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First, a quick look at The Market Today. As you know, the Dow and S&P remain firmly in their uptrends, and both set new highs again today (for the Dow it was another all-time high). I don’t think that’s news to anyone. What may have fallen by the wayside is the fact that the Dow Transports also hit another intraday and closing high today:

That’s what the Dow Theorists would call a bit of confirmation (the stock market version, not the Catholic one). Very rosy news (couldn’t help the pun, with Valentine’s and all), but there’s one more bit of confirmation that would make the picture complete:

Yep, the Nasdaq 100 is still going solidly Sideways, in a formation which, over the last 3 months, looks a bit like a Head and Shoulders (and yes, I’m a bit delirious tonight and started to link to this).

However, we’re also less than one good solid “up” day from breaking out to a new high, so the next few trading sessions will be veddy interrresting. We’re near the top of what would be the right shoulder if it fails from here without breaking the former high of 45.40.

Was lucky enough to work late today, so had an hour or so after the market opened to doodle around with Ameritrade StrategyDesk a bit during market hours (so far I’ve been using it for End-of-Day backtesting). I must say I was certainly still frustrated with the clunky interface, but again pleased with the program’s potential. I set up a test alert screen to kick out stocks which had gapped up, were in the top half of the day’s trading range, and were within “x” cents of the last “y” minutes’ high (I varied this one, for instance, within 10 cents of the last 15 minutes’ high).

StrategyDesk’s charts are simply a pain in the butt, so I just used it for the screener. I had it on my left monitor, Quotetracker (main window) on my middle monitor, Firefox with 3-4 tabbed sites (Yahoo, Prophet.net, Order entry) on the right monitor, and various QuoteTracker charts scattered across all three monitors.

When I cross-referenced the stocks the StrategyDesk screen burped out with my usual Prophet.net screen, I got some very promising results. For instance, early-on the combo was sitting on CIEN and AMAT like Dickey Betts sitting on that last riff in Ramblin’ Man.

After firmly establishing the major tonality with a singing bend of the 9th or 2nd (A) from the Aeolian mode to the major 3rd (B), he basically treats measures 1–6 (I and IV) as a G tonality and emphasizes the root (G), 3rd (B), and 5th (D) notes from the G major triad. Measures 11 (vi) and 15 (I) are the only time that Betts uses the b6th (C) from the Aeolian mode as a quick pull-off to the B (major 7th of C and 3rd of G) for melodic variety. (from the “Fender Players’ Club”)

Yeah… whatever. But AMAT was a good early-day play, and CIEN just ran and ran thru midday, so I’ll be doing more research in this general direction.

A couple days back an astute regular commenter pointed out the huge down day on Mastercard (MA). I had mentioned that we might get a setup out of it. Well, Fan, here’s our pullback:

The pullback broke through the 61.8% Fibonacci level, but that’s not a deal-breaker, just something of note which takes the probability of our setup down a few percent.

The volume has been diminishing beautifully on the pullback. Classic.

What do we do? I’ll be looking to enter short on a resumption of the downtrend tomorrow, if it happens. A continuation of this “up” thrust much past the 50% point (108 and change), and we’ll go into wait-and-see mode, as there may be too much buying interest to go short. If I do Get Shorty, I’ll set a tight stop just above the pullback high, calculate the difference between that and my entry point (tah-dah! “R“), and size my position accordingly.

Cheers… let’s watch…

• Supper Tonight: The fabulous chicken and egg (how synergistic) sandwich with caffeine-free Sam's Choice diet cola. Yum.
• Watching: "The Departed" if I can stay awake

First, let’s take a quick look at the Qs overlaid with one of the best indicators on earth- Dave Landry’s Big Blue Arrows (and if you want to laugh your butt off, here’s Dave and his Blue Arrows featuring his Top Analyst):

There’s no long-term trade here without a break out of this range, say above 45 or below 43, plus or minus.

Now let’s look at a couple of our most favoritest regular visitors, Boss Google and Boss Cisco. They’re important not only as potential trades, but also because of the effect they have on the NDX and consequently the overall market. They’re both at very crucial points where they need to get off their bee-hinds and show us some strength, or throw in the towel and slide on down the slippery slope. First, GOOG:

Nice, precise “to the penny” double-top action there. We failed out of that second top on big volume, and now the volume’s tapered off. Here’s a closer zoom:

A resumption of the downtrend tomorrow would be a perfect opportunity to move our stops down to today’s high 474.35, (since today’s high will then qualify as a minor pullback top). For someone not short, a resumption would be an opportunity to enter, set a nice tight stop, and join the rest of us shorties.

