Market Commentary: Making the Most of the Market Math

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1 Page 1 Page 3 Page 4 Page 9 Page 12 Market Commentary: Making the Most of the Market Math S&P 500 Pivot Points The DayTrading Report: MERQ, ITMN, UOPX, HCA and ALXN The Swing Report: CVH, CECO, Observations and Trailing Stops Notes and Guidelines Market Commentary: Making the Most of the Market Math In the work of W.D. Gann, 60 was considered an important time period. In fact, 60 years is many times referred to as the Great Cycle. Of course, 60 x 6 = 360, the number of degrees in a circle or cycle. Sixty months equals five years, of course. Many dramatic turning points have occurred after five-year trends. For example, from the major August 1982 low to the important August 1987 top was 60 months. From the December 1994-January 1995 low that ushered in the Bubble Mania Move to the January 2000 top on the Dow Industrials was 60 months. And, of course, from the crash low in October 1987 to October 2002 was three cycles of 60 months, or 180 months, or one-half of a sinusoidal 360-month period. Because there are essentially 20 trading days in a month, 60 trading days represents one-quarter or one 90-calendar-day period of trading. Reversals from new 60-day highs -- or lows -- often define intermediate turning points. Because Monday's long bar reversal from a new 60-day trading high coincided with a one-year cycle turn as well, there is a greater-than-average likelihood that, at the very least, the market will give a two-period pullback on its weekly chart. Moreover, on trade below last week's low of , the S&P already has carved out an outside down week. In keeping with the bullish DNA of the advance off the October low, the S&P did find low when it turned its weekly chart down on Wednesday on trade below , and found low quickly and within 3 points at In my experience, I have found these "three degrees of separation," or 3-point slippage above/below inflection points, to be telling. The universe isn't perfect. As traders, we shouldn't throw the baby out with the bath water on these marginal 3-point undercuts and overcuts. (Continued on the next page) PLEASE SEE IMPORTANT LEGAL DISCLAIMER ON LAST PAGE

2 Wednesday was 133 calendar days from the July 24 low of 776 on the S&P cash. That means a Gann 1 x 1 angle of support of one point per day proved out at 909 on Wednesday as = 909. Wednesday's low was The S&P did exactly what it knew it had to do on Wednesday to maintain an intermediate-term bullish posture. It rallied off 909 after turning its weekly chart down and left a Cooper Holy Grail Buy Setup in its wake. In other words, Wednesday's sets up as the S&P tags its 20-day moving average. Additionally, the S&P has also traced out a Power Surge Setup (a third-higher low) on its daily chart from Wednesday. The market is poised to rebound strongly. But Monday's reversal bar looms large. Wednesday's lateday breakout saw the S&P tail off as it came within 3 points of the low of Monday's high-bar day. Fifty percent of the range from Monday's high of to Wednesday's low of equals points, or nearly 45 Gann points. One-half that range is points, giving a midpoint of S&P. Only on a move that recaptures 935, which is 3 points above 932 and 3 points below last week's inverse Head and Shoulders target of 938, would the market be truly back in gear on the momentum train. Likewise, a break below 909 by more than 3 points would indicate that the defense team should be on the field. Tomorrow looks tricky, and arguments are easy to make for either side. We have to give the bullish case its due, but we also want to focus on failure, as fast moves come from failed moves. A failure of a Pullback coming off an outside down week and a break of a 1 x 1 angle, in other words, a failure below 909, must be respected. 2

3 S&P Pivot Points Note how the Test Failure at 935 and the subsequent long bar down from 932 (A) called the low as 932 became a likely midpoint for a first leg down. At Wednesday s highs the S&P 10-minute carved out a Cooper Sell pattern. Pattern: Power Surge (3 rd higher low). S&P Minute 3

4 THE DAYTRADING REPORT Chart 1 Mercury Interactive (MERQ:Nasdaq) Entry: Stop: Pattern: Cooper Pullback / Holy Grail Pattern: Power Surge (3 rd higher low). 4

5 Chart 2 InterMune (ITMN:Nasdaq) Entry: Stop: Pattern: Lizard Comments: Wednesday's Lizard on a test of the Nov. 13 low looks interesting. 5

6 Chart 3 University of Phoenix Online (UOPX:Nasdaq) Entry: Stop: Pattern: 180 Comments: UOPX sets up a third higher low after a breakout of a 7-week+ base. Pattern: Power Surge (3 rd higher low). 6

7 Chart 4 HCA (HCA:NYSE) Entry: Stop: Pattern: LROD / 180 Pattern: Power Surge (3 rd higher low). 7

8 Chart 5 Alexion Pharmaceuticals (ALXN:Nasdaq) Entry: Stop: Pattern: 180 Comments: Cheapie du Jour Pattern: Power Surge (3 rd higher low). 8

9 ay s Close: [Up.86] THE SWING REPORT Chart 1 Coventry Health Care (CVH:NYSE) Entry: Stop: Initial Target: Pattern: * Sherlock's Pipe 9

10 Chart 2 Career Education (CECO:Nasdaq) Entry: Stop: Initial Target: Pattern: * Soup Nazi Comments: Wednesday's thrust off the test of the Nov. 4 low looks interesting. 10

11 OBSERVATIONS AND TRAILING STOPS -- Thursday is day two in Beazer Homes (BZH:NYSE) (short). We are short from Maintain the stop at The initial target is Thursday is day two in Eaton (ETN:NYSE) (short). We are short from Maintain your stop at The initial target for one-half of your shares is Thursday is day three in Anglogold (AU:NYSE) (long). We are long from We sold one-half of the position at on Wednesday to lock in a 1.75 gain. Raise your stop to on the balance of your shares. -- On Wednesday we got stopped out of Murphy Oil (MUR:NYSE) (long) for a 45-cent loss. -- Thursday is day three in AutoZone (AZO:NYSE) (short). We are short from On Wednesday, AZO traded down to 77.65, near our initial target of Look to cover your entire position on trade toward and maintain the stop at On Wednesday we were stopped out of Phelps Dodge (PD:NYSE) (long) at for a loss of

12 Notes and Guidelines DayTrading Report: Trades marked indicate stocks that are considered small-cap, trading 500K shares or less. As you know, thin stocks are generally more volatile and trade with a wider spread. Trades marked * indicate patterns that don t conform to the original rules of the pattern but are defined as in the spirit of their namesakes. The 1-Point Gap Rule: Any stock recommendation that opens 1 or more points above the listed entry price (for longs) or 1 or more points below the listed entry price (for shorts) should be ignored for the day. Please note that history suggests that entering a stock on a gap open increases your potential for a loss. Reminders: A signal is not valid unless the stock trades at or above the listed entry price for longs and at or below the listed entry price for shorts. If a position moves 1 point in your favor in this choppy environment, it is a good idea to sell half the position and move your stop on the remaining position to break even. Charts: The green line is a simple 10-day moving average, the blue line is a simple 20-day moving average, and the red line is a simple 50-day moving average. The Swing Report: Trades marked indicate stocks that are considered small-cap, trading 500K shares or less. As you know, thin stocks are generally more volatile and trade with a wider spread. Trades marked * indicate patterns that don t conform to the original rules of the pattern but are defined as in the spirit of their namesakes. The 2-Point Gap Rule: Any stock recommendation that opens 2 or more points above the listed entry price (for longs) or 2 or more points below the listed entry price (for shorts) should be ignored for the day. Please note that history suggests that entering a stock on a gap open increases your potential for a loss. Initial Target: Target price at which you should look to sell/cover half your position. Reminders: A signal is not valid unless the stock trades at or above the listed entry price for longs and at or below the listed entry price for shorts. If a position moves 2 points or more in your favor in this choppy environment, it is a good idea to sell half the position and move your stop on the remaining position to break even. Charts: The green line is a simple 10-day moving average, the blue line is a simple 20-day moving average, and the red line is a simple 50-day moving average. Money-Flow Timing Model: If you are interested in information regarding the model, please visit: 12

13 Contact Info Customer Service: Please or call Mon. Fri. 8 a.m. to 6 p.m. ET Reader Feedback and Questions: Please Jeff directly at jeff.cooper@thestreet.com. Again please direct all account related inquiries to customer service. Legal Information This information is confidential and is intended only for the authorized Subscriber. Please notify us if you have received this document in error by telephoning Jeff Cooper, writer of The Trading Reports, is a financial markets author and trader, and a regular contributor to RealMoney, the premium subscription site of TheStreet.com. At the time of publication, Mr. Cooper will not, directly or indirectly, have a position in any security that he discusses in The Trading Reports. HOWEVER, MR.COOPER MAY ENTER ORDERS TO PURCHASE OR SELL SECURITIES MENTIONED IN The Trading Reports AFTER 10:30 a.m. ET. ON THE TRADING DAY FOLLOWING THE DATE ON WHICH THE SECURITY IS MENTIONED IN The Trading Reports. IF YOU ENTER ORDERS TO BUY OR SELL SECURITIES AFTER 10:30 a.m. ET., IT IS POSSIBLE THAT MR. COOPER MAY HAVE PURCHASED OR SOLD THE SECURITY AT A PRICE MORE ADVANTAGEOUS THAN THE PRICE YOU WILL OBTAIN. Mr. Cooper is not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. The Trading Reports contains Mr. Cooper s own opinions and is provided for informational purposes only. You should not rely solely upon The Trading Reports for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained herein constitutes, or is intended to constitute a recommendation by Jeff Cooper or TheStreet.com, Inc. of any particular security or trading strategy or a determination by Jeff Cooper or TheStreet.com, Inc. that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person TheStreet.com, TheStreet.com, Inc. All Inc. rights All rights reserved. reserved.