Red Flags Abounding

by http://www.advicetrade.com/ an AdviceTrade.com publication

Mike Paulenoff, of www.MPTrader.com, on the Goldman Fallout

Goldman Sachs Group (GS) CEO Lloyd Blankfein testifies on Tuesday at a hearing by the Senate Permanent Subcommittee on Investigations to explore fraud allegations made by the SEC.

Goldman closed at 152.03 on Monday, down another 5.37. The daily chart indicates an even bleaker picture as price pressure is poised to send it towards its prior lows of 147.81 off the Oct-Jan decline. If that breaks, the stock may very well be headed toward 100-110.

On the other hand, if somehow the Street believes that Goldman is being railroaded by the SEC, there could be a pretty significant countertrend rally. However, I do think the weekly chart is a damaged chart and any countertrend rally in Goldman Sachs will get hung up in the 169-172 area before it embarks on another downleg.

Financial stocks most certainly will be impacted by the next move in Goldman.

Bank of America (BAC), which has had very good performance, appears on the daily chart to be starting a correction that has further to go on the downside. It peaked on earnings at 19.83 and has pulled back to 18.43-.40 and could have further to go on the downside that could be precipitated by further weakness in Goldman Sachs.

If I were to write the script for this pullback in BAC, it would be a trendline break, consolidation, secondary decline, break of support in the 17.70-17.60 area, and a continuation lower to test its 200-day moving average, which is in the 16.30 area and rising.

JP Morgan Chase (JPM) after its earnings also took off and made a marginal new high for its upmove, but it has been correcting as well. It's a stronger pattern that BAC, but if it continues to correct it could go somewhere in the 42 area. It closed at 43.89 on Monday.

On the weekly chart, the trendline off the 2009 low is roughly around 41 1/2 and rising. So I would say 41.80-.90 to 42 and change would be a place where JPM could pull back to and not damage the chart structure very much on an intermidiate-term basis and be used by money managers as a buying opportunity.

If financials fall, that of course will impact the Financial Select Sector ETF (XLF) on the downside and the UltraShort Financials ProShares (SKF) on the upside -- additional instruments traders may want to consider as they place directional bets on the sector amid the fallout from the Goldman crisis. Right now, the action off of Monday's pullback low at 16.94 to above 17.50 in the SKF has the right look of a meaningful near-term upside pivot reversal on the way to test near-term resistance at 17.88 and then 18.50. Only a plunge that breaks 17.00-16.95 will weaken the current double-bottom analysis.

See video chart analysis on instruments mentioned above and others.

Mike Paulenoff is author of MPTrader.com, a diary of his intraday chart analysis and trade alerts on both ETFs and key ETF component stocks. He has 26 winning stock & ETF swing trades out of 38 in the last 2 months. Sign up for FREE 15-Day Trial!

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

Today we're going to look at five stocks on the long side. Starting with AspenBio Pharma Inc. (APPY), the stock broke out of a beautiful base several days ago and has just kept running. It's been a beautiful surge on strong volume and looks like it's short-term overbought. The key is that Monday's action took out two layers of resistance -- declining topsline and lateral price resistance -- which could, if the momentum continues, get this up towards the 6 1/2-7 zone.

Eastman Kodak Co. (EK) had a significant day Monday reaching our trading target in the 9-9 1/4 range, tagging 9.08 before backing off. Still, it was up 90 cents at 8.90 or 11.25% on nearly 32 million, showing a good surge in volume in the last couple days and a great surge in technicals. This stock could reach the 9 1/2 range before it backs off. Secondary target at around the 11 3/4-12 range may be doable.

Jamba, Inc. (JMBA) is in a beautiful rising channel after the breakout from the big multi-month coil, and has been stair-stepping its way higher. The top of the channel looms just ahead in around the 4 range, so expect to see some resistance in that zone, but it certainly has strong momentum going forward.

Travelzoo Inc. (TZOO) had a significant session Monday. The overall pattern breached its key resistance line in a breakaway gap on strong volume, closing near the high end of the range, up 2.83 or 17% on the strongest volume in a couple of months. There may be more in store, and I'm looking for something in the low- to mid-20's potentially.

Xyratex Ltd. (XRTX) broke out Thursday, followed through on Friday, and had additional progress on Monday, as the overall pattern is a strong one. The underlying technicals, particularly On-Balance Volume and Money Stream, all look like this stock is headed toward 24 or thereabouts, my short-term trading target.

Other longs featured on Charts of the Day today are China Automotive (CAAS), Comstock Homebuilding Companies Inc. (CHCI), City Telecom HK (CTEL), Delcath Systems (DCTH), Pure Bioscience (PURE), Radware (RDWR), Xerox Corp. (XRX).

See Harry's video chart analysis.

Harry Boxer is author of TheTechTrader.com, a real-time diary of his market insights and day, swing & intermediate-term trading ideas. Sign up for a Free 15-Day Trial!

