Short Entry: MON

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

Is the Gold Breakout for Real?

Gold ETF GLD recently broke out over $100, an area that has provided major "round number resistance" the past two times GLD tried to breakout.

When a "major" ETF or market leader breaks out over a number like $100 after basing around that area for a significant amount of time, I consider it an automatic buy. Thus, I'll be entering GLD (or one of the leveraged gold ETFs) on a pullback.

However, there is a concern that could lead to a "failed breakout". Notice that RSI on the 3 year weekly chart shows a negative divergence. On a strong breakout, we want to see RSI breaking out to new highs along with price. Here, we see that RSI was much stronger back in early 2008, the first time GLD attempted to break $100.

Because of this I will not take a big position. I'll take an average size position on a pullback to around $101-102, with my stop under $100. If the breakout does fail, I'll be ready to reverse course and short GLD. Failed breakouts often lead to big gains as short entries.

SPY Chart Analysis

I posted the SPY chart that I sent to subscribers last night without any annotations and a few blog readers weren't quite sure what the chart meant.

The key is the two line drawn and support and resistance. If SPY gets close to the top line (around $93-95), that sets up a great short entry. The market will go from overbought to extremely overbought, the moving average comes into play along with price resistance. Obviously this is the move I am hoping for.

If we don't get more bounce, but rather a pullback, long entries can be made near the support line.

At this moment, I am only managing positions. I dont' see good entries, especially long entries.

Spy Chart

I currently have only one positions (SPY at $84.03). The chart below show looming resistance levels, which correspond with my targets.

Support Becomes Resistance for SSO

Following the recent breakdown, old support has become resistance. This offers a low risk short entry near R levels.

Reliance Steel Earnings Setup

Reliance Steel (RS), reports earnings this week and has a nice looking earnings setup. The stock is basing just under resistance, so a positive earnings report could set the stage for a breakout move to new high territorry. I will likely place a buy stop just above resistance.

Anatomy of a Possible Breakout Chart: EWZ

Based on the annotations to this chart of EWZ, I would be a buyer on a high volume break of $50, or a low volume pullback to $$47. The key to this chart is not only the support and resistance levels, but the pickup in volume. This indicates institutional interest. The stock has moved to the old highs on higher volume than the original ascent.

Bullish Chart: JOSB

While my post after the market close reaffirmed my bearish stance, I am finding more and more solid long setups. The health care sector is smokin', with stocks like HRT and ROCM leading the way.

In this market environment, the only longs I'm willing to trade are stocks with high volume breakouts over major resistance levels. This is not the time for me to bottom dwell or buy support. It's just too risky right now. Yeah, some of you can make money playing the bounces of down trending stocks, but that's not my game.

Take a look at JOSB. Here we have the perfect example of a high volume breakout over major resistance. I have a list of about 20 stocks that have made this type of move over the past few days. I am looking for low volume pullbacks to support (prior resistance) for entry. If the stock keeps climbing, I cross it off my list (parabolic moves are too high risk for me right now).

Today's Trade; VLO and QID

I've traded these stocks so much that past few days, they feel like family. I bought 500 shares of QID at $55.86. I've been trading in 1000 share blocks, but I'm not sure that there won't be more of a bounce in the Q's, so I'm keeping the position size small. If we see QID drop down in the $54-55 range, I'll probably buy some more.

I've been trading VLO on the longside, as oil stocks have held up well over the past two weeks. However, today I went short on the big move up because it is moving right into resistance. Take a look at the resistance point on this chart:


I also noted that RSI and stochastics have dropped, creating a short term negative divergence.


I went short 400 shares of VLO at an average price of $59.06. While I never recommend that readers piggyback on my trades, I emphasize this point today. VLO has been acting strong, so this is a risky trade. I would not be surprised if the stock moves up. Therefore, I am using a hard stop above the $60 resistance level and going with a slightly smaller position size.

Trade carefully.