move up over this level then it needs some winding up and that can only happen with a mild pullback or the type of sideways action we've had in the market for the last two days. Either way, we now have a firm higher low in place in the market on the reversal of 7/28-7/29. This low of 1234 must obviously hold if this pattern is to work. Optimally we should fall only to roughly 1255 or less where the 20ma daily on the S&P currenly resides. A strong close away from that area would also be necessary to continue to keep the bears at bay. Obviously, yesterday's close could certainly have been better but we have to view everything as intact unless the lows of the reversal are taken out. We are very cautiously turning bullish but not overly interested unless we see the market setting up to move aggressively over the aforementioned pivot of S&P 1293. Market shrugged off GDP and jobless claims at yesterday's open after a gap down, let's see how it does with the triple whammy of <b>non-farm payrolls, construction spending, and the ISM mfg index today</b>. Stay tuned, same Shadow channel, same Shadow time.
 
This week's video....

Hate to say it but banks/financials look the best this week. Friday's action was so weak and yet banks and brokers sat at the top of the Core Sector List with much relative strength.......

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Good morning, Traders. Today is a "fed day" and as such there's probably going to be a big move in the afternoon. As much as we wanted to be clear of at least the 1260 area (and moving onwards to the 1290 resistance) in the S&P yesterday, it didn't happen as the mid-day recovery was eviscerated in the final hour. So we are back at the trendline which created yesterday's intraday bounce. If we are to get it going to the upside its either going to happen today or not. Let's take one last look down the rabbit hole....

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080805SPX.gif">

Here's the plan if everything doesn't fall apart. Since we've been saying that the technical picture points to a short term upswing here to about 1305, the plan is a bullish one. The S&P will need to move above 1260 in early trade today for this to set itself up. The hourly chart below shows why this area is important.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080805SPX60.gif">

So above you have the technical picture, now what to do with it. If we can get at least consolidation (but preferably strength) into the Fed, we'll be looking to scatter longs into four areas. Railroads, Banks, the broad market, and 1-2 "wild cards" which will be "big beta movers" as we like to call them. These are the highly fundamentally rated stocks that are showing good relative strength and pack a good deal of bang for the buck when the market decides to lurch forward. Below is a partial "wish-list" of some things we would like to put in our shopping cart.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080805NSC.gif">

<b>NSC</b> is in the railroads sector ($DJUSRR) which is showing a lot of relative strength recently.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080805IYF.gif">

You can use <b>IYF</b> as a proxy for banking sector. You'll note that charts of <b>BAC, C, MTB</b>, etc. all look similar.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080805SSO.gif">

This is an "Ultra" etf for the S&P. Note that in this tight range there is only about $1.30 difference between yesterday's high and low. A move over yesterday's high would be an excellent entry with a stop below the low as shown above.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080805TDY.gif">

<b>TDY</b> is an example of a "big beta mover" we would be interested in. <b>HUBG</b> is another one that has glowing fundamentals and a strong pattern.

As with everything we do, note that waiting for confirmation is key, <i>especially</i> on a fed day. One strategy which will probably come into play for us today is the use of the buy stop if the market is just consolidating ahead of the 2:15pm EST announcement. Our thought is that if the news pushes the market hard up over these pivot points, the technical buying should kick in and it won't come back down immediately. Certainly yesterday's late day pounding hurts the odds that the reversal will occur but as we're not long yet it really doesn't matter. If we get no upside setup, and the news (or whatever reason) pushes the market to close below 1234, then abandon hopes of a summer rally all ye who enter.
 
Not expecting much from market today, if it just digests yesterday without sh***ing its pants that would be nice.

-Posting rather late today, sorry! Neither of these ideas has triggered yet however so they're still useable.

bnb.GIF



The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month
 
The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month

Good morning, Traders. Ugly move back to the trendline which puts the market back into a precarious position right back at the uptrendline. What is so annoying about this is the fact that the long setup here had everything going for it, but like most moves in this market, lasted a day and a half and failed. The bulls are still in the game as long as the uptrendline doesn't fail. Meaning there has to be either a gap up tomorrow which holds or a flat opening that rallies immediately. Any other scenario puts us underneath on the open and could ignite the bears fury. It still feels like the market wants to suprise to the upside but obviously we never fight it. Probably a good time to revisit all three majors one last time.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080808SPX.gif">

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080808INDU.gif">

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080808COMPX.gif">

As you can see above, the S&P and Dow are both just one step away from failure while the Nasdaq is a bit stronger and well above the respective trendline. With the type of choppy action that we've had since putting in the bottom on July 15th, it honestly would probably be ok to short Nasdaq stocks today as the leadership keeps shifting like a hot potato so we would not be too shocked to see the Nasdaq careen back down sharply to the trendline while the S&P and Dow maybe false breakdown and make doji's. Basically we're just alluding to the fact that nothing seems to be trending just yet so swift reversals seem to be the norm still. Generally speaking though, from a pure technical viewpoint, the listed stocks should however outperform on the short side if there is a sustained move below the trendline as the dominant theme in those stocks will be one of dumping merchandise that is now immediately overpriced, while on the Nasdaq side of things there will be many players who will look at the pullback as a buying opportunity to pick up merchandise at cheaper levels. All of this just makes the swing trading game that much more difficult at the moment.

