Market is range bound despite the Dow dropping more than 300 points on Friday

Dear readers, despite the Dow dropping almost 300 points on Friday, the market is still stuck in a range. If this range holds, then it should be bouncing off the bottom channel of the trading range next week. However, if we failed to hold this level and closed below the low of this range, then we could possibly see further downside for stocks. Friday was a good opportunity for range traders to initiate their short term position.

S&P500

General Electric - Range bound between $15 and $16.50. Time to buy the bottom of the trading range on Friday.

Century Aluminum - Range bound in an ascending triangle formation.

AIG - Looking surprising good and its in the midst of forming an ascending triangle amid all the doom and gloom in the market.

Stocks at important pivot point - AIG & Alcoa

American International Group (AIG) and Alcoa (AA) are two stocks i spotted which are at their crucial pivot point. At their pivot point, one can see the congested area of moving averages. AIG had formed what appears to be a double bottom formation. It looks more like a buy than a short sale potential in our case. The bias is also to the upside for Alcoa as the aluminum producer is trapped in a symmetrical triangle spanning a few months.

AIG

Alcoa

My bias is to the upside for the stock market currently.

Market Initiating New Uptrend - Buy on Dips!

Dear Readers, the recent market slump looks to be over as many cyclical stocks are breaking out of their downtrend and initiating new breakout. It is now a buy the dips market with the market breaking resistance. We could see further upside in the stock market. Perhaps the bull market has yet to end after all. The majestic rise from 2 weeks ago had forced the bears to run for cover. For all we know, the recent slump last month could just be an intermediate correction of a bull run. The market is indeed very dynamic whereby opinions doesn't matter. I was bearish and now i am bullish. Concentrate only on price action. Stay flexibility in your bias.

AIG - Looks to be coming up from a properly formed base. A stock in accumulation.

BAC - Possibly the weakest of the bank stocks, it looks like its trying to break its $11 resistance.

Citigroup - Looks to be in some sort of bullish continuation pattern at its resistance area instead of failing at the resistance. Citigroup is now a buy on dips to the support area.

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US Steel - Another cyclical stocks with a change in trend detected in late June. Stock has now broken through its resistance and is now a buy on dips to the support area.

Aloca - Broke out of its sloping downtrend line this week. Currently forming a bullish continuation candlestick pattern.We could see higher prices soon.

Go Defensive - Protect your capital

Dear Readers, the winds are changing in the stock market. Cash is king and do play defensive to ensure your survival in the financial market. Many stocks are showing topish signals and there is a high possibility that we could see some serious selling taking place. I have an earlier post here last week (click to read) on the "not-too-good" market sentiment. Meanwhile, let's take a look at this week's charts.

The Dow Jones Index and Nasdaq Composite are forming descending triangle formations. Market Indexes are made up of many index stocks and may take time to break down as the individual stock fall sick one by one. Meanwhile, many index stocks are already breaking down and undergoing distribution even as the general market has yet to top out. (Click on charts to enlarge)

 

Apple Inc. was rejected at the 50day MA which is a sign of weakness as many short sellers piled in at the low risk entry point. Apple Inc. is a market leader and many eyes are on it as leaders are known to lead the markets lower.

Financials are weak and are currently trending down as they broke downwards out of bases. It will take some time for the financials to build their bases and long set-ups. If you only go long, you will have to be patient. Stocks on down-trending have the tendency to bounce up and then be shorted down again by sellers at resistance.

Take a good look at FAZ (Inverse bear ETF for financials) as the ETF looks like its building a firm base for a push upwards. The financials did not took part in this commodities driven rally and being the backbone of the economy, we'll need the financial to take the lead. Currently everything seems to indicate that all is not well with the economy. Keep an eye on the financials. Meanwhile, we are also seeing a lot of such bases being formed in other inverse ETFs as well.

I have a short position in Alcoa and it is acting well. In this case, i will have to be patient as the stock makes its move down, hopefully. Nonetheless, my stop loss will take me out of the trade if the stock bounce above the 50day MA. The Head & Shoulder top pattern have shifted the odds towards the short side for sellers.

With the sentiment in the general market not looking good, i shifted my attention to Chipotle Mexican Grill (CMG). This stock had gained almost 200% since the beginning of 2010. I believe many short-sellers are watching this particular stock as well as it seemed to form a potential H&S top pattern. A break of the neckline would see more selling. Stalking this stock.

Play defensive and trim your long exposure in the market. Have a good weekend.

Updates on Dow, Nasdaq and Alcoa (AA)

In what was the biggest signs that the bears were making their presence felt, the Dow plunged almost -160pts before clawing back to close at -68pts. For sure, volatility is the in-thing in the market now and both the bulls and bears are now entangled in a intense tug-of-war. We could even see more congested days ahead before the market will show its hand. See chart of Dow Jones Index and the Nasdaq Composite.

Meanwhile, let's take a look at one of the Dow's component stock, Alcoa (AA). The aluminum company had a big volume down day as the bears broke their way down on what looks like the neckline of a head & shoulder pattern. I covered AA almost extensively as it is one of my favorite stocks which i trade in and out of many times.

Prepare for volatility.

Possible trend change in the making

The charts looked topish and leaders such as Apple Inc. and JP Morgan are breaking down. As Livermore said: "As the leader goes, so goes the entire market". Leaders are supposed to lead the market and if the trend of the market is down, the leaders stocks are supposed to lead the overall market lower. This is precisely why they are called "leaders".   The winds are changing and one should get defensive and tighten your stops or moved to cash position. Aggressive shorts-sellers are already in the thick of action! Let's take a look my watch list.

Apple Inc. (AAPL) - Broke below its 50day MA.

Alcoa (AA) - Head & Shoulder reversal formation forming. A break of the neckline will definitely see more selling. Topish looking chart. Definitely a short-selling candidate.  I have a post on AA too a few days back.

JP Morgan (JPM) - Broke and closed below the neckline of the double top formation. We might see more selling in coming week.Not looking good.

Citigroup (C) - Gap down on Thurs and broke the low of the hammer reversal candlestick and effectively rendering the reversal useless. Citigroup might look cheap now but as Jesse Livermore once said: "what's low does not mean it will not go lower" !

Bank of America (BAC) - Closed below $12 and dropped out of its consolidating trading range signaling weakness.If the selling is intensive, we might even see BAC retesting the $11 mark.

Direxion Financial Daily Bull (FAS) - Dropped out of its symmetrical formation. Not looking good..

Lastly, Dow Jones Index is consolidating for a breakout move. Check out this post on "Anatomy of a Short Sale". It is increasing looking like a late stage failure (as depicted in the post above) if the Dow do not move any higher or breakdown. My bias is now to the downside. Nonetheless, please wait for the market to show its hand before making your move! Traders would also be placing sell stops below the descending triangle.

Cash is king, for now!

Aluminium Sector & Dow Jones/S&P500 Index

Commodities prices are on a downward spiral and that includes prices of aluminum and steel as well. Let's take a look at our aluminum stocks of Aloca and Century Aluminum.

Aloca (AA) - Looking increasingly like it is in the midst of forming a H&S formation. A break of the neckline will confirm the formation and the start of a new downtrend. If you are long, i would suggest that you go to the sideline with your cash.

Century Aluminum (CENX) - Was that a double top formation? CENX gap down on huge volume 3 days back. CENX will be more volatile than AA as it is a small cap stock and is more prone to extreme price movement.

Finally a look at our Dow Jones and S&P 500 Index. It went up to as high as 155 points on Friday but it failed to hold on to its gain and gave back almost 100 points after an impressive job report. What does that tells you?