Were You Prepared For Friday's Rally?

DJIA + 197.85, +1.73% SP500 + 14.48, +1.13% NASDAQ Comp. + 34.33, +1.44% Russell 2000 + 12.35, +1.70% Exchange NYSE NASD Advancing 2,224 2,007 Declining 861 823 Oil $114.59 -$6.59 Gold $833.50 -$5.50 $SOX 366.20 +4.75 Strongest Sectors: XLF +3.80%...XLY +2.33%...XLI +1.96% Weakest Sectors: XLE -1.75%...XLB -0.05%...XLU +0.40% Oil gave back every cent on Friday it gained on Thursday plus some. We are not surprised by this and hope that you weren’t either. Why? We enumerated this extensively in our Thursday night audio Talk. We detailed the bottoming patterns on commodity related stocks like oil, gold, coal and Ag stocks. We showed how these groups of stocks were correlated with oil prices. We showed the intermediate term down trend in oil prices. We discussed the macroeconomic factors of slowing demand and changes that consumers are making in their driving habits. We talked about the difference between macro-factors and short-term news related factors. We explained that short-term news factors, like hurricane weather, missile testing in the Middle East or tensions with Russia, were essentially speculation and that kinds of factors and their influence on price can change as quickly as the weather. We discussed the non-confirmation from the VIX and that option demand was not increasing volatility, which gives clues that option traders were not expecting a big market drop. We warned that the trend reversal patterns in commodity related stocks were essentially counter-trend moves and if listeners were trading them to be prepared for a quick exit in the event oil prices turned down. In our Thursday post...we alerted readers to “Watch the price of oil on Friday…lower oil prices could alter these commodity related technical patterns.” Why because of the reasons stated above. Even though the gain in oil on Thursday was the largest daily gain since July 10, the balance of the information was not completely convincing. While it is true that a trader needs to trade the Chart Signals, they also need to be aware of the non-confirmations and aware of the difference between macro factors influencing the intermediate term trend and the micro factors that influence the short-term trend but that can fade as quickly as they appear. Being aware of the bigger technical picture helps a trader that takes a counter-trend or early trend reversal trade to make adjustments quickly when the short-term move begins to reverse. We trust you made the right adjustments at the right time. If you did…way to go and keep it up. So Thursday oil gained $5.62. On Friday it lost $6.59. Net change down 97 cents for the two days. Remember one of the core tenants of technical analysis is that market action discounts everything. On Thursday the market discounted the rise in oil prices by commodity related stocks rising and on Friday it discounted the fall in oil prices as commodity related stocks fell and the broad indices rose significantly. The intermediate term trend in oil is still down be we see how easily weather, geo-political concerns or even rumors can influence the short-term trend. We also learned Thursday how non-confirmation can give us a clue to the potential weakness of a short-term move. Oil’s recent low is 111.69 on August 15 and the recent high on Thursday August 21 is 121.30. This establishes an important range for us to watch for either a break of support or resistance as to the next direction in the price of oil. Dave's Insight: Remember moves in the direction of the intermediate term trend are more probable. Financial stocks were stronger on Friday as XLF was the strongest sector gaining 3.80%. BAC, JPM, AXP and C all gained more than 3% each on Friday. We saw a lot of the bull flag patterns in stocks, indexes and the sector ETFs, that we alerted you to in Thursday’s post, break out on Friday. As you check your watchlist tonight notice if you see the same. Our short-term trend status is up. Sector Watch Up Trending: XLI, XLK, XLP, XLV, XLY Sideways: XLB, XLF Down Trending: XLE, XLU Index Commentary The DJIA formed a large white candle following Thursday’s hammer…closed above its 20, 30 and 50 DMA…closed above its 23.6% Fibonacci level from the July 15 low…Thursday was a candle entry day and Friday was the break above the high of the low day entry…on the weekly chart there is a hammer, a flag formation and a close above the S1 of the large white candle two weeks ago. The SPX formed a large white candle after Thursday’s confirmation Wednesday’s bullish harami and close above the high of the low day…is above its 20, 30 and 50 DMA and its 23.6% Fibonacci level…on the weekly chart formed a hammer and closed near the high of the large white candle two weeks ago. The Nasdaq opened Friday above Thursday’s (the low day) high creating both the high of the low day and bull flag entry…closed above the 23.6% Fibonacci and closed at its 200 DMA…on the weekly chart bounced off the S1 level and closed above the high of two weeks ago. The SOX formed a bullish engulfing on Thursday’s gave a candle, high of the low day and bull flag entry…closed above its 50 DMA. The RUT formed a bullish engulfing…Friday was an entry day for candle, high of the low day and bull flag…broke through the 23.6% Fibonacci…closed 11 straight days and 12 of the last 13 days above its 200 DMA…Are you seeing a pattern yet? Stock Commentary Up Trending RIMM pulled back at 134 the old high...dark cloud cove like candle AAPL bull flag breakout…gapped up from doji AMZN gapped up from its bullish engulfing…bull flag breakout NIHD confirmed Wednesday’s inverted hammer…again broke out of horizontal resistance in 52 area…bullish bounce may be a failed H&S ESRX weak bull flag breakout with small body spinning top…closed above body of the low day UAUA gapped up from low day after 3-day bull flag…entry day NDAQ again failed to confirm hammer in bull flag…closed near the high of the low day…watch for potential entry on Monday WRC formed a hammer…failed to confirm Wednesday’s hammer…watch for potential entry ONXX bullish engulfing in a bull flag pattern…closed at the high of the low day HANS still in horizontal bull flag at 30 horizontal resistance area…watch for breakout Down Trending We alerted you to “Watch the price of oil on Friday…lower oil prices could alter these commodity related technical patterns” on Thursday and this did happen on Friday. Ag stocks are rolling over but still in a congestion area near bottom breakout patterns that may be failing. POT formed bearish harami and inside day MOS inside day confirmed Thursday’s hanging man…bounced down from 200 DMA AGU confirmed Thursday’s hanging man bounce down from 30 DMA X confirmed Thursday’s dark cloud cover…broke the low of the high day…fell to 200 DMA SCHN formed a lower high and lower low white hanging man that closed 20 higher than the dark cloud cover on Thursday FWLT formed a lower high and lower low and closed below the low of the high day (entry) in this bear flag CNX formed a lower high and lower low that confirmed Thursday’s hanging man BTU closed below the low of the high day in this breakout pattern…potential short-term reversal down…closed near the 30 DMA Sideways Trending AMLN formed higher high and higher low red candle that closed 17 cents lower that the high of the low day…watch for potential break on Monday CF formed a higher high and higher low white body bearish harami after three white soldiers FSLR formed a small white candle continuation…potential chart target 288 CLF formed a white candle inside day with a slightly lower close than Thursday’s doji in the area the 30 DMA Trend Reversal JASO formed a spinning top above horizontal resistance and its 20, 30 and 50 DMA…chart target 21.50 if breakout holds Friday’s Action Moving Up: PCLN, STRA, AAPL, NIHD, DECK, AMZN, IBM, MS, PNRA, UAUA, FMCN, INFY, CELG, LCC, ANR, SINA, FSLR, GS, SOHU, MER, BIDU, LEH, NDAQ, BRCM Moving Down: X, POT, BTU, MEE, AGU, CNX, AEM, MON, FWLT, GDX, MOS, NUE, DRYS, BUCY, CF, MTL, RIMM Intermediate Term Market Trend: Up Short Term Market Trend: Up