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.

China's Chart Give's a Clear Answer

The FXI weekly chart is quite illuminating and a good example of the importance of volume. What does the current volume pattern tell us? Compare to the previous volume patterns during the top and bear run, and the answer is clear . . .

A Monsanto Topping Pattern?

I went short 100 shares of MON at $120.76. Rather than analyze the trade setup as I have been doing, I'd like to take a look at MON's weekly chart. It's starting to look like a top might be forming.

Take a look at the price action. For the fist time in two years, the trend is stalling and we are starting to see a volatile, 30 point range forming. This by itself is not a sure fire bearish signal.

However, when we add volume, a bearish "tell" forms. Volume during this range has been decidedly bearish--lots of tall red vs short grey bars. RSI is also divergent during this range. The recent high was not confirmed by a high in RSI, which is not a bullish sign.

My current trade was not based off the weekly chart, and I am using a tight stop. If I do go short in my longer term position trade account (which I do not detail here), I would place a stop at the recent high around $132, with an initial target at the bottom of the range around $90. A second target would be at $70, the last area of consolidation.

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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Trade Portfolio Charts: GTLS and DZZ

GTLS is an earnings breakout play that has shown accumultion as it consolidates the breakout move. A key day was early last weak when it confirmed the hammer the stock printed at the breakout point. The RSI and OBV trends are positive and the volume pattern has favored up days.

My target is the recent high of $38, while my stop is just under the breakout point, around $31. This gives me a nice 2.5:1 reward to risk ratio.



I am using the well known gold ETF GLD to detail why I entered DZZ, which is a leveraged inverse short ETF. I am using this chart because it gives a good example of how I like to play "fallen momo stocks". Note that Gold is showing many of the elements that DBA and other ag stocks showed as they broke down.

Why use an inverse ETF rather than short GLD or other gold stocks? The short ansser is I don't have to borrow shares, thus I don't incur any interest charges.



Updated Trading Results:

Old Reliable Looks Good (Bad) Again

During every cycle I have a few stocks that I use as "go to" plays over and over again. I'll keep taking the same trade in a stock until it stops working. Recently, DECK has been one of those reliable stocks and looks to be failing at resistance.

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.

More on DBA

Before we look at the current chart, take a look at my recent DBA posts for a refresher on finding stocks/markets that are topping and ready to rollover. There is a lot to be learned from the charts.

DBA today:

DECK

I've made a few trades that I'll have to update later. In the meantime, take a look at this chart of DECK. It's been one of my big winners this year (as a short) and is a good example of how volume predicts price movement. I began posting and shorting it in January. Back then I received a number of e-mails saying it was only pulling back. It's now a broken stock.

Chart of the Day: DBA

I know Agriculture has dominated my posts over the past two weeks, but it's too hard to ignore the lack of accumulation in the sector. Here is a chart of DBA:

Today's Trade: MON

I took a small short position in MON today, shorting 150 shares at $108.53. As noted in my previous posts, distribution has taken over ag related sectors and MON is taking the lead in this phase.

I have yet to see a strong price move coupled with strong volume, which leads me to believe yesterday's bounce was due to short covering. I may have entered a bit early, since we are still a few points away from moving average resistance. However, I do not want to miss the next leg down.

The Game Plan for Shorting Agriculture

As I previously discussed, I am no longer bullish on the ag sector. As DBA shows, the ETF is showing a distribution pattern common among tops. This weekend I analyzed the sector in search of shorts and came up with three names that head my watchlist: TRA, DE and MON.

Common among these three stocks are broken trend lines, distribution patterns and poor relative strength compared to the sector.

Take a look at the six charts below:



Compare the five stock charts (TRA, DE, MON, CF and MOS) to the ETF DBA. Notice that TRA, DE and MON have broken either a major trend lone or moving average. They all show pronounced downside volume. Most importantly, they all started making lower highs prior to DBA's recent pullback. Compare them to DE and MOS, which still look technically sound.

When shorting, I like to go with the laggards within a group. Therefore, when I decide to short the ag complex, I will likely do so with either TRA, DE or MON.

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DBA Analysis Revisited

On February 26th, I noted my skepticism about the ag sector. At the time ag ETF DBA was trading at $43. As of this posting, it is at $39.50.

I received many e-mails disagreeing with my analysis. This post is not to boast, but to point out how important it is not to get caught up with the hype. When a stock gets too far extended and starts showing a negative volume pattern while moving higher, it is either topping or pulling back to support.

While it's still early to tell, most ag stocks look "toppish" and show poor accumulation. In fact, many, like the ETF, are showing distribution patterns. While I'm not ready to short DBA yet, if we get a break of the 50 day ma, all bets are off.



One final note: If the stock makes a huge comeback today and closes positive, negate everything I just said and go long. It will have printed a long tail on heavy volume. That's very bullish.

