And that is exactly what’s happening this week. Read on below to learn more about this pattern and how to trade from it…

Earlier this week, the market broke into new highs, but after the initial boost it pretty much fizzled into a big yawn.

The thing that really has market technicians excited right now is the fact that Thursday is the 50% Fibonacci time window of the whole bear market.

In plain English, that means that the whole bear lasted 17 months, and right now we’re sitting at 8.5 months into the move off of the bear lows. That’s significant because we’ve also seen a 50% gain in stocks since the market lows back in March. Take that 50% time move, couple it with 50% Fibonacci price levels being touched on the indexes, and you’ve got confluence here.

That’s why right now is technically significant.

When looking for opportunities to deploy new dollars in the market, all that matters is the short-term uptrend off of the November lows — that’s what we’re watching.

And as you can see from the chart above, it’s not anywhere near where we want to consider being buyers on the long side, because we “buy the dips and sell the rips” and the daily charts are telling us that we’ve just been ripping into higher territory this month.

Opportunities on the Short Side

But on the short side, we see lots of opportunities — all of them in the form of the First Thrust Down/Pullback Off Lows pattern. More on those in a minute…

In addition, when looking at the indexes, odds favor those on the short side than those on the long side — why? Well the indexes are all pushing the upward trend channel resistance with well into extreme overbought territory when viewing the daily charts.

So when you combine that event occurring in each of the major indexes along with the formation of a classic short-sell set-up in many individual stocks and some ETFs, you have a good combination where odds of success are much greater by betting against stocks right now.

Remember — it’s all about trading in tandem with the market. If the indexes are at resistance and you have a list of stocks that are showing a breakdown could be imminent, those are the issues you want to focus on until that trend changes in both the indexes and other individual stocks.

First Thrust Down / Pullback Off Lows Patterns

So, what about those First Thrust patterns I mentioned earlier?

In essence, a First Thrust is a potential transitional pattern as a Change in Trend occurs from up to down, or from down to up.

For this article we will be focused upon the transition from up to down — after all, we’ve already talked about why we’re looking at the short side of the market.

In order to give you a better idea of what these look like from a chart perspective, below are a few examples of past First Thrusts that have occurred, which were followed by deeper consolidations.

Notice the Blue box in the charts above? Those blue boxes are your first thrusts down.

After a first thrust we look for a snapback rally (everything above the Pink Line), these can range in duration from 1 week, up to 6 months, but all of these snapbacks have that same look and feel to them when all is said and done.

After an issue (or index) stages a snapback rally, it’s time for investors to really be watchful. This is when the market shows us whether or not it will find support, or if it will go on to deteriorate even further

Numerous issues as of late have staged First Thrusts downward, and from here forward it is all about seeing if they are going to be short-lived snapback rallies, or if sound new bases are going to being built.

Over the coming weeks and months we will get our answers. If we start seeing these snapback rallies fail, then we’ll know which way to lean and then be ready to trade accordingly.

As you build skill and grow to understand more about technical analysis, you will be able to take action with greater confidence trading based on what you actually see in the charts is critical to removing the guesswork of investing. After all, if you own stocks at a market top, you need to know when to get out; and if you are short stocks at a market bottom, you need to know when to buy and cover your position.

Sincerely,
David Grandey
AllAboutTrends.net

November 20, 2009

Learn How to Spot a “First Thrust Down” Pattern was originally featured in the Penny Sleuth.

The stock market has been running a rally for more than eight months now. Eventually all markets go into corrections. And although I’m not saying it’s going to right now, we are seeing a lot of potential kinks in the armor. In fact the bulk of what we are seeing are short side setups and that tells us something. It tells us to pay attention.

Above is an interesting chart. As you can see, our current market climate is looking strikingly similar to that of the minor correction in June-July.

Notice in the first blue box how the RSI and the full stochastics never really made it over the 50 level? That’s what happens during corrections.

By next week we’ll find out if we retest the highs or we fail. If we fail then it’s time to hit stocks hard on the short side. So why am I getting bearish? Because the chart below tells the story with regards to trends. It’s all about the blue line – that line shows the broad market trend from its July lows…

Volatility is on the rise, so from here on out its going to get real interesting. After all we’ve just ran for 8+ months with only a minor correction.

When an intermediate term correction rears its head it’s a huge moneymaker on the short side. Of course your long-only traditional Wall Streeter won’t tell you when an intermediate term correction is on the way because then you’d take your money out of their fund — they can’t have that now can they?

