Charts: AMLN, BEAV, WYNN, BHP

I entered four positions today, 3 shorts and one long. My market bias has turned bearish with recent distribution (price down stong oh high volume) on SPY.

WYNN is showing signs of topping, though it is stronger than the market. Recent volatility and stronger volume to the down side make this an attractive "anticipatory short" with low risk if stopped out.






















BHP is an oversold bounce setup that is nearing support. Note that I am bearish on this stock and only playing a potential bounce. Stop is under the February low (close).

























AMLN: Bear flag under the 50 day moving average.






















BEAV: Break of 50 day moving average, which acts as uptrend line.

Short Entry: MON

I went short MON as it pulled back to resistance levels via a bearish flag pattern.

Is FUQI Ready for a Fall?

Momentum stocks usually give ample warning before taking the inevitable fall. Is FUQI showing signs?

5 Great Short Setups

The following short setups all feature one of my favorite short setups: consolidation post downtrend featuring a negative volume pattern (distribution). A continuation of downtrend is expected.

VCLK, RS, SNDA, AMAG, ATK

RIMM Showing Bear Flag and Distribution

RIMM is at the top of my focus list for shorts. Notice the bear flag formation and bear flag that has formed under the 50 day moving average. The volume pattern is also showing distribution, with heavy volume on the recent drop.

Another Stock Showing Strong Distribution: WYNN

WYNN was on the long list for quite some time, but has now reversed and is the perfect short setup. A bear flag has formed, with volume that's showing distribution. Many like to wait for price to breakdown out of the flag pattern. I prefer to enter early, when price is at the to of the range.

Game Plan For Monday

Here is my detailed plan for Monday and the coming week, as sent to subscribers in today's Trade Report:

May 18, 2009

Market Notes:

The market has pulled back close to the entry point we've been watching (87-88).  The pullback is not ideal, as price has not pulled back in an orderly fashion.  Also, while volume is not significant enough to show distribution, the pullback was not on below average volume.  

These two consideration decrease the probability of a successful trade, and could point to a deeper pullback to the 50 day moving average.  However, the setup does offer a good reward to risk ratio.  An entry at $88.50, with a  stop at $87 and target at the old high around $92.50 gives us a 2.5 to 1 ratio.  This ratio makes the trade acceptable, even if the probability has decreased.

Another factor that concerns me about the long trade is that my focus list is starting to show more short setups.  I am still willing to trade SPY on the long side since the risk ratio is good.

Game Plan:

Get long SPY if it hits my target entry area.  Balance this trade with short setups from the focus list.

Sectors:

Here are the top performing sectors that also show good price patterns:  Dairy, Ag, Internet Service Providers, Drug Manufacturers. Beverages.

Banks, real estate and auto related fields lead to the downside.  

Trade Tracker:

I am still holding NTRS short and SDS. 

Focus List:

shorts: bke, rrgb, cpla, ntrs, brcm, gme, rl

BKE broke it's uptrend and now shows a distribution volume pattern.  Bearish flag is forming.  

RRGB is similar to BKE.  Broken uptrend with consolidation under new resistance.  

GME shows distribution and is pulling back up to moving average support.

BRCM is not as clean cut as the above chafrts, but does show negative distribution and the possible start of the second leg down.

RL shows more of the same.  A pullback to the 200 day moving average would be ideal.

Longs:  IBN, MTN, PPS, MRVL, ACL, MSTR, ERTS

Extreme oversold setup:  DHI.  It's not ready quite yet.  I'll detail this setup tomorrow.

Disclaimer:  All information and opinions expressed in this report are to be used for entertainment purposes only.  The author of this report is not an investment adviser and does not give buy, sell or hold recommendations.  Trading stocks is a risky undertaking, and due diligence is required before making a trade.  Consult an investment professional before making a trade.  The information in this report is not verified and may be incorrect.  The author of this report may or may not hold a position in stocks mentioned in this report.

X Short Setup

A few more days of bounce would cause X to seup as a nice bear flag short candidate:

The New Edition of the Trade Report (July 16)

In the free Wednesday edition of the Trade Report, I discuss:

My QLD entry, this crazy market and relative strength

A few recent positions, X, ILMN and JOYG

Bearish engulfing and flag setups

The Weekly Watchlist

Diversification by way of setups.

