Tom

It is time to put ABK Ambac Financial on the Radar Again

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abk20090806

ABK Ambac Financial also came up in my new scan that I developed yesterday and also showed up in the MarketClub Scan.  As I just indicated in my previous post, the real estate sector is starting to rise from the dead a little bit and so this sector may be worth paying attention to.

I was lucky enough to play ABK Ambac Financial way back in August of 2008 after it had a massive bear market rally from a dollar and change to almost 10 dollars.  I remember it vividly because I was on vacation in Cape Cod up at the Eastham cottages and I remember trying to manage this trade with my laptop using the hotels wireless connection they had in the lobby.  I would go there every morning and then in the afternoons trying to engineer the Ambac trade.  At the time it was consolidating in mid August (see chart full size by clicking on it above) in a somewhat ascending triangle or symmetrical triangle pattern.  But I was stopped out several times and then had to re enter for the eventual move to 9 and change.  I had to be real careful about getting into Ambac because the stock had already had a big move and I was not in the trade right off the bottom, so I was unsure whether it had enough steam to go higher.

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UNG Natural Gas ETF starting to look more and more bullish

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ung20090805

On a risk to reward basis which is the better trade? The gold trade or the natural gas trade?  I think they are close to equal ground, but the more I think about the more I think that the UNG ETF Natural Gas trade is the one that has more merit in terms of maximum risk reward.

But let me be clear, the UNG ETF potential move is still a much different animal than the gold market.  I don’t think it can be said that natural gas is in a long term bull market.  It is an entirely different animal.  But nevertheless it has had a massive bear market crushing decline and now looks like it wants to get started on the ‘busted pattern’ setup that I had mentioned a couple times before.

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Gold Stock GSS Golden Star Resources Setting up for a Breakout

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gss20090805

GSS Golden Star Resources may be setting up for a breakout soon.  Amazingly GSS has been in a consolidation since December 2003 !  I don’t know about you but that is a LONG time in both regular time and trading time!  GSS is now slowly approaching its long term down trendline and I think it has got a good shot at getting some sort of breakout going.

I believe earnings are coming out on August 11th.  Not sure if that is going to be the catalyst or not, it could be.  So far GSS has touched its long term down trendline 3 times previously, so this resistance line is definitely significant.

When you combine this price structure with my previous alert on the gold price, you have the makings of a high probability trade.

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Three Important Charts S&P500 Nasdaq Composite and the QQQQ’s

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sp50020090805

I have three important charts to share with you that could help to clarify where we are and where we might be going.   These charts are pretty much self explanatory but I still believe they illustrate important points or guideposts if you will for future market action. The first is the S&P500.

You probably know already what I am going to say with respect to this chart.  It is the monthly chart and it shows the powerful move up in July and now the follow through bar for August.  Clearly the August bar is just beginning but you can see we seem to be on a mission to the down trendline of the bear market that started in late 2007.  Now before I say anything more about the S&P500, lets look at the other two charts first.

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What would cause the Gold Price to go Truly Parabolic ?

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usd20090805

Have you ever thought what might cause the gold price to go truly parabolic (aka vertical) ?  It seems that the personality of the gold price is one of parabolic structure.  That was the case in the 70’s and so I see no reason to believe this will not be the case now.  It probably will.

The chart above is the US Dollar Index chart plotted with YEARLY price bars.  It should be quite clear that this is a very long term price chart since it takes a whole year just to complete one price bar !

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Quick Follow up on US Steel X

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US Steel was up almost 9% today after my mention of it this past weekend.  I talked about how it appears to have a large head and shoulders bottoming formation.  Today’s action makes it look like the breakout from this pattern is in force.

The volume was very robust today especially for the first Monday in August.  This large head and shoulders bottoming formation has some rough targets. 

I calculate about 20 points between the low of the head portion of the pattern and the neckline of the pattern.  So the minimum measurement rule here suggests that US Steel could get to about 60.  Assuming this is the real breakout this week, then one thing to watch for is the retracement back to the neckline.  That may serve as a second opportunity to ride this new uptrend.