You need to be prepared so you can not only can get out of your long positions, but can profit from the correction via short-sell exposure or long positions in bearish exchange traded funds (ETFs).

For most investors, the ETF route is the simplest, especially for those without the margin accounts required to directly short stocks. If the market does indeed turn tail, two ETFs that you should consider are:

• ProShares Short S&P 500 ETF (NYSE: SH) – This ETF essentially takes an unleveraged short position in the S&P 500 index. When the markets go down, this fairly liquid fund goes up…

• ProShares UltraShort S&P 500 (NYSE: SDS) – This ETF takes a double short position in the S&P 500. That means that when the S&P 500 goes down 1%, SDS gains 2%. This fund is somewhat more risky than SH because it can move against you quickly and because it exhibits quite a bit of long-term tracking error. That means you shouldn’t hold this fund over the long term.

• ProShares Short Russell 2000 (NYSE: RWM) – This ETF takes a short position against the small-cap Russell 2000 index. While the Russell often moves in similar directions to the S&P 500, its focus on small-cap stocks means that it’s often more volatile.

Keep your eye on the Penny Sleuth to stay updated on where the market’s headed, and when to pull the trigger on your short plays…

Sincerely,
David Grandey
AllAboutTrends.net

November 11, 2009

Three Stocks to Prepare for the Market’s Correction was originally featured in the Penny Sleuth.

Last week we heard everyone saying you have got to buy stocks in the falling market.

That’s a classic herd mentality – what’s the point in buying stocks after we’ve already run? But the fact is, despite Friday’s sell-off, the uptrend remains intact and we simply followed the plan we laid out for you last weekend — ride our shorts down to support in the charts of the indexes, cover them there and look to buy stocks that are at support.

This Week’s Game Plan

Last week, the market was at resistance, so the game plan was to stay in our existing short-sell positions until the market hit support where we would cover and go long on stocks that were also at support. And this week, the game plan is exactly the opposite.

Why’s that? Because the market is right at support — yes, it’s only been five trading sessions and that’s all it took to take the market from resistance to support.

So as long as support holds, the game plan for this week is to stay in our existing long positions as the market attempts to stage a snap back rally.  When that occurs, we’ll take our profits on the long side and look to go short again as the rally set-ups stocks on the short side.

We don’t make up the game plans though — all we are doing is simply reacting to what the market is telling us and trading what we see. And here’s what we see:

As you can see from this S&P 500 index chart, our big picture uptrend is still intact and oversold at current levels. That doesn’t mean that they can’t go lower here, it just means that we’re at levels that ought to act as floors below.

Make note of is the pink bearish channel back in June and July…I’m bringing it up because it’s what we want to be on the lookout for with any rally from this point forward. It’s called a snapback rally and it’s a reaction to oversold market conditions that causes a fast bounce upward. But when the fundamentals are still bad on a snapback rally, it’s actually a very bearish signal that means stocks are headed decidedly lower.

To give you an example of what a snapback rally ought to look like, take a look at OmniVision Technologies’ (NASDAQ: OVTI) chart below…

The name of the game for next week is watch for a snapback rally or dead cat bounce. When all said and done it ought to look like some sort of bearish channel then we take profits on all long positions and start shorting.

When the market makes a noticeable bounce, watch very closely before going long. If the market turns tail, it’ll happen quick and you won’t want to be on the wrong side of the action.

Sincerely,
David Grandey
AllAboutTrends.net

November 3, 2009

How to Trade the Market’s Next Bounce was originally featured in the Penny Sleuth.

If Friday’s action is any indication of what next week’s early action is all about then it’s “Pullback Off Highs” time in the indexes. Last week we saw some big kingpin names report their earnings results (AAPL, GOOG, MSFT) and they couldn’t even bust through the last 3-4 days’ high. Why? It’s trend channel resistance.

Resistance, the level that a stock or index’s price has trouble breaking through, is one of the strongest technical indicators out there. Stocks’ difficulty breaking through their resistance levels tell you just how strong trend channel resistance is currently. No matter, we don’t buy resistance anyway. Instead, we sell at it.

As you can see trend channel resistance and support are clearly defined by the green lines in this 6-month chart. As I’ve been saying the last few weeks, it’s all about buying stocks at trend channel support and selling them trend channel resistance.

