Today’s worsening unemployment numbers have caused traders to begin doubting the assumptions underlying the entire recovery scenario. The sharp selloff accompanying this new doubt would appear to be a direct result of the change in fundamentals but there are technical indicators at work as well.

The chart shows that we have spent the past two months building a potential head-and-shoulders pattern.

Though the H&S pattern is fairly easy to recognize with its central peak, and two more or less equal adjacent peaks which do not exceed the central peak, it is often "spotted" in shorter term trading charts under doubtful circumstances. However, when spread over a wide chart as in the present case, it carries more weight. It is certain that the market is watching the pattern develop. Once the market is certain the pattern is verified, a volume spike will accompany the move lower. Any move of the market to the region of the "head" will defuse the H&S pattern and render it void.

The two lines I drew at about 88 are the "neck lines". In a classic H&S, they are the key threshold. Closure below the neck lines tends to confirm the pattern. We cannot say with certainty where the neck lines are - they lie between 88 and 90 - but with the SPY at 90.16 at the moment of this writing, it is clear we are only a breath away from confirmation of the classic formation. Decreasing volume on the right shoulder is symptomatic of the pattern as well.

Once the pattern is formed, the extent of the move is dependent on the support regions under the pattern. We can usually expect an amount the height of one of the shoulders to be traced out on the down side. However, it can be much more. In this case I drew a region between about 79 and 84 as the price target. If we are trying to trade the breakdown, the trade becomes more risky to hold once it is below about 84.

Be careful, and good luck.

by Skymist

The Dow finished down 82.38 points; SPX lost 7.91 points; Nasdaq fell 9.02 points:

Most sectors ended lower.  GDX (gold miners) led the sectors down with a 3.41% drop.  XME (metals and mining) lost 2.35%.  USO (oil) fell 1.91% and OIH (oil services) dropped 1.46%.  XLF (financials) slid 1%.  FXI (Chinese ADRs) slipped 1.06%.

SPX

SPX lost 7.91 points to close at 919.32.  It managed to stay above the 10-day MA.  The MACD flattened.

Nasdaq

Nasdaq fell 9.02 points to lcose at 1835.04.  It closed above the 20-day MA.  The MACD was flat.

Well, the market is still stuck in a tight range.  SPX basically has not gone anywhere since the beginning of May!  Ok, well, it went up and down and up and down!  Nasdaq has done a little better, but, has been unable to break above 1870 since beginning of June.  The market is having a difficult time trying to rally without the support from the commodity sectors.  Miners, oils, agriculture, energy have all been on the weak side.  VIX tested 25 and popped back to close above 26.  The market is still in a neutral gear with the MACD on both SPX and Nasdaq turning flat.  We have new jobs data on Thursday.  Perhaps the data will provide some impetus to move the market one way or the other.

Good night and HappyTrading! ™

"For the new week, we have the Fed meeting on Wednesday.  The market still seems undecided and is showing mixed signals.  VIX, closing below 28, could start a new leg down.  On the other hand, energy sectors are showing weakness.  Financials are in neutral gear and could go either way.  Techs are stronger, but, have not been able to break higher.  SPX barely hung on to its 30-day MA last week.  Nasdaq did a little better, closing above its 20-day MA.  What we’ll been watching in the new week is whether the indices can push above their 10-day MAs.  On the down side, we’ll keep our eyes on the 30-day MAs for support.  For SPX, if the 30-day MA is broken, 900 could be tested.  In order for the market to go higher, I think we’ll need to see strength in the commodity sectors."

Indeed, the market basically didn’t go anywhere!  Techs were stronger and eked out a small gain.  VIX did go lower on a new leg down.  Energy sectors were mostly weaker.  On Monday, the market took a swift drop and SPX tested 900.  On Tuesday, commodity sectors bounced and propped up the market.  On Wednesday, the Fed did all it can to bring the market some encouragements.  On Thursday, the market staged a broad-based rally, with biotechs breaking out.  The week ended with light trading as techs pushed higher.

In the Sector Watch, I specifically mentioned BTK (biotech) as it was shaping up for a breakout.  AMGN and CELG continued to look good.  We also looked XME (metals and mining), which ended nearly flat for the week.  When XME was down big, the market took a dive on Monday.  As XME rebounded throughout the week, especially on Thursday, so did the overall market.

If you’re reading my articles, the weekend Market Forecast + Sector Watch is the one series that you don’t want to miss.  This is where we look ahead to see what possibilities are in store for the coming week.  Besides studying the market indices, we also search for sectors that may affect the overall market the most.  In addition, we often point out specific leading stocks within the sectors.

For the week, the Dow finished down 101.34 points; SPX slid just 2.33 points; Nasdaq impressively added +10.75 points.  Let’s see where the market stands after Friday’s close:

SPX

On Friday, SPX lost 1.36 points to close at 918.9.  It stayed above its 30-day MA.  Its MACD went up.

Nasdaq

Nasdaq added +8.68 points to close at 1838.22.  It stayed above its daily MAs.  The MACD continued higher.

After one week of profit-taking, the market fought bravely to stop the bleeding this week.  VIX sank all the way down to below 26.  SFK (financial ultrashort) and SRS (real estate ultrashort) were basically flat.  At the time of this writing, the Asian markets were mostly flat to slightly lower.  For the new week…

To read the rest of of this article, please subscribe to HappyTrading "Premium Articles" by going to the Premium Services (click here) page.  If you are already a subscriber, please click here: Market Forecast 6/29/09.

07:20 | HappyTrading ESRX ($67.99) Sold to Close XTQGM Jul 65 calls, at $4.00 +29%
07:47 | HappyTrading FSLR ($172.90) Sold to Close HJQSK Jul 155 put, at $4.79 -39% 
07:27 | HappyTrading SKF ($43.73) Sold to Close SYJGP Jul 42 calls, at $4.10 -11%
12:59 | HappyTrading SKF ($62.27) Sold to Close SYJGP Jul 42 calls, at $6.00 +36%
07:33 | HappyTrading QCOM ($44.67) Sold to Close AAOGI Jul 45 calls, at $1.44 -26%
07:29 | HappyTrading CTRP ($42.00) Sold to Close QCTGI Jul 45 calls, at $1.30 -43%
07:28 | HappyTrading ISRG ($155.75) Sold to Close AXVGM Jul 165 calls, at $4.80 -38%
06:44 | HappyTrading ESRX ($67.40) Sold to Close XTQFM Jun 65 calls, at $2.25 +36%
06:38 | HappyTrading WLP ($51.50) Sold to Close WLPGJ Jul 50 calls, at $3.40 +24% 
10:40 | HappyTrading WYNN ($36.73) Sold to Close UWVRQ Jun 35 put, at $0.35 -65%
10:35 | HappyTrading SKF ($43.95) Sold to Close SYJFR Jun 44 calls, at $1.35 -39%
08:31 | HappyTrading SKF ($41.50) Sold to Close SYJFO Jun 41 calls, at $1.55 -11%
08:12 | HappyTrading WYNN ($37.33) Sold to Close UWVRQ Jun 35 put, at $0.40 -72%
11:48 | HappyTrading BIDU ($288.70) Sold to Close BDURX Jun 280 put, at $4.50 +13%
09:54 | HappyTrading BIDU ($287.00) Sold to Close BDURX Jun 280 put, at $5.20 +30%
07:18 | HappyTrading CEO ($138.40) Sold to Close CEOGI Jul 145 calls, at $6.00 -25%
12:55 | HappyTrading POT ($118.30) Sold to Close PYPFD Jun 120 calls, at $2.70 +6%
11:36 | HappyTrading POT ($118.85) Sold to Close PYPFD Jun 120 calls, at $3.10 +22%
11:23 | HappyTrading POT ($118.72) Sold to Close PYPFD Jun 120 calls, at $3.00 +18%
09:46 | HappyTrading CEO ($142.20) Bought to Open CEOGI Jul 145 calls, at $8.00
09:04 | HappyTrading RTP ($210.70) Sold to Close RTPFV Jun 210 calls, at $8.00 +24%
10:46 | HappyTrading SOHU ($68.20) Sold to Close UZKFM Jun 65 calls, at $4.10 -13%
10:22 | HappyTrading BLK ($177.90) Sold to Close BDWFX Jun 170 calls, at $9.80 +109%
10:09 | HappyTrading LFC ($58.12) Sold to Close LFCFX Jun 58 calls, at $1.90 -14%
12:51 | HappyTrading V ($68.65) Sold to Close VFN Jun 70 calls, at $1.15 -47%
10:59 | HappyTrading BLK ($183.50) Sold to Close BDWFX Jun 170 calls, at $14.50 +209%
06:55 | HappyTrading BLK ($181.31) Sold to Close BDWFX Jun 170 calls, at $12.80 +172% 
08:38 | HappyTrading LFC ($58.26) Sold to Close LFCFX Jun 58 calls, at $2.30 +5%
08:30 | HappyTrading AMZN ($87.50) Sold to Close QZNFQ Jun 85 calls, at $4.40 +10%
08:19 | HappyTrading TSL ($27.50) Sold to Close TSLFE Jun 25 calls, at $3.30 +14%
08:18 | HappyTrading GS ($150.10) Sold to Close GSFI Jun 145 calls, at $8.30 +41%
08:08 | HappyTrading ESI ($92.50) Sold to Close ENJRR Jun 90 put, at $2.60 -28%
08:05 | HappyTrading GS ($150.70) Sold to Close GSFI Jun 145 calls, at $8.70 +47%
06:43 | HappyTrading TSL ($28.30) Sold to Close TSLFE Jun 25 calls, at $3.80 +31%
06:40 | HappyTrading SPWRA ($31.30) Sold to Close QSUFF Jun 30 calls, at $2.30 +31%
10:45 | HappyTrading PRU ($40.40) Sold to Close PWQFH Jun 40 calls, at $2.70 -18%
12:45 | HappyTrading ICE ($115.50) Sold to Close IHHFB Jun 110 calls, at $8.70 +4%
12:28 | HappyTrading ICE ($115.80) Sold to Close IHHFB Jun 110 calls, at $9.00 +7%
11:42 | HappyTrading ISRG ($149.70) Sold to Close AXQFJ Jun 150 calls, at $6.10 +3%
11:32 | HappyTrading POT ($118.00) Sold to Close PYPFD Jun 120 calls, at $4.70 -18%
08:43 | HappyTrading ISRG ($153.00) Sold to Close AXQFJ Jun 150 calls, at $8.20 +39%
08:27 | HappyTrading BNI ($76.00) Sold to Close BNIFN Jun 70 calls, at $6.50 +71%
07:03 | HappyTrading D0 ($87.84) Sold to Close DOFF Jun 80 calls, at $8.50 +158%

