Homebrewing Reversal…

What a massive reversal set-up we have brewing here.  Talk about strong and fast…just the way we like it.  Of course, we are still in need of our long awaited confirmation.  However, a 150+ point $INDU reversal, and a 30 point reversal in the NQ is huge boost to the bearish case.  $VIX was up all day, meaning that even though the market moved up huge on positive breadth, traders were scared.  Scared of what?  A new bull market?  Or was all of this action just silent short-sellers accepting the fate they had been prepared to receive?  I think the followthrough answeres that question.

$COMPQ has been great here lately.  Giving us some of the cleanest wave patterns since the last major decline, and continuing to lead the market.  The $COMPQ also has this tendency to “double touch” its 200 day moving average before becoming set on its direction.  Let me show you what I mean…

Notice that on this past move, the $COMPQ has touched 4 times, with 3 closes, right around the 200DMA.  I personally don’t care much for MA’s, but the institutional traders use it, and it gives a nice picture of relative performance over the past 6+ months.  To me, this market seems to know exactly where it is, and where it wants to be.  That doesn’t mean that the sadistic beast does not want to string along as many unsuspecting fools as it can, because it assuredly does.  It just means that “IT” is aware of its location.

Here is the short term chart.  An expanded flat could still be playing out in wave 2 that would lead to a lower low, followed by a push up to a higher high (below 8/15).  Given the magnitude of this reversal, I am more inclined to give the benefit of the doubt to the larger wave 3.

I spent some time last night and this morning highlighting some trades I though had nice potential.  Unfortunately, I had some technical difficulties getting onto the site last night to post.  Consequently, you are receiving this information now.

First off…FSLR.  Yes, it would have been great if this could have been posted last night.  Notice the nice BB squeeze.  This thing should move fairly quickly.  It is down quite a bit here, so watch for a retest, or play some other names in the industry.

GCI…One of my favorite surviving publishing companies.  If we can break a little lower, I will be the proud owner of some puts on this guy.

LFG is still bouncing along in its channel.  The drop back to prior lows represents a 50% decline in stock price, so this is nothing to take lightly.

Last but not least is a little gem from my IRA.  CCC broke out to new highs on Friday with nice, increasing volume.  I am a little skeptical, especially after today’s move, but I think this still hold some long term potential.  I would suggest some long-dated calls, or ever snagging a few shares since this guy is cheap.  BTW, it is a water ute, and should have lots of upside in the future.

One last trade that I have been eying that is finally deciding to make a move today is BIDU.  BIDU, and big brother GOOG, are finally looking to be breaking down.  I already own a small position in BIDU (and GOOG), but will be looking to add as the beasts get marched in to the slaughterhouse.  Feel free to join me while the options are still fairly cheap.

Steel continues to break down.  ZEUS, SCHN, STLD, and AKS continue to be great candidates.  Commodity relate equities are getting blasted today also.  Coal, Oil related, and mineral miners are being sliced up.  Check out GMXR, CNX, ACI, BTU, BHP, MDR, ACGY, FCX, etc.  Finally is the AG sector.  Looks like some of those long awaited break-downs have finally materialized.  CF, TRA, POT, MOS, MON, AG, BG all remain nice targets.

I will walk you through one more trade that I am going to take down today.  OI is looking mighty tasty here for a number of reasons.  I was looking for a push up towards 47.5-50 to complete the wave 2 retracement.  Right now, we have a massive shooting star (inverted flying (because of the gap) Jesus, as I so fondly call it), a classic reversal candle.  During this push up today, OI decided to push itself outside of the 2.0BB, and has quickly pulled back.  All of this is in the context of a larger H/S top preparing to unwind.

Considering the length and depth of the predicted pattern, one should either buy longer dated options, or take this as multiple trades.  Right now, I am inclined to start out with an OCT 40 put position, and be willing to see part at we get towards the neckline at 40.  Every 10% or so would offer an easy target with great profit potential.  I have been watching and waiting for this pattern because the 2 open gaps remain open into $26 and $20.  Either would represent a loss of at least 35%.  That type of move translates very well in an option position.  IV has also had the chance to move down, providing with nice cheap options for this move.

Finally, I will cover gold today since it has decided to be a great hedge this morning.  After a nice consolidation (i.e. Bear flag; I will accept bearish Pennant also) gold has decided to break beautifully lower.  By no means do I think this move is done, but I do think that it is presenting a nice bounce for us to get short with.  I will use GLD as an approximation of the futures (/ZGZ8).

Notice the nice flag/pennant break out.  Volume is with us today, needless to say.  The only remaining major resistance in this area, IMO, is the level surrounding 77 (GLD).  Once that level gives way, it is a short step into 72, and potentially into the 68 range.

I will leave you with those thought today, to ponder upon, until our sadistic markets start becoming masochistic.  I am patiently waiting for that personality to reveal itself.  And if it does not show, I will be on the phone to by institutional buddies to get there canes ready for a beating!!
Skål!

P.S. Before I could get this out, the NQ decided to breach Friday’s low, and continue to fall like an elephant being dropped from a jumbo jet.  I would love to place the Short term trend firmly donw here, and very much believe that is the case for the NQ, and even $RUT.  But until I can get all indexes to confirm, I will keep it at mixed…