You can also see that the S&P 500 has tried for 4 days in a row to bust through to higher highs but as of yet hasn’t been able to do so. A pullback to trend channel support may be just what’s needed to get a running start. Should that occur then we want to be buyers of stocks that fit a similar pattern that trade in tandem with the market.

Should trend channel support fail, below is another chart that shows an even larger trend channel support level.

So what could cause a running start? For starters, I’m looking for that pullback to trend channel support. That’s essential. Coupled with a news driven event tomorrow in the form of 3rd quarter GDP numbers, a catalyst is there to make stocks bounce back up.

Those GDP numbers are slated for Thursday before the market opens, and the estimates out there are for 2.2% to 3% growth. Remember it’s headline news that’s paid attention to, not the internals of the results that only economists will focus on. Either way this is a market moving news event.

When the market bounces tomorrow, we want to focus on buying only stocks that are sitting right at support.

How to Buy Stocks at Support

Be on the lookout for stocks that have pulled back from their recent highs to their support levels at either a trendline or 50-day moving average.  The chart of Goldman Sachs (NYSE:GS) is a good example of what we are looking for:

As you can see, GS is pulling back to support at its trendline channel and close to support of the 50-day moving average.  And if the market gets closer to support at the bottom of its trendline channel, then you have all the right conditions for a good long side trade.

And Goldman’s not unique. There are tons of similar plays out there right now – it’s just a matter of opening your favorite charting program and mapping out trendlines.

Sincerely,
David Grandey
AllAboutTrends.net

October 28, 2009

Learn to Profit By Buying Stocks at Support was originally featured in the Penny Sleuth.

From a daily perspective, the markets are stretched right now. We are at trend channel resistance in virtually all the indexes. That means that the risk of a pullback to trend channel support is a very real possibility.

The name of the game on the long side from here is to “Let Them Come To You” in the form of a pullback off trend channel resistance highs back down to trend channel support.

It’s time to sit and wait, then we can start to pick off the best-positioned technical setups.

What Do I Need to See to Make Me Take a Trade?

Google gapped up on Friday, after an earnings release that impressed analysts and investors alike. That move in Wall Street’s favorite tech stock spurred the entire industry upward with the hope that tech profits would be solid across the board.

It’s interesting to note, however, that the “Google of China” – Bidu.com (NASDAQ: BIDU) — didnt participate on Friday with the rest of tech. That bothers me, and it should bother you too…

VMWare (NYSE: VMW) is a perfect example of trendline channel resistance. With shares currently trading right at that upper green bound, the technicals are telling us that this stock is unlikely to make it past the $47 mark right now. More importantly, this chart lets us know that a pullback to the lower green line is good time to go long on this virtualization solution company.

Apple announced earnings yesterday, but Apple announced its third quarter earnings yesterday – a completely irrelevant event for technical traders. With the company’s share prices sitting at trend channel resistance , we could care less about AAPL’s earnings as the overall technicals trump the news-driven event.

As you can see for the most part all the leading stocks out there are nowhere near low risk  entry points. This ought to tell you something about the overall market.

What to Watch for from Here

With what’s going on right now, the game plan is wait for trend channel support to buy, and sell trend channel resistance. And with  the bulk of what we see at trend channel resistance right now, we’re stuck in a waiting game of sorts until the market corrects itself.

When these issues above come down to trend channel support, we’ll start talking about going long.

Sincerely,
David Grandey
AllAboutTrends.net

October 20, 2009

Don’t Miss These Tech Stock Technicals was originally featured in the Penny Sleuth.

First, though, let’s take a look at where the markets are headed in the coming week.

The big questions early this week will be: Was that it, and is it time for a pullback? Or are we headed to the next level of short-term resistance — the blue “Post Fed emotional reaction levels” shown below?

If we do either and pullback in a convincing move, two things become clear: Resistance has been hit and a double top may have formed.

The flip side of that is a breakout, but while we’d love to take advantage of any short-term rally, signs point to a breakout being the least likely scenario.

The most significant things we can look for right now are changes in patterns, namely double tops and double bottoms. These reversal patterns signal that the market’s broad trend may be reversing, and give us the edge we need to adjust our positions accordingly.

The “trendline break” is another incredibly important reversal pattern that many traders aren’t as attuned to. That’s because spotting trendline breaks is more difficult than pointing out an obvious pattern like a double top.

