Market Turns Higher, but is it Sustainable?

Good morning! On Tuesday the Dow closed with its largest single-day gain in two months after having just closed under its 200 day simple moving average for the first time since July 2006. Over the last couple of days I'd been expecting very slightly lower lows and more overlap from day to day before the market headed higher. The Dow ($DJI) managed this, but it is a bit difficult to see without dropping down to the 60 minute time frame. The Nasdaq Composite ($COMPX) also slowed its downside since Thursday, but the the market bounced more quickly than I had anticipated heading into the day.

Originally, I had been looking for upside and then another swing lower on the 30-60 minute charts on Tuesday with room for slightly lower lows. Instead, the indices gapped strongly higher and then fell into congestion along the 15 minute 20 simple moving average intraday. As the market congested, it still edged higher, creating a very difficult market for many pattern-focused traders.

It often frustrates many traders when on the strongest trend days, they are more likely to lose money. The main reason for this, of course, is that trend days that just creep higher are the exception rather than the norm and if you keep trying to time reversals or waiting for flags on the 5 minute times frames, which work well on most trading days, you'll just get chopped up. This is where it becomes very important to step back and focus on the larger intraday time frames like I suggested yesterday, such as a 15 to 30 minute chart. This way you don't get too lost in the smaller time frame chop.



If you take a look at my charts for today's column, what you will notice right away is that I've highlighted very few patterns and price levels. After congesting with a slight upside bias out of the open, the indices stalled just after 11:30 ET as the Nasdaq ran into price resistance from previous highs and lows on the 15 minute time frame. The correction was a form of a two-wave pullback which found support at the 5 minute 20 sma to begin with before breaking lower into the 15 minute 20 sma around 13:00 ET.



Up until 13:00 ET, the typical market reversal periods were not leading to very decent reactionary price moves. Even at the 13:00 ET one the Dow and S&Ps lagged a bit and established their pivot lows a few minutes later, although the Nasdaq Composite did hold the reversal period well. As this time period hit, so did the 15 minute support zone and the market was able to once again break to the upside intraday. The S&Ps led the way after having the most difficult time making new highs in the morning. Financial shares boosted the index and gold and oil also turned back around to favor afternoon buying. The Nasdaq, which lacks many companies in these sectors, became the laggard and hit and held resistance at the 14:00 ET reversal period while the rest of the market was running past Monday's highs.

From about 14:00 ET to 15:00 ET the market once again became congested. As in the morning, the congestion in the S&Ps and Dow had a slight upward slant to them, which would have made them less obvious breakout candidates. The Nasdaq, on the other hand, formed a strong ascending triangle right into the 5 minute 20 sma. After a third and more gradual pullback within that range, the highs broke. The move took the S&Ps past Friday and Monday's highs and in the final hour of trading all three of the major indices came back into price resistance on the larger 60 minute time frames from several previous sessions. The Dow ($DJI) closed higher by 319.5 points (+2.5%), while the S&P 500 ($SPX) gained 41.87 points (+2.9%) and the Nasdaq Composite ($COMPX) rose 89.52 points (+3.5%) on Tuesday.



Despite the strong showing on Tuesday, I do not expect the buying to be able to continue well into Wednesday. Volume should be slightly lighter than the last several days with higher odds of an inside range bar forming within Tuesday's price range. If we do see higher highs, then I am expecting them to be very minor. This congestion is then likely to continue into the weekend, and probably into next week as well. Should the congestion hold Tuesday and Wednesday highs during that time, then the market will continue to favor a third test of highs on the weekly time frame.



Online Trading Expo in Las Vegas

I will be out of town attending the Online Trading Expo in Las Vegas later this week, so I will not be writing this column from Wednesday night through Monday night. I return home on Monday, so the column will resume on Tuesday evening. For those of you attending, I'll be speaking for the expo at 8 a.m. Vegas time on Sunday and for Real Tick at 10:15 a.m. Sunday. I hope to see you there!





Economic Reports and Events This Week


Monday, November 12, 2007
There are no economic indicators scheduled today.

Tuesday, November 13, 2007
7:45a.m. ICSC Chain Store Sales Index For Nov. 13. Previous: +1.0%.
8:55a.m. Redbook Retail Sales Index For Nov. 10. Previous: -0.4%.
2:00p.m. Federal Budget. Previous: +111.56.
3:00p.m. Sep Pending Home Sales Index. Previous: -6.5%.
5:00p.m. ABC/Wash Post Consumer Conf For Nov. 13. Previous: -15.

Wednesday, November 14, 2007
7:00a.m. MBA Mortgage Refinancing Index. Previous: -3.2%.
8:30a.m. Oct Producer Price Index. Previous: +1.2%.
8:30a.m. Oct PPI, Ex-Food & Energy. Previous: +0.1%.
8:30a.m. Oct Retail & Food Sales. Previous: +0.6%.
8:30a.m. Oct Retail & Food Sales, Ex-Autos. Previous: +0.4%.
10:00a.m. Sep Business Inventories. Previous: +0.1%.
10:30a.m. Crude Inventories

Thursday, November 15, 2007
8:30a.m. Initial Jobless Claims For Nov 10 Week. Previous: -13K.
8:30a.m. Oct Consumer Price Index. Previous: +0.3%.
8:30a.m. Oct CPI, Ex-Food & Energy. Previous: +0.2%.
8:30a.m. Nov NY Fed Manufacturing Index. Previous: 28.75.
10:00a.m. DJ-BTMU Business Barometer For Nov. 15. Previous: +0.4%.
12:00p.m. Nov Philadelphia Fed Business Index. 7. Previous: 6.8.

Friday, November 16, 2007
9:00a.m. Sep Treasury International Capital Flows. Previous: -$85.5B.
9:15a.m. Oct Industrial Production. Previous: +0.1%.
9:15a.m. Oct Capacity Utilization. Previous: 82.1%.

Key Earnings Announcements This Week:
Monday:
Before: BX, DISH, HEW, NSSC, NVAX, TSN
After: JOBS, BOBE, CNK, ESE, HINT, LINE, OWW, FACE

Tuesday:
Before: GTLS, ERJ, FIG, FOSL, GILT, HD, IAG, NAFC, PPC, SCHS, TJX, USBE, WMT
During: LNY, RAME
After: CNTF, IMOS, DIET, EXM, GUID, LZB, OMPI, OCNW, STEC, XFML

Wednesday:
Before: APU, MT, ARM, CSIQ, DAKT, DWSN, DSX, ESLT, GIGM, M, MSTH, VIVO, PCS, NUAN, UGI
After: ANST, AMAT, CHIC, HSOA, LDG, NTAP, PETM, RAH, TTEK, WGOV

Thursday:
Before: BIG, CTR, CHINA, CPA, DKS, DHT, FCSX, GMTN, GSOL, GMCR, GBE, HP, HB, JCP, KIRK, MMS, NWY, NJR, PTRY, SHLD, SHMR, SCVL, SOLF, SSI, SMRT, SPH, STP, BKE, TDG, TWB, TYC, VSE, WTSLA, ZOLL
After: A, ADSK, STV, CHRD, DDS, DITC, DHOM, EXLS, FL, HMIN, DISK, PODD, INTU, SJM, KSS, MSCC, MTSC, CRM, SINA, SBUX, SNS, TOA, NCTY, UNCA, VRGY, VIMC, WEDC

Friday:
Before: ANN, QXM

Note: All economic numbers and earnings reports are in lines with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column. This list is not a complete list of earnings, so always double check your positions!