One of the huge benefits to using Twitter and Stocktwits is the constant stream of information that is always up to date and always at your disposal. The beauty of this model is how you can tap in to many different sources and take advantage of the collective thoughts of who you follow. If you build a solid follow list, it's almost like having a headstart on everyone else.

For instance, I was clueless on this whole Swine Flu story until I was looking at my twitter stream on my phone (another huge benefit to this medium). I was able to catch up in minutes and have been able to keep up to date without turning on the TV. I also was able to listen in on the traders I follow discussing what stocks may be in play on the Swine Flu story. Once I wanted to dig deeper, I browsed over to Stocktwits to tap in to a much larger group of traders.

One nice feature about the Stocktwits service is the "Top Tickers" frame. I was able to quickly see that the most mentioned stocks other than SPY was Novavax, Inc.
(Public, NASDAQ:NVAX) and BioCryst Pharmaceuticals, Inc.
(Public, NASDAQ:BCRX). You could also dig deeper into each ticker, but I was more interested in just seeing what stocks were the most mentioned.

I took a look at NVAX and BCRX and found something interesting which leads me to believe they will certainly be in play the next few days. In looking at their charts, both had huge moves on Friday, which was interesting because this story wasn't really "hot" yet. Obviously it was on someones radar, as they move had a surge in volume.

NVAX for instance had a huge move (75%) higher on Friday on a hugh increase in volume. This stock was also in play for the Asian Bird Flu scare a few years ago. This will almost certainly get a gap higher on Monday, so at this point, the best analysis is to figure out where support or resistance shoule come into play. There is a solid resistance level at $2.50 from a prior consolidation as well as the 20o-day moving average near $2.00. Either of these can act as support on a pullback if NVAX gaps up above either of those levels. There are many different scenarios that can unfold here, so it's best to plan for a few. If it gaps above both levels, it would be quite bullish, and there is a good chance the gap would remain unfilled for a while. If it gaps over the 200, then the $2.50 level may act as resistance intitially, with the 200 supporting a pullback. If it loses either of these levels on large volume, then it may be a sell the news event and end up much lower.


BCRX actually looks a little better as far as the chart goes, but it will be interesting to see how the market responds to BioCryst CEO John Stonehouse saying his company does not anticipate the use of its technology in treating this episode of swine flu.

"We're in clinical trials right now and not on the market," Stonehouse said.

BCRX is trading in a larger consolidation, and judging by the level of interest in it, it will likely gap over the base on Monday. With BCRX already over the 200-day moving average and likely above a base, it will be more likely to find support on a pullback. Digging deeper, Fridays move also has it clearing a small bull pennant, so BCRX could see another surge out of that pattern.


While I have no idea whether this is a scare or that start of a pandemic, I'm pretty certain there will be money to be made in these stocks over the next few days. There are other stocks that may see interest as well, but I will focus on these tomorrow due to the attention they are already recieving. While some traders will be scrambling around tomorrow trying to find out what is in play why these stocks are moving, thanks toTwitter and Stocktwits I was already prepared. If you're already on twitter you can follow me here.

Good Trading,

Joey

**Update**

Pretty cool Google maps view of the H1N1 Swine Flu infections

Also, some other stocks that may be in play tomorrow include

• Quidel Corporation (Public, NASDAQ:QDEL)
• Sinovac Biotech Ltd.(Public, AMEX:SVA)
• Dynavax Technologies Corporation(Public, NASDAQ:DVAX)
• Hemispherx BioPharma, Inc(Public, AMEX:HEB)
• GenVec, Inc.(Public, NASDAQ:GNVC)
• Generex Biotechnology Corporation(Public, NASDAQ:GNBT)
• AVI BioPharma, Inc.(Public, NASDAQ:AVII)

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Stock Chart Analysis VRTX

Vertex Pharmaceuticals Incorporated(Public, NASDAQ:VRTX)

Drug stocks have been weak recently, and VRTX is a name that popped up on one of my screens on the sector recently. It topped out a few years ago and plunged from $45 to $14 over the span of a little over a year. It bounced from those levels, but stopped short of the prior highs. It has been trading in a series of lower highs and lows since peaking again in February, and has a few levels of resistance above it. With the general markets at overbought levels, and the Drug stocks acting weakely, VRTX remains vulnerable to further pullback.

It failed to move back above the 200 day moving average recently, and broke under a longer term trendline. Currently, it is close to losing support near $26, and if it breaks under that it has a price vacuum to the $20-$22 level. This offers a decent risk versus reward setup, with a stop just over $28.




Good Trading,

Joey

Stock Chart Analysis DV

DeVry Inc.(Public, NYSE:DV)


The education sector may be ripe for a short sale opportunity soon. They have been hit hard recently, after being market leaders for several months. One stock that has been weak since reporting earnings back in January has been Devry, Inc. (NYSE:DV). It gapped lower on the heels of the report and that gap held as resistance a few days later. It then broke down from a channel it was trading in and swiftly dropped to a longer term support area near $41. This area has held as the bottom of a 16 month long trading range. While DV bounced sharply from this area, it promptly ran into resistance at the $50 level a couple of weeks later. This coincides with the lower end of it prior trading channel, and could end up marking a lower pivot high. DV then rolled over to the long term support line and is now in the process of another bounce attempt. While there is a chance that DV will hold this level, there is a very strong chance that DV will revisit this area and possibly break under this long term base. With DV currently testing the 20 day sma, it's possible that this area will serve as additional resistance and possibly offer a good entry for a short sale. Any move above $50 would negate the near term bearish outlook.


