In my intra day analysis on stocks and indices I am formulating a setup for the rest of today and into tomorrow which will tell me if this rally is for real or just short covering.

The first part of the thesis hinges on a group of stocks that have rallied strong, are yet to be overbought but nearing resistance on the daily chart: AGU, POT CF, AAPL, BIDU, CAT, BAC, APKT are a good list of examples.  Similar characteristics are a Daily MACD positive cross, but below the zero line on the daily and intra day all but BIDU are on an R4 breakout buy signal..

The next part of the thesis is the broad markets ESZ1 and NQZ1, neither index is breaking out intra day or overbought on the daily charts after an excellent run up.

The last part of the thesis is that names that have been technically strong such as IBM, SNDK, CTSH and CELG are now all overbought on the 14 day RSI.

My mind interprets all of these factors into the following thesis as I write this at 2 pm on October 11, 2011:  The broad indices and the names listed in part 1 of the thesis rally strong into the close of today and/or the close of today and the open of tomorrow, I mean really strong.  Strong enough to get them overbought which none of those names are close to doing at this point.   The velocity of this move is important so the RSI can move up quickly into resistance.  A break of these key levels means the market is full of real buyers and a fail means that the shorts got scared and it may be time to head back down for a testing of support.

On ESZ1 the 1210 to 1215 level is my target for this move and a pullback to 1167 is where I would be covering a short trade.  NQZ1 the target is 2315 to 2320 with a pullback to 2252 as support.

AGU: target is $77.50 to $79.75

POT:    target is $50.10

CF:      target is $153

AAPL:            target is $404

BIDU: target is $130.50

CAT:  target is $83.00

BAC:   target is $7.04

APKT: target is $44.35

Target is the level of resistance that I am watching to either short against or realize this is a strong rally.  There are a number of other names out there, steel sector, Ag names, financial stocks.  Not seeing the strong names rally today alerted me to this thesis.  If this does not happen by 10 am tomorrow than I will have to reassess what my market “tell” is.

Massive market moves, first week of the new training program and a redesign of the DAILY TECHNICIAN made for me a very busy and gratifying week of work.  As Friday is just starting it is not time for me to rest just yet but today will most likely be a teaching day and then get some work done and get home early. 

How many of you out there have blow your entire week on a Friday, or even worse a Friday afternoon?  Go ahead raise your hand, don't be embarassed, it's ok this is a safe place.  If you have read my book then you know that my hand has been raised for about 10 years.  I have blown so much money on Friday's that I am glad I do not know the actual number.  My rationale is that the volume slows down and the volatility remains and therefore my techniques do not work as well.

I truly do not know the "why" but I do know the pain of loss and having to carry that pain all weekend long.  Nothing is more empowering to a trader than a great trading streak and if you can take that feeling over a weekend the empowerment multiplies.  My advice is to set a number that is no more than 20% of what your positive week has been so far and use that as your daily stop out.  I do think this is a negative place to come from but it is better to be prepared than not.

This has been a great week to make money and I hope that you all had massive success.  Feel free to email me and let me know how you are doing.  Have a great weekend.

The Bullish Engulfing Pattern is a highly predictive indicator of a reversal in trend from sellers to buyers.  In my analysis of my universe I found a number of stocks with this pattern and from oversold conditions implying a very high level of probability.

The basic materials sector and financial sector showed the most names with this pattern, CLF, POT, MOS, CF, GS, JPM and in tech, BRCM and CTXS.  Click here to learn how this pattern is created.

I also want to see stocks that have had a positive MACD cross from oversold levels to turbo charge the move.

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A great day close enough to what I described in my most recent blog, looking for a "V" bottom and a bottoming in my favorite stock AAPL.  These two events coinciding at the same time today around 2 pm, later than I would have wanted and on not enough volume to feel great about this rally.  It "feels" more like a short covering rally than any real buying but at least for one night the bulls can get some sleep.

To wrap up the AAPL short call from September 27, it was traded perfectly, a full 10% selloff in 6 days ending exactly at the 200 day SMA and a long shadow bottom.  If you are reading my blogs daily then this came as no surprise to you.  I love this kind of trade and to me it signals an end to the down move in this stock.  $373, $391 are going to be resistance on the snap back but for now I am basking in the glow of a seriously perfect trading call.

In doing my pivots for tomorrow, the PP is lining up with S3 perhaps giving traders a chance to buy on a quick selloff.  As for me I tend to take the next day off after an outsized performance day which for me it was, both in my swing accounts and in my intra day accounts.  I will look for some trades but most likely be light on the keys.

My hope is that you are learning a lot from these blogs in how I analyze levels and pick my trades.  I would certainly recommend getting enrolled in the November class by CONTACTING US to find out more details.  Picking these kinds of winners is not hard once you learn what I can teach you.  There is no reason to be struggling in this business ask my students that are thriving.

In my blog from September 27th entitled AAPL Bearish Engulfing Candle: 7 reasons for the longs to be worried, the stock is down 28 points and the S&P 500 futures is down 100 handles, nearly 10%.  I have a saying "Ours is not to reason why, ours is but to sell and buy", which means I don't care why I am right, I just want to be right and make money from it.

AAPL has a long time correlation to the broad markets and this pattern has proven to be a great indicator of quick and painful downside moves.  $373 was a great support point for the stock today, real near term support is $360-$365, then $345 for AAPL specifically.  The August 9th spike low of 1071.50 is support on the ES Z1.

A lot of stocks broke through support on Friday and are getting very oversold with today's action, but that is no great reason to own stocks just yet.  I would love to see a V bottom tomorrow, huge down move and then a sharp reaction up in mid morning on enormous volume.

Overall I am bearish and why not be, but as a short term trader I look for opportunities and the V move would provide a great chance to make serious money.

Will anyone ever follow sell in May and go away?  It works every year, I write about it every year and yet investors get slammed with a down summer.  The seasonally strong period is upon us and after just analyzing my universe of names, I am perplexed as to the next major direction.

Friday was a damaging day to almost every chart I analyzed breaking support in every sector including large cap tech which has been a trooper in relative performance.  Many charts are in a negative MACD pattern but the RSI is closer to oversold than overbought which takes that indicator out of play.  The natural resource names have been destroyed which is making me think about October 2008 and leads me to the title of this blog.

Lehman had just collapsed and the world looked bleak at best.  A friend alerted me to the natural resource names, X, AKS, MON, MOS, CLF, AGU, POT to name a few and we noticed that the put premius were through the roof.  My fund had been having a great year so I decided to take some risk and sell the puts for many of these names for the November strike period and about 20% out of the money on average and a premium that was another 20% of the price I would have to pay to buy the stock.  This seemed like a great reward to risk play and it worked great as I was not put stock on a single name.

Selling naked puts is a risky trade but it was well thought out and I had cash that I was happy to put to work if these names sold down to my levels.  I have yet to look at premiums today, but given the chart patterns, the time of year and the overall sentiment out there it might make some sense.

As I write this at 1:15 pm on Thursday 9/29/11 I am watching a few my favorite names just getting pummeled, BIDU, AMZN, LULU, NFLX and AAPL.  Of course the bearish engulfing candle on AAPL predicted all of these moves but for me the scary thing is to look at the weekly charts of many of these names, notably BIDU and NFLX which are through significant weekly support and not so close to the next level.

AAPL is trying to hang in there but any more selling pressure on this name could drag this name down through $385 support and easily into $364 which is next.  NFLX is trading like it could go to zero and NVDA has its sight set on $12.00.

Meanwhile in an odd twist of fate, banks are having a good day as well as material stocks.  This is a frightening proposition for the broad markets as you do not want the new leadership sector to be made up of names that are technically weak.  There is an old adage on Wall Street that says "they bring up the crap last" meaning that the poorest performers take the lead when things are about to get worse.

Between the AAPL negative pattern, other tech names breaking down hard and leadership names turning over, the current support on the S&P at 1117 is going to be crucial.

On the bright side it is a very easy topic for me to blog about tonight, on the bad side AAPL may be ready to sell off and bring the broad markets with it.  AAPL formed a Bearish Engulfing pattern today, which is a technical indicator, formed at the top of up trends and signals a potential for reversal. 

The pattern occurs when in an up trend a stock opens above the previous days high and closes below the previous days low, therefore engulfing the entire range of the previous days trading.

This has been a very accurate pattern in relation to AAPL and has consistently led to lower prices.  From April 2010 to today there has been a total of eight Bearish Engulfing Patterns on AAPL:

• April 30, 2010 from $270.50, low was May 6, 2010 (flash crash) at $199.25.  If you want to negate the flash crash, then the following day the stock traded to $225: RESULT –16.66% (using $225 low)
• May 13, 2010 from $265, low was $231 on May 21, 2010: RESULT  -12.5%
• June 21, 2010 from $279 on July 19, 2010 low if $239.60: RESULT –14.33%
• September 27, 2010 from $294.73 to a bottoming point at $277.77 on October 4, 2010: RESULT –5.76%
• November 9, 2010 from $321.30 to a bottom of $297.76 on November 17, 2010: RESULT –7.47%
• December 7, 2010 from $324 a higher high negated the signal on December 29, 2010 at $326.45, the only pattern that did not work: RESULT +.006%
• March 7, 2011 from $361.67, bottoming on March 16, 2011 at $326.26: RESULT –9.70%
• September 27, 2011 from $409.25…

The Bearish Engulfing Pattern has resulted in an average loss of 11.07% in AAPL and doing so with an average of 9 trading days, quick and painful.  Most “market gurus” tell you to not try to pick tops and bottoms but if I have a trade that has worked 6 out of the last 7 times and resulted in an average savings of 11% while risking mere basis points, well these are odds that Jimmy The Greek would be proud of.

Has the market put in a bottom?  For the near term it seems as though the answer is yes.  There were way too many stocks that tested the perfect spot for support and held to ignore and some of those have just been horrible performers but managed to find a level to stop the carnage for now.

Look at the natural resources sector, MOS, MON, CLF, CF, AGU, X, AKS, STLD is a short list of names that have just been getting hammered everyday and now have a very long bottoming shadow.  This is evidence of real buyers stepping in.  AAPL, AMZN, BIDU, SNDK and NVDA in the tech world, GS, JPM in the bank sector all proving to have the same setup.

There is certainly overhead resistance on the indices but if that was the bottom, it was done perfectly just the way a technician would expect.