JASO (Nov. 27th) was a non-gapper retracement setup based on weakness in the energy sector.

From the 15 minute chart above we can see that JASO carved out a lower high in the opening range, followed by an inside bar and sharp fall into S2 pivot point support. From there it retraced approx. 38% of the move from the ORH to the morning swing low on declining volume, carving out a bearish flag type pattern culminating in a star-like candle with a long upper shadow and a lower high. Notice how price could not close above the downsloping 5 period ema. Short as price breaches the flag pattern.

I placed my Fibonacci extension lines from the ORH (non-gapper) to the morning swing low and my preliminary target was the 38% extension, at which point I booked a partial profit. I usually tighten the stop to the preceding WR red bar, but have been stopped out prematurely on a few trades lately, so now I am allowing for a retest of former support (morning swing low).

After tagging the 38% Fib. extension, it consolidated for a lengthy period before continuing lower. Once volume started to pick up again, it became obvious that a retest of the Nov. 12th low ($47.60) was the target.

Key criteria for the 38% retracement setup.

1. Look for stocks that gap above or below the previous day’s range. For non-gapper stocks, look for trending stocks.
2. After a decisive move in the direction of the gap or trend, look for a 38% retracement on declining volume. The retracment could be a flag type pattern or it might carve out a candlestick reversal pattern after the retracement.
3. The move back towards the swing high(low) is usually slow but orderly. Once the previous intraday high(low) is taken out, look for price and volume expansion.

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Following yesterday’s rebound rally, futures indicate a sharply higher open for the stock market, which is holding up well despite more negative headlines out of the financial sector. Wells Fargo (WFC) announced last night that it would further tighten its home equity lending standards and take a special fourth quarter provision of $1.4 bln (pre-tax), largely for higher losses it now expects in certain indirect channels through which it no longer is accepting business. The stock is indicated only marginally lower pre-market, however, despite a number of analysts lowering their price targets this morning. In a related matter, Freddie Mac (FRE) said last night that it cut its fourth quarter dividend by 50%, as it warned it was likely to do, and that it is aiming to sell $6 bln of preferred stock. One headline that could be providing support is a story from the Wall Street Journal this morning that said Citigroup (C) received an unexpected call from a prominent investment banker suggesting a merger with Bank of America (BAC). However, the paper went on to say that Citigroup’s board dismissed the informal approach “totally out of hand,” and no discussions have taken place. One story that is definitely providing support is a report from comScore, who noted that online sales this past Monday — otherwise known as Cyber Monday — rose 21% to a record $733 mln… Futures received a further boost around 8:00ET, when Fed Vice Chairman Kohn began speaking. He said the market turmoil of recent weeks may further tighten U.S. financial conditions if it persists, though he added the economic information since the last Fed meeting has been mixed. He also said “we’re beginning to see” consumers getting cautious and housing continues to decline at a “very, very rapid rate” without signs of stabilizing… Futures, however, showed little reaction to this morning’s mixed economic data. October Durable Goods Orders ex-transportation showed a decrease of -0.7% (consensus +0.3%), but that was offset by an upward revision in September to +1.1% (previous +0.3%)… Dow futures are currently +113; Nasdaq futures are currently +33.5; S&P futures are currently +16.4.

Gapping down in reaction to weak earnings/guidance: SNIC -13.2%, CENT -11.4%, UTI -10.1%, PBY -9.0%, MRVL -8.4%, BWS -7.7%, SMTC -5.7%, BRLC -5.2% (issues Q2, Y08 outlook), DBRN -5.1%, CEDC -1.3% (also reaffirms guidance for FY07 and FY08), ROH -1.2%… Other news: BIDZ -22.1% (held conf call responding to Citron report), ILE -12.7% (modifies ongoing clinical program for acne scars), TKG -11.1% (WSJ reports TKG talks to sell some of its stake in Vodacom to VOD ended after VOD failed to agree to merger of its fixed-line assets with MTNGroup), GA -9.2% (in response to class action lawsuit filed against GA), WFC -4.5% (discloses special Q4 2007 provision of $1.4 bln), BHP -4.2% (confident pricing fears won’t wreck RTP deal - Reuters), SBUX -2.2% (Cramer recommends selling on MadMoney), FRE -1.7% (declares dividend reduced 50% and offers $6 bln of preferred stock), CSH -1.4% (Chief Executive Officer adopts 10b5-1 trading plan)… Analyst downgrades: NYT -1.7% (downgraded to Sell at BofA), AKH -1.7% (downgraded to Hold at Deutsche Securities).

