the Yuppie Pig

As this market continues to grind higher, I'm on the lookout for potential short setups to lie in wait for the inevitable pullback. I don't want to try to get in front of this bull, so I'll be slowly modifying the sell-stops on my orders as the market progresses higher.

I wanted to highlight the Agricultural sector as a potential short candidate. MOO is the ETF for the Ag space and is forming a bearish wedge. My initial breakdown point would be at about $44, with a first target of $41. The current stop would be above $46.


What makes this particular short more interesting is that the agricultural commodities represented by DBA (essentially, the output of these firms in the sector) as been declining. Thus, as the price of crops fall, the stocks of the firms that produce these crops are getting more expensive. This is a clear divergence in the fundamentals between the agricultural stock sector, and the agricultural crops sector. I'll also note that most soft commodities are also under pressure.


However, the trend remains up but the market is very overbought. Don't get complacent on your long positions and look to be prepared for a pullback either at this level or from higher levels.

The market has been up for the past 5 weeks straight with barely any pullback. My only advice in this situation is to become defensive. Either take some profits and/or tighten stops on longs. Personally, I'm also looking at some index shorts for a short term trade. I'll highlight a few points of note that warrant caution. Just remember, these are secondary indicators and price is king! These are not reasons to sell on their own.

1. The VIX is now into extreme complacent levels
2. The MACD is showing some negative divergence on the 60 minute chart
3. Stochastics are very overbought
4. Market is now at the highs which should act as resistance

Let's also remember that typically, sell offs occur with some sort of catalyst. This week, we have the FED announcement on Tuesday and Friday is options expiration. I'll be looking to take some money off the table early and keep stops tight and even look at some index shorts for a trade/hedge of my long positions.

Here's a potential inverse head and shoulders breakout pattern. Volume has been OK, but since the market is quite overbought here, we should be a bit cautious. Resistance is at 38, and the pattern measures about 2-2.5 points. I currently have a wide stop which I would probably tighten if it breaks out over the next few days once a bit more of a base is developed.


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If we take a step back from the short term movements, we can see that the market has really traded in a wide range in the past 6 months and is now approaching the highs of that range. So far, the advance has been on weak volume as shown below. On the other hand, the call-put ratio is still in an area which is more symptomatic of a bottom rather than a top. There are certainly many mixed messages in the market and its likely more choppy trading will ensue.


For the short term this week, the market has nearly retraced all of the decline from earlier in the year and is firmly in an uptrend channel. We'll simply watch for a break to the downside to become more cautious. Right now, support is at Friday's gap and resistance is at the highs of the year.


Looking at the internals, we can see that Friday's move was indeed quite strong which leads me to believe that we will test and potentially break to new highs. This has been the first 9:1 up:down volume day in some time which suggests the move is impulsive.

He's an idea for a longer term ETN (coffee!) swing trade. Basically, I would just buy this at or near the close of the day, after a solid break of the downtrend line which is confirmed by the MACD crossing up, and the stochastics breaking out over 20. On Balance Volume is looking constructive and there is positive divergence in the MACD which suggests the waning downward momentum.

Here's an oldie, but a goodie. RIMM stock looks like it could be preparing to make a comeback and retest its highs for the past year. There's a large gap that I'm sure traders of all kinds are eyeing to fill. Personally, I don't want to get in the way.


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Of all the Brazilian stocks I follow, CZZ is clearly acting the best. It is already testing its 52 week highs on good volume. This company is benefits from the development of the middle class in Brazil. The risk:reward isn't great right now due to Friday's strong move, but it is hard to argue against the overall trend. Resistance is at 9.3 which should quickly move a point. It would be nice to see it trade in a tight range over the next couple days so a tight stop could be defined.


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On the 60 minute chart, we continue to get a lot of choppy back and forth price action. However, it is forming into a bullish configuration overall. It's a rather sloppy head & shoulders pattern which looks ready to test 1130. Words of caution are warranted as the momentum indicators are waning. The MACD looks ready to show some negative divergence on this next move, but we'll wait for it to play out.

I've also highlighted in blue, the primary short term support and resistance levels. We'll see which way we break over time.


Here's a look at the internals on the 60 minute chart. The following is the Advance Decline ratio for the NYSE. I have drawn a horizontal black line which shows the major spikes at 9:1 (advance:decline or vice versa) as the scale is a bit misleading.


I'll note that the retracement in the past couple of days was rather weak on this indicator. Of courses, these are secondary indicators and price is king. However, it is why I have a long bias; albeit weak.