I will be watching a few gaps from Friday to see how they play out this week:

Interesting Gap Ups:
ADBE - $37.00 (gap near $33.65)
FMD - $61.45 (gap near $52.35)

Interesting Gap Downs:
AHG – $19.92 (gap near $22)
CVTI - $11.99 (gap near $12.75)
DCX - $49.36 (gap near $52.50)
LNCR - $36.02 (gap near $37.50) – already filled a $2.50
PEG - $62.00 (gap near $66)

Piranha

The NASDAQ is up almost 3% for the week as it has traveled from the 38.2% retracement level, thru the 50% retracement level to slightly below the 61.8% level. The highest retracement level is not important as I have been focused more on the 200-day moving average and the support/resistance level at 2,200. The NASDAQ is trading above the 200-d m.a. for the first time since May hence the statement “Sell in May and go Away”. I have been discussing and studying the markets around that statement strategy for three years now. It’s been very accurate since the bubble burst in 2000.

Looking at a daily chart, we can see the index is now trading between an upper and lower channel range with current prices touching the upper side. A move above this level will alert me that a short opportunity may become possible as the index would be too extended. Since today is options expiration day, I wouldn’t advise too much intraday activity.

Gold continuous contracts are forming a triangle pattern as noted on the chart with red lines. The former trading range between $600 and $650 no longer applies as we are now below $600 for the first time in months. This will be an interesting play but don’t jump the gun and enter before a signal to either side.

Crude oil contracts are trading at their lowest levels since March and are in a clear downtrend with 17 of the last 27 days giving us a loss. If you look at the weekly chart, you can see that Crude has violated the 200-d m.a. in the past and recovered so I am not sure if it is ready to turn over yet. I don’t suggest a long position until the contracts can recover their 200-d m.a. and the former support line which now acts as resistance. It is very important to wait for the signal before entering a trade because the market doesn’t follow what you “think may happen”. Let the market show you what it wants to do and then trade what it is saying.

Due to the weakness in crude, the NASDAQ-Crude combo index is now above the long term down trend line for the first time in years. We have rallied several times over the past five years when October shows its face and this year could be similar. I don’t know if this is the start to a further rally or just another head fake in 2006. This combo index is purely a secondary indicator so don’t make any decisions based solely from this chart. This chart is here to confirm your beliefs from other front line indicators such as price and volume and that’s it.

Moving on to the DOW and S&P 500, we can see clear cup shaped bases that are currently building the right side. The S&P 500 base is a bit more rounded than the DOW as I would like to see handle formation before a move to new highs. I know the market doesn’t care what I want but both indexes are up about 10% since their bottoms from earlier in the year so we need to shake out the weak holders before making new highs.

Speaking of highs, the DOW can attempt to make an all-time high if it continues to push north. If we really want to dissect this chart, we can say that a seven year cup shaped base has formed as we are about to close the right side of that pattern and possibly form a handle. I don’t typically look at bases in yearly terms but I couldn’t ignore what I see.

Finally, all of this means nothing to me if the New High – New Low (NH-NL) ratio can’t confirm the action. As a CANSLIM trend trader, I am not prepared to make any long commitments until I can see the NH-NL ratio consistently reach 500 news highs per day and individual leaders making new highs on above average volume. Some individual stocks are acting this way but many more are still reversing after their false breakouts.

Trust me, when the NH-NL ratio starts to record 500-800+ new highs per day, we will be well on our way to the next sustainable bull market. Until then, play the short term moves and always employ solid money management techniques and always sell losses short!

Have a great weekend,
Piranha

I wrote a post prior to the market open on August 31, 2006 and uploaded four charts of stocks that may be showing a possible short based on a simple bearish divergence technique I have been studying. Three of the four stocks have showed profits with CLB breaking down with the largest profit opportunity.

Based on that blog entry, I have decided to update what has happened over the past couple of weeks and present a new opportunity from my research tonight.

Corrections Corp. of America:
CXW – 66.18, a 4.38% gain on volume only 36% larger than the average. I see a huge bearish divergence on the charts with a short setup. The entry is the day after the stock closes below the previous high which is $65.

As you can see, each stock did make a gain on the short side but the charts show why a couple of them didn’t set up properly. I would also suggest to use an intraday chart to close the position rather than a daily chart. Please see the original post to understand what I was looking for: Possible Short Setups

The stocks listed on 8/30/06:
PSPT - 16.92 (low 15.45 9/7/06) – 8.69%
CLB - 73.00 (low 67.00 9/11/06) – 8.22%
CTSH - 70.60 (low 68.09 9/11/06) – 3.56%
BMC - 26.97 (low 26.16 9/7/06) – 3.00%

I am new to short term trading (long time CANSLIM trend trader/swing trader) and will continue to use the blog to post up what I am looking at with equities.

Piranha

Born and raised in NY, I will never forget!

On September 4, 2001, I slipped a quarter into a machine atop the observation deck of the Liberty Science Center and zoomed into the beautiful buildings across the river. I was spending an extended Labor Day weekend with my future wife as we decided to go to the museum in New Jersey. We took pictures and viewed the two massive towers and Statue of Liberty on a beautiful Tuesday afternoon; exactly one week prior to the tragic events of 9-11-2001.

Little did I know that I would stand in horror watching those towers burn and fall exactly one week later from my office parking lot north of Manhattan in Westchester county (just up the Hudson River, the same Hudson River that separated me from the towers seven days earlier).

I was working for a historic preservation architectural firm at the time and we decided that we needed to contribute to the possible rebuilding of the site. We entered as one of the thousands of members into the World Trade Center Site Memorial Competition. You are welcomed to view our submission through this link or by searching for #790898 on the official site.

I am proud to be a “New Yorker” at heart even though I currently reside in New Jersey and I will never forget because so many heroes died and were born at the same time that day.

Chris Perruna

Oil has recovered every time at the 200-d m.a. Is this a buying opportunity?

We see five opportunities in the past two years at this long term moving average.

Take the trade (buy options if you want leverage or use futures contracts). What ever you do, sell a small loss and move on if it doesn’t work. Investing is that simple.

Taking trades with a favorable risk to reward ratio. It seems to me that a long position would be ideal even if I am wrong because the reward could take us back towards $80. I am looking at a 2-3 point loss for a possible 10 point gain (minimum 3-to-1 odds with a possible 5-to-1 pay out).

Cut all losses short if the trade fails! (In December 04, crude cut the 200-d m.a. sharply only to recover).

It’s not about being right or wrong; it’s about being able to push the odds in your favor, take the trade and follow the rules. If it doesn’t work – OH WELL! Move on!

Piranha