Google also has the option of breaking out to the upside, which will see many a pretty little 3-day swinger stopped out.

And Cisco. Oh, Cisco. How about that good news?

Stocks inched higher Wednesday after Wall Street welcomed a robust sales forecast from Cisco Systems Inc. and a stronger-than-expected productivity reading.

***

In corporate news, Cisco rose $1.07, or 3.9 percent, to $28.35 after the networking equipment maker predicted its third-quarter revenue would rise 19 to 20 percent.

from an AP article entitled Stocks Rise on Cisco, Productivity News and reprinted by virtually every news organization

So, Cisco rose 3.9 percent, eh? Close- to- close, yeah. But what does the chart say?

It opened way up, then pulled an OGRe (Opening Gap Reversal) and went down, down, down all day. The OGRe would have been a perfect point to get short (anytime a stock gaps way up and pulls an OGRe on you, it’s begging to be shorted). However, I must note that the failure of the OGRe happened at about 0934 at approx. 28.60, and most of us mere mortals like to let things shake out for 30 minutes or more, so it wasn’t that much of an opportunity.

Today could be the failed second top to that 1/11 “highest high.” Since we have a gap below it and it was such a high-volume bar, it’s a pretty straightforward trade: short a break of today’s low with a stop just above the big resistance at 29.00. We either make money or lose a buck. If we lose a buck, that means it’s broken to a new high, and that’s an opportunity to look for trades in the other direction. Sweet.

• Accomplished Today: Worked at the Cancer Center; tore up my in-dash CD changer; pulled the battery on my VFR800, it's old and drained and I plan to go through 2 sets of tires this year

Of course I’ve gotta post this:

And do a little of this:

The weak resistance from Jan 23 didn’t even slow it down. This is an opportunity to trail a stop rapidly (in case of reversal), and prepare to sell at least half of the position if we approach the significant resistance below 455.

First, let’s take a look at that huge Bearish Engulfing candle on Google:

And it’s not just a long black line (which would be a potent signal in itself), it’s a Marubozu, one of the strongest of signals. Imagine you’re playing p*ker, and you get a suited Ace-King as your hole cards, and you’ll get the picture. The odds are stacked very (very) heavily in our favor.

How to “play” this “hand”? I can only speak for me (and remember, I’m the pro-est of pros when it comes to finding creative ways to lose money), but with the bottom of this big boy at 481.53, and the only near-term support (and wimpy, at that) is the 1/23 bottom of 477.29, I’m crossing all my fingers and toes and hoping for a sucker retrace tomorrow, preferably a nice little candle whose bottom is around 480 and whose range doesn’t top 490 or so — that thar’s a Fib retracement of the Marubozu, for you Fibonacci fans.

If such a candle does form, I’ll be shorting a break of its low with great vigor, as my friend Glenn would say.

If tomorrow opens up, then fails through the bottom of today’s range, I’ll probably look to short at the break of that 1/23 low.

I’ve been horribly busy and tired lately, but have spent a few minutes toying around some more with Ameritrade’s StrategyDesk 1.0. It’s got to be one of the most poorly documented pieces of software I’ve ever seen that wasn’t produced by Microsoft. I did have one funny, and somewhat tragic, moment with it. I was working on coding one of my old spreadsheet- based strategies into it, and thought I had it close enough for a dry run, so I selected September ‘06 thru January ‘07, and told it to backtest.

I was agape… aghast… dumbstruck… dumbfounded… there in front of me were the results: 80 trades triggered for a total gain of over 75% in four months. My first thought (since I have teenagers) was OMFG! … but it only lasted about 3 seconds. You see, I’ve churned out hundreds of formulas and strategies over the last 18 years or so, and some looked so promising I thought I’d need to trademark them and hide them in a vault somewhere. But in practice, the most valuable purpose any of them has served has been when I folded up the paper they were scribbled on and used it as a coaster for a cold beer.

So I began to look closer. Sure enough, I had failed to click the correct button. “Save” or “Add” or “Apply” or whatever this one said, and the backtest that had run was on a formula they included as a sample. Want to know what this magical super-secret formula was? Buy above the 10-day moving average, sell below it. And the test stock just happened to be one that’s been trending very strongly the last few months: Apple. Dammit. However, this is another great example of how, given the right circumstances, a simple strategy can kick some serious ass while we’re all out in the briars and brambles getting cut up looking for an overly complex one.

But this StrategyDesk program has potential, although it’s very much like receiving a big grill with five hundred parts and no assembly instructions. Please, AMTD, get to v1.01 ASAP! Also, as I know Ameritrade has a habit of buying other people’s software and renaming it (see Advanced Analyzer and remember BigEasy Investor), if this is a program someone recognizes, please let me know what it used to be called– maybe those people still have a functional user’s manual.