Tuesday Report

Monday Report

Yes guys, I do know the difference between "addition" and "edition" (this is for those who receive the report by e-mail).

Anatomy of a Trade: WYNN

I shorted 500 shares of WYNN 8 days ago at $85.03 based on a "dirty bear flag" setup. While technically not a bear flag, the stock had broken support on was pulling back up to the resistance point. Volume distribution pattern was bearish, meaning heavy down days with low volume up days.



That same day the stock closed at $79.26. While I was planning a swing trade with my target around $70, the one day drop was too good to pass up. This is where I have evolved as a trader. In the past, the greed factor would have caused me to fear losing my profits and I would have exited with a $2500 gain. To combat this urge, I now allow myself to exit in stages. I know some traders frown on this, but I understand my own psychology, plus feel that locking in profits and managing trade exits is a great strategy.

I took partial profits by exiting half my position at $80.10 for a $1232 gain. I moved my stop to the short entry level to lock in the profit. The rest of the trade was what I like to think of as a free trade. I am bascially guaranteed making $1232 on the trade, but could make much more.

Today my target was hit, so I exited the remaining positon at $70.14 for another $2490 gain. What would have been $2500 if I had given in to my impulses turned into a $3722 trade.

The WYNN trade is why I often preach about trade management. There are three major elements that make a good trader: stock picking, risk and trade management. It's not that difficult to find good trades. However, making the most of those trades is what seperates the "men from the boys".

Odd and Ins:

I will be starting a trading report service shortly. For a free week, e-mail me at SinghJD1@aol.com and title it "Trading Report"

Rob Hanna does some of the best market analysis around. He's one of the few bloggers I read everyday.

Trade: MDP

I am short 300 shares of MDP at $33.95. This is a bear flag setup. Volume and OBV stink (which is what I want for a short) and stochastics are overbought. There are a couple of good places to place a stop. The two I agonized over were the top of the breakdown bar or the recent pullback high. Feel free to leave a comment and let me know how you would manage a stop on this trade.

How Can You Not Bet Against Gold?

I am hearing a lot of bullish chatter amongst bloggers and media about the near future for gold. This seems to always happen when a former leader (momo stock) breaks down and prints a dead cat bounce. I love it when this happens.

Let's ignore the talking heads and take a look at the chart. First, we see a head and shoulders top that is in the later stages of forming. Many traders like to wait for price to break the neckline, which is the line drawn on the chart below around $85. I don't take this conservative approach when a stock is clearly showing distribution--heavy volume on the initial breakdown. Once I see a weak volume bounce up towards resistance, I enter.

The neckline is my initial target, where I will likely take partial profits and move my stop to protect the profit. If the neckline breaks, the remaining shares will likely give me a huge gain. If I get stopped out, I will usually still make a nice 5-10 percent gain.

Back to the chart. Take a look at the squares drawn over the volume bars. It is clear that the volume pattern is bearish. Huge volume on the initial drop and overall heavier volume on down days signals distribution. The smaller rectangle highlights the volume on the recent bounce. The putrid volume tells me there's not much conviction right now and the ETF is not ready to reclaim its momo status (heavy volume on the bounce would tell me the bounce was just a deep pullback within trend).

Finally, the stochastic confirms the theory that the bounce has created an overbought condition within a down move that provides for a good entry.

Today i added to my bearish gold position, buying 400 shares of DZZ at $26.60. While I use GLD for my gold analysis, I like use DZZ to take a short position, since it provides extra leverage.

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Countertrend Gold Trade

Gold is getting interesting as a short term play (bearish) that is counter to the longterm trend (bullish). If light volume continues on the up move, I will enter one of the weaker stocks.

Today's Trades: NCTY, CHIC and STLD

I was stopped out of the remaining 250 shares of NCTY at $36.15 for no gain. The total gain on the 500 share trade was $275.

I bought 500 more shares of STLD at $37.87. I am currently in for 1000 shares of the stock, with the other 500 shares entered in at $38.45. I like the orderly pullback, and have a stop placed around $36.

I went short 400 shares of CHIC at $30.30. This stock caught my eye as a potential short when it broke down late January. I like the "bearish flag" pattern and failure to mount the 50 day MA.

I will most likely place a stop just above the 50 day MA, at about $31.15.