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Weekly Wizards

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Watching the Top of the Bearish Rising Wedges

Wed, Oct 21 2009, 06:17 GMT
by Mike Paulenoff, Jack Steiman, Harry Boxer

AdviceTrade.com

Mike Paulenoff, on 9th Inning of Upmove (www.MPTrader.com)

Some of my chartwork on the S&P 500 is telling me that the October upmove as well as the July-present-upmove are in the bottom of the 9th inning of a 9-inning baseball game. Where is game over? If the index breaks back below 1086.50, I will get meaningful near-term sell signals that will compel me to be out of the long side and in a partial short position (long position in the SDS or SH). Unless and until 1086.50 is violated, however, the bulls will remain in control of price direction (up).

One market top I'm anticipating is China, where my near and intermediate-term work argues that the ProShares UltraShort FTSE/Xinhua China 25 Stock Index ETF (FXP) is at or very near to a significant low in the vicinity of 8.00.

That said, however, let's also be aware that I am attempting to pick a bottom in the FXP -- and I might be wrong in my timing. I am willing to get jerked around in a 25% long position within a 9-10% "target low area" to try to "be there" if my work proves accurate, rather than chase a powerful (overnight) upside reversal during U.S. trading hours.

As we speak the FXP is hovering at around 8.05/10. A climb that sustains above 8.20 will be a very preliminary signal that a low has been made, while a climb above 8.55/60 will confirm the low.

Harry Boxer, on 5 Charts to Watch (www.TheTechTrader.com)

The first chart we're going to look at today is Acorn Energy (AFCN). The stock has a terrific looking chart, especially since the July surge when it went to a new rising channel. It broke out of a 4 or 5-day flag on Friday and followed through on Monday.
The volume is surging, the stock is at the top of its near-term channel, but an acceleration could get it up to the 9-10.00 range. Keep an eye on ACFN in particular on any pullbacks on low volume. This one looks like it could move over the next few days.

Our next chart to watch, China INSOonline Corp. (CHIO), broke out of a key resistance on a breakaway gap four days ago, pulled back for a couple of days, then spiked up Monday 33 cents or 25% on 1.4 million shares. It looks like it may be headed for a test at the 2.15-2.20 zone. Beyond that, if we see additional price progress, we can look for something closer to 3.00 a share.

Spreadtrum Communications Inc. (SPRD), a model portfolio position, acts terrificly. A move up toward the 4.00 range looks forthcoming. No reason to assume otherwise. There is some lateral price resistance around 6, but with the channel the way it is, this is a stock that has lots more potential.

U.S. Energy Corp. (USEG) had a tremendous high volume surge Friday on big volume, and on Monday actually followed through. With the heavy volume it's had without a pullback Monday, this stock appears to be headed higher.

Wonder Auto Technology (WATG) is in a very strong rising channel in the course of the last 7 or 8 months. It broke out above key resistance four days ago, flagged for two days and on Monday broke out of that. Looking for a move that takes this to 18 1/2-19 short term.

Other stocks we're featuring in our Chart of the Day today are APT, CAAS, CBAK, CTFO, EXXI, FMCN, JADE, TXIC.

Jack Steiman, on Watching the Top of the Bearish Rising Wedges (SwingTradeOnline.com)

It's important to recognize how close we are getting to the top of our bearish rising wedges here. Bearish because of the poor divergences with each new high. You want to not be holding longs if we get to the very top of these wedges. That level is approximately 1115 S&P 500. Again I say approximately but the point is, you don't want to be loaded up long should we get lucky enough to get that high. I would probably go cash if not almost all cash at that point. If we were to get a strong reversal stick, a short would be appropriate. Never too much as we're still in a confirmed up trend. Do not forget that reality.

Hitting the top of the wedges and then pulling back does not mean we are going from bull to bear.
A lot more work would need to be done by the bears for that to be a truth. Just don't forget, and I for sure won't let you, that the top of the wedges are where you want to lighten up your longs to see how the market handles them. If it breaks over, we can always get back in. The VIX (CBOE Volatility Index) is breaking down and the bears are using this to say we're complacent but the numbers don't lie. We're not complacent by a long shot here. Survey after survey shows bears are still hanging strong with bullishness no longer advancing advancing. The percentages are well within normal range and in fact, the past few weeks have shown the differential to be tightening up. When the VIX breaks down that often portends somewhat higher prices thus the theory that a low VIX is bearish has no merit. It doesn't mean we can't have a normal pullback. It simply suggests that the bulls remain in overall control of this market for now.

The earnings have been coming in mixed but when they've been, they've been very good. Many of them have come from big time leaders such as CSX Corp. (CSX), Eaton Corp. (ETN), Apple Inc. (AAPL), Google Inc. (GOOG), and others. While we have had some awful reports, the majority of critical stocks have been saying all the right things. They've not only been beating but guiding higher for the future as well and this makes the bearish case over the next few months tough to believe. When earnings are good there is little to bring the markets down other than the usual needed selling episodes to unwind the oscillators.

Support is now at 1080 for the S&P 500 and 10,000 for the Dow. 2147 is huge gap support for the Nasdaq. If we can stay above these levels for a while and go to the top of our wedges, the pullback to follow may be no deeper than these support lines. We take these day by day. It's the only way. Let's just not forget how tough those wedge tops will be. Around 1115 S&P 500. 1121 is the 50% retrace of the bear market lows. A very tough area of resistance for sure. We remain only long for now.

Published on  Wed, Oct 21 2009, 06:30 GMT