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I began writing a blip last night about how the market *could* rebound higher if USD/CAD worked its way through the shares at support and broke its triangle to the downside, thus giving crude a huge boost. Unfortunately however life intervened as my daughter called suffering from a kidney stone [Mom to the rescue!] so my post sat until I returned in the wee hours of the morning. Now as the sun rises all bets are off as McDonald’s [MCD] missed almost every estimate possible in their earnings release; then followed by a 3M [MMM] guidance miss and you had immediate shock by investors and causing a new round of risk aversion. Good thing Bernanke says they recession is over, huh? Chump. The USD jumped, and I mean jumped big time as investors sought a safer haven in lower-yielding currencies. I mean MCD has weathered this entire recession as the champion its known to be so a miss was bound to slap many investors into reality. Then to make matters worse, you turn on your TV and see Meredith “The Annihilator” Whitney as guest host on CNBC and you just know it’s going to be a red day.
ES futures broke down out of its rising wedge and the USD [via DXY] jumped up to $62.11 resistance. Once the normal trading session opens I expect ES_F to [at some point] rise up and backtest that breakdown resistance [yes, I'll be shorting it further there]. If it does not hold, watch out below, expect a correction over the next week……………and blame that damn MCD clown. We could still see a Santa Claud rally but clowns are creepy anyway and this is just gives one another reason to hate ‘em 
So you’re learning the market, papertrading [or live] and still feel that you’re struggling to find valid chart patterns that actually work. Should you buy a subscription for a website telling you when to buy/sell a stock? Which one? Who do you trust? How did these guys get so good at finding their trades??? Don’t give them all such credit. Some are cheating. Enter Autochartist.com. Autochartist.com is a little search engine which identifies up to 
16 different chart patterns, both emerging and complete, which you personalize based on strength, length, etc and let run. Throughout the trading session, a little pop-up box notifies you of patterns located in Forex, Equities, Indicies or in specific areas which you create. There’s even a Fibonacci pattern identifier which gives you a better handle on entry/exit areas. In full disclosure, I occassionally run a scan or use my brokers various pattern tools but found their accuracy very lacking. 90% of the time I end up locating my own patterns which takes up a lot of my time…so I was intrigued. I went ahead and tried their 14 day free trial and found it to be a wonderful tool and it certainly saved me from setting up/running my own scans, drawing possible trendlines and viewing charts over and over again. *Move over Mr. Broker!* I found this little engine much more accurate and user friendly and the fact that it was continuously running/scanning left me free to do other research which was a huge bonus. I give them four stars.
V broke below its rising wedge today which, for some stocks may occur easily; however Visa is considered strength and not easily taken out by shorts or news blips so when its Slow Stoch dropped below 80 on the Daily, it became a *watch* for me. Today on USD strength and overall market weakness, V continued its selloff breaking trend line support and closed down 2.6%. One could say *so what, it had a down day* but take another look. Not only was there negative divergence where MACD was dropping while price rose, but check out it’s upper Bolinger Band. It’s turned down. Bearish folks. We may have a true reversal on our hands. A short with a stop above todays high would be a good bet here.
In an earlier post I highlighted Broadening Tops, otherwise known as Megaphones where a trading range broadens until it ultimately snaps and the trend reverses. Such has been forming in SPY over the last few weeks and while this does not mean that the rug will be pulled out from underneath us tomorrow, it is prudent that you realize this *could* transpire in the days/weeks to come and protect yourself accordingly. For me this means gradually building short positions at the top of the range as the pattern broadens. I also must bear in mind that this pattern could take weeks or longer to actually break so I’m jumping in and out of small swing trades and day trading as well but longer swing trades [for me] are out of the question at this juncture. I recommend drawing extended trend lines on your charts and monitoring because while the pattern will widen and allow us to creep somewhat higher [I'm still watching SPX for a full 50% retracement], I highly doubt we’ll see any true trading above the trend line. Of course, anything is possible in this rally so it will be interesting to see how things play out. Just another item to keep on your radar going forward 
Just a reminder that in an earlier post I had pointed out the Sugar ETN, SGG forming a bull flag which is now come very close to its apex. A great number of traders have been monitoring this move so believe me, when it moves, it will move with volume. If you’re not long, set an alert as its breakout price target is a tidy $79.00 [currently $64.07]
This channel’s pretty straightforward. Set alerts for the top and bottom range. Whichever breaks is your direction to trade however, do not be surprised if it comes back to backtest support or resistance. Be prepared and don’t get shook out. A breakout would be nice b/c of the enormous 15% gap. No real resistance until the gap is filled. o/c one could trade within the channel, but how boring would that be
Occassionally when trading you’ll stumble across a “spike” on your chart which very often skews or distorts the picture. Generally these are either out-of-sequence trades [oops, I forgot to enter that one] or an ISO – Intermarket Sweep Order. The easiest way to determine which is to judge by the volume of shares traded and before you begin screaming “dark pools”, ISOs are totally legal and needed each day to add liquidity across the markets; especially in tickers trading at high volumes such as SPY. The easiest way to understand them is let’s pretend that Chicago is running low on shares of SPY but Philadelphia has a boatload. They negotiate the trading of shares at an offmarket price and the limit order will temporarily be reflected on the chart.
**If** your broker is doing his job, these “spikes” are generally removed from the charts within the hour OR whenever possible, the sweeps are performed after trading hours and then removed so as not to disrupt things but on high volume days, you’ll see them. Hopefully your broker has a way for you to remove it from your chart; otherwise you may have to wait, email or call them to do so.
One bummer about them – they can and do trigger stops and can cause your trade to exit prematurely. Whenever I’ve brought this up to traders they raise their eyebrows and scoff but I cannot tell you how many times I’ve caught that it’s happened to me. Maybe it’s because [at times] I will day trade quite a bit and I see what’s 
happening. Occassionally I’ve 
had luck complaining to my broker and they’ve replaced my shares. Other times I let it go because [as it turned out] I would’ve been stopped out anyway. The biggest reason I’m writing this post today is not only to explain what they are, but if you ever see someone on twitter or another social network telling you that the “spikes” are an indication of what direction the stock is going………….block the blockhead! If you’re subscribing to the guy and actually paying him a fee, block yourself. They have absolutely no bearing on the direction of a stock as you can see from these charts. The dude is totally clueless and you’re bound to end up just like him if you follow like a lemming. You should at least do your own research at the SEC website or via the web and don’t trust your money with some “schmo” who trades based on spike direction.
Small capital risk in shorting XLI tomorrow at the open on this rectangle pattern with a stop above $27.60 and if it holds, the downside target of $25.30. Note while rectangles as generally a continuation pattern, please note todays Doji. I feel current market indecision will take it back down as it has the last two months. This move may not seem like much to some, but I’ll take a 10% move in 7-10 days anytime and twice on Sunday
Another area for possible shorts are the rails. Most are forming megaphone or rectangles which like the industrials, formed Dojis today at upper resistance. Good area for a low capital risk short trade. In KSU [right] I will place my stop above the swing high of $27.60
A last note: These formations could also turn into triple tops or if they break higher here with volume, deemed double bottoms. I am merely going with the current market indecision on attempting to short them rather than long. If you feel the market is going higher – go long off the formations. Just food for thought.
I’ve been noticing an increasing number of these formations lately and with the market uncertainty, thought it was time to bring up this rarely-discussed reversal pattern; the Megaphone, also known as a broadening top. A good current example of an emerging megaphone is LIFE shown below.
They’re formed while the Bulls push and charge a stock higher and gradually, the Bears efforts to push back become stronger and stronger, forming higher highs AND lower lows. A broadening, if you will. The reason you may not see them every day is because they typically occur near market tops; when valuations are high and tension is mounting. Eventually, this volatility and increasing uncertaintly causes the stock to *snap* and profit taking ensues, deterring the Bulls from making 
another attempt until a better entry level is found (ie., a lower MA or support). It must be noted that megaphones also occur at market bottoms as the Bulls overwhelm the Bears.
As with most breakouts/breakdowns, you enter on the breakdown and should have an increase of volume as the Bears overwhelm the Bulls and they capitulate; taking profits. Entering early is risky and there’s no guarantee how long the pattern will take to breakdown. If broken to the upside, it’s considered a failed formation so waiting for a breakdown is essential. Your target is generally determined by taking the difference between the high and the last swing low, and subtracting from the breakdown point; however this can vary – again by MA and prior support levels.
It should be noted that quite often a stock will come back and *test* the breakdown level which can provide a 2nd opportunity to enter the trade or add to an existing position, but this is not guaranteed.
Where’s Sluggo when you need him? QCOM is in a real pickle here and needs some help. Could this be the end for a leader in wireless telecom and if so, the overall rally? It’s forming a triangle, trading between its 200d EMA and 200d SMA and has already retraced 50% of its last move from March so exceeding 50% will [in my mind] be a tell for the overall rally itself. QCOM actually had strength throughout the entire rally having bottomed in November ‘08 and actually lead; something that surprised many. I am seriously keeping one eyeball on this move…………and looking for Sluggo to come out and save the semis.