That said, here’s what you need to know to catch the market’s next trendline break…

After a period of being in a clearly defined uptrend, as evidenced by the stock trading above the green line, the uptrend began reversing from up to down. If you were long this stock, that trendline break to the downside told you all you needed to know to get out and lock your gains. If you were looking to sell this issue short, that break of the green uptrend here too told you all you needed to know in order to consider taking a short position with a protective stop loss.

In the chart above, a nice uptrend puts in a double top and breaks its uptrend to the downside. This is what you want to be on the lookout for from here on out if the current indexes follow their script.

Below is an example of just the opposite – a reversal from a rally to a downtrend. If you were short this stock, the trendline break to the upside told you all you needed to know to get out of the short side. If you were looking to buy shares of Baidu.com (NASDAQ: BIDU), however, that break of the blue downtrend told you all you needed to know in order to consider taking a position on the long side with a protective stop loss.

There’s an important formula to spot a trendline break…

With both of the above trades, each had a signature early warning alert pattern in the form of either a double top or double bottom. That’s the red flag that you want to watch out for to spot these potentially profitable patterns ahead of the crowd.

Sincerely,
David Grandey
AllAboutTrends.net

October 12, 2009

The Profitable Secret to Spotting Trendline Breaks was originally featured in the Penny Sleuth.

The Elliott Wave principle is a system of technical analysis that looks at “waves” to forecast the market’s direction. The principle is based on crowd psychology, and the idea that markets move from bullish periods to bearish periods constantly over the course of any trading session — from a day to many years in length.

These changes in market sentiment create waves that take place in what’s known as a 5-3 pattern. That means that the market moves five ways in the general direction of the market, followed by three corrective waves the other way. And believe it or not, that exactly what’s going on with the market right now…

As you can see in the 15-minute time frequency charts of the indexes below, something very interesting is going on: We are locked in a downtrending channel as defined by the blue lines. If we are going to continue that path then channel support is the lower blue lines.

With all the after charts what we’ve laid out here are potential wave counts according to an Elliott Wave Script from here on out if this is going to be a five-waves affair down (abcde). IF it’s a three-waves affair down (abc), then we are done going down in the short term. However we can’t say that till we see what bounce mode brings next week.

So this is your short-term forecast, watch for it.

As of this moment in time you can see the Dow Jones Index hitting its 50-day average with the full stochastics oversold. So from a daily perspective this is a logical level for the markets to stage some sort of bounce. The super short-term charts of the indexes at the beginning of this report are what you want to key in on. They will tell you when a bounce occurs and just how strong that bounce may be.

The signature pattern we look for on the long side is the “pullback off highs” pattern as you can see here:

When a stock is moving higher, it doesn’t go straight up. Instead, it rises, and then consolidates its gains before resuming its move higher. These mini-downtrends are where it pulls back off of its highs in an orderly manner — often to an area of key support such as its upward trend line and/or 50-day moving average.

We draw a line connecting the lines of the mini-downtrend. A break above the pink line triggers a trade on the long side. For that reason, EBIX was an idea long side set-up.

EBIX triggered a trade Monday by breaking above the pink line. By the end of the day Tuesday, EBIX was knocking on the door of resistance at its old highs — an 18% gain in two days! This is a classic buy support and sell at resistance trade.

And in the world of swing trading, 18% in two-days is huge! Just think about it. Let’s say you have a portfolio of $50,000. And you invest in 100 shares of EBIX at $47.10. After selling it at $54.64, you’ve made a two-day profit of $754.

These are the patterns we’ll be looking for in the near short-term.

Sincerely,
David Grandey
AllAboutTrends.net

October 5, 2009

Use Waves to Predict the Market’s Moves was originally featured in the Penny Sleuth.

In order to find our entries, let’s first look at what the market’s doing right now, and whether we’ve actually topped out. Here’s a glimpse at the daily index charts off the March 2009 lows:

The NASDAQ, Dow and S&P indexes have uptrends that are still intact. The green lines, the blue line and the 50-day moving average are your guides. As of this moment in time we see no top in the market.

That said, if we see a quick run sometime next week to a retest of the highs and then a pullback off of that retest, those developments will create a double top and I would then be more apt to want to call a short term top at that time.

Why does the presence of a double top cause us to be more likely to change our position on the market? Because the double top is one of the most common early warning alert system patterns telling you a “Change in Trend” may be near.

The Two Ways to Buy a Stock

So now that the indexes are pulling back, but remain in a clearly defined uptrend above their uptrend lines and 50-day moving averages, we want to focus on stocks that are in the same position and have simply pulled back off of their highs to those support levels. This is called trading in tandem with the market.

