TODAY'S BREAKOUTS & BREAKDOWNS (10-8)

I didn’t write my breakouts & breakdowns yesterday because I was killing myself working on my blog and didn’t feel too well. Seemed like I had my own breakdown!

We had a very neutral trading day today, being bound by even support and resistance areas. Yesterday’s close also provided key short-term support and resistance. Today was also a Doji day for the S&P 500, or a day full of indecision. That can sort of be applied to all three indices, but the S&P 500’s pattern was a textbook definition. The NASDAQ was a Red Hollow day, or a day where the index gapped down but rose throughout the day. The DJIA just formed a regular down day.

Apparently, we still have not seen capitulation and I’ve been suspecting the lack of short-covering as the culprit. Total volume is still down and under normal circumstances; we should have hit “the highest daily volume, ever” records consecutively. The ban expires today (unless the SEC decides to stupidly extend it) and we should see volume pick up and I hope to see that special day where we gap down 300-500 points right at the open and rally throughout the day. That’ll be official capitulation. The market is extremely oversold and I haven’t seen any of my technical indicators go so far off the charts.

As for new highs and new lows, we made 19 new highs and 3,226 new lows. This is greater than any other breadth reading I can think of. As for breakouts, we had only one. Just like the past few weeks, we had so many breakdowns that I could just close my eyes and point at my screen and find a breakdown no problem.

Royal Gold (RGLD) broke out today, one of the very few gold stocks that did so, and just one of the very few in general. Breakdowns are profiled with my comments and how you can prevent having your stock on my “S” list in the future.

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TODAY'S BREAKOUTS & BREAKDOWNS

Today was one of those days were you had to look at a 3-5 day chart to get an idea if today would be a continuation or reversal day. Typically, if the market is unable make a higher low within the first hour and hold, then there’s a good chance of a continuation to the downside. Tomorrow must make higher lows in order for me to put on long positions, otherwise my shorts stay. Make sure you watch a 3-5 day chart for key support and resistance levels.

Here’s one stock you don’t have to worry about. Sequenom Inc. (SQNM) announced additional positive results for its Down syndrome test. Technically, if SQNM broke to the downside, then it would have formed a “bump-and-run” reversal. Today’s move shows how powerful breakouts are after longer periods of consolidation. Think of it as holding your foot down on a running garden hose and lifting your foot all of a sudden after the pressure builds. Note the 5-6x average daily volume which confirms price action.

Focus Media Holdings (FMCN) looks like it will trade in a range between the 200-day and 50-day MA’s. Today is considered a slight breakout, meaning that the break out is not clear. It’s possible that FMCN may reverse tomorrow, but it looks like this stock is going higher in the short-term. FMCN looks to have formed a breakaway gap.

Downey Financial (DSL) broke out from its resistance level at $4. This is an example of when things can go wrong. Normally, I would short on days like yesterday where it formed a doji. DSL also formed two bearish gap ups before that. To avoid take a hit on these patterns, you have to wait for confirmation of an evening star pattern, or the addition of a strong down day. A gap up or gap down will set the tone for that day’s trading.

We have plenty of breakdowns for today. I would like to mention that two of yesterday’s breakdowns appeared again today (not included in this article). They are Dollar Thirty Auto (DTG) and Pilgrim’s Pride (PPC). Here’s my explicit statement on PPC yesterday: “I don’t suggest anyone go long PPC…unless they’re forced”. The stock dropped 38% today. Ouch!

Medicis Pharmaceutical Corp. (MRX) dropped 13% after they announced that they expected to restate their results from 2002-2008. They calculated returns at the product’s cost not the wholesale price. Don’t they have a CFO? Anyway, you didn’t have be a psychic to avoid this sad day. Look at the descending triangle that formed since May and also notice the lower highs being made. You can also observe the numerous failures or “churning” at the 50-day MA and also note how MRX fits nicely within 200-day MA resistance. All of these warnings would have helped non-technical investors to avoid this day. The next support level is at $10…back in 1999.

U.S. Airways (LCC) is not considered a clean breakdown. However, notice the consolidation pattern and its first failure at the 50-day MA. Tomorrow may determine whether or not LCC starts a new downtrend. As the 50-day and 200-day MA range closes in, the stock must go in one direction so keep an eye on LCC and the other major airlines.

Here’s a 10-year chart of Oshkosh Corp. (OSK). I have no idea why anyone would be buying OSK. This is a future $1 stock and looks like it might possibly happen over 1-3 months. Ever hear that phrase “Bulls walk up the stairs but bears jump out the window”? Six years worth of gains gone in within one year. Please, don’t try to find the bottom unless it’s making higher lows.

Here’s a 10-year chart of BGC Partners (BGCP). Just like PPC, there’s no point in going long. This stock looks like its going to hang out in the single-digits for a while, still recovering from the NASDAQ crash.

F5 Networks (FFIV) is in a parabolic state after forming a reverse wedge. You can also call this a funnel pattern. These patterns are only useful for swing trading tactics and short-term holds toward the end of the pattern. The next level of support is at $20 and I do expect a pullback close to around $25 at which it becomes a favorable short trade before FFIV resumes its downtrend.

Finish Line Inc. (FINL) is not really considered a breakdown, but this may possibly be the end of the road for FINL. Notice the churning at the 50-day MA, which it has never done before. Also note the increase of volume on the down days v. the up days. This stock is losing steam and pay present itself as a nice short candidate soon.