>Trading the Wedge is an Art, Not a Science

>By: Scott Redler  

Since the uptrend broke in the S&P we’ve had the luxury to trade the new volatility in this market. Thursday we began to tier in short as we saw a push-through failure and the top side of the expected wedge pattern was formed.

We built a nice position short and covering in this 113 range makes sense. This way you can be clear-minded if we get a nice trade mid-week into the 110-111.50 range in the SPY. The lower end of the wedge should be formed in the coming days, and could create a small snap back long opportunity. But for now we are still in the midst of a correction and there is no need to buy for anything more than a trade.

>Time to be VERY VERY Selective

>By: Scott Redler

The S&P 500 tagged 1,170 yesterday and then sold off a bit. My target zone for this market back when “the wedge” resolved to the upside was 1,170-1,190. So, with the overbought nature of this market, the setup must be REALLY good to take. The market still feels like higher prices are in store, but if you are sitting on some big gains, I would recommend going out a few months and selling some calls to protect positions and collect some premium.

The Rundown:

Tech:

• Apple (AAPL)–great trade for us above $202 and again above $210.50 and $215.50. Now it’s building a new base between $221 and $227. No “real” setup just yet.

• Amazon (AMZN)–this too is resting after its juicy buy at around $121. The stock needs more time to trade its new range.

• Baidu (BIDU)–is a monster! It had its first two down days, but nothing drastic. No setup here.

• Google (GOOG)–gave us some small trades. Now with the news that it might actually leave China, it could stay under pressure. Watch the gap in front of it for a tell.

• Research in Motion (RIMM)–gave us three days of nice action after the breakout of $72.10. Now it’s acting sluggishly. I am flat it and will avoid for the time being.

• Intel (INTC)–this gave us the move we wanted through $20.80 and $21.50. I have a small mount left, as it could work its way to $23ish.

• Microsoft (MSFT)–is lagging and it could play catchup if it wants to. This needs high volume to ignite through $27.70.

• Cisco (CSCO)–this had its stretch before the product release. Now it’s creating a bull flag and could push through $26.50.

Financials–Big move here! If you can’t sell some, sell some in the money calls to protect gains and add a little value.

• Goldman Sachs (GS)–great trade through $160, with some follow-through extension that took it further than I would have thought. It had a doji close and is overbought. They might try to close it at around $175 for options expiration tomorrow.

• JP Morgan (JPM)–met all our long expectations. I’m flat now.

• Bank of America (BAC)–still inching higher but not compelling right now.

• Wells Fargo (WFC)–since our buy at $27.60 this one has come a long way. I now sold some.

• General Electric (GE)–gave us a GREAT three-day move. I took the trade and actually got short some yesterday–just for a trade–big open interest at $17.50 here.

• Freeport McMoran (FCX)–is lagging the indices, but had a nice move before that. Nothing here right now. Negative candle yesterday could take this a bit lower.

• U.S. Steel (X)–ugly reversal after a move from the lows. The meat of this up move is over in my opinion.

• Alcoa (AA)–we went a note to get involved at $14. It could continue higher today and play some more catchup.

• Gold (GLD)–I am personally long. THE PATTERN IS STARTING TO LOOK BETTER TO ME. I think everyone NEEDS TO BE LONG SOME GOLD. Add if it can get above $1,150 and stay there.

• AIG (AIG)–I hate this stock, but there is a decent bull flag setup. I will buy for a trade if it can slice through $36-36.50 with VOLUME.

• I’m long tier two in the casinos–WYNN, LVS AND MGM–they are in a conference today and could see some news-flow.

• Retail has been a MONSTER, but I don’t really trade those names.

The bottom line is: the time to get excited and get heavy was weeks ago. Now is the time to play a bit of defense and be very selective about the trades you take–both long and short.

>Where’s the Volume?!?!?

>

By: Scott Redler

How about this: A ton of hedge funds got stopped out of the market on the decline of 2008. 20% of all brokers got pushed out of the business. Most retail investors had margin calls and did not have the funds to get back in. Lots of shorts got squeezed out of the business over the past year–if they didn’t just leave with their money after 2008. So, maybe the answer is that this might just be the new world we live in!

I do think volume left this market – not by choice!

The action right now is very healthy and we are not in a perfect world or market. As traders, we have to just trade the setups and listen the tape and traders in the trenches. Not educators who don’t trade for a living, or sales traders who failed as traders and went to selling ideas instead of trading them, or analysts that have no idea what real action looks like.

Just a bit of a rant…I’ve been trying to get everyone long this market since the 9% pullin, especially after that bullish wedge formation at 1,110! Elliot talked about the lack of volume early on in this rally. When the volume comes, it will be the professional sellers getting out (and the potential of a top) just as it was the bottom on the high volume February 5th reversal day.