After Friday’s sell-off with fairly significant volume, I can’t help but be a little pessimistic heading into Monday’s trading session. A quick look at the DOW on the daily doesn’t do much to comfort me as the sideways consolidation we’re experiencing has resulted in strong pullbacks at least 5 out of the last 6 times this pattern has setup since May.
Check out the chart below – there are only a few technical indicators, but they are quite telling. Everyone knows we’ve been channel trading up for some time now.. that’s the easy first view. However, a quick look at Full STO, MACD, and RSI14 show a few patterns that are too obvious to ignore.
First, Full Sto – The black transparent boxes represent when Full Sto was maxed out over 80. Notice the price action in all of these areas, excluding the nice bull run in late June. All of the action was sideways – including the pattern we’re currently experiencing. Every single one of these consolidation periods with Full Sto maxed out and price near the top of the channel resulted in significant sell-offs. Long term, who cares.. we’re in the channel. But, short term traders like me need to take notice.
Want support of the Full Sto prediction above? Take a look at MACD. The bearish cross (simplified explanation as black line crossing under blue line) marked the beginning of the fall as indicated with the transparent red boxes highlighting the cross and price action. Notice that MACD remained strong in June when Full Sto was indicating over bought.. It wasn’t until the crossover in mid August that the price move down finally happened. Outside of that example, all other patterns fall in line over the last 6 months.Check out the MACD on Friday… ohh, so close to crossing south.
Last note – RSI14 – 70 has marked the top over the last three price attempts to move north out of the channel. A pullback to at least 50 is more likely than a move over 70 in the short term.
Summary – chart is short-term bearish and long-term bullish as long as the channel holds.
What now?
As a primarily short term trader, this means that I’ll likely increase my cash position (heavily in cash already) and wait to see what happens in this consolidation pattern. The market wants to pullback and if it does, I’ll look for the bargains and load up again. If it breaks out thanks to GDP numbers or some other stimulus , then I’ll load up on more breakout positions. Either way, it is important to prepare. In every market, there are scalp opportunities, so that’s likely where I’ll spend time on Monday. However, I may cautiously select a few swing plays – only the best setups with volume momentum will do.
Be careful this week and don’t fight the market – join it. Earnings and major economic data reports can fling this market all over the place… be ready. As for me, I’m holding $SYNM and cash into Monday.
Here are a few charts setup long worth watching.. any one of these could breakout for a scalp or possible momo swing trade..
CACB – I’m watching this one for possible scalp if some volume blocks come in to play – target 1.08
COBZ – Big day on Friday – nice relative volume. Interested in seeing how it handles MA200 resistance.
DNE – Risky penny. Setting a volume alert and watching for a run through .15. I’m not interested under.
HYTM – Desperately trying to hold MA50. If we get a bullish turn out of MACD, I might consider a swing long here.
ZHNE – Another potential long swing at MA50. Concerned about MACD and Full Sto. Staying cautious here, but I think we see upside in ZHNE soon.
WAVE – If it holds .70 support and MACD shows some bottoming out, I like this one long. Careful, however, for a drop to MA100. I’ll need to see volume confirmation that .70 really is support before I go long.
CPF – Might be ready to bounce off horizontal support.
YONG – Tends to hold MA20. Watching here for long swing.
SEM – Watching for possible scalp.
GOVX – Risky penny, but coiling up triangle.
PMCS – I think this one was oversold on Friday and may look to swing long.
WNR – Playable long above 7
