Toni will return next week.

The Avalanche

Description: The Avalanche is a reversal pattern that triggers a short. Essentially, it is the first continuation pattern that creates a new downtrend. It can occur as a breakdown from an uptrend, or as a smaller breakdown pattern within a larger trading range breakdown. Two specific types of Avalanches are more commonly known as a Head & Shoulders pattern and a Reverse Cup-with-Handle. The entry trigger on an Avalanche, however, is not the same as on a Head & Shoulders pattern.

Criteria:

1. Uptrend or sideways trend

2. Stronger than average rally.

3. Pullback that is comparable to or stronger than previous rally, usually on increasing volume into moving average support (typically the 10, 20, 40 or 50 simple moving average).

4. Hugs the moving average support on decreasing volume.

5. Moving averages start to converge (10 and 20 sma if it's been hugging the 20 sma.)

Entry: Switch to smaller time frame and enter on a breakdown in support or going into resistance. A break in the trend line from the lows of the congestion along the support level can also be used, particularly if the waves of buying and selling within that congestion are more difficult to discern.

Stop: Over the last pivot high within the trading range, or drop down to smaller time frame and look for a smaller base at lows in the larger base and place a stop over the highs of that smaller base.

Target: Next major simple moving average support. An Avalanche along the 20 sma would have a target of the 40 or 50 sma. Also watch for an equal move compared to the drop into the Avalanche range from the highs. This works best if the pace of the breakdown is the same as the pace of the drop into the Avalanche base. Notice how this level stalled both the move in the ES intraday, as well as on the daily of GROW, which also was subject to simple moving average support at the 100 day sma when the 40 day sma that the Avalanche formed along gave way.

Ideal 5 Tech Tools Traits:

Pace: Above average pace on the reversal from highs, followed by slower than average upside as support holds. Within that congestion along support, it is preferable to see the momentum slow on the upside moves and increase on the downside.

Volume: An increase of volume into the simple moving average support, declining volume as the support holds and congestion forms (particularly at the end of that congestion), followed by an increase in volume as the support level gives way and the pattern triggers. This provides confirmation for the setup. The volume will often spike again as it comes into the next support level and first target zone. Within the congestion itself, prior to a breakdown, it is best that upside volume is lighter than downside volume.

Correction Periods: Higher probability if the setup triggers coming out of a correction period.

Support/Resistance:

· When the base of the Avalanche pattern is directly on top of or is cut in half by the moving average that it is hugging, the odds are higher for a strong momentum breakdown than if the base or consolidation is directly under the moving average.

· When forming along moving average support, the approach of the next fastest moving average and an impending crossover of those two is a strong pro. For instance, if the security is basing along the 20 day sma, then the imminent crossover of the 10 and 20 day simple moving averages will increase the success of the breakdown.

· Check the next larger time frame for support. For instance, if an Avalanche is forming on a daily chart at the 20 day sma, then the 20 sma on the weekly chart is strong support. So if it is near at hand, then it can place a strong constraint on the reward potential for the setup.

· If the Avalanche is forming within a trading range, then it is nice to see the range pulling into a larger moving average resistance level just prior to breaking lower.

Trend Placement/Trend Development: When a security has had three waves of buying already and then attempt to form an Avalanche, the odds are higher for success on a subsequent Avalanche. When dealing with an Avalanche that forms within a trading range then it is best if there have been at least two waves of selling already within the range, if not three.

Example: GROW Daily Avalanche

Pros on Daily GROW Avalanche:

1. The pace of the selling at the start of the new year was significantly stronger than the move into December’s highs.

2. The move into December’s highs was made with higher highs that each broke by a lesser degree than the previous one, creating a rounded appearance that indicates weakening momentum.

3. The drop off December’s highs took GROW right into the 40 day simple moving average support.

4. GROW hugged the 40 day sma along the highs of the moving average for approximately twice as long as it took for the stock to move lower into that support level.