Good Trading,

Joey

**UPDATE** Keep in mind that DV reports on 4/23/2009 after market close

I was researching some Solar stocks this weekend for an article I am writing, and I took for granted a list I had created for Telechart on my old PC. There is no one Solar sector, as most of them are in the Specialized Semiconductor group and there is no easy way to sort them out. I put together a new list of the different companies I follow and threw it into a new group. Here is the list I used in no particular order.

ETF's
kwt
tan

Stocks
jaso
ctdc
csun
yge
ener
spwra
spwrb
fslr
solf
akns
asti
dsti
akns
tsl
csiq
emkr
eslr
ldk
sol
stp
hoku
spir

If anyone knows of stocks I am missing feel free to comment.

Thanks,

Joey

As regular readers know, I follow Worden's T2108 indicator pretty closely as a tool to gauge when the markets are getting overbought or oversold. If you're unfamiliar with the indicator or how I use it, follow this link for a thorough explanation of how I use T2108.

Worden also has a T2107 indicator, which tracks stocks trading above their 200 day moving average. While I don't use this indicator as often, I do track it as extreme moves in this indicator are more rare, and thus may offer additional clues.

One reason I am bringing up this indicator right now is that we have a very interesting situation developing in these indicators. I charted both indicators below to show how T2108 is very overbought right now, with over 90% of stocks trading above their 40 day moving averages. Above 80% signals an overheated market, so we are already at significantly overbought levels. What is interesting to note is that T2107 is still at historically oversold levels. It is still below 20% and readings below this level are quite rare. Beyond that, moves under that level have been short lived in the past. I only have data going back to the 80's and only the 87 crash had anything approaching what we are seeing now. Even then, the indicator only remained under 20% for a couple of months. We are currently in month 7 of that feat right now, which shows how persistent this Bear market has been.



So what does this all mean? We are very overbought in the near term, but there is still plenty of room to move higher in the intermediate term, even while remaining in a longer term bearish pattern. While markets don't go up in straight lines, we were so stretched to the downside that the snap back may end up lasting longer than most expect. Just as markets overreact to the downside they often also overreact on the opposite move. The drop in the latter half of last year lasted far longer than rational, and there is always the possibility that T2108 remains overbought far longer than what would be considered rational by most people. It could remain at high levels until T2107 has a chance to catch up. Of course, I don't think it's likely to stay persistently above 80% or 90%, but it's something to think about if you are trying to short this market or pick a top. I think the more likely scenario is a near term correction that ends up being shallow, or even a sideways time correction followed by higher prices. However, eventually this market needs a deeper pullback or even a low retest if this rally wants to build into something more substantial.

Just my opinion of course,



Joey

Stock Chart Analysis CHTT

Chattem Inc.(Public, NASDAQ:CHTT)


Chattem, Inc. (NASDAQ:CHTT), the maker of well-recognized brands such as Icy Hot®, Gold Bond®, Selsun Blue®, ACT®, Cortizone-10® and Unisom® is looking very bearish to me on longer term time frames. In looking at the chart below, it broke under a 5 year up trendline in February. It also looks like it broke under a confirmed head and shoulders top and failed the retest of the neckline. All of this is occurring in the weekly chart, which should weigh on any patterns on the daily charts.

While it is probably a little oversold on the daily charts, it has been showing relative weakness to the general markets. Notice that it has failed to take advantage of the very strong bear market rally we have had the last few weeks. With the general markets starting to get overbought, it's possible that the indices will have a stronger correction in the near future. With that in mind, picking out a market laggard such as CHTT could reward with a decent trade. The $60 area looks like a good area to draw the line in the sand for a bearish position on this stock, although I would prefer an entry at least near the $55 level.




Good Trading,

Joey

Stock Chart Analysis RAH

Ralcorp Holdings, Inc.(Public, NYSE:RAH)




Ralcorp Holdings, Inc. (NYSE:RAH) is currently in a precarious position. On the chart below, I have labeled some areas of consolidation that have led to lower prices. The first area is where RAH officially topped out. It traded in a very choppy manner, until finally breaking down in November. After a sharp decline, it had a fairly strong rally that ended up taking the shape of a bear flag. It broke down from this consolidation, setting a lower high in the process in late February. It has been trading in a pennant or asymetrical triangle over the past month, and it looks like it broke under that pattern today, despite the markets experiencing a very strong trend day higher.

There is the possibility that RAH will trade in a measure move lower from here, closely matching the decline that led into the pennant from the breakdown area. The one hope the bulls have is that the $47-50 dollar area has held as support in the past. It will be interesting to see if it holds this time.





Good Trading,

Joey

Stock Chart Analysis PDE
Pride International, Inc.(Public, NYSE:PDE)

I noticed today that PDE was close to multi-month highs and made a note that I would check it out this evening. While I'm not too crazy about buying late cycle stocks at this point, I have to admit that some of these drillers are looking intriguing. PDE clearing a pretty long and healthy consolidation after a steep decline, and while it's too early to say a bottom is in place, there is still plenty of room for this to run too. A move back to the declining 200 day moving average is approximately 20% away, and would make for a decent trade if it was left at that. A 50% retrace from the top to the November low would be around $30.00 and is not out of the question, even assuming that this is simply a bear market bounce.

I drew some trendlines on the chart below to show how PDE has a history of clearing resistance and then coming back to test it a few sessions later. I would expect a similar pattern to continue if PDE does clear the $20.50 area. A pullback to the green trendline followed by a reversal pattern would also be an attractive entry for this stock.