Gapping Up in reaction to strong earnings/guidance: VRGY +18.8% (also announces share repurchase program), MLHR +10.5%, DLTR +4.7%, ADI +3.1%, BECN +2.3%… Other news: JRJC +5.9% (completes acquisition of Hong Kong securities brokerage firm; Brean Murray discusses panic selling as unwarranted), JDSU +5.6% (announces jury ruled in favor of co on all claims in securities class action suit), TKC +4.4% (ACN helps TKC’s delivery of services to customers), ETFC +4.1% (still checking), AYI +3.7% (Cramer claims AYI is next takeover tgt for Phillips), PVTB +2.5% (GTCR announces $100 mln investment in PVTB), ARE +2.1% (replacing SQA in S&P MidCap 400), GRMN +1.9% (still checking), TASR +1.9% (announces dismissals of wrongful death product liability lawsuits and responds to U.N.Committee comments that TASR device provokes ‘extreme pain’), HAL +1.8% (Cramer makes positive comments on MadMoney), EMC +1.7% (still checking), DB +1.7% (rises on speculation that Asian or Gulf-based investors may tgt European banks weakened in wake of subprime crisis), NOK +1.6% (still checking), AN +1.3% (Eddie Lampert discloses 30% stake, up from 28.5%), C +1.3% (receives call from investment banker suggesting merger with BAC), FLOW +1.1% (receives multi-million dollar aerospace contract with Mitsubishi Heavy Industries)… Analysts upgrades: UBS +3.3% (upgraded to Outperform at Credit Suisse, also speculation that Asian or Gulf-based investors may tgt European banks weakened in wake of subprime crisis), NED +3.0% (initiated to Outperform at CIBC), CRDN +2.8% (upgraded to Buy at Morgan Joseph), OSTK +2.0% (upgraded to Hold at Stifel), RCNI +1.7% (initiated with Outperform at Bear Sterns), XLNX +1.0% (hearing upgraded to Buy at tier-1 firm), DD +1.0% (upgraded to Buy at Soleil), BUD +0.9% (upgraded to Buy at UBS).

Gapping up: VRGY +16.4%, MLHR +6.9%, JRJC +5.9%, JDSU +5.6%, ETFC +4.1%, AYI +3.7%, UBS +3.3%, NED +3.0%, CAL +2.8%, CRDN +2.8%, GRMN +2.7%, PVTB +2.5%, ADI +2.5%, BECN +2.3%, ARE +2.1%, OSTK +2.0%, NOK +2.0%, TASR +1.9%, HAL +1.8%, RCNI +1.7%, EMC +1.7%, DB +1.7%, AN +1.3%, XLNX +1.0%, DD +1.0%… Gapping down: BIDZ -22.1%, SNIC -13.2%, ILE -12.7%, CENT -11.4%, UTI -10.1%, GA -9.2%, PBY -9.0%, MRVL -8.4%, BWS -7.7%, SMTC -5.7%, DBRN -5.1%, WFC -4.5%, BHP -4.2%, BRLC -4.0%, LNUX -2.8%, SBUX -2.2%, FRE -1.7%, CSH -1.4%, GLD -1.4%, CEDC -1.3%, ROH -1.2%, GOLD -1.1%.

Stocks that are overbought include: BOOM, RIG, TK, OSG, & DECK. Stocks that are oversold include: FED, HRZ, JNS, R, XL, GFA, ZINC, SWIR, OSTK, JRJC, TCK, & Homebuilders (RYL, LEN, KBH, TOL, CTX, DHI, XHB

Courtesy of Briefing

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TSO was a gapper from the Briefing.com list. After a 38% Fibonacci retracement of the ORH to the morning swing low, TSO stalled. Short after price reverses and takes out 5 period ema. These types of setups usually move slowly until the swing low is taken out, at which point, it should accelerate as TSO did. I covered at the 50% Fib. extension of the previous day high to the ORL.

The gapper retracement setup should retrace approx. 38% which is a normal retracement on declining volume. After the swing low is taken out, look for volume to accelerate.

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Monday Nov. 19th - DISH caught my eye from the Briefing.com gapper list because it’s also a WL stock. It gapped up on an M&A chatter and carved out a WOR with a long upper shadow. Price held support of the 200 SMA (red line) as it consolidated sideways in the upper half of the OR. As price and the upward sloping 5 period ema came together, it printed NR7 (price and volume contraction ahead of expansion). I entered long on a B&B setup above the blue line. I moved my stop up aggressively in order to preserve profits and I was stopped out on the first sign of weakness.

From the 5 minute chart below, notice how DISH carved out a higher low on the second pullback from the base.

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CSIQ was an earnings gap from the Briefing.com gapper list. Not sure where they came up with the name as this is a Chinese co., not Canadian. Anyway, after gapping up, it traded sideways until price and the rising 5 period ema came together. After carving out a NRB on very low volume, price started to expand. I went long before it took out the ORH - mini B&B or a base within a base. Once the ORH was taken out, it ran up quickly to the 50% Fibonacci extension level of the previous day low to the ORH. I locked in a partial and I was stopped out on the balance as price started to retrace following a star with a long upper shadow.

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