The size of this pattern is significant in that it is almost 1 full year long.  That is a lot of cause for a sustained move.  Head and shoulders bottoming patterns tend to be quite reliable in my experience.  They are not perfect patterns, but they do tend to give very reliable signals.

It should come as no surprises that US Steel got this move going in light of the fact that the US Dollar Index has broken down again in the most recent two days.  I talked about the US Dollar Index several other times and have said repeatedly that it is at a crucial juncture and at critical support.  Now it has elected to break that critical support.

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DVAX Dynavax Technologies possible large Cup and Handle

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DVAX20090803

Biotech stocks can be very tricky trades and very unpredictable, but I still thought DVAX was worth a mention as it appears to have a large favorable pattern also known as a cup and handle pattern.  The entire pattern is about 9 months in duration.  That is appealing just based on how long it has been forming. To me, a 9 month cup and handle is a lot more valuable than a 2 month cup and handle chart.

Anyway, it appears that the handle is almost done forming and we could see a big breakout type move out of this pattern, possible in August time frame.  One could also make the case that the handle portion of the DVAX chart is actually a smaller cup and handle pattern itself.  That is an interesting type of symmetry and something I do not see all too often.  It is a nice clear signal that helps to make for a clean move.

I really would not want to see anything below 1.74 on DVAX to keep this entire pattern intact.  If it does move below 1.74, then there could still be a case for an eventual breakout, but just for the sake of being ‘picky’ I think that is the standard that needs to be set here on DVAX.

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Trend should now be up for UNG Natural Gas ETF

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ung20090803 After a violent retesting action in the UNG ETF I believe that UNG has now bottomed and should embark on an eventual retest of the 17.55 level.

The recent break to new lows was a head fake in my opinion and we should now see a renewed bullish uptrend gain some footing.  The daily action showed that the most recent retest had to hold to keep any chance of a more significant reversal intact.

The monthly price bar chart of the UNG ETF as shown in the chart to the left tells us that the July monthly price bar showed some signs of demand in that we had a mid range close and test of the previous monthly swing 3 months previous to it.  That initial demand in the July monthly swing is spilling over to August now and I think it will continue.  Certainly there will still be volatility, but the trend will be up as I see it.

There also appears to be an island bottom formation on the UNG ETF that was confirmed as a result of today’s action and gap up.  Island bottom formations are very rare in the commodity futures market.  I don’t believe we had an island bottom on the natural gas futures contract, but I am still going to give merit to the fact that we have an island bottom on the UNG ETF.  It gives me a good dose of evidence that this is the final bottom for UNG.

Even a modest upward retracement of the UNG ETF bear market that it had could see it eventually doing a 50% move from these levels.

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CNXT Conexant Systems Powers Higher after Alert

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I talked about CNXT last Friday in the early afternoon and said “I would say that as long as it can hold 1.47 and keep its composure, I believe it could be setting up for another attack of that blue resistance line and a breakout type move”.

Today CNXT did not waste any time and shot up almost 29% from Friday’s close.  The pattern on CNXT was quite powerful.  It has a large saucer type formation after the huge sign of strength that occurred in mid-April.  Clearly CNXT had a lot of sideways cause (potential energy) building for about 3 months.

The clue was the big volume attempt at a breakout 3 days ago and then the retracement back down to support.  I said on Friday that it needed to hold 1.47 support other wise the scenario would be in doubt.  It did hold 1.47, so no complaints there.

Clearly the market continues to be in an active state right now with plenty of break out type opportunities.  Interesting that they are occurring this time of year now.  Perhaps the current advance in the broad market will continue into September before any more significant correction occurs?  That needs to be studied more closely.

But for now there continue to be breakout type opportunities and CNXT is just another example of one.

Honestly I would have to rate this CNXT breakout near the top of my list as far as quality, advance notice and overall setup type.  It was a clean setup and the probabilities here were very favorable.  Setups like this do not occur too frequently.

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