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Today's Trade: CPLA (Short) and AKS

I went short 400 shares of CPLA at $55.68. This was a textbook short play that took a nose dive shortly after I entered. I bought after the stock's failure at the 200 day moving average. This is one of my go to patterns: broken momo stock, drops below 200 day moving average with heavy distribution. Enter on illusionary strength, meaning a bounce on low volume in the midst of distribution.

I also bought 300 shares of AKS at $54.64. The stock closed at $54.32. Steel has been on fire, so I am hoping we get a quick bounce back. My stop is tight, just under the last pivot low.

Is the Market Speculator Really Long a Homebuilder?

I've been very busy, so I haven't had a chance to update my trades. As stated in the comments section this morning, I unloaded a bunch of shorts and entered a few longs. I would like to add some more shorts on bounce.

My bias is still to the down side, but I don't want to give up the big gains I've already made. I am keeping a few shorts in case we go down more before we bounce.


A lot of you have e-mailed in shock over my long position in HOV (posted entry in comments section), a homebuilder. Todd S. asked a question is representative of most of the emails I received: WTF are you short a homie when you have been shorting the shit out of the sector over the past year?

Good question Todd. Fundamentally, and longer term, I still don't like the sector. I agree with most that credit and housing problems aren't going away any time soon. However, as a technician who lives and dies by trading accumulation and distribution patterns, I cannot ignore what is going on in the sector. Take a look at the HOV chart:



Key points:
1. Strong breakout over downtrend line and 50 day moving average.

2. Distribution pattern shows accumulation during run up, with strong volume on up days and low volume on pullback.

3. RSI divergence (see orange dotted line on price and RSI) shows strong relative momentum.

These three factors lead me to believe we have a short term reversal in play. I expect to see a retest of the recent high. Not sure if we'll get a breakout at the high, but retesting the high alone would give us a 30 percent gain.

Some have pointed out that I may have entered early. The 50 day moving average is at 7.63, so I do understand the criticism. Maybe I could have waited for more of a pullback. Normally I would. The reason I did not is that I am expecting a bit of a market bounce in the coming days. Lately homies have been leading the market bounces, so it makes sense to enter now. I have a decent risk to reward at 2:1.

Today's Trade Entries: DUG and AGU

I bought 200 shares of DUG at $46.56. DUG is an ETF that is short oil and gas. Looking at the chart, we see major accumulation and a pullback to a major moving average and price support. Note that this is the opposite of what is happening in the oil service complex. What we are really seeing is major distribution and a weak bounce to resistance levels.



I went short 200 shares of AGU at $62.16. My analysis tells me that many of the agriculture, chemical and farming stocks look toppish right now. I am already short MON, and have added AGU as a short. We've got all the classic signails: topping price pattern, break of support and heavy volume distribution.

Note that shorting this sector is not for the faint of heart. Many still think the sector has legs, and will try to get in on dips. They will likely get burned, but we still could see some bounces. When shorting a momo sector as it looks to be topping, you must manage risk and set logical stop losses.

Classic Distrubtion Phase Price and Volume Action

As I expected, last week's bounce was prone to failure and it looks like we are going to test the late January lows. I am weighted to the short side, so you can bet I am giddy about price acton over the past two days.

As we move towards the lows, I will likely start to lighten up on my short positions. Volume patterns don't predict a breakdown, at least not yet. While price and breadth were horrid today, volume wasn't all that heavy. Until we see more distribution, I won't go with a "breakdown of January lows" thesis.



From a technical perspective, this chart is a good example of a classic "dead cat bounce." We had a significant decline followed by a bounce that reached resistance on volume that was lower than during the distrubution phase, finalized by a sharp move down that completely wiped out the bounce gains in less than half the amount time. This is classic distribtuion phase action.

If we get early long side relief tomorrow, I will probably initiate more shorts based on the "retest January lows" thesis.

Today's Short Play: AAPL

I am short 100 shares AAPL at $177.68. I'll take 50 shares off the table at the recent low of $170, and the other 50 if the stock reaches the November low of $155. My stop is above the 50 day moving average, around $183.

It's always tough to short a stock like AAPL. However, the stock has broken down below the 50 day and volume shows major distribution.

Update: I did not know that that Mac World is tomorrow. A reader pointed this out and I probably would not have entered had I known. Should have check the news before entry . . .

Broken Momentum Stocks

It is inevitable that most momentum stocks will fall just as far as they climbed. Many investors and traders end up losing most or all of their profits either holding on or continually playing the bounces in these stocks. Here are 9 recent momentum plays that are showing signs that their incredible runs are over:

Excellent Article Highlighting Momentum Plays

Tereas Lo has posted an excellent article highlighing sentiment cycles. It's ironic that she uses the dry shipping industry as an example, since it is a sector I played on the way up and have recently been playing as a short on the way down (I've already shorted DRYS three times in the last two weeks, and just shorted again today). If you understand these cycles, you will make loads of money and not fall into the traps that many investors get caught in.

As you guys know, I am big on accumulation and distribution patterns. It's an excellent way to catch the euphoric up and panic down moves.