Patterns and Sticks in their time, Opera too

I thought I'd make a quick point about candlesticks and patterns in the context of a time frame. I know that candlesticks have been somewhat of a focus lately and we've talked about double tops and bottoms recently, so I thought I'd point out an observation I made this week.
Candlesticks, like chart patterns, are applicable to all time frames and have increasing signficance the larger the time frame. Take a look at this double top formation on the SPX this week. This chart of the SPY shows each candle representing 15 minutes. There is a Double Top reversal pattern that would have worked out nicely as a clear and clean entry point for a bearish intra day trade. There is even a confirmed Hanging Man candle pattern on the second top. One might even consider playing a downward break of the symmetrical triangle in the most recent day for a bearish continuation on an intraday basis.
(Click the image to see it larger)

But would this bearish entry make sense for an intermediate or long term entry? Looking at the daily chart, probably not. Of course, there are plenty of signs that the chart is weakening. My uptrending support line from March was broken and then acted as resistance. The incline of the trend is becoming less steep. This week shows three days with topside shadows followed by a big red candle on Thursday. One could look at this cluster like an evening star formation. It's not textbook, but it tells the same story. With the Investools study set, you will even find that the chart now shows 2 red arrows on the MACD and Stochastic. Nevertheless, the SPX is still in an uptrend and has now found support for the second time in recent weeks at the 20 MA. Though many things may be pointing us to look for a reversal, it is a bit early to call it a top here, particularly when the recent months have repeatedly shown us drastic down days followed by days and weeks of upward movement.

Finally, the weekly chart shows just how the candlesticks and patterns can be used to simplify everything in the bigger picture. It is really quite amazing when you think about the amount of information, news and action that is represented in that one simple candle. This image shows the SPX, DJX, Nasdaq composote, and Russel 2000. The SPX and Dow show very strong weekly candles with the most recent week resulting in a harami, which is a potential reversal. According to Steve Nisson, the Japanese will say that with a harmai the market is "losing its breath." I would say, though, before seriously worrying about a drastic bearish move, we should like to at least see this weekly pattern confirmed with a lower close at the end of this week. For now we must look at these markets in a strong uptrend as taking a very natural breather and perhaps a very healthy pullback.
The Russel and Nasdaq, on the other hand, are looking a bit more ominous. Neither have participated in the strength of the SPX and Dow in the last month and look to be more setup to roll over. The Russell small caps, in particular, have barely found life above the resistance level from late February. Of the "Gravestone Doji" which is seen on the Nasdaq, Nisson says that the Japanese call it this because it "represents the gravestone of the bulls that have died defending their territory."

I hope this is of some use to you. I just want to reiterate that the use of candlesticks and patterns are fantastic but must be appropriately applied to the time frame you are looking at.
On the subject of watching for a reversal, it is worth noting that the VIX has established a very clear level to watch for. Remember, "When the VIX is low(and starts to rise), it's time to go." 14.50 or so seems to be the magic signal for the moment.


So in addition to the ideas from the last post on REITs, Retail may be a good place to look for potential bearish setups if the market does continue to show weakness. We know that our COH has been taking it a bit on the chin lately. But this weekly chart of the $RLX shows a symmetrical triangle that could have big potential to the downside. Having shown relative weakness to the Dow and SPX recently, and with consumers being pinched by the high costs of gas going into the summer season, it would make sense that this sector might take a hit. As is noted in "Week Ahead" found in the strategies tab on the Investools site, Dell, Costco and Sears report this Thursday.


And now for a shameless plug:

As you may know, I am an opera singer.

In case you are looking for a little culture in the coming months, I thought I’d share the information on my performances this summer.
I will be singing in three different operas in June and July. In June, I sing the role of Basil Howard in The Picture of Dorian Gray, a setting of the Oscar Wilde novel by composer Lowell Lieberman . The music is quite impressive and the cast is a very good group of singers. This is being done with Center City Opera at the Kimmel Center in Philadelphia.

There are four performances but it is double cast, so make sure you buy tickets for one of these two dates when I’ll be singing. For more info on the company and these performances, go to their website.

My performances:
Wednesday, June 6, 8 PM
Sunday, June 10, 2:30 PM

In July I will sing two roles with the New Jersey Opera Theater, performing at the Berlind Theater at McCarter in Princeton. In Mozart’s Die Zauberflöte (The Magic Flute) I will sing Sarastro, the high priest of the temple of Isis. In Gounod’s Romeo and Juliet, I will sing Frere Laurent, the provider of poison. For information on tickets, go to their web site.
This is one of my favorite pictures from past performances with that company.

The dates for those shows:

Die Zauberflöte (The Magic Flute), Sarastro

Friday, July 13,8pm
Sunday, July 15, 2pm
Saturday, July 21, 8pm
Saturday, July 28, 1pm

Roméo et Juliette, Frère Laurent

Friday, July 20, 8pm
Sunday, July 22, 2pm
Saturday, July 28, 8pm

Both of the theaters where these performances will take place are ideal for seeing and hearing opera in a more intimate environment. I think they seat somewhere around 600 people. The casts are all young, up and coming talent. So there will be no old, tired, park-and-bark singing here. So come on out to the opera!

For a few last laughs, here's a picture of me as Sarastro in a children's production of The Magic Flute in Zurich. The costume was all mirrors from head to tow. By far the heaviest costume I've ever worn. Not very mobile, but it made quite an affect under the lights on stage.

Here's a picture of me as one of the waiters in Rosenkavalier. Baron Ochs refers to them as Maikäfer, a type of bug that comes out in Spring, so the designers decided to have us painted up as bugs in very nice, linen servant outfits. They do some crazy stuff in the German speaking countries. I won't show you the picture of me as an "old servant" dressed in tight, white boxer briefs and a pink, silk ladies bathrobe with a choker around my neck!


The opera world is a strange and wondrous place.
I do recommend coming out to see any of the productions I'm involved with this summer, even if you've never been to the opera before. They're all good shows, and seeing opera up close is quite impressive. And for those worried about language, they will all have super-titles projected above the stage. I would recommend buying tickets very soon. Almost all of the performances for New Jersey Opera Theater sold out last year and I would expect them to do the same this year. And don't worry, there's not a bad seat in the house, so just buy whatever is available. Ideally, I'd recommend somewhere in the middle of the house and no closer than the first 3 or 4 rows. That way, there's a little room for the sound of the voices to come out and blend with that of the orchestra.

Roaring Market, tired? REITs seem to be.

The Market has been on an amazing tear lately. Big caps have clearly been leading the charge with the Dow and the SPX at record highs and showing no signs of weakness. The Nasdaq and Russell 2000, however have not been quite as hot. Both have spent time below their 20 MAs and the Russell has even plodded along its 50 MA still barely peeking above the peak before the late February sell off. In recent weeks they have consolidated and only in the past week made an effort to retake new highs, though not yet successful. It seems to me that the Dow and SPX are more than ripe for a pullback, but the Nasdaq and RUT may be ready for a breakout to further heights, finally joining in the exuberance. The question is, will the Nasdaq and RUT step it up to join the big caps surging higher or will they all succumb to the weight of a big caps correction? Whatever the case, the easiest first warning signal to watch for will be the 20 MA on the SPX. Until that is broken, there's no reason to worry. After all, we use the charts to show is what IS happening, not what we think is going to happen, right? This is how we take the emotion and guesswork out of the equation.
(click imagine for bigger view)


One important factor as far as the Nasdaq is concerned will be the Sox, which seems to be at a make or break area. After breaking out of its previous range, it looks like old resistance became new support. So a bounce from this level would make a lot of sense. The inverted hammer yesterday(needs confirmation) lends support to that idea. Nevertheless, it isn't a good sign that the Nasdaq was so strong and the SOX tried but then didn't ultimately contribute to that gain. The bullish case for the SOX is further dimmed by a clear double top formation. If it does break back below this support area, the double top will be confirmed as a pattern and we would look to a target of about 470, right back where it was before breaking out of the symmetrical triangle.


If, by chance, the SOX does rally from here, I'd love to see VSEA break its pullback after not holding the level it gapped to. There are a few potential diagonal lines of support and a confirmed hammer a few days back. So it's not out of the question, though there is still some room to go yet before completely filling the gap.


Oil stocks have been ripping lately. How about that SLB flag we discussed at the last meeting? I hope somebody took this trade. I didn't because I was a bit scared by the upper shadows on the 14th and 15th. Would, coulda, shoulda....


I read a good article on the weakness of REITs.
Stocks Can't Fall? Check Out REITs' Retreat. It gives a good perspective to consider with respect to the strength of the current overall markets.
It is interesting too that the weakness of this group has all but been ignored in the recent market hysteria. People go straight to the homebuilders for weakness mentions, but this group's weakness is more recent and may have only just begun. I can't remember, but I think we may have looked at this chart at the last meeting. Regardless, there is a pretty clear head and shoulders pattern there. The long term trend line has not yet been broken, but it seems likely in the coming months to see continued weakness from this group. The Head and Shoulders pattern is said to be one of the most reliable reversal patterns. With a height of roughly 10 pts. on the IYR, an expected target would be around 72.50, coincidentally an old area of resistance.

Just for reference, here's a sweet, year-long head and shoulders pattern on the Homebuilders. Actually, it's kind of funny to look at the last 3 1/2 years as a giganto pattern with a neckline at 550. But I don't think that one is going to pan out, because it would call for a target of Zero. We'd be in serious trouble! :)
Notice that the more recent peak of the homebuilders in February coincides with the all time peak of the REITS.

Anyway, the REITS do look weak, but not quite as gory as the homebuilders.....YET!
I don't know what happened yesterday, but there was huge volume in the IYR was it bounced at both horizontal and diagonal support. So it looks like a bounce is likely, but I'll be watching this group for short entries in the coming weeks if the market does ever run out of steam.

You can certainly search the Investools site for Real Estate stocks, but I went straight to the source to find out what is in this ETF. The Ishares page for the IYR holdings.
I went through a bunch of the top weighted stocks on that list. Many of them look ugly.
Here are some I think have fairly clear lines to watch, either for a support break or a resistance bounce.
ABM

KIM

SPG


TCO

UDR


VNO


It might seem foolish for spending all this time on bearish ideas when the market is ripping. But just as we should be looking for stocks with relative strength during a downtrend for when the market does turn upward, we should also be looking at relative weakness during a bull market for when the market turns over.
Happy hunting.

Peeking my head out with some trade reviews

Ladies and Gentlemen,
Please excuse my long silence on the blog. Life seems to get in the way of trading and blogging sometimes and one just has to decide what noise to filter out from time to time. These posts take a long time, so the blogging has had to take a back seat for a while. I'll be busy with performances in the next two months, so it'll be sporadic, but I'll try to get some action going here again. I will make an effort to do shorter, simpler posts. (I know I've said that before!) But this won't be one of them. It is a review of some of the trades I've discussed or proposed on the blog. Most of it is actually a post I put together well over a month ago but never published.

First, just a follow up on the WFR trade I set up in this post, the contingent sell order I had set to sell at or below 58.83 triggered on April 13 and the options sold for 13.60, a total loss in the trade of $720. This is within the acceptable risk allotment, as discussed in that post. It is a bummer to get stopped out on an inter-day swing, particularly when it moves up $7 starting the next day. Of course, whether or not I would have taken profits at $67 as mentioned before it gapped down at earnings is a whole other story. I will point out, though, that had I held over earnings and been on board for that big gap down, the selling price on April 27 would have been right around $13(I looked at a chart of the option), still keeping me within the acceptable loss parameter of $1000.


And now for the "Draft" that I never published:

It's been a long time coming, so I'm finally reviewing some trades I did from our list.

Back in early February, I mentioned a potential trade on CRDN going into earnings. Looking back at it, it wasn't exactly a screaming entry signal. But with a plan to capitalize on growing IV going into earnings and SELLING BEFORE EARNINGS, it was a reasonable play. I did wait a few days for the entry from the day I posted the idea. I chose the OTM calls because with rising IV, the 60 calls would be likely to have very worthwhile gains if the stock did move up to the 60 level. This was a paper trade.

Not including commissions, the trade resulted in a profit of 36%. Note that I sold at the weakest point of the three days surrounding the sell day.


On January 29, I put up a very extensive post on COH. After rambling through various ideas, I considered the prospect of a March 40/45 vertical spread. This was a very conservative trade idea giving the stock plenty of time to move past the 45 level for the max profit potential. Of course, looking at the run the stock had immediately after the post, I would rather have been in straight calls, but so it goes. A profit is a profit. Because of the quick run up, I put in place a GTC limit order to close the trade for almost the full profit potential well ahead of March expiration. Had I placed the original trade on January 30th rather than the 31st, I would have had a slightly better credit. Regardless, not including commissions, the trade shows a 34% return.
This was a paper trade.





Finally, a trade with a great entry and foolish but lucky exit. This was with real money. I did a post on list performers and mentioned a potential entry for ZMH. The next day the stock closed higher for a beautiful "high of the the low day" entrance. After gapping up on big volume, the stock pulled back a few days and on the first resumption of upward movement, there was the entry. I moved up my stop loss order on the evening of the 25th and mistakenly placed a limit order instead of a stop order. So it sold the next day immediately. I turned a quick 20% profit and was very lucky that I was out before the next day's market sell off. I've made public admissions of entirely moronic losses I've taken, so why not admit to a moronic profit? Actually, though, the entry was quite good, just a silly exit. Regardless, this still shows the value of a great entry. Even with the market's ups and downs since then, a holder of this stock or deep ITM options as I suggested would still be comfortable holding a position here at a small profit.


Okay then. That's all for now. Be careful out there. Markets look a bit long in the tooth.