Good Trading,

joey

Stock Chart Analysis DF
Dean Foods Company (Public, NYSE:DF)

Dean Foods Company (NYSE:DF) recently broke under a lateral consolidation after failing to hold the 200 day moving average. It looks like it was attempting to build a larger cup and handle type base, which is still a possibility. With the markets looking like they will correct some of the recent rally, it appears likely that DF will also correct. I drew out some Fibonacci retracement levels as possible areas of support, or target areas for short sellers. Often a rally will pullback to these levels, with the 50% retrace probably the most common level. The 50% retrace area is near $16.36 for DF.

While the possibility of a cup and handle still exists, in my opinion, there is too much risk to the downside right now to take action on that thesis. Reclaiming the 200 day moving average would be a start in the right direction, and a move above $21.50 would be extremely bullish.


Good Trading,

Joey

The Market Club service just announced the rollout of their new charting engine. I've been playing around with the charts and they look very nice. Here is an example of a GLD chart with a Fibonacci retrace overlayed on price.



Adam Hewison just released a video tutorial and overview that introduces the charts and takes you through the different ways to use them. There are a lot of cool features such as their proprietary trade triangle signals, and audio overlay of their composite scoring system. The charts are also more visually striking, and it's very simple to add or modify the indicators.

If you have a chance, take a look at the video overview and see for yourself. I plan on using these charts more often for my blog posts.

Market Club also has a host of other services such as their INO TV Premium Service which offers tons of trading videos by top traders (such as this Exit Strategies video by Charles Le Beau).

Market Club offers a 30 day free trial on their services so there is no risk to trying it out.


Good Trading,

Joey

Stock Chart Analysis AUY
Yamana Gold Inc. (USA)(Public, NYSE:AUY)




Gold and Gold mining stocks have been perking up lately, with many miners reclaiming their 200-day moving average. Yamana Gold, Inc. (NYSE:AUY) for instance, gapped over its 200-day moving average about a week ago, and has been consolidating above it. It also looks like it is forming the handle for a much larger cup and handle base. It is currently testing the neckline for the entire pattern, and a breakout has implications for a bottom being set in the stock. With Gold on the cusp of testing for a major breakout of it's own, it will be interesting to see if the miners can follow suit. For AUY, the $9.70 area is what I am watching to see if it can breakout.





Good Trading,

Joey

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Stock Chart Analysis CPLA
Capella Education Company(Public, NASDAQ:CPLA)

Education stocks were one of the hottest sectors after the elections, rallying sharply following President Obama's victory. Recently however, they have been under pressure, under performing the general markets. While some of the leaders still have healthy charts, others like CPLA are starting to show some weakness.

CPLA rallied very sharply from November through early December, and then settled into a lateral consolidation. While it was looking like a bullish continuation pattern, CPLA ended up breaking down from the consolidation. Volume dramatically increased on the break, and it appears that CPLA could be in danger of a deeper correction. Notice the horizontal area near 54 that was holding as support through the past few months. This also coincides with the 200-day moving average. It appears that it is now acting as resistance, and could hold CPLA on any bounces. CPLA tried to bounce after the initial breakdown and that level rebuffed the move. Now CPLA is showing some narrow range doji's signaling some indecision. While CPLA hasn't broken down yet, the weekly chart is still in a pattern of lower lows and lower highs. If CPLA fails to reclaim the 200 day moving average soon, it could really fall apart.



Good Trading,

Joey

Stock Chart Analysis EMS
Emergency Medical Services Corporation(Public, NYSE:EMS)


Emergency Medical Services Corp. (NYSE:EMS) was one of the few stocks that emerged unscathed by the vicious bear market last fall. It then rallied to a new 52 week high in November, once again showing outstanding relative strength to its peers and the general markets. However, notice that volume increased overall from November through January without any real price advance. This usually signals distribution and it appears that EMS is no exception.

EMS tried to rally off the lower trendline of the triangle it had formed in February, but it fell well short of the prior high. It then broke down under the triangle and quickly traded to a prior pivot low. It has now bounced pretty sharply off that low into a declining 50 day moving average.

I would still classify the overall picture for EMS as neutral due to the fact that it remains in a larger consolidation. However near term, the stock looks like it is struggling with the 200 day moving average and could be headed for a retest of the prior low. If it can't hold that low, then it could be headed all the way into the low 20's.





Good Trading,

Joey

As of 3:00pm it looks like oil is set to close above its 50 day moving average for the first time since the decline began. While this in itself is not a buy signal, there is plenty to like in this chart. In looking at the chart for the United States Oil Fund LP (ETF)(Public, NYSE:USO), it is showing a nice rounding bottom on huge volume. There is a large MACD divergence and it is attempting to clear a small consolidation area near $29.

If oil were to attempt a rally from here, the upside targets would be very nice. Plotting Fibonacci retrace lines yields the first target at the 38% retrace near $60. If you use a more conservative approach, the declining trendline or 200-day moving average are also likely areas. The trend line would intersect price near the $40 dollar mark right now and the 200-day sma is near $65, but constantly moving lower.

If you're interested in further analysis check out this video from INO.com on oil as well.


Good Trading,

Joey

Stock Chart Analysis SQNM

Sequenom, Inc.(Public, NASDAQ:SQNM)

There is a possible double top forming in SQNM that is quite large. While Biotechs were outperforming over the past several months, they have come under increased selling recently. Notice in the chart below that SQNM had a nice rally sparked by a high volume breakaway gap in June 2008. After more than doubling in price, it began to consolidate for a few months. It attempted to breakout but quickly reversed after what has to be labeled as an exhaustion gap. It attempted to rally after correcting, but ended up setting a lower high, and a potential double top. For the double top to complete, it would need to close under the low set after the first top near $12.



SQNM has been quite weak lately, and is bouncing into moving average resistance as the general markets are starting to become overbought. It also looks like the 50 day moving average will cross beneath the 200 day moving average completing a death cross.

The one area where I am seeing conflicting evidence is on the volume. The overall volume on the selloff is much higher than any other period, but that could be interpreted either way. On the one hand, it's disconcerting to see the increase on a selloff, but it can also show a level of panic hinting at the stock becoming oversold. The other strange thing is that the largest volume bars during the past two months have been on days where it closed higher. This can also be interpreted several ways. It's hard to say if someone is buying on these days, or if institutions are taking advantage of the price increase to unload more shares.

In the end, price action is the most important factor on a chart, and SQNM has been looking bearish. If the market resumes moving lower after the recent bounce, it could drive SQNM under this large trading range and set up for a quick drop.


Good Trading,

Joey

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Recently there has been some great dialogue between the folks at Trade-Ideas and some traders on Twitter. Trade-Ideas has so many different uses, and the company is doing a great job of highlighting some examples of custom scans recently on their blog. While I have talked in great detail before on how I am using Trade-Ideas to automate my trading in conjunction with auto trading software from stocktickr.com, I also use the scanner to alert me for certain market behavior, such as helping me find "stocks in play".

I've been mentioning some of the signals I get from that particular scan, which I have named "Stocks with Mojo" on my Twitter feed. I decided to share how I configured this alert to show some of the different alerts and filters available. The basic gist of this filter is to scan for stocks showing an unusual increase in trading interest in a stock, therefore finding any stocks in play. Usually the stocks that show up have released earnings, or news and have a large increase in volume. I don't make any direct trading decisions on these alerts, and I haven't found a way to reliably trade this automatically, due to the type of alert it is (David or Dan, you are more than welcome to improve or modify it and try ;-), and I think there is promise holding as a swing). What I typically do is put any stocks I find on my daily watchlist, and watch them intraday. Most of these will offer some type of pullback or breakout entry at some point in the day, and with the large increase in volume they are less susceptible to manipulation or program trading.

While I modified this scan to only find stocks going up (with an interest towards automating it), you can easily remove some of the filters to include all stocks showing "mojo". Here is a screen shot showing some of the alerts it has given over the past few days. I only get a few per day, so this is not a noisy scan.

The actual alert I use is unusual number of prints. This is not direction specific as it stands, and only looks for unusual activity based on how many prints are going off.

The filters I use are as follows:

Minimum Price = $10

Minimum Daily Volume = 300,000

Minimum Volume Today = 150%

Minimum Volatility = .07%

Minimum Options Volume today = 200%

The rest of the filters below are what I used to isolate stocks trending higher and I used a combination of intraday and daily data filters.These could be reversed or eliminated altogether depending on what you are looking for. This is an example of one way to refine your alert in Trade-Ideas.

Minimum up from the close = .01 - Looking for stock up from close

Minimum up from the open = .01 - Also want stock to be up from open

Minimum position in previous daily range = 99% - Also want stock close to or above previous HIGH

Minimum up from 8 period sma (15m) = .01% - Also want stock to be trending higher intraday

Minimum Count = 3 - Also want it to happen 3 times to eliminate a single program trade


The easy way to replicate this alert is to use the collaborate feature. Right click in an alert window and click collaborate. Replace the code with the following:

http://www.trade-ideas.com/View.php?O=40000000000000000000000000000000_1D_0&QUNOP=3&Min15SmaLa8=0.01&MinCount=3&MinFCD=0.01&MinFOD=0.1&MinPCPV=200&MinPV=150&MinPrice=10&MinRPD=99&MinVWVP=0.07&MinVol=300000&WN=Stocks+with+Mojo

This will configure the alert just as described above.

Again, this is not necessarily the best scan in the world, but I thought it was a good way to show some of the versatility of the scanner and to show some creative uses for it. If anyone decides to use it or improve it, feel free to let me know how it goes.

Good Trading,


Joey

Brian Shannon of Alphatrends will be hosting a free online educational seminar on April 21st, similar to his recent presentation at Trader's Expo in New York. If you aren't familiar with Brian's work, he specializes in active trading using VWAP (Volume Weighted Average Price) and multiple timeframes. Check out his site for more information on his techniques and to check out his book, or you can register online for the webinar here. I already registered, and it looks like it is filling up fast despite being a few weeks away.


Joey

I was digging through some older post's today and thought this one might be worth reposting.

Whether fairly, or unfairly, trading gets compared to gambling all the time. I think there are more similarities then most traders care to admit, as gambling has been made illegal by hypocritical governments who then sponsor lotteries, while Wall Street is revered as a place where an honest Joe can become rich by investing his hard earned money. Let's look at some similarities:

• Both deal in probabilities and on exploiting a mathematical edge over the long term.
• Both have periods where luck will override statistical probability.
• Both reward a small group while exploiting the masses.
• While odds are fixed in gambling depending on the game being played, and odds vary greatly depending on the market environment, both allow you to manage your betting to when the odds are in your favor.

I was reading through the comments on a post the other day and I found it interesting how reader compared the markets to the "house" and that the more hands you played, the more you would tilt the odds towards the house. I have a different view on who the house is in trading.

