Getting Around to Shorting VMWare

Written By: DragonFly Capital

I had a someone ask me on StockTwits what I thought of VMWare, $ VMW, back on June 4th. This was my response.

6-13-2013 2-47-46 PM

Since then I have been looking for a reason and entry to be short. With the sideways motion for the last two weeks it has done so. The chart below shows that it has been building a descending triangle over support at 70 since February. The target on the break below takes it to 40. Both the bearish Relative Strength Index (RSI) and the Moving Average Convergence Divergence indicator (MACD) support more downside. And the accumulation/distribution is rolling lower. Distribution confirming the rounding top seen back on June 4th. Short interest is less than 3% so the risk of a squeeze is small. A close below 70 on the weekly chart seals the deal on the short trade.

vmw

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The Weekend Trader – Market Update, Life Tips & More Book Reviews

In today’s post, I touch on market rhythm updates, provide a few life tips (especially for those trying to lose weight!), and also take a look at some additional book feedback from industry leaders obtained by publisher John Wiley & Sons and which will appear in the soon-to-be-published work.

In our last post, Linda Raschke provided her feedback.  In today’s post and video, I touch on the following feedback from industry heavyweights Larry Connors and James Koutoulas. My thanks and gratitude to both Larry and James for their help in past years, as well as during the current publishing effort to ensure the book is of the highest quality.

I’ve had the good fortune of watching Don Miller trade profitably in front a live group of full time traders. The methods Don teaches are solid and more importantly, as you will see here in his book, they’ve been consistently successful. This book goes further than most trading books because you get to live with Don day-by-day seeing both his actual trading along with his mind frame. If you want to learn from someone who has mastered day trading, and has successfully done so for years, then this book is must reading. Highly recommended!
— Larry Connors, Founder of TradingMarkets.com, Author of “How Markets Really Work”, and Co-Author of “Street Smarts”

A true story of sacrifice, hardship and success.  Don Miller shares his story to make 1 million dollars in one year in real time, real trading records and real life.
— James L. Koutoulas, Esq., CEO, Typhon & Co-Founder of the Commodity Customer Coalition

Don Miller’s S&P Trading Tank

STTG Market Recap June 10, 2013

Monday was the type of session bulls were looking for after a fast and furious one and a half day rally off Thursday’s mid day lows.   After a very hectic data full week last week, this week becomes more quiet.  Overnight the Nikkei surged nearly 5% as the yen fell sharply, which had been the pattern for much of 2013.  The Japanese index had been up some 50% at peak this year before this recent 20% correction.  Traders seem to be watching this index (and currency) very closely as it has daily implications on the U.S. market of late.   Ahead of the open  the S&P ratings agency raised the U.S. sovereign credit outlook to “stable” from “negative,” with a current rating of AA , adding that the likelihood of a near-term downgrade is “less than one in three.”  The S&P 500 lost 0.03% while the NASDAQ added 0.13%.

The S&P has stalled exactly where expected for now – a few days of sideways action to build strength for a new leg up would be how it typically works but in the QE world these rallies tend to be sharp and fast.  Of course the bear case still remains where “that was it” and the market has its very true rollover of the year.  Right now we are at inflection point awaiting more data for both the NASDAQ and S&P 500.

spx

compq

Lululemon (LULU) the hot yoga brand announced guidance and their CEO’s departure after the close – the stock has been rocked to the tune of 12% in the aftermarket, down to the $ 72 area.

The yoga clothing company that made headlines earlier this year for its see-through pants snafu said Monday that CEO Christine Day will step down as head of the company after a successor is named. Day has held the CEO spot for more than five years.  The Canadian company made the announcement as it reported a slight increase in its fiscal first-quarter profit on higher revenue.  Lululemon earned $ 47.3 million, or 32 cents per share, for the quarter that ended May 5. That’s compared with $ 46.6 million, or 32 cents per share, in the first quarter last year.  Revenue increased 21 percent to $ 345.8 million from 285.7 million.  That beat market expectations for the quarter. Analysts, on average, were anticipating earnings of 30 cents per share on revenue of $ 341.4 million, according to FactSet.   Its revenue from stores open at least a year increased 7 percent.

lulu

Facebook (FB) finally is showing some life the past few days, and today benefited from an upgrade.   This is the first visit above the 6 week downtrend channel it has been stuck in; let’s see if it holds.