Now, there are two ways to buy stocks. The first way is to find a stock that has formed a base and buy it when it breaks into new highs above the base. This is called buying a traditional breakout. Here’s a look at a recent breakout:

As you can see from the chart, after breaking out, the stock quickly turned tail to retest what was resistance (now should be support), and actually closed under support or back in the base. If you had bought them with a stop loss, chances are after a few days of feeling good you were stopped out.

Now let’s look at the second way:

As you can see here, this issue broke out. But most breakouts consolidate their gains and retest the area that was once resistance. So rather than chase the stock, we patiently wait for it to come to us.

In this case, the pink line represents the stock’s pullback off of its highs back to what was once resistance -– and is now support. Our buy point is a break above the pink line.

A classic buy support and sell resistance trade. That’s a lot better than chasing a stock only to get stopped out as the stock retests support and then takes off without you.

So what does that mean for us today? It means that since the markets have pulled back to near short-term support, now is the time to be prepared to take advantage of these opportunities — opportunities to buy stocks in confirmed uptrends at a risk-adverse place.

Sincerely,
David Grandey
AllAboutTrends.net

September 28, 2009

Buying Stocks Safely Using Alternative Entry Points was originally featured in the Penny Sleuth.

All of those same names got away from those low risk entry points very fast, leaving only higher risk entries. Just take a look at the charts of the market kingpin leaders: AAPL, GOOG, BIDU and GS. Each of these — and many other stocks — is extended from any low risk entry point. Buying them here would surely be of the “dog chasing the bus” types of trades at this point.

So where does that leave us if the majority of high quality names aren’t anywhere near prime buying entry points?

That’s where the 12 Most Important Words You Need to Know comes in…

What Do I Need to See to Make Me Take a Trade?

What do I need to see to make me take a trade? Ingrain these 12 words in your brain, write it down next to your monitor or make it into a poster — it will serve you well the rest of your life.

Below are a couple of examples of names that have recently answered this very question. It’s what we want to be on the lookout for from here:

Both of these issues pulled back from recent highs as shown by the pink lines. They pulled back to chart support coinciding with the 50-day moving average. A break above the pink Pullback Off Highs line triggered a long side trade — and away they went.

So in the spirit of “buy the dips and sell the rips” — you now know what you need to be looking for…

As far as the indexes go, if they do go higher from here, you need to be aware that it’s a climax run. This sucks in all “the fear of missing the rally” folks in after they already missed it. It’s also the beginning of the end of a market’s rally…

Sincerely,
David Grandey
All About Trends

September 21, 2009

The 12 Words You Need to Know to Become a Better Trader… was originally featured in the Penny Sleuth.

In its simplest form, the phrase refers to buying the pullbacks whether it’s in the market indexes or individual stocks — as long as they are at some sort of support level. So let’s take a look at most recent dip and the most recent rip over the last week.

For us, it all starts with the short-term index charts. From there we move into the individual stocks, as three out of four stocks generally trade with the overall trend of the market. Lately, that overall trend has been up, and stock investors have been enjoying gains in a big way. In fact, in the last month alone, the S&P 500 has gained nearly 5% as stocks bolstered by signs of economic recovery took back some of the losses they suffered in 2008.

As you can see, support is clearly defined and the full stochcastics are in oversold territory. Those are your clues to get ready. This tells you that you are “In The Zone” and its time to see if individual stocks are showing this as well. Here’s a recent example in Perfect World (NASDAQ: PWRD):

In just a week, this stock rocketed from $36 to $44. That’s a home run in the world of swing trading, and it’s a gain that any investor could have had a chance at by just buying the dips and selling the rips. All you have to do is follow the formula…

What I want you to notice is what they all have in common:

1. All have been pulling back off highs — The Dip
2. All pulled back to at or near the 50-day moving average (the blue line)
3. All have the full stochastics in oversold territory.

So now, what do you do about it? Well, there are two ways to take these trades.

One is to take them right there at a support level — at or near the 50-day moving average with a 10% stop. The other is to wait for the crossover of the pink line as shown to the upside. The latter is the safer trade, however from the dips lows of the 50-day average or a support level is a lot of room that would be missed by waiting for that to occur. This really means that you are paying up for the stock by waiting for the pink line trigger.

Sincerely,
David Grandey
AllAboutTrends.net

September 15, 2009

Deciphering This Trader’s Simple Profit System was originally featured in the Penny Sleuth.