I think too many traders think of themselves as trading against the "markets". In reality, for every trade you make, there is another person betting that you are wrong. The exchanges are there to facilitate the trade, you are not trading against them. And although the majority of volume comes from institutions, there are still market makers and specialists who are human that manage each specific trade. So who is the house? In Gambling, the house is the Casino who is exploiting a statistical edge in order to make money in the long run. In trading, the house is the trader who is trading a system with a proven positive expectancy. In both, the house understands that they will experience times of loss, but that in the long run the odds will be in their favor. There are many different "houses" in trading, but you can guarantee that they have the odds in their favor.


So who is the gambler? The gambler is the person who bets without an edge, plain and simple. The gambler will win on enough trades to keep them coming back, but in the long run, the gambler will part with his money whether it's at a Casino or on E-Trade.

Another point was discussed limiting trading frequency. It is an interesting subject because there is a fine line between exploiting your edge, and over trading. In theory, when there is a statistical edge, it should be used as often as possible in order to have the luck factor neutralized. However, in trading, one has to be careful that taking too many setups results in taking mediocre or substandard trades, thereby reducing the expectancy of your system. However, if a system is traded faithfully there really shouldn't be any reason to limit the trades taken unless there are money management reasons for it.

Next time you take a trade, think about who would be on the other side of the trade and why they think you are wrong.

Who is the house and who is the gambler?

Stock Chart Analysis SY

Sybase, Inc.(Public, NYSE:SY)

I've mentioned a few times recently how Tech stocks have been showing good relative strength versus the rest of the markets. While they too have succumbed to the recent pullback in the markets, note how the Nasdaq 100 and Composite have yet to make new lows. While this is due in large part to under performance by the Financials, other sectors have fared quite poorly too. In fact, over the past 30 days, the Industrials have performed worse than the Financials, with Utilities and Materials right in the mix. Tech has clearly been the best performer, and could lead on the next rally attempt.

Sybase, Inc. (NYSE:SY), while not in the Nasdaq (it's a member of the Russell 2000), is in the Computer Software and Services sector. It has a very interesting chart that has held up well through the recent market weakness. In analyzing the chart for SY, I see a base that resembles a cup and handle. There is a lot to like in this chart. Notice the high volatility on the left side of the base and how it died down as it began bottoming. As it started to round higher volume started to increase, and there was a nice high volume gap on the right side which may of ignited a new move higher. It is now in the process of consolidating that move in what could be called the handle for the base. Volume has been tapering off as SY pulls back towards its 50-Day moving average and as it fills the prior gap. While technically the buy point would be over the high side of the base (near 200-Day moving average), there could be a low risk opportunity buy point in this area. I am keeping an eye out for signs of a reversal in this area which would allow for a pretty tight stop, with chances for a couple of targets. The first target is a test of the 200-Day moving average, and the second would be on a break of the cup and handle.



Good Trading,

Joey

Here is more on the T2108 indicator. The following is from an article I wrote that was never published.

The use of indicators varies almost uniquely from trader to trader, with some using them for actual trade signals, and others using them to help identify divergences. Some indicators are considered leading, while others are lagging. Of course all indicators are technically lagging, since they are derived from price, volume, or both, but how they're used is the key. I tend to use indicators as gauges in helping me determine what trend a stock or the market is in. Funny enough, the indicator I am writing about is surely a lagging measure, but I use it as a leading indicator. It's quite a conundrum that a lagging indicator can provide leading signals, but if you understand that what most of technical analysis is doing (measuring levels of psychological elements such as fear and greed), then it makes sense to look for extreme readings in either emotion to tilt the odds in your favor. If you can identify when one group is getting carried away, then you can use it to your advantage in getting in or out before the masses realize what is happening.

The indicator I am speaking of is T2108 which measures the percentage of stocks trading above their 40 day primary moving average. This is obviously lagging, since it is measuring Stocks versus their own lagging indicator, but I think it is very useful during times of extreme fear and greed. The way I use this indicator is to watch for moves to either extreme. The levels to watch are 80 percent on the upper end and 20 percent on the lower end. When 80 percent of stocks are trading above their 40 day moving average, it usually means market participants are aggressively bidding up stocks in a bullish environment and there is no fear in sight. Levels above 80 are usually not sustainable, but it's not necessarily a warning that things will come crashing down around you (although that did in fact happen in October). Sometimes the markets will continue higher as T2108 quietly turns lower. It's this divergence of new market highs, combined with lower readings in this indicator, which warns you the markets are losing steam. A good example of this was during the intermediate high in July 2007. T2108 hit over 80% a couple of times in April, yet as the markets made new highs in late July, T2108 was floundering around the 50% level. That was a clear divergence, and a not so subtle clue that the market was advancing with decreasing participation.

Reading lows is much more cut and dry. Any reading below 20% signals high levels of fear in the market place. While the markets won't necessarily turn on a dime, there very few instances where the markets hang around under the 20% area for a sustained period. Once the markets are in this area it makes sense to lighten up on shorts and start being on alert for a bottoming process, even if only on intermediate timeframes. Even in bear markets, the rallies from oversold levels such as these are quite tradable. If you compare T2108 to a market symbol, you will also notice that these levels have historically been great times to enter the market. I won't list all the instances, but any reader interested can hit CTRL-C in Telechart and punch in SPY,QQQQ, etc. and scroll back in time. It's interesting to see how these levels react during different periods in time, such as the months following Black Monday and surrounding the beginning and end of the Nasdaq Bubble.

