Setups & Market Commentary for Tuesday, February 21, 2012

In going through the charts over the long holiday weekend, despite the persistent ramp up in the U.S. market indices, there remain some actionable setups.  Many of the inverse ETFs are showing positive RSI divergences after 9 consecutive weeks of underperformance.  So traders need to be careful not to chase stocks that are extended from a proper base or consolidation period. 

Several stocks from the education sector posted here last week, CECO, BPI, and COCO still have valid setups.  EPAX from that group already triggered last Tuesday and is +12.5%.  CALX, DVAX, and TXI  mentioned last week remain in tight consolidations, and should be monitored closely for possible breakouts.

ALWAYS use stops to limit potential big losses, particularly the falling wedge setups with RSI positive divergences that I post here frequently.  You must be quick to cut losses and get out if one of these setups rolls over into a lower low.  These are definitely riskier setups.   

So while some of the biggest gainers previously posted on this blog like HSOL, JASO, TAN, RIG, PACB, AA, CETV, BAK, PGTI, etc. all had the falling wedge formation, always remember there's probably a good reason they've been in long declines; tread carefully.  [By the way, @TraderStewie on Twitter was the guy who put my attention on to these types of setups, so many thanks to him.]

Risk management should always be foremost on trader's minds, especially given the extended nature of the current market.

Click on charts to enlarge view:

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Huge short interest on this one: