Off the Charts

The market ended its three-day losing streak today, led by the Nasdaq. After three days of selling pressure to close last week, the S&P (SPY) held support of its 50-day moving average Friday, setting the stage for today's bounce. The major indices closed the day on highs the Nasdaq gaining 1.32%, the S&P up 1.19% and the Dow up 0.76%. Since the Nov. 16 reversal, the S&P has been stair-stepping higher as it reclaims its key moving averages. During that time, the action in the broader indices has been somewhat choppy, but there have been select opportunities if you focus on the best patterns. While most of the best trades in December have been of the short-term cash flow variety, we have seen several stocks reward swing traders with moves out of constructive patterns. The financials helped lead the way higher today and once market heavyweight Apple (AAPL) joined the party, it was off to the races. From a stock picking perspective, December has been a pleasant surprise due to the constructive sector rotation. However, this is the last full trading week of the year, which is not a time to get overaggressive. Keep your stress level down, start evaluating your performance for 2012 and then set realistic goals and steps for 2013! S&P (SPY) Source: eSignal View Chart » View in New Window » Before-and-After: Today's 80/20 Red Dog Reversal Trade in Apple Before the market opened today, Apple was trading all over the map. It dropped as low as $496 before rallying narrowly into positive territory by the open. After very heavy action in the stock last week, it was hard to have an edge either direction. Without a clear-cut set-up, it was hard to short a stock that was down $50 last week, but also hard to get long such an under-performer. The new point of reference was $505.58. AAPL saw a quick push lower through that level, and turned into an 80/20 Red Dog Reversal strategy when it traded back up through it. Stops were then placed at the morning low of $501.23. The chart below was tweeted around 11 a.m. to alert traders about a potential reversal. The key for AAPL today was its ability to build on early morning strength. Apple (AAPL) Source: eSignal View Chart » View in New Window » Apple showed commitment throughout the session on a 5-minute chart. The first entry was $505.58 and once AAPL held above that level, it gave traders another entry once it broke above the flag pattern at $508. AAPL closed the day on highs, up 1.77% and in the gap from Friday that started at $518.13. Today's action is constructive as it relieves some of the oversold pressure on this stock. Apple (AAPL) Source: eSignal View Chart » View in New Window » The AAPL Red Dog Reversal provided a great cash-flow trade, but what will it lead to? The stock now needs to build on that intra-day strength and show commitment on the daily chart. At this point, AAPL is a broken stock and has a lot to prove going forward. Tomorrow's action will be key to judge the overall validity of today's move. Apple (AAPL) Source: eSignal View Chart » View in New Window » Banks Led the Charge Today Bank of America (BAC) closed the day at new 52-week highs, up 3.97%. BAC was highlighted earlier this month for a breakout play above $10 -- and today it closed at $11, a 10% move. This trade triggered on Dec. 5 and since then this stock has showed commitment to the move as it held higher and flagged again. BAC was highlighted on the price point sheet today as a trigger buy above $10.70. This stock cleared that price early and closed the day on highs. Bank of America (BAC) Source: eSignal View Chart » View in New Window » Citigroup (C) was highlighted on Off the Charts last week (Dec. 12) as a trade on the radar as it formed a cup-and-handle pattern on the daily chart. This trade triggered early as it cleared the box pattern at $37.82 and then continued higher throughout the rest of the session to close the day at new yearly highs. Citigroup closed the day up 4.12%. Goldman Sachs (GS) and JP Morgan (JPM) are other notable mentions in the group that were highlighted on the T3Live.com Virtual Trade Floor and the price point sheet this morning. Know the patterns so you're prepared when they trigger. Citigroup (C) Source: eSignal View Chart » View in New Window » Trades on the Radar Amazon (AMZN) is holding up well as it trades above its key moving averages. This stock looks poised for a move higher above $255.00 to $256. Amazon (AMZN) Source: eSignal View Chart » View in New Window » The homebuilders continue to trend higher as they outperform this year. Lennar (LEN) is on the radar for a breakout play above this upper level channel at $39.33. This stock has been basing for the past three months and could see a trade resolution soon. A notable play from this sector today was Ryland Group (RYL), which closed the day up over 6% at new 52-week highs. Lennar (LEN) Source: eSignal View Chart » View in New Window » VMware (VMW) is on the radar as a lower level trade. This stock has a decent chart pattern that triggers to the upside at $95. It will be important to see volume attached to this move as it will give it more validity. VMware (VMW) Source: eSignal View Chart » View in New Window » Western Digital (WDC) saw a strong move to the upside a couple of weeks ago as it gapped up at $34 and rallied for four days to the $39 level. This stock is now basing above $37.20 as it consolidates prior gains. WDC is on the radar for a move above $38.35 to $38.50. Western Digital (WDC) Source: eSignal View Chart » View in New Window » TBT looks poised to break out above a lower level wedge. Could money be rotating into equities? The ProShares UltraShort 20+ Year Treasury (TBT) saw a solid move higher today as it closed back above its 50-day moving average. TBT has a lower level wedge in place that breaks to the upside at $64 to $64.55. A move higher in the treasury bonds could signal that money is rotating into equities and out of bonds. ProShares UltraShort 20+ Year Treasury (TBT) Source: eSignal View Chart » View in New Window »

Off the Charts

Financials helped lead the way higher today and once market heavyweight Apple joined the party, it was off to the races.

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