SPX Pulls Back to 1,107 in Successful Test of...Drop Me An...

DJIA                          10,409.46  +4.69 +0.05%
SP500                         1,114.61    -0.62 -0.06%
COMPQ                       2,305.93  +0.05 +0.00%
Russell 2000                  666.13    -2.64 -0.39%

Exchange                  NYSE              NASD
Advancing                 1,259               1,085
Declining                   1,801               1,577

Oil           $77.67      +0.66
Gold   $1,229.30       -3.90
SOX        373.09       +1.62
VIX            25.92      +0.05


Index  Direction      Confirmation
VIX      Up                 Yes – SPX
SOX     Up                 Yes – COMPQ

After Tuesday's 25 point breakout, the SPX paused by pulling back to 1,107 in a successful test of Tuesday's breakout before rising to close near unchanged at 1,114.

On Tuesday evening I was traveling back from Dallas where I taught 225 traders for two days how to use technical analysis in trading. As a result I posted very late. If you have not read Tuesday's post I would encourage you to do so.

To trade successfully over time a trader must have a systematic approach to making buy and sell decisions that lead to a profit over a series of trades. One of the challenges that traders face is the overwhelming amount of information, data and opinions that are available.

Much of the information is too loaded with subjective opinions that are flat out wrong or just an obvious statement of what just happened. I chuckle every time I read or hear someone pontificating about the support bounce or breakout that already occurred.

It is natural that new technicians will have little confidence in techniques and indicators that they are just beginning to use.

Why? Because they do not have enough real world experience to know that the technique or indicator works more than it fails. So if a technician doesn't really know the practical expectancy of success, they will not be bold in making statement until the outcome has already occurred. Then once everyone sees the breakout the technician wishing to grab some attention for being right boldly speaks of the breakout that has already occurred.

What I am interested in is the technician that can speak from experience about what the likely development of the subtle shifts in trend, support, resistance and momentum will be and at the same time stay objective and keep their subjective opinions out of their evaluation of the market.

Such a technician would have been able to alert me and you to a likely support bounce two to three weeks ago so that we could have positioned ourselves to take advantage of the higher probability outcome before it happened, not after.

They could have led us to consider trades in leading up trending stocks like NFLX, AKAM, SNDK, CMG, VMW, UAUA, DECK and CRM before they moved big instead of after the fact.

Why is this important? Because once the horizontal breakout occurred in the SPX on Tuesday these stocks had already made very profitable moves.

Since June 8 through Tuesday's close, a total of 7 days, these up trending stocks have moved...

NFLX +15%
AKAM +13%
SNDK +17%
CMG +12%
VMW +9%
UAUA +21%
DECK +17%
CRM +10%

Now there are other up trending stocks and perhaps many others have done better than these listed here in the same time period; however, in order to have the conviction to take a bullish trade in any up trending stock, a trader needed an objective sense that the market was more likely to bounce than it was to break support and continue to down trend.

Without that objective conviction one to three weeks before Tuesday's breakout, a trader will hesitate, wait, delay, look for more confirmation and find every possible reason to NOT buy where they are supposed to buy.

Drop me an email at chartsignals@yahoo.com if you know of someone who was consistently objective and calling for a higher probability move to the upside over the past two to three weeks. I always want to hear of good technicians that will be consistent, objective and that can see the subtle shifts BEFORE they happen.

If you don't know of such a technician, tell me if you were negatively influenced by any informational source and if listening to that source kept you from taking trades in up trending stocks as they bounced over the past week.

Since you read my comments daily, I am excited to read your comments.

Dave's Insight: Trade the market, not your thoughts.

Guidance:
That likely test of the breakout which I mentioned Tuesday evening did occur on Wednesday only the pull back was to 1,107 not the 1,103 to 1,105 area. Okay 1,107 is the area not just to the point. Don't hold it against me that it was 2 points above the horizontal resistance and above Tuesday's S1 level.

The stocks in our watchlist were mixed but many still had strong moves for the day. Leading stocks NFLX, GMCR, AKAM, SNDK, UAUA, CAL, ALK, LCC, ICE, ABC, AZO, CRUS, DTV, ILMN, HLF, HAS and SRCL continued to move higher.

Short term support is at 1,103 the S1 level of Tuesday's large white candle.
Trade strong stocks up, just like the ones we cover everyday and listed just above and below.

Trade weak stocks down also listed below 30 DMA.

The VIX rose +0.05 and closed at 25.92.

The short term 3 day trend is up.
The six-month trend is neutral.
The twelve-month trend is up.

Continue to focus on and trade setups on the charts of the stocks you watch, trade with the trend of the chart and follow your rules.

AAPL +7.56
QCOM -0.50
GOOG +3.28
BIDU -0.56
NDX 100 stocks stronger than the NDX include: PCLN, AAPL, GENZ, ALTR, APOL, SPLS, MRVL, INFY, FSLR, TEVA, HOLX, XLNX, PPDI, CELG and AMAT.

Stocks weaker than the NDX: STLD, URBN, SHLD, FLEX, LINTA, RIMM, ERTS, ATVI, JBHT BBBY, GRMN, NWSA, QCOM, CMCSA and COST.

Stocks to Watch on Thursday
Holding Above 30 DMA
TLT, NFLX, SNDK, CMG, VMW, AZO, DECK, SWN, UNG, UAUA, CRM, MHS, CHL, LVS, AIV, AMX, ATI, CLF, HAS, HLF, ICE, MCD, SPG, UNP, LXK, NTRI, GMCR, URE, WFMI, AMD, BA, BUCY, CAM, CAT, CREE, DE, DHR, DOW, GR, POT, SWK, TSL, USD, USO, V, WHR, WLT
Moving Above 30 DMA = 2
MA, PCLN
Moving Below 30 DMA = 1
FAZ
Staying Below 30 DMA
CSTR, ESI, BYI, WMT, ZION, STI, PNC, JEC, GME, HANS, ACN, FAS, FLS, PCP, ATW, BAC, GES, GS, FCX, X, AGU, IPI, MOS

Intermediate Term Market Trend: Neutral
Short Term Market Trend: Up