Facebook could be one of the “most compelling investments in the Internet sector right now,” according to Stifel Nicolaus analyst Jordan Rohan, who sparked a rally in the company’s shares on Monday by raising his rating from “hold” to “buy.”  Rohan spoke to CNBC’s “Squawk on the Street” about his call, which includes a price target of $ 29.  The bears on the stock either believe Facebook ads don’t work or that engagement is declining as younger demographic is leaving the service, Rohan said. However, he believes several catalysts in the next 12 months will create a situation where investors will “have to buy the shares.”  These negatives have already been factored into the share price while the positives have been ignored, he said.

fb

Solar stocks were back in the market’s graces today, and generally held up well during the correction – here we see First Solar (FSLR) held its 20 day moving average.  Sunpower (SPWR) – with less institutional support than First Solar – broke its 20 day only slightly.

fslr

spwr

Housing stocks on the other hand continue to have a rough go of it – after a dead cat bounce the previous two sessions, they continued their downward path.  Perhaps people fear rising mortgage rates will take steam out of the housing market, even though traditionally a 4% mortgage would be considered rock bottom.

tol len

Original post: STTG Market Recap June 10, 2013


Stock Trading To Go

Emerging Markets Are Ready To Show Some Strength

Written By: DragonFly Capital

Relative Strength that is. The ratio chart of the S&P 500 SPDR, $ SPY, against the iShares MSCI Emerging Market ETF, $ EEM, below shows the story. During this latest run higher in the SPY, the EEM has been taking it on the chin, off over 11%. And it looks set up to continue lower still. But the ratio is another story. At the top of the rising channel, with a Relative Strength Index (RSI) that is technically overbought and a Moving Average Convergence Divergence indicator (MACD) is at new highs. You can see from the chart that the last time the ratio was in this situation it corrected sideways

spy eem

for some time before a move lower. And it could do so again. Rather than playing for the SPY to fall or for the EEM to rise, why not play the pair for the correction? By selling 100 share of SPY for every 400 shares of EEM long you have a means of playing this correction. Should the ratio move outside of the channel, over 4.15 stop the trade, and look at the gaps in the chart at 3.90 and 3.6 as well as the bottom rail of the channel as places to take profits.

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What is Next for the S&P 500

Written By: DragonFly Capital

From June 4. 2012 until May 22, 2013, the S&P 500 moved higher in an extended AB = CD pattern. The final leg extended to 161.8% of the initial leg. This final leg was also done in 4 steps, each 127% longer than the previous. All Fibonacci. The Fibonacci traders have been big winners. But what happens next? Last week looked like the orderly pullback you would expect, touching a 61.8% retrace of the last move. Settling back over the rising 50 day Simple Moving Average (SMA) all looked well to end the week. But then the pesky 20 day SMA got in the way and knocked it back lower. Does this mean it

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wants to head lower? Maybe. Back testing the 50 day SMA again on Wednesday as that approaches the 50% retracement sets up for an important area. Continuing with the Fibonacci’s, a break below would look at the 61.8% Fibonacci at 1593 with 1586 and 1553 beyond that before a full retrace to 1536. There are several signs that the upward trend remains though. The Relative Strength Index (RSI) is holding in bullish territory over 40, although heading lower. The SMA are all rising and most are below the price action. One day at a time will tell whether the market wants to continue higher or correct.

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Dual Upside Projection Target for Apple AAPL and Levels to Watch

Apple (AAPL) stock on a charting basis rests near a major inflection point that is worth our attention.

Depending on what happens at the current price levels, we will be looking for a movement up to a dual-indicator projection target or else lower for a retest of the prior low.

Let’s update our Apple analysis game-planning and focus on the key inflection level, upside projection on a breakout, and downside levels should a breakout here fail (meaning resistance held and the downtrend continued).

We’ll start with the Daily Chart:

Apple stock has been in a daily chart downtrend since the $ 705 peak on September 21, 2012.  For reference, downtrends are defined as a series of lower lows and lower highs which also reveals a declining orientation of the 20 and 50 moving averages.

At the moment, Apple stock is trading sideways (consolidating) between the $ 470 resistance high and $ 425 low (the 2013 low is $ 385 on April 19).

A change in trend structure – and thus a bullish trend reversal – would occur on a clean break and rally above the $ 475 easy-to-remember reference level.  That’s where we’ll focus our attention.

A Fibonacci Retracement grid drawn from the high to the low (as shown) results in $ 507 for the 38.2% Retracement and $ 545 as the “half-way” point or 50% retracement.

We’ll also focus on this level because it forms a confluence with a bullish inverse Head and Shoulders price pattern, which we can study on the hourly chart below:

While it’s often easier to view classical head and shoulders patterns, inverse head and shoulders patterns are simply mirror image (flipped) versions of the popular pattern.

Classical definitions require a Left Shoulder (March) and Right Shoulder (May), be separated by a lower low or the Head of the pattern (April).

From this, we can define a “Neckline” which exists loosely at the $ 465 per share level.

The price pattern has a built-in price projection target in the event price triggers a breakout beyond the neckline.  A trader need only to subtract the distance from the neckline to the head and then add that value to the neckline for a potential “price pattern projection target” on the chart.

In this case, with the Head at $ 385 and the evolving Neckline near $ 465, we get a projection line of $ 80.00 per share.

When we add this to the Neckline, $ 465 plus $ 80 equals $ 545.  If $ 545 sounds familiar, it’s because we observed the 50% or “halfway” Fibonacci Retracement at this level on the Daily Chart.

No, there’s absolutely no guarantee that Apple will break higher here to trigger this pattern, and even if price does break above $ 475 that the stock will continue to the full target.  It does however provide a reference level if the stock does trade higher from here, thus allowing us to develop trading strategies along the way.

Sometimes it’s helpful to have an exact price in mind to monitor as price trades higher toward this fixed level.  It can be better than saying “I’m bullish on Apple and, well, really don’t know how high it can go but I know it’s going higher.”

Targets – whether achieved or not – provide structure and a framework to monitor real-time developments as price moves toward or away from these levels.

As a reminder, it’s always helpful to check the Weekly Chart or higher frame structure/levels before deploying trading strategies off a daily or intraday chart.

Here’s a quick and simple view of Apple’s weekly trend and reference levels:

With the 2009 bottom, Apple stock rallied from $ 80 to the $ 700 peak in a stellar rally that was uninterrupted until the 2012 peak and short-term reversal.

A green larger Fibonacci Retracement Grid shows the most important reference levels for the moment:

  • 38.2% level into $ 466 (roughly where the “Neckline” has formed currently)
  • 50.0% level into $ 392 where the 2013 low developed.

Whether it’s pure coincidence or self-fulfilling prophecies, the larger Fibonacci reference levels are our current chart-based support/resistance levels on the Daily Chart.

Once again, a bullish breakthrough above the $ 470/$ 475 level suggests that a new short-term uptrend may develop toward the dual-target of $ 545 (shown above).

We can’t just assume price will go up because a pattern has developed.  As traders, we must plan for unexpected or alternate outcomes beyond what we would expect or even prefer to happen.

In this case, it would be a continuation of the short-term consolidation pattern between $ 475 and $ 425 (or $ 400 which would return price near the 2013 low).

I like to highlight Red and Green “Bear and Bull” zones on my chart to help clarify not just price pathways, but remind me to drop biases as much as possible.

Continue studying price activity relative to these levels and create trades based on the movement toward or away from these support/resistance and price targets.

Join fellow members to receive daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education (free education section), and timely analysis.

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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Twitter-Induced Plunge Reminds Us to “Be Prepared”; Amazon Book Page Updated

The Amazon book page has been updated with the full set of industry editorial reviews (which are also posted in the lower right margin on this page), along with a new click-through author page.

On the trading front, yesterday’s brief AP Twitter-induced plunge provided another textbook example of a wholesale entry on the base of the 60-minute cup and handle support. Yet as I’ve often said, “You must be present to win” as many traders missed the opportunity over the lunch hour.

At this end, the old Boy Scout motto “Be Prepared” was extremely helpful as I nailed the low almost to the tick at 1557.75. As Jellies know, it never matters why the market moves, just that it does. For those caught over-analyzing the cause likely missed what may be the opportunity of the year.

Don Miller’s S&P Trading Tank

Its Time for Timken

Written By: DragonFly Capital

Timken, $ TKR, has been a local favorite, just down the road a ways in Canton by the Pro Football Hall of Fame. They make the stuff you need to make stuff. Not little stuff, but big stuff like locomotives, helicopters and the like. But what really interests me is the chart. There is a slowly rising wedge on the weekly chart below that is holding at the top rail. As it sits there the Relative Strength Index (RSI) is bullish and rising and the Moving Average Convergence Divergence indicator (MACD) is turning back up on the signal line and a bout to cross, with the histogram flirting with a move to positive. These

Timken, $ TKR
tkr w

support a push higher. But a glance lower at the Accumulation/distribution shows steady accumulation since the bottom in 2009. There has been no letting up. A move over the top of the rail and the bull flag consolidation of the last 5 weeks carries a Measured Move higher to 65 initially.

There are several ways to play it. I took some September 60 Calls, perhaps a bit premature, for a defined risk trade and also traded long stock with a collar.

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Economists: Homeownership leads to unemployment

An economics professor friend, knowing that I like to tell everyone to rent rather than buy, and that back in August 2011 I asked the question Does homeownership lead to longer unemployment? sent me this recent (May 2013) paper from NBER. Unfortunately the full text is not available for free online. Here’s the abstract:

We explore the hypothesis that high home-ownership damages the labor market. Our results are relevant to, and may be worrying for, a range of policy-makers and researchers. We find that rises in the home-ownership rate in a U.S. state are a precursor to eventual sharp rises in unemployment in that state. The elasticity exceeds unity: a doubling of the rate of home-ownership in a U.S. state is followed in the long-run by more than a doubling of the later unemployment rate. What mechanism might explain this? We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. Our argument is not that owners themselves are disproportionately unemployed. The evidence suggests, instead, that the housing market can produce negative ‘externalities’ upon the labor market. The time lags are long. That gradualness may explain why these important patterns are so little-known.

Shorter summary: One answer to my August 2011 question is “yes” (but let’s always keep in mind that John Ioannidis would predict that a subsequent paper will find a different answer)

Additional elated older postings on this blog:

Philip Greenspun’s Weblog

STTG Market Recap June 11, 2013

The markets remain in correction mode.  After a sharp bounce off last Thursday’s lows, we saw a quick day and a half rally.  Monday was a small rally to begin the day but it has been mostly downside since.  Tuesday was volatile with a gap down to begin the day as the Bank of Japan did not do anything to address market swings (not sure what people were expecting considering they have taken historic action already), and the markets gyrated from big losses to small losses, and then back to big losses late in the day.   The currency markets continue to dominate as the yen had another significant rally, which as we noted last week has a lot of implications for many other markets as so many trades are interconnected.  To that end Citibank was rumored to be facing a potential $ 7B capital loss due to currency trades.  This showcases how many fingers are in so many pots and how something seemingly innocent can roil markets.  The S&P 500 lost 1.02% and the NASDAQ 1.06%.

Citigroup could lose as much as $ 7 billion on currency swings if Charles Peabody is right, putting the analyst at odds with peers who say the stock will be the best performer among big U.S. banks in the year ahead.   He estimates the bank may lose $ 5 billion to $ 7 billion in regulatory capital this year if the dollar gains against the yen, euro and currencies in emerging markets, which provide about half the firm’s profit. That would be its worst translation loss in five years, exceeding the $ 3.5 billion deficit in 2011.

The S&P 500 remains in this downward channel; it appears yesterday morning perhaps it was ready to break over it but selling quickly followed.  Now the index is essentially back in the middle of its descending channel, so near term it can go either way.  Until this range is broken to the upside it remains a corrective pattern.  If this selloff continues in the coming days, last Thursday’s lows will be very important to watch.

spx

The NASDAQ is very similar.

nasdaq

Breadth was horrible today – at the open the advance decline measure showed -2500 which is the worst of the entire rally.  Even with some gains later in the day this was still an extremely poor reading near -2300, and follows a lot of bad ones the previous two weeks.

nyad

The yen made another strong move today, and that is considered a “risk off” situation – but anytime a currency moves 3% it is quite rare.  But it has now happened twice in about a week with the yen.

fxy

Emerging markets (i.e. Brazil, Russia, et al)  have been very weak for much of the past few months but lately have fallen off a cliff.  Frankly the markets supported by QE are the main ones in the world doing ok – a lot of other markets have had a rough year.  Here is the ETF for the group.

eem

Other than some medium and small cap type biotechs there were not many places to hide as the advance decline index shows us.  Even worse, areas that showed relative strength yesterday (we mentioned solar stocks) fell hard today, which means we have no continuation day to day.  Not a healthy sign.  For example, First Solar was up 6% yesterday but today down 7%.

fslr

Original post: STTG Market Recap June 11, 2013


Stock Trading To Go

Trade Planning in the US Equity Indexes from Current Range Reference Levels

The US Equity Indexes have formed a clear support range or rectangle price area between key short-term Fibonacci levels.

While that sounds more complicated than it actually is, let’s look at the key intraday and short-term critical support and resistance levels for trade and game-planning the next few swings in price.

We’ll start with the Hourly Chart of the SP500:

As we’ll see shortly, the SP500 is actually trading at a slightly lower level than its companion Dow Jones and NASDAQ equity indexes.

While the others are interacting with the 38.2% Fibonacci Level as the lower boundary of the short-term range, the SP500 actually formed its critical pivot point into the early May lows at the 1,625 inflection spot.

In each chart, I drew the short-term Fibonacci Retracement grid from the May high to the recent June low and we see each of the 38.2%, 50%, and 61.8% upward retracements as labeled.

For the SP500, the important levels for trade planning are the 1,625 support, 1,643 ‘midpoint’ resistance, and the upper boundary just shy of 1,655.

For trading purposes, we’ll continue playing bounces or “ping-pong” set-ups between these range boundaries.

For strategy and planning purposes, we will prepare to trade a breakdown under 1,625 to target 1,600 (very important support) or else a breakthrough above 1,655 to continue the higher frame uptrend and target 1,670, 1,685, and 1,700.

Note that the SP500 broke a falling ‘arc’ trendline on the spike-up (reversal) from 1,600.  This is an example of how powerful ’spikes’ can come from breakthroughs beyond arc trendline events.

The Dow Jones shows similar planning levels:

As I mentioned, the “Rectangle Range” in the Dow Jones has developed between the 38.2% (15,111) and 61.8% (15,277) Fibonacci Retracement grid.

The Midpoint of the pattern is 15,192 or roughly 15,200 for easy reference.  Making it simple, the upper boundary is 15,275 while the lower boundary is 15,100.

Like the SP500, a breakdown under 15,100 suggests short-term bearish trades to target 15,000 then 14,850.

However, a bullish higher timeframe trend continuation event triggers above 15,300 which targets 15,400, 15,500, and (yes) 16,000.

Finally, here are the NASDAQ range planning levels:

Like the Dow Jones, the boundaries have developed around the Fibonacci Grid.  The upper resistance trades into 3,480 (3,473 is the 61.8% retracement) while the lower support level trades into 3,440 (38.2% at 3,437).  We can draw a similar lower trendline into 3,420 to connect the ’spike’ reversal lows.

The Midpoint of the pattern or ‘halfway inflection zone’ is 3,455.

Similarly, a downside breakthrough targets 3,420 and a failure under the ’spike’ support of 3,420 targets 3,400 then 3,380.

A pro-trend continuation breakthrough above 3,480 that carries above 3,490 targets 3,510, 3,530, and beyond.

To put these intraday charts in perspective, here is a quick view of the SP500 Daily Chart:

The market is attempting a fourth successful pro-trend ‘flag’ retracement off the 1,600 key level (50d EMA) and after a two-day successful bounce, price stagnated into the 1,650 level and have traded loewr within the intraday patterns (range levels) shown above.

A bullish resolution would be expected above 1,650 to continue the strong pro-trend environment while a breakdown under 1,600 would be a signal of an official reversal of the short-term trend (the last time this occurred was October 2012).

Continue watching short-term/intraday price activity with respect to the higher frame thesis, monitoring whether this fourth retracement or ‘flag’ will succeed (with a push to new highs) or fail (under 1,600 targets a swift move back to 1,530).

Join fellow members to receive daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education (free education section), and timely analysis.

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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