An Overview on the Broad Markets - What Happens Next?

Today was a big day for the markets.  We had a broad rally lead by the tech sector, with Intel's strong earnings, and the Nasdaq finished up 2.10%.  The other two indices finished the day up slightly more than 1.35%.  My trader colleagues were all screaming, "I'm covering my shorts tomorrow!"  Let's not get wrapped up in emotions.  Take a step back.

Pictured below are four major indices that symbolize the broad American market, $DJI, $COMPQ, $SPX, and $RUT.  Each one, minus the Russell 2000, is tracing out an ascending triangle, a common bullish-biased pattern.  The patterns are somewhat sloppy, aside from the S & P 500, so if possible, I would prefer to place a breakout trade on that.

 

Click on the image to enlarge and sharpen.

With the ascending triangle patterns in place, we can have a bullish bias, but do not take action until there are definitive breakouts.  Today, all three of those indices finished the day right under their resistance line.  In addition, they each gave a stochastic buy signal.  A breakout may be pending, but hold on the trigger until we are sure.  We don't want another BVN tragedy.

I have a stop order on UPRO (a triple leveraged S & P fund) placed at 85.10,  about 1 percent above the resistance level.  Whether that is filled or not, we'll have to wait and see.


Bottom line:  Don't get excited yet.  The bear is anguished and retreating, but it may be a trap.

Happy trading,
~Christopher Diodato

FIG Head and Shoulders - Reversal Pending

I'm posting this perhaps a week before we may be able to actually make a trade, so keep FIG on your watch list.

FIG is an investment group that took a major nosedive since its initial IPO. The downtrend has been in full force for years, and this is a little "blip" in the downtrend. Perhaps they leveraged themselves too much right before the stock market tanked. Anyway, the six month uptrend is showing signs of reversing with a very reliable pattern called the "head and shoulders."

Click on the image to enlarge.

I posted the strategy in my video, but here are the cliffs.

Enter short @ 5.12 stop
Exit with a loss @ 5.51 on close (Also, reverse the position)
Target @ 3.50
Probability of success: 55%
Probability of failure: 45%
Probability adjusted risk/reward ratio: 5.08 (Over 5, take the trade)
Earnings is announced on May 2, so be prepared to take action if there is a major swing.

Here's the video, which includes the strategy and all of my analysis.

FIG Head and Shoulders

Happy trading!
~Christopher Diodato