Oil is Gushing!

Written By: DragonFly Capital


Oil had a bad last half of 2014. That is an understatement. West Texas Intermediate (WTI) Crude Oil fell nearly 60%. That was good news at the pumps but not so good news for oil investors. After making a low early in January it bounced and then fell back. It looked like false hope. But then it bounced again to start March, and so far has not looked back. Is a reversal occurring? There sure are signs for it.

There are many ETF’s that stock traders can use to invest in oil without getting into the futures markets. The Crude Oil ETN below ($ OIL) is one of them. Backed by Barclays and touting more initials than a NASA scientist, it is intended to follow WTI futures contracts.


In the chart you can see the drop and then ‘W’ like bottom. As a technical trader I look for confirmation before entering a trade, so today is when it got interesting. The price moved above the February high. A higher high. But not only that. It got there with momentum indicators backing the continuation higher. The RSI is rising and bullish and the MACD crossing up as it rises.

Finally, there is a harmonic Shark pattern playing out that confirmed with the move over the February high as well. This pattern has two targets. The first (shown on the chart) is to 16.05, an 88.6% retracement of the leg lower. The second it a 113% retracement and would give a target of 17.80. You can argue with me that the point “X” should be drawn higher. But that would only raise the targets. I bought the ETN for clients on the price break higher.

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Dragonfly Capital

MIT alumni in their 50s

I attended an MIT alumni gathering last week. There was a slight selection bias in that all those present were people whom an on-campus group was hoping to get donations from. Inadvertently it turned out to be an interesting look into what typical career paths look like once people are 50-60 (though remember that those who’d been complete financial failures had been screened out).

The medical doctor was at the peak of his career and in no danger of being fired. The university professor had the security of tenure and was looking forward to a defined benefit pension starting six years from now. The corporate attorney was finishing up a prosperous career. The engineers who’d chosen to work in industry, however, were a varied lot. A woman who’d taken a job at a defense contractor was still there, 30 years later. The super-wizard Lisp Machine programmer was now in a senior technical, but non-supervisory role, at a multi-billion dollar dotcom (not necessarily getting paid more than a competent 30-year-old, however). About half of the engineers, however, talked about being pushed into a financially uncomfortable early retirement and/or not being able to find work. Aside from the government-related work, the world of these alums does seem be consistent with Dave Winer’s recent “I would have hired Doug Engelbart” posting (summary: age discrimination is surmountable if you happen to have been one of the most successful engineers of all time (see The Demo from 1968, featuring everything that you’re using right now, except maybe for Patchmania)).

Lesson: Unless you are confident that your skills are very far above average, don’t take a career path that subjects you to the employment market once you’re over 50 (and/or make sure that by age 50 you’ve saved enough for a retirement that begins at age 50 or 55 and during which you won’t have employer-provided health insurance for up to a 15-year gap between age 50 and Medicare age).

Philip Greenspun’s Weblog

A Hideous Bull Trap Snaps Gold GLD Traders

If you’re trading Gold or the ETF GLD this week, you probably are suffering a case of whiplash from two traps that triggered this week.

Let’s study these two events and then note the key Daily Chart planning levels to recuperate and get settled for the next move.

Here’s the Hourly Chart which highlights the Bull and Bear Traps this week:

The recent Bull Trap in Gold corresponds well with the Bull Trap in the S&P 500.

Take a moment to review this morning’s post on the S&P 500 Bull Trap and compare notes between these markets (it’s a great educational example if you’re new to what Traps are in the market).

For the intraday chart of Gold (seen here with the @GC Gold Futures Contract), we start with a Bear Trap Failed Breakdown and Reversal on April 24th that gave way to a huge bullish impulse by April 27th.

Price and momentum burst to new highs but on the peek above $ 1,210, momentum failed to keep pace with price, resulting in a negative divergence.

Note also the slight positive momentum divergence that occurred on the Bear Trap.

Momentum Divergences can be very useful for determining whether a breakout is likely to succeed or fail like these into Trap Outcomes.

We’re most interested in the collapse today from the Trap that occurred Tuesday and Wednesday.

The key Magnet Level (as we’ll see) is the $ 1,200 per ounce reference level which held as support temporarily ahead of today’s collapse. Continue reading

A Bearish Engulfing at the Highs: SP500 Planning

Will the clear Bearish Engulfing Candle at the highs result in a logical sell-off in stocks?