Any other Jungle Book fans out there? Well, either way, an Elephant Never Forgets. Last November I wrote a couple of pleasant little articles on Genentech (ticker: DNA). In the first one, I noted that a break of the 85-86 area could provide an entry for longer-term, um, investors. (If you’re reading ‘em, check out the follow-up post, as well.)

Well, over the past three weeks we’ve seen a nice gap-up breakout, then a rise and retrace:

Nice place for a tight stop if this kind of slow-moving behemoth trade is what blows your skirt up. Give it a look, see what ya think.

• Watching: Idiocracy, Little Miss Sunshine and SherryBaby (didn't know Maggie Gyllenhaal was such an amazing actress)

Back in my January 11 post, I noted that we needed to redraw our longer-term trendline on the Qs due to their having hit a “higher high.” Well the S&P did the same thing last week, so we’re a bit overdue in redrawing that one. Here’s the previous trendline with the December break:

The previous high was 1431.81, set on both 12/18 and 12/19. A new high of 1433.93 was hit on 1/16, and another one (and the current “highest high”) on 1/17 at 1435.27. This requires us to take a few steps back and redraw the trendline so that it goes through the most recent “minor low before the highest high”:

As you can see, this resets the S&P to “still in an uptrend” status, just like the NDX. What to do about it? Well, for one, it cancels our plans to get short on a retrace- and- failure. For that plan, we now need to wait for a break of the current, correct trendline. In the meantime, we may be looking for a spot to get long if a setup, um, sets up.

Now for the quiz. Here are charts of some famous Nasdaq stocks from the last few days. Can you name ‘em?

No, no. Don’t bother naming ‘em. What I’m actually trying to show here is how similar the first three are, and how the fourth has formed a different pattern. The first three are AAPL, GOOG, and QQQQ. That fourth one is CSCO, and notice how it’s showing some leg.

Here’s the complete chart:

If the top of that hammer were a bit lower (where it left the entire tail hanging down checking how deep the water is), it’d be classic. Its being “in the pattern” makes it a somewhat weaker signal, but still might be good for a long daytrade or swing trade entry tomorrow. And lest we forget, as goes Cisco, often goes the Nasdaq. Let’s watch…

Although CSCO, a major component of the Qs, has broken its longer-term trendline, the Qs themselves still remain solidly above theirs.

The longer-term short setup here is to wait for a break of that trendline and a coincident failure of the recent major support level just above 43.00. The longer-term long setup would be to sit tight if you’re long, or enter on a resumption of the primary (up) trend if you’re not. (Although I can’t see a trend-follower being long here- they would have been stopped out in late December and would be waiting to re-enter. If lots of them are, we’ll see a big volume surge on the next rally.)

And yes, I do find it agonizing just sitting and waiting. Perhaps I need a more comfortable rocking chair…

Very, very interesting negative action in the leaders today. I’m looking at longer-term swings now, so I won’t trade a break of these bars like I “used to woulda,” but the short-sale dawg is lickin’ his chops. Let’s look.

First, my old friend Apple:

Bearish Engulfing, baby. If you’re looking to get short, watch for the break. If you’re long, watch out for the break.

Next, Big Daddy Cisco:

This wide-range candle on high volume extends the current downward thrust significantly. Any little 2 to 3-day pullback on decreasing volume will be a shorting opportunity. Only a huge reversal like that one back at the end of November would negate this setup. This is also a break of the longer-term (6-month) trendline, and a higher high (above 29.00) would be required to re-establish the uptrend for longer-term traders.

Now on to Intel:

This gap breakdown on huge volume is very significant. It establishes the 11/17/06 top of 22.50 as a longer-term first top of a double-top, and the 1/16/07 high of 22.30 as the second top. If price continues downward towards the “middle of the M” bottom of 20.03 on 12/26, a short setup is in the making. Where to get short is a matter of preference. Less aggressive would be to wait for a break of 20. More aggressive would be a break of the 61.8% Fib level the top (22.50) to the bottom (20.03). This is right at 21.00, so using that and a break of today’s low of 20.78 as confirmation is a possibility.

Oh, and watched After The Sunset last night. Poor writing, absolutely terrible directing (or maybe was the editing, I dunno). But it had one redeeming virtue that made it well worth renting. Yes, that would be The Goddess Known as Salma.

Classic short setup on LPAA. See below, it has broken down solidly below support, and has made a minor retrace back up to that support (now resistance). A resumption of the downtrend would be a great place to short with a nice tight stop just above resistance: