Since we don’t trade bonds in Spike, I thought I would post a potential long bond trade via TLT, the 20-year bond ETF. TLT has formed a high level RST bottom pattern on the daily. As can be seen on the weekly chart, this is taking place after a 4-week decline. Some support should form here at the bottom of a gap and rising long-term MAs. Probably good for a swing trade back to the declining 20-day EMA. There are also leveraged ETFs–TMF–available, or the futures if you lean that way.

Awhile back, I mentioned that DELL had formed an RST on the daily chart. At the same time, it has formed an RST on the weekly chart, which is extremely rare. DELL has now reversed its trend, and we should be looking to go long on pullbacks on the daily chart. Look to buy around the rising 20 EMA; note the up crossing 8 EMA and the indications of a squeeze.

ONE WAY TO TRADE EARNINGSENER, (Energy Conversion Devices, Inc.) could potentially set up for a good long trade this week. They announce on Tuesday and I’m expecting a knee jerk sell off by diehard longs – a reaction which will provide a cover opportunity for long term bears who have hung on to their shorts. If this were to happen, it would post a false breakout of a new low accompanied by a weekly bullish MACD divergence that is missing the right shoulder. This would also trace a beautiful double bottom. If the guidance is good, it will be also offer a low risk profitable opportunity for new longs. Other factors that might influence this scenario:

1. dollar looks to have weakened,
2. Oil appears to have put in a short term bottom.
3. General market and the Solar sector look like they want to rally for now.

ENER trades in a similar fashion to SPWRA which recorded these exact footsteps last week.This is definitely a trade on the edge of extreme, with many fingers on hair triggers – both on the heavy short side as well as the bag holder long side. But if it comes together accordingly, it could be a nice catch.All too often, we hear how we absolutely shouldn’t trade prior to, thru or just after earnings. While this is good advice the majority of the time, there are situations that bring exceptions into play. This stock and its current stance might be one of those times.The stock has been manipulated down way below its book value and more than reflects a horrible earnings report.So if they miss, I would expect the news to be bought but not before a new low is put in from an over reaction by weak hands to the announcement. Subsequent to that, a nice leg up (fueled by a squeeze) should ensue.I would wait for the false breakout to materialize (post earnings) and get long when it reclaims a position above resistance.

Awhile back I pointed out SMG, a stock that formed numerous squeeze set-ups on the weekly chart. Since the stock bottomed in July 2008 around 17, it marched to 50 in 4 distinct weekly squeezes, and now is laboring on the 5th. Frankly, I’ve never seen this behavior before, and I’m fascinated. I keep coming back and trading SMG based on the daily chart, waiting to see when this remarkable series ends.My trading tactic has been to use the daily charts for short-term buys, using the 2-day RSI and 2-day FI to define short-term oversold conditions. Exists have been when price pierced the upper volatility band. While I’m long now, I think the stock is about finished. Maybe we get a retest of 50, but I’m cautious and looking to get out.

Hershy, or HSY, has formed a very unusual U shaped bottom on the daily chart. However, in reality, it’s actually a U shaped base as you can see on the weekly chart. Instead of correcting its long bull run with the usual decline, HSY is trading sideways. Buyers, or a large buyer, are contend to buy on mid-day weakness and push the price up a touch around the close. The U shape and the multiple Hammer candles forming the bottom are telltale signs of accumulation. As we moved up the right side, early buyers around the 46 area sold to lock in profits around 48. Volume has not been heavy in the last two sell-off days, and if it doesn’t increase and the price forms a couple of narrow-range bars, then the run to the upside is on. However, this is a potentially strong stock in a low-volume/news driven market so caution is a must.For market historians, this U-shaped base was very common and popular during the great Info/Tech bull run in the 1990s. William O’Neil built the Daily Investor newspaper empire on it. And for awhile there, all we had to do was see one developing, take a position as millions of other traders jumped in to create a self-fulfilling prophecy. Now, in this hedge fund dominated market with its short-term bursts and craters, you don’t find it much. In fact, this is the first one I’ve seen, or traded in the last two years, so I’m curious as to how it unfolds. As a point of transparency, I sold it a couple of days back, but I’m looking to test the pattern again shortly.

Lately, I’ve been trading a set up called the Reverse Symmetrical Triangle, or RST. The pattern is a variation of the 1,2,3 Bottoms and Tops I like to trade, and offers an early entry to a trend reversal. It’s the opposite of a symmetrical triangle, where the pivots trace out a narrowing pattern that erupts in a break out or break down. The RST looks like a megaphone with the trend reversal leg connecting three pivots and the non-trend leg connecting two. In the case of CNH, the trend is down and the RST identifies the bottom and provides an excellent entry into a trend reversal.There are several versions of both the 1,2,3 Bottom and Tops, and the RST Bottom and Top patterns and the more I explore them, the more I find symmetry in the market. The hardest thing about these patterns is to train the eye to find them. Once you start to trade them, they become easier to spot, particularly as you find them profitable.

I trade the bond ETFs–TLT and TBT regularly. I find them easy to trade and rotate back and forth based on my favorite bond indicator, the 5-day RSI. One reason I trade them is that in today’s market they signal how much risk the big traders (hedge funds, pension funds, etc.) are willing to take on, and what a powerful insight that is! Here’s a chart of TLT, watch it bounce along as if its pulled by the 5-day RSI from oversold to overbought and back again.See what happens when it pushes passed the volatility bands or Bollinger Bands. This represents extreme short-term overbought and bonds will dance back to their MAs or value. You can buy TBT–the inverse bond ETF–for this mean reversion trade or short the futures. But this is not the real story. What the bonds are telling us is how much risk the big traders are willing to take on. In other words, when TLT is rallying, fear is growing in the market, hedgies are shorting, and rallies are sloppy and choppy. Best not to be too heavy long stock, in other words.When bonds rush to extremes and peak, then traders are reassessing and willing to take on more risk, so back they go into the market, probably buying futures, so SPY or its derivatives are a good bet. Of course, this pattern may just be a summer thing and it will all end after Labor Day, or eventually, when the Fed decides to goose the interest rates.One of the best insights I’ve seen lately, is a casual comment by an experienced trader that the hedge funds have large short stock positions. Other players are trying to push the futures up so the hedgies will have to cover; then the hedgies short more stock driving the market to the bottom of its range. This dynamic creates a market that is careening back and forth in a range parallel to the 200 SMA. Frankly, that heavy analysis takes more time than I have, so I just tell myself we’re just trapped by the 200 SMA in some sort of magnetic warp, and we’ll keep chopping around for awhile longer as we head into the dreaded Sept-Dec time period.