Market Whips Around into the Holiday

Good morning! I hope you are having a wonderful trading week so far! I just got back from the Las Vegas Online Trading Expo where I've been getting a ton of exercise walking back and forth from the hotel to the conference center for the past week. (Oy! My feet still hurt!) It was wonderful meeting so many of you there! The industry has certainly changed a great deal over the years! The forex and options markets have been gaining in popularity over the past year or so and held a heavy presence at this fall's exhibition. With more and more professionals taking advantage of their new-found ability to trade in the "off-hours" thanks to the nearly 24-hour markets of the emini futures and forex, this trend is likely to continue into the foreseeable futures. I'm personally a fan or trading the ES (EMini S&P 500) afterhours and had some fun winning one of the FX trading competitions at the expo. (I scored a new mouse, which was perfect since mine has been on the fritz lately!)

Speaking of the index EMinis, let's take a look at the current market action as we head into the holiday trading. Volume and volatility were both quite heavy in Tuesday's trading. On the New York Stock Exchange the declining issues narrowly outnumbered the advancers with 4.74 billion shares exchanging hands, up strongly from the 4.01 shares traded on Monday. The Dow Jones Industrial Average ($DJI) closed higher by 51.70 points (+0.4%) after trading within nearly a 270-point range. It ended the day at 13,010.1. The S&P 500 ($SPX) climbed 6.43 points (+0.5%). It ended the session at 1,439.7. The Nasdaq Composite ($COMPX) did not hold up quite as well. It managed to gain 3.43 points, but that only amounted to a 0.1% increase in price before it closed at 2,596.81. The Russell 2000 fell 1.00 (-0.13%) and closed at 749.33.



The major news events of the session centered around mortgage-related concerns and the FOMC minutes, which came out at 2:00 pm ET. Freddie Mac (FRE) was particularly hard-hit, falling nearly 29% after reporting a $2 billion quarterly loss and announcing that it might cut its Q4 dividend. Other mortgage investors also felt the heat. Countrywide continued to slide on a downgrade, losing 2.7% on Tuesday to close at $10.28.

In other markets, the euro has once again hit a new high this week, breaking out of a two week trading range. Crude-oil futures rose to new record highs with January delivery at $98.03/barrel, while gold also followed in quick pursuit. Government bonds also rose on predictions of a slowing economy into the new year. The yield on the 10-yr Treasury note (which moves inversely to its price) fell to 4.05%, while the 10-yr yield rose to 4.09%.



From a technical perspective the market is still running smack into support on the daily time frame from congestion levels back in August and early September. The market attempted to climb early in Tuesday's session, but each new high was made on lighter volume and with easing momentum. By the 11:15 ET reversal period the highs had rounded off enough into resistance from previous highs and congestion on the 15 minute charts that the bear were able to begin to regain a foothold.

The initial reversal was nothing spectacular as the indices pulled back into their 5 minute 20 simple moving averages intraday, but after hugging that support on light volume, which displays a lack of willing bullish participants, the market began to pick up speed, selling off into opening lows into 12:00 ET. Choppier selling into the early afternoon was then followed by another strong downside push into 13:00 ET. This took the Dow and S&Ps to new lows on the month, but brought the Nasdaq into its third test of lows on the same time frame.



The market held the 13:30 ET support zone pretty well to begin with. The market pulled higher into 14:00 ET, but the buying quickly waned ahead of the 14:00 FOMC minutes and the pace of the buying also decreased significantly, turning the reversal into a bear flag. The market then broke lower after the Fed failed to given any stronger clues as to whether or not it would decrease lending rates yet again in the December meeting set to take place just a couple of weeks from now. The market flushed lower, but as it turned out, the larger daily support zone held and the market rounded off at the lows. The Dow and S&Ps both popped into the 5 minute 20 sma and then gently slid lower along the resistance to form Phoenix buy setups. Meanwhile, the Nasdaq established a very slightly lower to to create a double bottom trap pattern called a 2B. The market followed through by takng back a huge chunk of the day's losses in the final 30 minutes of trading.

After taking a look at the indices today, I am not inclined to change my opinion from a few weeks ago as to how the current price action is likely to play out. The market is still poised for a third bounce higher on the daily and weekly Dow and S&P 500. There is also a very strong chance for a much more substantial breakdown on the weekly time frame. So far nothing has yet to chance my opinion on this matter, although I continue to monitor it closely. Don't forget to expect trading to become very light on Wednesday afternoon and continue into Friday due to the Thanksgiving holiday. This means it will be very important to not fall into a trap of boredom and "trading just to trade!"







Economic Reports and Events This Week


Monday, November 19, 2007
Nov NAHB Housing Market Index: 19. Previous: 19, revised.

Tuesday, November 20, 2007
ICSC-UBS Chain Store Sales For Nov. 17: +0.8%. Previous: -0.5%.
Oct Housing Starts: +3.0%. Expected: +1.4%. Previous: -11.4, revised%.
Redbook Retail Sales Index For Nov 17: +0.3%. Previous: +0.3%.
FOMC Minutes.
ABC/Wash Post Consumer Conf For Nov 18: -19. Previous: -17.

Wednesday, November 21, 2007
7:00a.m. MBA Mortgage Application Survey Refinancing Index. Previous: +6.4%.
8:30a.m. Initial Jobless Claims For Nov 17 Week. Expected: -11K. Previous: +20K.
10:00a.m. Nov Conference Board Leading Indicators. Previous: +0.3%.
10:00a.m. End-Nov Reuters/U Of Mich Sentiment Index. Expected: 75.0. Previous: 80.9.
10:00a.m. DJ-BTMU Business Barometer For Nov 3. -0.1%.

Thursday, November 22, 2007
There are no economic indicators scheduled today.

Friday, November 23, 2007
There are no economic indicators scheduled today.

Key Earnings Announcements This Week:
Wednesday:
Before: AND, CHRS, DE, MESA, NUHC, PDCO, POSS, SHMR, SOLF, BKE, TSL
During: GPS
After: CSC, JCG

Thursday: -

Friday:
Before: WATG

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!