Sunday, August 26, 2012


US Markets closed the week with gains, with the S&P500 up 0.7 percent to 1411. International (CTRP), the Chinese travel agency and NASDAQ-100 component that was highlighted on these pages a few days ago for bullish potential, exploded higher during the week. Price action accelerated upward in capitulatory buying that suggested a short squeeze, and volume was heavy. The advance finally halted on the 24th at a six-month trendline.

CTRP. Jan 19, 2012 to present. Hourly candles.
Drilling down to the 5-minute candles perspective on CTRP, the rally's acceleration is clearly visible. It's quite interesting to observe how bulls pounced just upon the stock's upward break from its 15-day, upward-sloping channel. Such action confirms that the channel was a valid model of the security's support and resistance levels; as price breached resistance (i.e. the channel's upward boundary), new demand materialized and the velocity of price appreciation increased.

CTRP. July 31 to present. 5-minute candles.
Life Technologies Corp (LIFE), a NASDAQ-100 biotech, is tightly consolidating immediately under the resistance side of a 3-year price channel, a bullish development. A break above this month's highs of approximately $47.50 would signify a successful channel break and be a significant bullish omen.

LIFE. Aug 2008 to present. Daily candles.
Staples Inc (SPLS), the office supplies retailer, is in a precipitous post-earnings sell-off that commenced in mid-August. The bearish move has brought shares to the support zone of a 4-year channel. Caution is particularly warranted with regard to this set-up, though; the channel is characterized by violations that, while small, can nonetheless cause considerable pain for the leveraged hedgie. For instance, the local minimum of Oct 2008 strayed below the price channel boundary by about fifty cents.

SPLS. Aug 2008 to present. Daily candles.
A zoomed-in appraisal of SPLS confirms the potential for a contrarian long trade. Price action is hugging the support of a 6-month channel, and a capitulatory break below could potentially evolve into a bear trap and subsequent short-squeeze rally.

SPLS. Dec 8, 2011 to present. Hourly bars.
Dentsply International Inc (XRAY), a dental instruments and supplies manufacturer and NASDAQ-100 component, is exhibiting a phenonemon that this blog finds particularly interesting: a throwback to support, alternatively known as the kiss of death. This occurrence is fascinating as it powerfully showcases the remarkable tussle between fear and greed, bulls and bears, that is the essence of price action. Whereas market participants' dominant sentiment was recently sufficiently powerful to overtake a support or resistance area, a surge of the opposite sentiment is on display during a throwback.

The hourly candles chart of XRAY shows the security breaking through a downward-sloping channel in early August. The channel, depicted below in grey, was particularly well-formed; the lines touch several local price extrema to the penny, and the eventual break was sufficiently significant to catalyze a particularly vertiginous one-day rally. On August 23rd (the second to last day of price action in the below screenshot), however, price retraced all the way back, with the intraday low falling on the price channel boundary: the throwback!

XRAY. Dec 8, 2011 to present. Hourly candles.