Tuesday was another tale of two markets as choppy trading in the early morning gave way to a downside move that tested Monday’s low. Support was found there and trading reversed much of its losses in an afternoon rally. Although the net effect was another directionless day, there were plenty of trading opportunities to be found, both on the trend down and then on the ride back up. Specifically ESCL was a nice short from the market open after it received a de-listing notice from the Nasdaq. RIMM broke the lows early in the day and sold off on news of competition efforts from AAPL. Similarly AAPL was a nice way to ride the afternoon rally as it received favorable reviews from its trade show and drove into the closing bell.
Markets are winding up for another earning’s season with which should provide a catalyst one way or another. Two plays possibly setting up for trade setups are Alcoa (AA) and Gymboree Corp (GYMB).
Alcoa (AA) has been in a decline for the past month after bridging a 5-month high early in December. Monday the stock broke its 50% retracement zone measured from its swing low of 10/11 to its swing high of 12/01. This is a common Fibonnaci support area, which coincides with strong price support within the past three months. Look for AA to bounce soon, possibly off Tuesday’s spinning top bar. A break above Tuesday’s high (28.89) would be a signal for a long entry.
Gymboree Corp (GYMB) is forming a bull pennant after gapping up out of a contracting triangle. The bull pennant is a continuation pattern in the direction of the bullish impulse. The long entry is a break above the pennant, 44.00, with a stop loss below the low of the pennant, 42.61. An upside break would suggest at least a challenge of the previously broken support, now resistance area of $45.
If you have any questions, feel free to contact me at mike@tuco.com.
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