Since Spike Trade does not trade country or commodity ETFs, I thought I would post a couple of charts on Europe for those interested. EPV is Ultra Short Europe and EUO is Ultra Short the EURO.The rally in Europe looks like it’s stalling out. EPV is testing long-term support around 20, and if it holds, looks good for a bounce to the declining 20 EMA, or possibly the 200 SMA. The EUO also looks like the EURO rally is over. Despite some bullish bank tests and some debt reduction in some EU countries, the Eurozone has some significant fundamental issues to overcome. Regardless, nimble traders can take advantage of the bounces and declines. For long Europe trades, I use FEZ, and for long EURO trades I use FXE or ULE.The odd thing is that UUP, the long dollar ETF, looks like it wants to bounce, as does GLD, the gold ETF. So we have the dollar perking up, the EURO running on empty, gold looking frisky, and the Yen hitting resistance. Just to confuse the issue, TLT, the bond ETF looks like it wants to extend its rally. Is this is why we love the markets? Also for those interested, ECH or Chile is on a tear and in pullback position. Malaysia or EWM is also rallying, breaking through a rare Quad Top resistance pattern. Interested traders should proceed with caution in these foreign and emerging markets–nasty things can happen over night that can wreck the best of trades.That said, I find trading country ETFs easier than trading the US indexes. Most of the time, they respond systemically to reversion to the mean trading, moving back and forth to their value/moving averages. I look to catch them at ST/OS or ST/OB and bet that they return to their moving averages. While the movements aren’t extraordinary, the percentages of winning trades is high, so you make small incremental profits.

When is a powerful stock finished? Good stocks are hard to find, and

Thanks Jock G’s for the post about RIG–I like it, too. Here’s RIG’s monthly chart showing an attempt at forming a major 1,2,3 Bottom. The set up would confirm if price closes above last month’s high of 55.49. However, we may see another narrow-range bar and more sideways basing depending on market action and the reaction to the dividend announcement.

Once in awhile, one particular strategy will match up with one particular stock, and it will repeat, and repeat. I like to play Squeezes, an idea I learned from John Bollinger, and his Bollinger Bands. Basically, while price tends to be mean reverting (remember the bell shaped curve from statistic class?), volatility is extreme reverting (tends to bang back and forth from explosive long-range days to quiet narrow-range days.) On weekly charts, I use a 15-week EMA setting for the BB bands, and on the daily charts, I use the default 20-day.In practice the idea is simple, price undergoes a period of narrow-range, or quiet bars. Then pressure builds up, and price explodes in one direction or the other (often triggered by a news event, or some fundamental action). The trick of course, is to get the direction right and I look to the indicators for help. See the the higher low on the weekly MACD-H? In any case, tight stops, or hedging is a good idea. Once a Squeeze sets up, the subsequent move can be extreme. These days, the market’s hyper volatility has made Squeezes much less common. However, I ran across SMG, a stock that seems to live by the Squeeze. It’s setting up now on the weekly and daily charts, a sure sign of some sort of big move in one direction or the other–earnings maybe?. A trader has several options–take a small position now and add to it as the Squeeze progresses, buy an option straddle–call and a put–or wait for the move, and then enter on a pullback. In any case, SMG has built several weeks of base, the BBs are tightening, and we’re going to rock soon.

Recently, I was asked some questions about pullbacks by a member. He was frustrated because often after he entered, the stock continued to decline. Frankly, pullbacks will fail, though they are the most consistent trend continuation trade available. I prefer a conservative approach and look to enter longs at the close if they tick up, and shorts at the close if they are ticking down.My observations for successful continuation/pullback trades are:++Trade liquid ETFs or large liquid stocks. They are more consistent in their movements. I usually trade ETFs.++The 20-day EMA must be rising for an uptrend pullback. If it is flat, price is most likely range-bound and will trade down to the lower BB.++The more vertical the up angle in the 20 DEMA the better.++The first pullback after the initial cross of the short-term 8 EMA through the 20 EMA is the best–take it. Each pullback after the first one becomes more suspect.++Wait for the 2-day RSI and 2-day FI to become oversold (overbought for shorts). 2-day FI is a remarkable indicator.++Look for sequences–often ETFs will trade down for three-four days then bounce. Some will repeat this sequence regularly.++Don’t be a hero–don’t buy pullbacks when the SPX has rolled over (or the weekly MACD-H) is below the centerline. Look to short instead.++The 200 EMA zone is very powerful; much more so than most traders realize. Price will find support, or resistance, or be dragged down or up to it. If long and price closes below the 200 EMA, get out. If price breaks below the 200 EMA and bounces back, the odds are that the 200 EMA will be strong resistance the first time.++One of the best pullbacks is when a stock makes a new high and then trades down to a rising 200 EMA. Institutional buyers will cluster around the 200 EMA and take the first pullback to it. Avoid any subsequent spikes down.Reverse for shorts, except profits on shorts should be taken quickly. The chart of XLF shows pullbacks that could have been traded profitably. At the right edge price is struggling to find support. Look to short on a bounce, but remember it has bounced twice off the declining MA, so the sequence is getting weaker.

Years ago, I read a throw away line from Linda Raschke, the brilliant trader and author. She said, “Trading isn’t hard, after all you can make a living buying higher lows and shorting lower highs.” A decade later, I’m still trying to make a living at trading; but I think I’ve finally figured out what she meant. Intermediate and short term highs, or lows, are defined by a three bar pivot (sometimes 4 bars). For bottoms, the left bar continues the decline, the center bar reverses the decline, and the bar on the right moves up. For tops, just the opposite–the bar on the left continues the up move, the center bar reverses it, and the bar on the right declines. The next top or bottom defines the trend, so we look for a higher low to buy, and a lower high to short. On the chart–Pt. A is the low, and Pt. B marks a higher low, confirming the uptrend. Pt. C is another higher low, and Pt. D is the end of the up move. Pt E is the lower high and we look to short. On the right side, we are looking to short another lower high as the trend is now down. Simple, huh?

While day traders can embrace this up/down, up/down market, it makes swing traders dizzy. Frankly, I hate it and so does my account; and trading light, or not trading at all is my preferred approach in this type of market. While fundamentalists claim this back and forth action is caused by the ever changing news environment, as a technical analyst I know it is because the SPX is trapped by the 200 DEMA. The 200 DEMA (or DSMA, doesn’t really matter) is the line-in-the-sand for the epic battle between Bulls and Bears. Above the line live the Bulls, below the line live the Bears, and around SPX 200 is the battle ground with enough land mines to blow a swing trader’s account. The 200 is where the big institutions and hedge fund focus much of their buying and selling, and the battle goes on until one side wins and price moves far enough away so that they have to commit in size to a direction. So while the 200 acts like a magnet (for indexes and stocks), pulling price to it in either direction, once it is soundly breached, a trend develops. My guess is that this up/down action continues until the Bollinger Bands come together in a squeeze, then we emerge in a solid move. Unfortunately, there’s no way to tell at this point which direction we trend. Good luck, keep your helmet strapped, and save firepower for the trend move.