Brokers are an interesting group to be looking at currently. Its a strange pattern with the big swoop down to the lows but nonetheless it does look more and more like a really weak bounce that wants to make a run lower very soon here, even if that run lower doesn't go as low as the prior swing low although anything could certainly happen.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080808XBD.gif">

If we do get some weakness today below the S&P and Dow trendlines, these are probably decent bets to drop a bit. Check out dailies of <b>MER, LEH, GS, & LM</b> to see patterns that are shortable. <b>MS</b> seems a bit stronger and out of sync with its brethren so you may want to nix that one. It will fall with the others if the pattern plays out, just possibly not as much. Same theory as the $Compq vs $SPX/$INDU strength discussed above.
 
In this week's video

-More bullish than bearish with the move up over the 1290 in the S&P
-However, banks & brokers failing to ignite any interest
-Oil stocks (also important to s&p) look more like a bottom fishing play at this point.

A few long setups, most noteworthy, GOOG looking like it wants to fill the recent gap down...

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Enjoy.......
 
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Good morning, Traders. Frustrating, out of sync, typical...are some words that come to mind for this current market. There is a phrase that we have heard amongst traders which says something to the tune of "when it's ready to go, they won't let anyone in". Although we are on the fence a bit as to whether or not there truly is a "they", the overall sentiment seems to ring true. It simply means that markets seem to not wait for you to be ready and do everything they can to lull you into a false sense that there will be time to enter later as the setup develops. And so, you get a situation like Friday where if you didn't have your ducks in a row coming into the open there was really no setup to get in unless you bought the first 15minute high (which of course you don't trust after Thursday's bearish close down into the trendline.) Market moves like a rocket from that point on and the rest is history.

So, we got our move over 1290 in the S&P but is everything as rosy as it seems? Well, sort of. About a week ago when we started talking about the move up to this area and the eventual breakout which happened on Friday, we were looking at a recovery in the banks and other financials to lead the way. This has not happened, however as key sectors like the banks, the brokers, insurers and all things energy don't look too special here. Sherman, turn on the WABAC machine and let's see some charts.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080811SPX.gif">

The chart above obviously includes Friday's action which was about 3.5 to 1 breadth up on both the NYSE and Nasdaq and an advance decline line on the NYSE of over 1600 to 1. These are not hit it out of the park numbers by any means but they are solid. Combined with a close over the pivot, its not too shabby. Below is the "bad" news or rather stuff to file under "that which makes things slightly unclear" or "it would be a lot nicer if these sectors were up a bit higher."

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080811BKX.gif">

We got long <b>IYF</b> on 8/5 thinking that banks were setting up on an inverted head and shoulders to really rip over the 7/23 highs. The rally lasted exactly one day and to this day with the S&P breaking well above that area, the Banking Index has yet to clear the 8/6 highs.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080811XBD.gif">

Some brokers didn't seem to get much interest on Friday. The charts aren't shown here but pull up charts of <b>LEH</b> and <b>MER</b> and even the granddaddy, <b>GS</b> didn't even get over Thurdays's high on all the bullishness. We would be looking to short these if the S&P was to lose it again and break this uptrend.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080811IUX.gif">

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080811XOI.gif">

Oil stocks are coming into support which should help the rally although the sector is certainly relatively weak. We're showing this one right after a slew of financial charts due to the high concentration of energy issues in the S&P. It's not shown here but Oil Services stocks (pull up <b>$OSX</b>) don't have the same support and could fall further.

So, we don't want to come off as naysaying since we were the ones who were the ones doing the saying that this move up was going to happen, do you know what we're saying? In all seriousness, where do we stand then? <b><i>More bullish than bearish</b></i>. We wanted to see this move over 1290 and we got it, participation of banks and oil stocks notwithstanding. The path of least resistance is now to the upside. We actually do like the oils here due to the prior support level and would be nibbliing on some names there. Utilities (<b>$UTY</b>) have also come into an area of support but are notoriously low beta for the most part with the exception of a few names. Transports continue to look good but are quite sensitive to crude. Healthcare (<b>$HCX</b>) has broken out recently and still has plenty of room to maneuver on its weekly chart to the upside so look for pullbacks there. Relative strength in the Nasdaq Composite and Nasdaq 100, if you recall Friday's <i>Focus Report</i> would also have us looking there for names to buy on pullbacks. <b>GOOG</b> looks like it wants to breakout higher and fill the recent gap down, just to throw a name out there. Check your <i>Bulls & Bears</i> section daily for a more comprehensive list of ideas as they develop.
 
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