This was written back in December 2007, so it is interesting to look back and see how this indicator, much like any indicator, only serves as a warning. There will be times where the markets will remain overbought or oversold far longer than what would seem logical. Fear and Greed are powerful emotions, and at extremes can turn reasonable people into a raging mob. The entire month of October 2008 had a reading averaging near 5%. This is amongst the worst periods ever. Currently, T2108 is near 14%. The question is are we returning to a more normal reading, or are we headed towards another extreme reading like we had in October. I am guess we are returning to more typical levels, which would point to an intermediate term low being put in here for a few reasons. The VIX is well off it's prior highs, even as the markets are testing their lows. It could be that volatility is regressing a little closer to the mean, and while it will probably remain elevated from the past few years zombie like levels, it should remain well off the panic driven highs of 2008. I won't pretend to have a crystal ball, but what happens if the Great Depression Part II, doesn't come to fruition? Regardless of whether we are near the bottom or not, this indicator is warning us that the markets are getting overdone on the short side.

Good Trading,

Joey

Stock Chart Analysis Worden Indicator T2108

As regular readers know, I follow Worden's T2108 as one of my indicators for gauging how oversold or overbought the markets are. The indicator tracks the percentage of US stocks trading over their 40 day moving averages. The key levels I watch are readings below 20% for an oversold market, and reading above 80% for a market that is getting overbought. I also don't use this indicator to make immediate decisions on my trades, it only serves as a warning that the markets are starting to move to one extreme. As such, I start to get more protective of my open positions as the easy money for that move has been made. I wrote about T2108 signaling that the markets were overbought earlier this year, and it did a pretty good job of warning us of the impending pullback. I also wrote on how exaggerated the move down in T2108 was last year, as the markets were getting destroyed. The markets stayed oversold for a very extended period of time last year, showing why indicators should only be used to supplement price data.

T2108 has recently fallen back under the 20% level, and that usually signals an oversold market. One of the reasons I like using this indicator is that it accounts for a much larger number of stocks than any market average could. Notice how moves under 20% are typically followed by rallies strong enough to push the average back to typical levels near the median. The question is whether we are entering another period of extreme weakness like experienced last year, or are we returning to a more typical reaction. With the VIX well below the prior highs, my guess is that fear levels are returning to more typical levels and that we will not see an extended move below 20% on this move lower.


Good Trading,

Joey

Stock Chart Analysis SMH

Semiconductor HOLDRs (ETF)(Public, NYSE:SMH)

I wrote on the semiconductors a few weeks ago, and how they were looking strong to me. I've kept my eye on the group since then, and they continue to look better as a sector than most of the general markets. The Nasdaq has been outperforming the Dow and S&P500 and part of that credit is due to the semiconductors. The problem is that the financials seem hell bent on dragging everything down with them. If the general markets end up rallying from this consolidation, then I feel that semi's will be one of the leading groups.

Many semiconductor stocks have similar charts showing possible double bottoms. In looking at the chart for SMH, it is showing more of a triangle like consolidation. The 20 and 50 day moving averages are starting to curve higher and have supported the last two dips. SMH is an interesting position here as a solid move over 19 should lead to a breakout that challenges the declining 200 day sma more than 20% away. This is a pretty good reward based on the risk needed to take this trade.


Right now it looks like the markets are set to gap lower tomorrow morning so it may wipe this trade out altogether. However, if it holds the current levels after the upcoming weakness, then I will be more optimistic of a pending breakout.

Good Trading,

Joey

Stock Chart Analysis AFAM

Almost Family, Inc.(Public, NASDAQ:AFAM)

Lately it seems that any stock is fair game for a total melt down, regardless of its performance through the recent market downturn. AFAM swam up current through most of 2008, clearing a flag type consolidation in early November to hit all time highs. It then settled into a triangle that appeared to be setting up for a continuation move higher. However, AFAM instead broke down through the triangle and surged under the past two consolidations. This put all buyers for the prior 5 months underwater. This probably came as quite a shock to most shareholders, as AFAM appeared immune to the bear market. Many of those traders may be looking to get out close to breakeven on any bounces into the prior base.

AFAM just had a bounce into the lower part of the prior base which also coincides with its 200-Day moving average. It appears to be quickly failing at this level, and could be setting up for new lows. Slow Stochastics seems to be confirming this as it is crossing back down early, before reaching overbought levels. While AFAM may not head lower in a straight line, it does appear that the $35 area poses some stiff resistance and could reject future bounces. This area would probably offer some decent shorting opportunities with a tight stop loss area.



Good Trading,

Joey

Stock Chart Analysis GERN

Geron Corporation(Public, NASDAQ:GERN)

While the general markets seem to be at a stalemate, several individual stocks are acting well. Stocks like AMZN, APOL, and ASEI have been trending well and it appears that at least some money is finding its way back into the market.

One group that has been trading well recently are Stem cell related stocks. GERN is a stock in this sector that has seen an increase in trading activity recently when they announced the first embryonic stem cell trial in the US. It gapped strongly on the heels of the announcement and has refused to give up much of price gain in subsequent trading. It appears to be forming a bull flag which is among the most powerful chart patterns. Stocks often consolidate these breakouts in tight flags and often resume the initial move after resting. The measured move for bull flag breakouts is the length of the flag pole, which translates to about 3 points in this chart. I typically watch for the 9 day ema to catch up to price and often it will rally from there. While it's not guaranteed, it is one of the patterns I look for. Another alternative, is a more prolonged consolidation, that becomes more of a triangle or rectangle base. In either case, GERN is one that merits a close watch.



