Nasdaq Leads, but Dow and S&Ps Refuse to Follow

Good morning! It comes as no surprise that on Thursday trading was again mixed as the daily range continued. The Dow Jones Industrial Average ($DJI) fell 3.58 points to close at 13,889.0. American Express Co. (AXP) was one of the top losers, falling 2.4%. The S&P 500 ($SPX) also lost a bit of ground, dropping 1.16 points. It closed at 1,540.08. A large factor in the NYSE underperforming has been the returning weakness in the financial sector. Citigroup Inc. (C) fell another 1.9%, while Bank of America (BAC) lost 2.4% The Nasdaq Composite ($COMPX), on the other hand, posted a gain of 6.64 points, or +0.2%. It ended the day at 2,799.31. In other markets, the dollar sunk to to record lows against the euro, down 0.7% at 77.595.



Thursday was interesting in that even though the market spent most of the day in a narrowing triangle pattern on the 15 minute time frame, there were still a lot of strong names to provide ample opportunities for stock traders. Callaway Golf Co. (ELY) was one of three stocks I focused on in Thursday's session. Early in the day it had a strong breakout from the range at $16.50 and from that point onward it was a steady climb to my target at $17.50. The daily pattern was a trap, whereby the stock had gapped significantly higher after a close near the day's lows on Wednesday, hence trapping the bears since a weekly short pattern had just triggered three days earlier. My other positions were CSX Corp. (CSX), which I'd had since the previous day, and Baxter Intl Inc. (BAX), which was another trap pattern plus a daily range breakout, which also went strongly into the $61 target I had set. If you get a chance to pull up the daily charts on each ot these you will notice how the gaps played a significant roll in their success, ELY and BAX based upon Wednesday's gap and CSX based upon the gap the day before. Even when simply daytrading a stock, it is very important to pay attention to where the intraday setup takes place on the daily time frame to offer the highest probability for success.



The indices themselves, while sloppy on the 15 minute time frames, still had some strong scalp setups which made it active throughout the day. Ahead of the open, the jobless claims data hit the wired. A 28,000 increase in claims made it the largest since February. Those collecting state unemployment benefits rose by 19,000 in the week ending on Oct. 6th. The morning began with a slight downside gap, but it opened at support, creating a bit of a base or congestion zone before triggering a short coming out of the 9:15 ET reversal period. This initial move lower intraday then took the indices into what would become the lower end of the intraday trading range at about 10:00 ET. Momentum slowed and the Nasdaq found support at its 15 minute 20 simple moving average at this time and the 10:00 ET economic data helped provide a bit of a boost. The Conference Board stated that its index of leading economic indicators rose 0.3% in September. While slow, growth remained steady and the market quickly moved higher, attempting to close the morning gap. It fell just a tad bit short in the Nasdaq and S&Ps, but accomplished the feat in the Dow.



The morning trading gave some solid back and forth moves, particularly in the Nasdaq, which experienced the least amount of overlap from bar to bar and the clearest setups. The gap zone was strong resistance on the 5 minute time frame and the market fell off that level. It then formed a base for about 30 minutes along the 5 minute 20 sma zone before triggering an Avalanche short setup into the 11:00 ET reversal period. After that the momentum began to turn. I took another continuation short in the Dow into noon, but the Nasdaq was forming a Phoenix at the same time. Hence I ended up treating it as a scalp.

The market began to climb again going into 12:30 ET, but the pace was still on the slower side. I took another scalp off the upper resistance in the Dow into the 13:00 ET reversal period thinking that the slower momentum would create another flush lower, but got out just in the nick of time at 13:11 ET when the volume failed to confirm, wondering at the time if I was being too aggressive. One tick lower, however, was all the YM had before it triggered a momentum reversal and shot higher at about 13:15 ET.

The Nasdaq stalled for a couple of minutes at the intraday highs just after 13:30 ET, but that was the only continuation pattern it offered before rallying to new highs on the week. The S&P 500 and Dow formed a nice three-wave trend with one continuation at about 13:30 ET and a second just prior to 13:00 ET. Both indices held resistance perfectly from morning highs and then the previous afternoon highs. While the indices had a steady reversal off the upper resistance and trend exhaustion, once support hit at the 15 minute 20 sma in the Dow and S&Ps and the 5 minute 20 sma in the Nasdaq at about 15:00 ET, that was it. There was an initial reaction off the support, but the remainder of the session was incredibly sloppy and I ended up calling it a day a bit early to avoid the mess.

The upside pattern from Thursday afternoon left room still for the market to continue higher into Friday. Unfortunately, a lot of this movement came soon after 4:00 am ET in the premarket trading. It took the Nasdaq into its measured move level between 2215-2220 in the NQ, but I was looking for the 1555 level in the ES. Due to a strong decline in that index afterhours, it has only made it back to the 1544 zone afterhours and upside resistance on the 15 minute time frame is now at 1547 if it can manage to break higher out of this new range it has been forming at premarket highs in the 1541-1542 zone. 1540 and 1536 are the main 15 minute support levels. On the daily time frame there has not been much change. The range remains in tact in the Dow and S&Ps, while the Nasdaq broke more quickly as I had suggested when we first began to see the range form.