You can check the Trade Records page (About->HappyTrading Trade Records) to see the dates and times these trades were opened and closed (this page is updated every 2 to 4 weeks).  Here are the monthly wrap-ups for the previous 5 months:

May 2009
April 2009
March 2009
February 2009
January 2009

Next week could be an important week for the market to move out of its recent range.  I’ll be back with my weekly Market Forecast later this evening.

Hope you are having a fun weekend!
Happy Sunday and HappyTrading! ™

After the market, PALM reported better-than-expected earnings and saw its shares rise +13.41% in after-hours trading.  On the other hand, POT did not have very good things to say.  POT cut its quarterly forecast by about 50% sending its shares down, along with other fertilizers:  POT -7.12%, MOS -5.8%, and CF -4.92%.

The Dow finished up +172.54 points; SPX added +19.32 points; and Nasdaq gained +37.2 points:

Most sectors made solid gains.  XME (metals and mining) added +4.69% and GDX (gold miners) advanced +3.9%.  USO (oil) was up +2.59% while OIH (oil services) gained +3.35%.  BTK (biotech) rose +2.73%.  GLD (gold) and SLV (silver) were both up.  XLF (financials) bounced +2.15%.  FXI (Chinese ADRs) garnered almost +3%.

SPX

SPX added +19.32 points to close at 920.25, above its 10-day MA.  The MACD went up.

Nasdaq

Nasdaq gained +37.2 points to close at 1829.54.  It closed just above its daily MAs.  The MACD turned higher.

Today’s actions were a little more bullish.  Both Nasdaq and SPX are right back in the middle of the recent trading ranges.  Nasdaq cleared above its daily MAs, while SPX closed just above 920.  Both MACDs turned up.  VIX sank below 27 and can start a new leg down (mentioned in the Market Forecast this weekend).  Biotechs are looking stronger and stronger.  Internet stocks are bouncing back up after last week’s retreat.  Financials are doing a little better, but, still on the bearish side.  SPX 950 is still the resistance to break if the market were to push higher.

Good night and HappyTrading! ™

Chinese internet stocks were very strong today.  SNDA led the charge, jumping almost +12%!  SOHU followed with a +3.89% win.  BIDU gained the most "points", up $10.51.  NTES hopped +7.79%.  SINA was up +3.13%.

The Dow ended down 23.05 points; SPX added +5.84 points; Nasdaq gained +27.42 points:

INX2 (Internet) led the techs, up +2.27%.  GDX (gold miners) was strong again, adding +3.11%, while XME (metals and mining) rose +1.79%.  UNG (natural gas) slipped 2.83% and USO (oil) was down 0.86%.  XLF (financials) garnered +1.22%.  XLE (energy) and PBW (clean energy) were both in the green, up +0.4% and +2.87%, respectively.  FXI (Chinese ADRs) advanced almost +3%.

SPX

SPX added +5.84 points to close at 900.94, just above the 900 level.  The 10-day MA and the MACD slid.

Nasdaq

Nasdaq gained +27.42 points to close at 1792.34.  It closed above its 30-day MA.

Well, the Fed did what it can to help calm the markets.  SPX closed above 900; Nasdaq tested 1800 and closed above its 30-day MA.  VIX dropped back below 30.  But, this market will need to do a little more to prove itself.  Although the financials made some gains today, they still remain on the weak side.  Commodities have made some bounces in the past 2 days; but they are still very sensitive to how the dollar is trading.  The strength in the Chinese Internet stocks was certainly refreshing today.  SNDA has been a strong stock all year and may be seen as a buy again after the recent pullback.  BIDU has more than doubled in the past 3 months, but, it’s about $30 off from its recent high.  NTES could easily test $38 again.  SINA is lagging a bit and could have some catching up to do.

Good night and HappyTrading! ™

In the evening, ORCL shares climbed +2.67% higher after reporting a better-than-expected quarter.  The company said it earned 46 cents per share, topping the 44-cent average estimate by the analysts.  Sales did fall lower, but, they came in better than the estimates as well.

The Dow closed down 16.1 points; SPX added +2.06 points; Nasdaq slid 1.27 points:

GDX (gold miners) added +4.45% and XME (metals and mining) gained +2.58%.  USO (oil) was up +3.2% while UNG (natural gas) slid 1.16%.  Tech sectors were mostly flat.  XLF (financials) managed a small gain.  MOO (agriculture) bounced +1.56%.  FXI (Chinese ADRs) slid less than 1%.

SPX

SPX added +2.06 points to close at 895.1.  It managed to stay above its daily lower BB, for now.  10-day MA curved below the 20-day MA.

Nasdaq

Nasdaq slipped 1.27 points to close at 1764.92.  It stayed below its 30-day MA.  The MACD went lower.

The market barely prevented sliding lower today, helped by the bounce in commodity sectors.  However, the market indices are starting to turn bearish.  SPX’s 10-day MA has curved below the 20-day MA and Nasdaq stayed below its 30-day MA.  The MACD on both indices went lower.  The weakness in the dollar is propping up the commodities, which offset the selling pressure on the stock market today.  Tomorrow, we’ll hear from the Feds, not only on the rates, but, perhaps more importantly on their economic statements.  Uncertainties and weaker-than-expected comments on the economy could easily knock the market down another notch. 

Good night and HappyTrading! ™

The Dow closed down 200.72 points; SPX slipped 28.19 points; Nasdaq dropped 61.28 points:

XME (metals and mining) led the sectors down with a 8.75% decline.  GDX (gold miners) also slipped 6.9%.  USO (oil) and UNG (natural gas) were both lower.  OIH (oil services) lost 6.51% and XLE (energy) was down 5%.  INX2 (internet) sank 4.09%.  FXI (Chinese ADRs) fell 2.33%.

SPX

SPX lost 28.19 points to close at 893.04.  It closed below the 900 level and below its daily MAs.  Its MACD sank.

Nasdaq

Nasdaq tanked 61.28 points to close at 1766.19.  It closed below its 30-day MA.  Its MACD curved lower.

Both SPX and Nasdaq closed below their respective 30-day MAs.  SPX closed below 900!  This is a bearish sign.  The new, weaker, forecast from the World Bank spooked the investors.  The selling was fast and broadly based.  VIX jumped back above 30.  SKF and SRS (financial and real estate ultrashort ETFs, respectively) both gained more than +10% and are threatening to break above their recent, tightly-bound, trading ranges.  This selling could spark a much-anticipated "correction" to the 3-month recovery rally.  Below 900, 880 is the next solid support for SPX.  Nasdaq is a bit stronger; it has a support at 1750.  We started new downside positions today and will continue to monitor the support levels.

Good night and HappyTrading! ™

"If the indices close below the 10-day MAs, it could draw more profit-taking.  As mentioned before, VIX is trying hard to keep the support at 28.  But, it is still below 30; so, there is still not a lot of selling pressure, at least not yet!  There really needs to be some external forces to push the market one way or the other…  We do have to be careful with the possibility of the market simply being stuck in a tight range.  Since the market has been on an extended recovery run, but, sidelined money seemes to just keep on coming in, the market might no go anywhere.  The lower support to watch is the 10-day MA on the market indices.  The higher resistance levels are SPX 950 and Nasdaq 1860.  We’re mostly in cash and should not feel the need to trade in a hurry"

The market was indeed stuck in a tight range.  It started with a big down day on Monday, pushing the indices below the 10-day MAs.  But, after Monday, the market basically did not go anywhere.  On Tuesday, the market slid a little more.  But, it spent the rest of the week climbing back up.  The trading was volatile and tight.

For the week, the market did end lower.  The Dow was down 259.53 points; SPX lost 24.98 points; Nasdaq fell 31.33 points.  Both oil and gold fell slightly.  Commodity sectors were especially weak.  Agricultural stocks took a big tumble.  Most energy stocks also suffered a solid drop.  Financials and techs were weak early in the week, but, made some bounces later.  Health care and some select biotechs bucked the trend and broke out higher.  Let’s see where the market stands after Friday’s close:

SPX

On Friday, SPX added +2.86 points to close at 921.23.  It closed above the 30-day MA.  The MACD went down.

Nasdaq

Nasdaq gained +19.75 points to close at 1827.47.  It close just below its 10-day MA.  Its MACD was slightly lower.

After a 3-month rise and a quick 3-day drop, the market bounced back to more neutral grounds within the recent tight range.  During the week, VIX bounced almost to 33, but, closed back down below 28.  SKF (financial ultrashort ETF) went above $45 and closed below $42.  SRS (real estate ultrashort ETF) managed to closed just above $20.  Asian markets are trading higher at the time of this writing.  For the new week, we have the…

To read the rest of of this article, please subscribe to HappyTrading "Premium Articles" by going to the Premium Services (click here) page.  If you are already a subscriber, please click here: Market Forecast 6/22/09.

This morning, in our Trading Room, I was asked about RIMM’s earnings:
lschild June 18, 2009 9:43 AM

Happy, any thoughts on Rimm?

I responded and updated the status on RIMM throughout the day,

June 18, 2009 10:05 AM
RIMM
don’t think I’ll be playing this; no real conviction either way…

June 18, 2009 11:44 AM
RIMM charts are reading more on the bearish side and can visit $70 if the report is not good.

June 18, 2009 11:56 AM
RIMM
[…] they might just keep it at $80 and kill all the out of money june options. I think the premiums are way too high (on both sides) for where the daily MAs are [the daily MAs are basically flat with no real direction.]. Unless they report an absolute blowout, I don’t think RIMM will run too high. The daily volumes have been rising on the sell side for the past 5 days! If RIMM was going to have a blowout, you’d think that somebody would already be buying…

June 18, 2009 10:06 AM
AAPL
might be a better play; either way, could be good for AAPL

June 18, 2009 11:58 AM
RIMM
on the down side, $75 can be easily taken out and the next support is at $70, then $65.

As it turned out, the charts forecasted the results correctly!  RIMM initially broke below $75.  When it got close to $70, it popped back, ending the after-hours session at just above $76.  Depending on how RIMM trades before the market tomorrow, I think a lot of the "out-of-money" options, both calls and puts, are going to open near $0.  And, near-the-money options are going to see their high premiums disappear!

On the other, AAPL did indeed appear to be the beneficiary of RIMM’s report, trading more than $1 higher in after-hours. 

Very often, you don’t really even need to study the numbers or read what analysts say before an earnings report.  If you learn to study the charts and read them carefully, they can give you a very accurate forecast before you get the actual trading reactions.  Sometimes, the trading reactions may be completely opposite to what one may expect from the report.  But, the charts usually telegraph how the reactions are going to be.  So, study the numbers, get the fundamentals, but, don’t forget to consult the charts before you place your trade!

Good night and HappyTrading! ™