Good Trading,

Joey

I haven't had a chance to post links to the recent articles I have written on Investopedia.com. Here is a list of the most recent:

Electronics Stores outperforming Retail Sector

Semiconductors poised to pop

Continued Weakness in Credit Cards

Technicals start to show signs of a shift in the financials

Is Fibonacci pointing to a bounce

Are the refiners under accumulation

High Volume Breakouts Signal a move higher

Money Flowing into Biotech Stocks

Network Companies on the Rebound

REITS Testing an Important Benchmark

I usually post these soon after they are published on my twitter page, so if you're interested you can follow me on twitter here.

Good Trading,

Joey

Stock Chart Analysis Phlx Semiconductor Index

I wrote an article recently for Investopedia regarding some semiconductor stocks that were looking bullish to me. The Semi's continue to look decent to me, and it's always a good thing when they lead the Nasdaq and thus the markets higher. I decided to post an analysis of the $SOX index to illustrate what I'm seeing.

The first section of the chart shows a relative strength ratio between the $SOX and the S&P500. Notice that it has been rising for over a month and has been finding support along the trend line shown. The next section simply shows a positive crossover from below 20 on the slow stochastics indicator. While I don't use this as a trading signal, it does show that the stock is only just reversing from an oversold reading and could still have plenty of momentum behind it. Its also showing a positive divergence in that the stock is well above where it was on the last stochastics reading below 20.

In analysing the price action, it looks to me like the semiconductors broke the downtrend in mid December and began to trade sideways in a consolidation. It has been attempting to build a base for the past three months which resembles a reverse head and shoulders. I drew an internal trend line which shows a price level of importance as price has been repeatedly trading in this area. Think of it like you would of the mid area of a regression channel. The semiconductors are in the middle of their bands and have yet to confirm a move out of the lateral trading range. I would favor an upside breakout, but in my eyes the breakout levels to either side are very clear. While all eyes are on the financials, I am looking to the semiconductors as one of my leading indicators on whether the markets will rally from here.


Good Trading,

Joey

I have written in the past of how important it is to plan for a few different scenarios in regards to your trading. Regardless of your bias, it is important to plan for contingencies so that you are not caught unprepared with an adverse reaction in the markets. Regardless of how many indicators lineup for your intended trade, the markets will do whatever they feel like it, and as a trader you must remain nonobjective and prepared for anything. I found three great links this weekend highlighting a few different ways traders plan for trading this environment.

Great example of a trader having a plan of attack for trading the current environment.

Great example of a trader having a plan of attack regardless of whether markets go up or down this week.

Great example of a trader having a plan of attack for daytrading this environment.

Good Trading,

Joey

Stock Chart Analysis SGR

The Shaw Group Inc.(Public, NYSE:SGR)

I wrote an article on high volume breakouts for Investopedia about 10 days ago, and one of the stocks I highlighted was SGR. I decided to follow up with an analysis because the stock has held up well since the article through some market weakness, and continues to consolidate the move I discussed.

SGR was able to clear a nice double bottom early this year and has managed to hold above the neckline for several sessions. It had a nice high volume up day about two weeks ago, and has only retraced about 50% into that candle. These are bullish characteristics, and SGR may be headed for a test of its declining 200 sma ($39.81 not pictured). The 20 and 50 day sma's are now starting to slope upwards, and should support SGR on pullbacks. The nice thing about this chart is that it has a few clear stop loss area's (such as below 1/08 candle) for which to easily measure risk. While I wouldn't be too optimistic of SGR clearing the 200 day sma on its first try, just reaching that area is good for over 40%. Lets see if the markets cooperate.


Good Trading,

Joey

It seems the news out of Europe regarding the potential nationalizing of some banks spooked the markets well ahead of the Presidential Inauguration. Financials were destroyed with several stocks losing over 15%. The Direxion Financial Bear 3X shares (NYSE:FAZ) ETF was up a staggering 40%. It all culminated in the worst Inauguration decline in history for the Dow. So where do we go from here?

It seems a foregone conclusion that the markets will test the November lows, and it's probably the most likely near term pattern. I highly doubt the markets would break that level severely without some sort of consolidation or rally attempt prior to the test. While it's true that oversold markets can remain oversold, they don't typically break major support in that state. The plunge lower often traps the last sellers and quickly reverses. However, if the markets attempt to rally for a few days, work off their oversold tensions, and then rollover, it could get ugly.

Some of the financial stocks caught some bears off guard today with a gap higher and early strength. They key to any rally at this point is the financials. Morgan Stanley (NYSE:MS) for instance, erased yesterdays losses and actually traded higher than yesterdays high. As of 11:00am it was back under the previous days highs, but well above the lows. I'll be watching them as well as GS as my market tells today.

Good Trading,

Joey

The markets were very weak today, with most of the major indexes down over 3%. The indexes are only 7 days from recent highs, and yet some are already close to their December lows. I would say that things are starting to get oversold quite quickly, and that the markets should get a bounce back fairly soon. The question is, do we rally from here into the inauguration? Continue falling into the inauguration and rally afterwards? Do we test the November lows before a bounce? Do we bounce weakly and setup for breaking the November lows? Do we completely crash?

There are so many possibilities right now, and in my opinion, it's too dangerous to be leaning too hard to either side. The danger of a snap back rally is quite high, yet, the markets could really slide for a few more days as well. For the most part, I have been going home flat since early January. The only swing trades I have made recently are a few shorts and long oil. If you choose to hold overnight, think about reducing position size with a larger stop, as it looks like the VIX is bouncing and that could lead to more frequent gaps.