5. GROW broke lower at the same time as the 10 period sma began to cross under the 40 day sma and the 20 day sma had begun to turn over.

6. Volume increased strongly into the 40 day sma, showing panic, but then declined dramatically as it hugged the support, indicating a lack of buyers despite the correction at the support.

7. There was no immediate support level once the 40 day sma broke that would hinder further selling.

8. GROW had a narrow trading range along support, allowing for a small stop compared to the potential based upon the expectation of an equal move on the breakdown as compared to the drop at the start of the year.

9. The pace at the start of the breakdown was strong and volume picked up as the support broke. These confirmed the move and allowed the stock to put in an equal move on the breakdown as compared to the initial drop into January.

Cons on Daily GROW Avalanche:

1. The drop at the start of the year was even stronger than the typical strong move in the stock. This can lead to a base that is more than twice as long as the drop into the support, so that a setup that occurs within the usual time frame for an Avalanche development (1.5-2 times as long as the drop) can be false and followed by another pop before it follows through. It can also mean a 2B has a higher chance of forming if rhw Avalanche attempts to trigger within that time span. This risk applies to securities in which the drop off the highs is at the very extreme levels in terms of the momentum involved.

Upcoming Economic Reports and Events:

Wednesday, May 7, 2008
8:30a.m. 1Q Productivity, Prelim. Previous: +1.9%.
8:30a.m. 1Q Unit Labor Costs, Prelim. Previous: +2.6%.
10:00a.m. Mar Pending Home Sales Index. Previous: -1.9%.
3:00p.m. Mar Consumer Credit. Previous: +$5.28B.

Thursday, May 8, 2008
8:30a.m. Initial Jobless Claims.
10:00a.m. Mar Wholesale Trade. Previous: +1.1%.
10:00a.m. DJ-BTMU Business Barometer.

Friday, May 9, 2008
8:30a.m. Mar Trade Balance. Previous: $62.3B.

Key Earnings Announcements This Week:

Wednesday, May 7, 2008
Before: AGN, ALD, AHCI, ALY, AOB, AHII (?), ARD (?), CRZO (?), CKP, CSK, CLHB, CTSH, CTB, CXR, DWSN, DVN, DTV, DTG (?), EMKR (?),, EBS, ENB, XJT (?),, FWLT, FTO, FCN, GTN, HELE, HSP, HWCC (?), NRGY, IDCC, IHR, JRCC (?), KNDL, KBALB, ID, LAMR, LM (?), MKTX, MMC, MMS (?), MDTH, MCCC, MGAM, NCR, NEWS, NTMD, ONNN, OHB (?),, OSCI, OC, PCAP (?), PRFT, PNK, PXD, PLUG (?), QLTY (?), PWR, KWK, SBGI, SKYW, SEP, TRK, STE, BRLC (?), TTES, TOT, RIG, TRS (?), UNCA, VRX, WRES
During: ACMR (?), JRT (?),
After: AMCN, AIRN, AEL, ARII, AHS, ANDE, ARNA, ACLS, BKUNA (?), BLKB, BBBB, CENT, CCRT, COGO, CPII, CROX (?), CCRN, DNB, DRRX, BAGL, EAC, ENCY (?), ENOC, EXPD (?), FRT, FCH, FOE, FNET, GHDX, ROCK (?), GIL, GCOM, GOLF, GXP, HANS, HCN, HIL, IDSY, TEG, IPAR, INAP, KNTA, LTRE (?), MVSN, MNR, MSTR (?), MR, MIVA (?), MSCS, NABI, NFS, NMHC (?), NSR, NWS.A, NHWK, NVEC, ODSY, OEH, PLLL (?), PDLI (?), PVA, PVR, PSPT, PCR, PL, PSSI, RAH (?), RSCR, SAFT (?), SNTS, SVNT, SCI (?), SMSI, BID (?), BEE, TLEO (?), OVEN, UEIC, VRAZ, VOLC, WRI, WEDC (?), ZIPR

Thursday, May 8, 2008
Before: SMLC (?), KDE (?), ABH, ACW, ACM, ATK, AMSC, ABV (?), ASCA, AHR (?), ARCC, STST, ARQL (?), ATPG (?), ABTL, BKRS (?), BRL, BNT, BCRX (?), BVF, BORL (?), BRKR (?), CVC, CALP, CAPA (?), CELG, CTIC, CDL, CNSL, CTCT, XTEX, XTXI, CRYP (?), CUB (?), CMLS (?), CYPB (?), DWSN, DPTI, DSCO (?), DRQ (?), DYN, EIX, EP, ENER (?), EPL, FRP (?), FVRL (?), FVE (?), FRPT (?), FIG, IT, GLBC (?), GLBL, GPX (?), HEES, IDA (?), ISPH, IART (?), ISIS (?), JAH, JRC (?), KALU, KG, KOP, LXP, LCUT, TVL, LINC, LINE, LIOX (?), LAC, MIC, MPW, MEMY (?), TMR (?), MESA (?), MGPI, MEND, MLNM (?), MINI, MNTA (?), NDAQ, NGS (?), NRP, NRF, OMG, OCR, ORCH, VITA, PTIE (?), PRX (?), PDX, HK (?), PNCL, PXP, POZN, PGN, RHD, RDN (?), RCNI, RSTO (?), SBH, SGK (?), SIRO, SBSA, SPH, SUP (?), SWSI, SURW, SFY, SXCI (?), TICC (?), TTEC (?), TSO, PNX, TRGL (?), TM (?), THS, TRMP, RMIX, USPH, URBN (?), VICL (?), VG, WMG, WW, WNR (?), WATG (?), WPL (?), XMSR (?)
During: SAM (?), DNDN (?), DIOD, EPEX (?), GCA, QSFT, WCI (?)
After: APKT, ATVI, ADPT, ABCO, AEM, AIRM (?), ARE, ALNY (?), AIG, ARP, ANSV (?), ARTE (?), AGO, ATW, BE, BLTI (?), BRNC (?), BRKS, BUCA (?), BLG (?), CAMP, CPKI, CPE (?), CNQ, CTLM (?), CNTY (?), COSI (?), DAR (?), DWRI, DXCM, DEIX (?), HILL, ESIO, EMAG (?), EXAR (?), FMD, GMST (?), GDP (?), SRVY, GUID, HLYS, ICFI, IFON, INWK, NSIT, IOM (?), IPAS, DMX (?), JMP, JUPM, LEAP, LLNW, LOCM, LMNX, MSSR (?), MCGC (?), MEDX (?), MRX (?), MED (?), MELI (?), MRGE (?), MIDD (?), MOVE, NABI, NHP, UEPS, NLST (?), NGAS (?), NUAN (?), NUCO, NUVO, NVDA, OCNW, PEIX (?), PZZA (?), POM, PMC, PEC, POWR, PCLN, PROS (?), PSA, RNWK, RUBO (?), WINS, SALM, SD, SAPE, SGMS, SGTL (?), SIX, SONS, SRSL, SNS (?), SHO, SUPX (?), TEAM, KNOT, THRM, TMA (?), TIE (?), TRMS (?), TRLG, GROW (?), URS, YSI, VSE (?), CHIP (?), VRSN, VITL, WON (?), INT, WPTE (?), XOMA (?), ZOLT (?)

Friday, May 9, 2008
Before: AER, AYR, BECN, LSE, CCU, CCO, CCOI, GTN, HUN, OMRI, OPTR (?), RTK, SUG, STRL, WCRX, WR, WIN
During: ASYNM (?)
After: CYCC

Toni Hansen is a Market Analyst and Trader with www.tradingfrommainstreet.com. She can be reached at Toni@tradingfrommainstreet.com.