Is this the Limbo? How Low Can You Go?

Posted on June 4, 2012 by Jan Arps' Traders' Toolbox

Hawk’s Scan Sentry Report June 4

Last week the American markets went down in a very steady and orderly fashion. There was no panic.  For ES day-traders like me, this created many excellent trading opportunities to enter short whenever there was a minor rally back up to the down-trendline. As I look at  a daily chart of the S&P e-mini futures contract this weekend the technical analysis is still extremely bearish. The index has just completed a pullback into a bearish Triple Trender and now has broken out of a BearFlag consolidation pattern, this is accompanied by a Trend Exhaustion 1 overbought signal and a bearish Pullback 23 signal. The most recent bar even provided a nice breakaway gap to the downside.

So a lot of traders want to know if this is the bottom, offering buying opportunities. Personally, I don’t think so. Even though the sell-off on Friday achieved some of the highest volume this year,  it still did not have the ‘panicky’ characteristics of a typical capitulation type sell-off which can be a tell-tale emblem of a market bottom. In other words, even though the current technical analysis mentioned above is very bearish, the investor sentiment has not yet become bearish enough for me to start entering into longer term ‘investment’ type of positions. I expect to see that happen on the day that Greece defaults on it’s bank loans. That day could come later in the summer and I will be looking to buy longer term investments positions then . On a multi-year timeline I am still, as noted in posts earlier this year, quite bullish.  And yes, this downward correction may still have some tradable short-term rallies suitable for day-traders like me. However, at this point I still expect to see the market test support levels around 1250 and perhaps fall even lower to the Bear Flag target of 1212.

As is always the case, this week’s watch list will have potential longs as well as shorts, and some of those are listed here. Most of the longs picks are from what I perceive as the strongest sector in the American markets right now, the Utilities stocks.  Occasionally I will trade in both directions at the same time as a sort of ‘hedge’; but generally I will only trade those symbols with signals in the direction of the larger market trend. Below are charts of some symbols that I am looking at this week. If any of the indicators on these charts are unfamiliar to you please follow this link to a legend which describes each of the tools on the charts below.

_____Longs_____

PGN

(A Bull Flag breakout on a symbol in the Utilities sector. It just completed its first pullback into the Triple Trender which appears to be the start of a Wave 3 pattern. )

EE

(I like this because it is a Utility sector stock showing signs of accumulation. Note Radar3 Trend Strength just turned bullish as did the Triple Trender. Notice, also, the strengthening buying pressure indicated by Radar1 Fear/Greed after a bullish pivot divergence. )

FE

(A Trend Exhaustion 1 signal combined with a Pullback 23 signal. Keep a tight stop on this one around $46.20. The target is the gap-fill at $47.56)

_____Shorts_____

RJF

(A Pullback 23 coincident with a Bear Flag and a bearish Triple Trender.)

WFM

(A Trend Exhaustion1 overbought signal coincident with a bearish Pullback 23. Note the weak buying pressure near the recent highs indicated by Radar1 Fear/Greed.)

ADS

(A bearish Trend Exhaustion1 and a Pullback 23 signal combined with a newly bearish Triple Trender. )

Last week was a good week for the Scan Sentry selections. In an extremely bearish market our long picks did well too. I, however, was not doing any buying last week. I was quite satisfied with several of our short picks which earned better than 20% as they plummeted. Thanks for the e-mails!

May the trend be with you,

Hawk

Jan Arps’ Traders’ Toolbox is not an investment advisory service nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. Examples presented on this site are for educational purposes only.  It should not be assumed that the methods, techniques, or indicators presented in these examples will be profitable or that they will not result in losses. There is a high degree of risk in trading.  Readers using this information are solely responsible for their actions and trade at their own risk. Readers should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment.

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