On the DOW chart above, the market might be ready for some upside corrective behavior. I still don't think we've put the bottom in on this leg down, but caution is warranted for the bears based on today's little pattern. My primary view is 1-3 days of slightly higher move, something like a little wave 4 fits the eye nicely, and then a final move lower of this leg.
You'll notice the DOW trade down to the prior down trend line before rallying back today. Maybe it's time for a little upward bias testing the blue down trend line before a push lower to finish this leg down.
Reader's Question:
A reader emailed the following today: Great blog and trading ideas. What do you think of going short on FFIV if it bounces back to 72-73? Let's Take a look!
FFIV: First, I think the reader is identifying a small price gap at $72-73 to cover as the price target to go short, which seems prudently smart. The daily chart shows bearish divergences going on the MACD and the RSI, both classic structure I look for in a short candidate.
Below is the weekly chart, and we see a very strong move up with little exhaustion. The one glaring technical item of note is the stock has traded right up to a prior peak for the first time. Statistically, this should act as resistance, even if we get a little over throw. This is definitely an area where an aggressive trader could play the fade. We don't have significant divergences going on the weekly, but little ones have formed on the recent rise.
Note: Here are my two concerns. There's no exhaustion or topping pattern on the weekly. So, a downside move could be a wave 4, which can be difficult to trade. And, this is a powerful stock and a market favorite, and that's always tough to short.
Summary: There's merit in this trade. If I were going to trade this stock on the short side, I would feather into it using 1/3 positions slowly. I really don't want to get caught heavily on the wrong side. Using up days makes a lot of sense because of the overhead resistance right above us.
That's my take, and I appreciate the email.
Note: I do not have a position in this stock, and will most likely focus on brand new positions highlighted below. I'm not recommending anyone short this or any stocks, as it's typically an aggressive investment strategy that doesn't fit investment profiles of most investors. In fact, trading either direction of the market is probably dangerous for most investors. If you are going to trade, I recommend you have a seasoned back ground in trading for this market of at least 5 years, maybe more. But most importantly, you take ownership over each of your trades, and you know why you are entering a trade, and why or when you exit. At the end of the day it's your money, your trade.
From My Trading Desk:
Today was a some what active day. The market traded lower early, and I was concerned the market might make a Hammer candlestick, so we closed shorts on MCK and BA for gains, and sold SRS for a really nice gain. I also wanted to take some chips off the table because I wasn't in a position to trade the rest of the day.
SRS: I traded out of this today because we had a nice gain, and this should trade back down if the market trades higher, which it did off today's low. We also haven't cleared the down trend resistance, nor has volume increased. So, what I'm kind of hoping for is SRS will fall back to the 50 day MA and consolidate, and create a lauunching pad for the next wave higher. If we get that, I will back the truck up. It's just concept for now.
We did fill 3 new shorts or bearish positions today. Yesterday, I outlined the bull bear debate on gold.
GLD: The GLD broken below the first uptrend line, and rolled over. MACD looks to support lower pricing.
ABX and NEM: Today we filled half short positions on ABX and NEM.
Both reflect the same technical set up. Bearish divergence on both the RSI and MACD. MACD is rolling over on a big down day. Over lapping price structure up, and price looks tired. We seek to fill the other half on weakness.
GLL: I also opened a half position on GLL, a leveraged inverse gold ETF. The chart below reflects bullish divergences on maybe a little wedging pattern into the recent low. We opened with a half position and seek to fill the rest on strength above the 50 day MA. If gold is in a pull back or correction mode, we could trade up to the 200 day MA in the near future on GLL. This trade reminds me a lot of why we entered SRS.
Hope all is well.
J.D. Rosendahl, Rosey