The time difference between the left shoulder and the head is 68 days or 34 * 2 (both Fibonacci numbers). 68 days from the head to the potential right shoulder is the following Monday. None of those require a market failure, but it does provide a window of opportunity.
I’m looking for some clues to confirm this pattern. Declining volume is the most obvious. Paraphrasing Bollinger on Bollinger Bands, ideally we want to see the right shoulder finish beneath the upper Bollinger Band.
If it’s to be a right shoulder, I’ve labeled key pricing areas for this to occur in cluster resistance. The green line is the prior higher. The blue line is the 62% retracement level. The red line is the left shoulder.
I prefer the two later price areas (blue and red lines).
Why? I like the idea of Mr. Market placing maximum stress via fear and greed on bull and bear investors. If there’s one thing I do not like about the current head and shoulders pattern, it’s that every bear is trumpeting it as a certainty.
The DOW chart above reflects a 3 White Soldiers candlestick pattern. Typically a better pattern out of a low, but it is what it is, the DOW is moving upward.
Transports: The index is actually leading the market higher. Pushing outside the upper Bollinger Band.
$VIX: Looks like its just waiting to drop to the lower Bollinger Band. We should know very soon.
IBM: Same as it’s always been, Same as it’s always been.
Watch List: Plenty of stocks to chose from.
KO: Another push higher as the stock performs very well. Volume is trending light heading into near term resistance with RSI at over bought.
UPS: Stock still moving higher and Bollinger Bands still widening. I still think the bias is higher. RSI suggests that and the next price resistance is $68.
FDX: Pops out of consolidation and channel just like KO. Widening bands and the RSI reflects more room to run on good volume today. I like it. I would like to see an inside day for a buying opportunity.
WMT: I can only say I’m glad we closed this position Friday for gains. A little luck never hurt anyone. I’m a little surprised no follow through on another up day. I still think the second down trend line will be tested.
QCOM: No damage so far. I still think the 200 day MA is in play and soon.
T & VZ: Both moving higher and closing in on price resistance as the RSI is overbought. We should test resistance soon.
VECO: I highlighted this yesterday as an earnings watch. After the bell today: VEECO Announces Record Second Quarter 2010 Financial Results. Stock up in after hours.
ONXX: I would consider this a speculative trade. Jumps over down trend line on strong volume. RSI already overbought.
MNTA: I would consider this a speculative trade. Weekly chart reflects a big move over down trend line. Over bought on the weekly.
Tomorrow's Earnings Watch: I’ve charted the stocks that look most interesting.
AmerisourceBergen ABC (Estimate = 0.49) Before Market Open
Broadcom BRCM (Estimate = 0.61) After Market Close
Panera Bread PNRA (Estimate = 0.84) After Market Close
World Acceptance Corporation WRLD (Estimate = 0.97) Time Not Supplied
PNRA: Looks like an ABC pattern. We should know after earnings.
WRLD: Looks like an H&S turning into a cup. Both bullish pattern structures.
From My Trading Desk: Today we closed our position on UPS. We filled the 2nd half on QCOM. And we opened a third of a position on VSEC. UPS still looks good, but once again I want to keep it light and take gains heading into this weekend.
VSEC: The stock moved higher from Friday’s big move. We bought a third of position ahead of expected earning after the bell which is a tad aggressive. Earnings will be announced in 3 days.
Speculative Trades:
LPTH: The stock tried very hard today to wash out investors. It opened down hard but finished higher. In No Man's land.
NANX: Weak move higher. We might see another push lower. We should know soon.
Final Thoughts: If I'm putting money to work tomorrow, I like the idea of FDX or ONXX on any kind of weakness if we get it. If it looks like an inside day I will jump to the intraday price structure for a possible trading opportunity. If QCOM pushes the 200 day MA I might take my gains off the table.
Hope all is well.
J.D. Rosendahl