Good Trading,

Joey

Stock Chart Analysis QQQQ

PowerShares QQQ Trust, Series 1 (ETF)(Public, NASDAQ:QQQQ)

I decided to analyze the Q's tonight, because the markets are at a critical juncture right now. I mentioned in a previous post how I felt the markets were becoming overbought, after rallying for the better part of a month following the November lows. The markets have since been pulling back and are at or close to some levels of support. I have highlighted several areas of interest on the chart below showing how I see the price action. Overall, QQQQ has been trading in a descending broadening wedge, which is neither bullish nor bearish. It is simply a consolidation pattern.

The Q's fell out of a small bearish rising wedge a few weeks ago which led to a small pullback and was then followed by new highs. It can also be classified as trading within a trading channel (shown in red). Price never made it to the upper range of the channel on the last high, and was followed by a break of the channel. The break occured with a bearish cross on slow stochastics, and MACD is also close to confirming the move lower. These are all bearish signs, showing current weakness in the Q's.

However, the Q's are also approaching some support levels and most of the recent price action has been on muted volume. The key will be how the Q's handle these levels in the coming days and whether they will hold as support. There are plenty of catalysts right now with earnings season kicking off, the presidential inauguration approaching, and options expiration this week as well, so it will be interesting to see which way things go.

Good Trading,

Joey

This morning the jobs report came in at -524K jobs and it seems like some were relieved it wasn't higher. While it is good news that it wasn't 600 or 800K, the fact is that the economy has lost a lot of jobs over the past few months. Some were expecting a rally if the number was low enough, but I think the markets are ripe for a deeper pullback. I don't think a we are headed for a low retest yet, but several indicators are telling me things are overheated. We could see a move back to the 50 ma on the Nasdaq and Russell, were the markets should find support. This doesn't mean I will buy there, but it's a logical place for support. In short, it's probably not a good time to be pressing the action, but I'm leaning a little short on financials and miners. I'm still open to a bullish scenario unfolding into the inauguration or even beyond, but I would prefer lower prices before positioning myself more aggressively.

Good Trading,


Joey

I should be writing articles for Investopedia.com almost nightly for the near future so I will try and post links as I get them. Below are the articles I've written to date beginning with the older ones.

• Location and Candlesticks
• Trading a partial retrace
• Buying Fear
• Multiple Timeframes can Multiply Returns
• Retail Sector Hits Resistance
• 4 Base and Break Stocks
• Don't step in the Bear trap
• Is there anything going up in this market
• Stock Health Slides for Medical Appliance Companies
• Have Construction Stocks hit bottom
• Are Indicator Divergences Signaling a bounce in tech stocks
• Bullish Flag Formation Signaling a move higher
• Are Gold Stocks Pulling Back

Enjoy,


Joey

I guess today can only be called a consolidation day. No follow through to either side although bulls have to feel good about not giving up too much ground. Let's see what tomorrow brings.

I will be writing more articles from Investopedia.com and I will try and post links to each here on the blog. Here is an article on Bull Flags.

Also, I saw on Trade-Ideas twitter page that they are upgrading Oddsmaker to 30 days worth of backtesting vs 15. This is a very nice development as it now lets you backtest a full month. They also added some additional parameters for testing exits several days after entry. This opens up several swing trading opportunities in a product that I have been using strictly for intraday strategies. Kudos to the Trade-Ideas team for adding these changes.

Good Trading,

Joey

Happy New Years to everyone! 2008 was an interesting year to say the least and while there were certainly plenty of opportunities it was also a very difficult environment at times. I ended up having my best year to date and one of the keys was acknowledging what the markets were telling me and altering my approach as an adjustment. For instance it was quite apparent early in the year that volatility was coming back and that it was important to account for that with my position sizing. Also, the second half of the year often saw daily gaps in the indexes of over 1% in either direction, and made for a difficult swing trading environment.

I didn't change my setups for the most part, I just focused on using the ones that were still working. Also, towards the last quarter of the year, I dramatically shortened my holding periods to intraday only and small position overnight trades. Even the overnight trades were typically bought late in the afternoon and sold the next day. This allowed me to keep my exposure to a minimum and still be exposed to the increased volatility.

This year promises to be pretty interesting as well, as there is no doubt that the markets are not past the volatility and fear that has been prevalent. The markets kicked off the New Year with a bang on the opening day, and there is optimism that it will carry over. While I am neutral on the near term, the markets are starting to get overbought. While it doesn't "feel" like the recent rally has been that strong, I was surprised to see that most of the indexes are up 20% from the November lows to Fridays close. Also, T2108 (Wordens Indicator measuring Stocks above their 40 day MA) is shockingly over 80%. This really caught me by surprise as it wasn't that long ago (October) that I wrote about this indicator hitting the 1% level. Here is a chart showing T2108.



Notice how it rarely stays over 80% for long. While this isn't necessarily a predictor for a market correction, it does provide a pretty reliable indication that the markets are getting a little unsustainable. What could and often does happen is that the markets continue to rise a little more on decreased participation until it eventually corrects. In this case, it could very well signal the resumption of the overall down trend.

This really is an interesting time, as there is conflicting evidence on the longer timeframes. While the markets have shown fear levels and other technical watermarks that have coincided with previous Bear market bottoms, there is also the threat (and evidence) that this Bear market has only just begun. While I won't pretend to know what is ultimately coming, I feel quite certain that we will have at least one sharp pullback in the next month. We may rally into the Obama inauguration, or we may sell off tomorrow, but I don't think that the fear that has been prevalent over the past year can be washed away with a one month rally. Maybe it can, but I won't gamble with it which is why I trail my stops.

Good Luck and Trading in 2009,


Joey