Let’s chart Monday’s candle, note what accompanies it, and how to plan the week ahead.

First, note the weakening bullish trend in stocks and the two sideways consolidations in 2015.

February saw an impulsive breakout to new highs and as we transition into May, stocks are threatening a new breakout and bullish short-squeeze through new highs.

However, one obstacle that stands in the way of the bullish pathway is the Bearish Engulfing Candle.

Let’s zoom-in on this popular reversal candle and put it in context:

Bearish Engulfing Candles occur when the high and the low “engulf” or exceed yesterday’s high and low.

They often occur when an opening gap or morning strength results in a reversal day that closes near the low.

In this case, price gapped and traded to new highs but buyers could not sustain the breakout; sellers struck and price reversed into an intraday downtrend.

We note the negative momentum divergences as price scrapes against the upper Bollinger Band – and the prior February high – and note that logic favors the downside.

Thus, for planning purposes, we’ll call the Dominant Thesis the Bearish/Sell-Swing Thesis as price could move down away from the new high toward any support target including 2,100, 2,085, or even 2,065.

The Alternate Thesis – where we’ll expect a bigger price movement as traders are trapped – would thus be the Bullish Breakout and Short-Squeeze impulse similar to what we saw in February.

For even more context, here’s the Weekly Chart:

While the trend is persistent, volume and momentum are forming lower peaks – divergences.

We’ll have the Federal Reserve meeting announcement Wednesday along with many more earnings from leading companies, but as we monitor the real-time price action, keep it all in context of the chart-based short-term bearish evidence and the possibility for yet another surprise bullish breakout.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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Corey’s 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).

Afraid to Trade.com Blog

STTG Market Recap Apr 28, 2015

In what was generally a quiet day we had some fireworks in Twitter (TWTR) in the closing hour as its earnings were released early causing the stock to halt and then re-open and plunge. More on that later. As for the indexes the S&P 500 gained 0.28% while the NASDAQ fell 0.10%. Many people tend to sit on their hands the day ahead of a Fed announcement, which comes tomorrow.”The market is…

Read the full article at StockTradingToGo.com

Stock Trading To Go

Four Power Trending Stocks to Study

Which stocks topped our “Steady, Stealthy Trender” Scan this week?

Let’s take a look at four names that made the list and highlight something very similar about them.

In no particular order, we’ll start with Electronic Arts (EA):

Like the broader S&P 500, all of these four selected names are trending higher (though these stocks are strongly outperforming the S&P 500) but are consolidating/ranging at the highs.

Be sure to study this morning’s “Bearish Engulfing at the Highs – S&P 500 Planning” post.

Also like the S&P 500, these names are at support and likely retracing lower to support targets now.

For Electronic Arts specifically (EA), we have a sideways consolidation between $ 54.00 and $ 58.00 with a breakout – and possible trap – region above $ 58.00.

Note the bearish candles into $ 60.00 per share which is taking price likely back inside the rectangle.

A sudden breakthrough beyond $ 60.00 could trigger another buy-signal and bullish impulse trade.

The next three selected stocks will have similar trends and planning levels.

Next up is Cigna (CI):

While the trend continues, note the $ 130.00 per share level for a key inflection point – bearish sell-swing beneath (target $ 125) or bullish support-bounce off it (target $ 135).

It’s more likely to see a swing down to the $ 125 level but keep your focus on $ 130 at the moment.

Aetna (AET):

Aetna similarly reveals a powerful, creeping uptrend on the chart but price is stalling into the $ 110 level.

Note the sideways rectangle as highlighted in March and April and the planning levels on a breakout.

A failure here into the rising 20 day EMA support ($ 107.50) suggests a play down to $ 105 while a pro-trend eventual breakout above $ 110 suggests further upside action for traders.

Amerisource Bergen Corp (ABC):

Finally, ABC similarly has developed a sideways rectangle from March into April and is currently playing off the rising 20 day EMA pivot into $ 113.00.

A breakdown/retracement here (under $ 113) targets the $ 110 level.

Alternatively, a future breakthrough above $ 115 would be a new bullish opportunity similar to the breakout and rally seen in January.

Study the trend in these stocks, the current “make or break” daily support level (the 20 day EMA), and level-planning going forward.

These trends would be expected to continue – as has been the case – until and unless price breaks under the 50 day EMA (blue).

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Corey Rosenbloom, CMT
Afraid to Trade.com

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Corey’s 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).

Afraid to Trade.com Blog

Big V-Spike Intraday Reversal and High Activity Stock Scan April 28

In case you were becoming bored with the market, price threw us an exciting curve ball in the form of a V-Spike Intraday Reversal.

Let’s dive inside action and note key levels and the trending stocks of the bullish day:

After Monday’s failure – Bull Trap – at the highs, price collapsed toward the first lower target near 2,100.

This morning saw additional sharp selling action be thwarted with a huge bullish inflow that twisted the market violently higher in a classic V-Spike Intraday Reversal.

Price reversed the intraday downtrend into a new sudden uptrend with the re-break above the 2,110 level.

The focal point today will be the 2,115 and 2,110 intraday pivots.

Let’s see what our Breadth Chart reveals about current market strength (or weakness):

Today’s strongest sector is the defensive Utilities group followed by bullish Financials and Technology.

Were it not for strength in Utilities, we would declare today’s session bullish via Sector Strength but alas, that’s not what we’re seeing.

As a group, the Defensive Sectors (Staples, Health Care, and Utilities) are collectively stronger than the offensive names which include weak sectors Discretionary and Materials today.

Be sure to reference the earlier post “What Sector Rotation is Saying so far in 2015″ for background and an updated Sector Performance grid on a larger scale.

We have potential bullish trend continuation plays in the following stocks from our scan:

Cal-Maine Foods (CALM), Korea Electric (KEP), AT&T (T), and IBM

If you’re must be a bear on a bullish day, you can try these bearish/weak names:

Honda Motors (HMC), CIT Group, Coach (COH), and Digital Realty (DLR)

Afraid to Trade Premium Content and Membership

Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s 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).

Afraid to Trade.com Blog

Death Penalty for Tsarnaev?

Boston Marathon bomber Dzhokhar Tsarnaev has been convicted by an impartial jury of 12 locals wearing “Boston Strong” T-shirts. Now they are deciding what to do with him.

This is a tough question because we’ve amped up the sentences for ordinary crimes so much that we don’t have anything special left for those who commit especially bad crimes. If someone can get life in prison for killing one person or, in some states, simply being convicted of multiple lesser crimes, what to do with someone who killed and maimed so many people, shut down a city, etc.?

I observed a Facebook exchange in which one guy pointed out that it was going to be costly to keep Tsarnaev in prison potentially for 80 additional years (the jihadi is currently just 21 years old) and pay for exotic medical procedures towards the end of his life, explaining that it cost even more to deliver U.S.-style medicine in prison than it does in civilian hospitals. A friend pointed out that the death penalty would be vastly more expensive than imprisonment. Although economics does not seem like the right way to evaluate these alternatives, I became curious. Back in 2012 the cost of federal imprisonment was $ 34,000 per year (source) so let’s say that it is $ 45,000 today (adjust for inflation and for the fact that pension costs are invariably understated in public accounting; with accurate accounting California prison guards earn more than Harvard graduates). So it will be $ 3.6 million to keep Tsarnaev in prison for 80 years plus perhaps another $ 2 million in medical costs = $ 5.6 million total.

What does it cost to execute someone? Missouri is a state that regularly executes its unwanted citizens. This article on the recent execution of Andre Cole says that it took roughly 16 years from crime to death (back in 1995, Cole’s wife decided to get rid of him but keep the house, the kids, and a portion of his paycheck; in 1998, having fallen behind on child support payments and being pursued by the $ 6 billion federal/state child support enforcement bureaucracy, Cole injured the plaintiff and killed her boyfriend; he was convicted and sentenced to death by an all-white jury).  Let’s assume that 16-year period is typical. The Marathon bombing was in 2013 so it would cost the government another 14 years of imprisonment ($ 630,000) plus legal fees on both sides of the case. This anti-death penalty group says that legal costs are between $ 2 and $ 3 million, depending on the state.

It therefore seems that it would in fact be cheaper to execute Tsarnaev. Would it be fair, though?

One argument against the death penalty is that the government often makes mistakes, thus executing people who did not commit the crimes with which they were charged. “You wouldn’t want the workers at the DMV making life or death decisions,” a friend noted. There doesn’t seem to be a whole lot of doubt regarding Tsarnaev’s involvement in the Marathon bombings, however.

An argument against executing Mr. Tsarnaev is that the entire family was open regarding their desire to wage jihad. In fact that was their reason for asking for and receiving fast-track citizenship: the Russian government was unsympathetic to their struggle against infidels. We kept the red carpet rolled out despite various family members’ strings of lesser crimes and despite being warned by the Russian government that the  older brother was an active jihadi. How is it fair to execute someone who did what he said that he was going to do? If we didn’t want him to carry out jihad in Boston we didn’t have to grant him citizenship, give the brothers free housing in Cambridge, etc.

What do readers think? Consistent with what the American criminal justice system can actually do, what is the fairest sentence for Dzhokhar Tsarnaev?

[Personally I am against the death penalty for Mr. Tsarnaev following the trial that he actually had. I think that trying him in downtown Boston, despite the elaborate procedures, pomp, and circumstance, cannot qualify as systematized justice. Given the outrage that Americans felt regarding the bombings, in order to preserve the pretense of bureaucratized justice, I think we should have asked a Canadian judge and jury to hear the case and be bound by their decision. Separately, I think that keeping Tsarnaev around is a good reminder of the consequences of our hubris in thinking that our FBI was better positioned to evaluate Tamerlan Tsarnaev’s plans than were the Russian security forces (we couldn’t even figure out that Tamerlan was involved in the 2011 Waltham murders).]

Philip Greenspun’s Weblog

The Shanghai Composite has at least 25% upside left

Written By: DragonFly Capital


Yes, I know that the Shanghai Composite has already doubled in the last 8 months. This guy has a huge pile of money. There are stories of market froth everywhere. The word “Bubble” is thrown around everywhere. Most investors would describe this market as the one market most ready for a correction. I will not disagree that there it has run a long way in a very fast timeframe. But despite that there are clear signs that there is still 25% or more upside to go in the Shanghai Composite.

The chart below gives the clues. First, there is the big harmonic pattern, a Bat. It does not complete, with a Potential Reversal Zone, until 5616. Price is also moving above the 61.8% retracement of the down leg. The next stop could be a full retracement. The rest of the indications require you to leave your comfort zone. I’ll try to help with that.


Look at the Bollinger Bands®. The price is running hot, outside of the Upper Band, but this has happened before. Look at the candles from November 2006 to May 2007. Each closed outside of the Upper Band. 7 months in a row. What happened after that? One month of sideways action before another leg higher. The current run is only at six months outside of the Upper Band.

MACD is another sign. If you only looked at the rising MACD since 2009 you would see a very large rise out of a flat period. This might make you nervous about a possible pullback. But look at the level of the MACD compared to where it was at the peak in 2007. it is less than half! Remember a rising MACD is bullish, not a sign of worry.

Finally look at the RSI. RSI is a measure of momentum. And it is strong. You may have been taught that an RSI over 70 is overbought. That is a fair definition. But overbought can be become more overbought. Again look at the run higher in 2006 and 2007. The RSI was overbought from October 2006 until October 2007, 1 full year. And what did the price do over that timeframe? It rose 244%! The current run became overbought in December, a mere 5 months ago.

I am not suggesting that the Shanghai Composite will continue to move up in a straight line. But it is naive and just dead wrong to assume that when some conditions get overbought it is time to sell. Especially when you have a historical precedent that was around just a few years ago. You don’t have to agree, me and my friend above will be happy to continue to stack up money without you.

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Dragonfly Capital

Broader Markets Fail to Confirm Breakout in QQQ

The SPY tried to confirm the breakout in tech in early trade, but ended up taking out Friday’s lows and closing weak with a bearish engulfing bar on the day.  Too soon to call it a failed BO.
The QQQ had a nice breakout last week on the heels of strong earnings reports from marquee tech names such as GOOGL, MSFT and AMZN.  AAPL earnings out tonight were good, but not stunning judging by the after-hours price action.  Weakness today in biotechs weighed on the Qs.
The DIA is lagging.

Small caps are really lagging.  The PMO here has a bearish crossover.

The lack of confirmation from the the broader markets could stall and ultimately, reverse the BO in the Qs.  Failed breakouts lead to fast moves in the opposite direction. This week could be a game changer.  FOMC on Wednesday.

Wall St. Warrior