Jack Steiman, www.SwingTradeOnline.com, on Red Flags Abounding

One thing about those inverse head and shoulder patterns that have taken months to form is that they often make their exact measurements or at least get within 1 percent of that measurement over time. We have the Nasdaq with a head at 2100 and shoulders at 2325. This measures 225 points, to 2550. Today's high was 2335 and that's less than 1 percent away from full measurement. Not bad at all. We may still get to 2550, but we came very close and that may be close enough. The problem from here being we are so darn violently overbought on those daily charts, not to mention being overbought on the weekly charts as well.

We have negative divergences on the RSI's and other oscillators and we have too many bulls to bears in terms of sentiment. So we're close to measurement and we have all these red flags in place. However, on taking a moment to look at the bigger picture, we are in one intense bull market, which in many ways trumps all the red flags to some degree as price always rules over anything. The fact that we're in such an intense bull market says you want some exposure, even if it's small exposure, when there are other red flags abounding. Those red flags, however, keep me from getting too aggressive with things. Now it is true that we have gone up in the face of many of these red flags over the past several months, but never this intense in terms of how overbought, etc.

Also, the sentiment figures are just getting to extremes again. It's not as simple now as just throwing caution to the wind and buying haphazardly. It won't work as easily as it has before. There are still things working, as we know, but nothing will be easy as before. You can't fight the tape, as I love to say, but it doesn't mean you can't raise the caution flag somewhat and know when to rein it in a bit. I think that time is upon us in a big way, even if we grind higher to that full 2550 measurement.

Everywhere you look you see index by index in need of some intense selling to unwind some very overbought oscillators. The retail investor who has missed a boat load of this bull market is now desperate to get in, and this is putting a floor underneath all selling attempts by the bears. At some point this will stop and/or the big money will unload and overwhelm the retail player. We're seeing that in some stocks as they break down. Both Goldman Sachs (GS) and Google (GOOG) are breaking down below support today. GS lost key wedge support only by $1, and thus it's not officially truly broken, although it did close below $153.00 base support. If it doesn't run up soon, 145 is next and you don't want to be long GS if it ever loses $145. $115 is possible if that takes place.

So we are seeing the first important stock breaks, but they have yet to kill the overall market, and that is impressive as there are new leaders and winners emerging everywhere. Stocks such as F5 Networks, Inc. (FFIV), Cree Inc. (CREE), Eaton Corporation (ETN), Cummins Inc. (CMI) and many others. Great to see that the market no longer truly needs GS or GOOG be able to hold up on its own. Good for the longer-term prospects.

So here we are. A market that never seems to fall but is full with red flags abounding. There are times to be very aggressive, and we have been that for sure. There are times, even when the market looks good, to pull it in some, and I believe that time is now. 2550 would be full measurement on the Nasdaq, but there's no guarantee we get there before a more significant selling period takes over. Either way you shouldn't be getting overly involved here. Risk is higher now than it has been for quite some time, so please move about slowly and carefully.

Jack Steiman is author of SwingTradeOnline, a journal of his market analysis and stock trading alerts. Jack had 132 Winning Trades Out of 206 in 2009 -- and is 37 for 45 in winning trades in the last 2 1/2 months! Sign up for a Free 21-Day Trial!

Gary Dean, www.MarketsPath.com, on Smart Money's Large Short Position

Most of the indexes look like they have simply run out of gas. With the small/medium size shorts out of the market, the commercial traders have accumulated their largest net short position since 2008, according to the C.O.T. (Commitment of Traders) report. These commercial traders, considered the "smart money," will not get shaken out so easily, and without the smaller spec shorts as a floor, new money has to find its way into this market, or we may see that expected pull back nobody is worried about.

In fact, most are welcoming the chance to be able to jump into this market at lower levels. This is a very dangerous spot when everybody is on one side of the boat (the bull's side) and hoping for a pullback to take on more weight. Once the pullback does kick in, one must remember there are NO weak shorts left to squeeze the tape higher this round.

We have some of the most bullish sentiment readings we have EVER seen, some of which are surpassing the dot.com era. Every trader-mom and pop and talking head is hoping for a pullback to jump into this market at better levels.

Greece has a 50-50 shot of getting bailed out and the credit bears who were left for dead when Greece was supposedly getting bailed out have started to turn up the heat. They will start to find other sovereign debt countries to hit, and the U.S. debt is not off limits. The credit bulls have priced in levels well above those from 2007, and if they are forced to sel, the party is over for every country holding mass amount of debt, which is just about every country.

Now don't get me wrong, the credit bulls are NOT budging at all and have been using pullbacks to take on more risk. The uncertainty arises if something happens that catches them off guard. Typically this could last for years in a normal environment, but I would not be off base by saying this is not a normal environment.

Gary Dean is co-author of MarketsPath.com, a real-time journal of their trade alerts on the ProShares Ultra Index ETFs. Sign up for a Free 15-Day Trial!

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