Strong Daily Support Forestalls Further Declines

Good day! The market's momentum took a bit of a turn on Monday, kicking off the new trading week on a somewhat bullish note intraday, even though the daily time frame is still under a lot of strain. The Dow Jones Industrial Average ($DJI) regained 92.84 points, closing at 13,358.5 after 24 of its 30 stocks posted gains. One the largest was General Motors Corp. (GM), which climbed 1.51 points, or +4.9%, ahead of its Tuesday earnings announcement. The S&P 500 ($SPX) rose 14.96 points on Monday and closed at 1,473.90. The Nasdaq Composite ($COMPX) gained 21.04 points and it ended the day at 2,583.3.

A lot of the intraday trading on Monday was actually pretty sloppy. The session began with a great deal of hesitation as the indices moved in for a stronger test of the daily moving average support levels. The S&P 500 pulled back to its 200 day sma in the last two sessions, while the Dow settled at its 100 day sma, and the Nasdaq Composite slid into its 50 day simple moving average.



After the sharp return to lows in Friday afternoon, it took the market awhile to begin to show any real recovery. Extreme momentum moves tend to correction with slower and choppier ones. We experienced this on Monday morning as the indices climbed off the lows beginning around 9:45 ET. All three indices made their way into their 5 and 15 minute 20 sma zones going into 10:30 ET following this early morning pivot. Along the way they chopped back and forth within the trend channel on the 1-5 minute time frame and broke that channel lower with another quick, albeit brief move, into 10:45 ET.

A second drop on the smaller intraday time frames came out of the 11:00 ET reversal period after volume declined as the indices played around with the 5 minute 20 simple moving averages. This time it wasn't quite as much of a move as the first though. When the third move within this small 1-5 minute trend came at about 11:30 ET it barely breached the previous low, creating a bit of a trap and reversal pattern that took the market higher on stronger momentum into noon.



On the 15 minute time frame the change in momentum on this second decline into the daily support intraday is very noticeable. Nearly every bar on the 15 minute charts overlaps most of the price action from the previous bar. The volume decline also indicates that the selling pressure has dried up. After popping to the upper end of this congestion, the indices then hugged the 5 minute 20 sma into 12:30 ET. This was again on declining volume and it triggered the perfect buying opportunity for index traders, as well as setups in a number of stocks which had undergone similar price activity throughout the morning. My entry came at 12:25 ET in the NQ (Nasdaq EMini) at 1969.50, which was essentially the 5 min channel break along the 20 sma.

The first wave of buying following the intraday reversal on Monday was the largest one. It took the indices back into the intraday highs much more quickly than they had fallen from them. That price resistance then led to a two-wave pullback into the 5 minute 20 sma, which had been resistance, but was now support. Light volume on the decline again favored the bulls and the market turned back around for a second wave of upside on the 5 minute charts going into 14:00 ET. This reversal period hit at about the time as the 5 minute 200 sma zone in the S&Ps and Nasdaq to create a second correction in this new trend going into 14:30 ET.

That second rally in the indices did not quite have the extension of the first and, as in the morning's decline into 11:15 ET, this meant that a third upside move would likely break the previous highs of the trend by an even lesser amount than the last. The S&Ps and Dow still did pretty well, even though there was a bit more overlap in prices on the 5 minute charts, but the indices hugged the 5 minute 20 sma support longer before pulling up off it and broke free to a lesser degree than the previous two moves.

This third move not only completely another trend set, but also took the indices back into the strong price resistance from the zone of Friday afternoon's highs and the 5 minute 200 sma in the Dow intraday. The response was a rounding off at highs on the 1-5 minute charts and a pullback into the final hour of trading whereby the 5 minute 20 sma support gave way.



Some of the largest winners on the day on Monday included FPL Group, Inc. (FPL), which rose 5.2% after posting second-quarter earnings growth, NewMarket Corp. (NEU), which also rallied on earnings, and First Solar Inc. (FSLR), which climbed ahead of Tuesday's earnings. MNST, GRMN, ISRG, GYMB, SPWR, FCX, IR, MA, TEX, UA, and SPW also moved strongly higher.

The top decliners on the day included the likes of Dow Jones & Co. (DJ) on news relating to the sale of shares to News Corp. (NWS), Jarden Corp. (JAH), which dropped following earnings, NovaStar Financial (NFI) after the announcement of a 1-4 reverse split, RadioShack Corp. (RSH) following earnings, and ValueClick Inc. (VCLK), which released weaker-than-expected earnings. AAPL, AMZN, BIIB, SAFM and NTRI also lost more ground on Monday.

As the week progresses, I believe that we will continue to see the market react to the recent support, but the bulls are going to be wary. There is a general mindset to buy pullbacks in order to add to positions, but while that worked well in February, many of the market leaders are a great deal more extended now and are showing signs of larger corrections on the monthly time frames and not simply on the daily charts. The zone of the previous highs will serve as significant resistance. As such, I am not currently favoring many new position trades or investments as longs right now and have been continuing to focus primarily on intraday activity with just a few overnight holds.

To learn how to recognize these patterns intraday in real time and identify the building blocks of these market moves, check out my new CD course at http://www.swingtrader.net! A sample video displaying my methodology can be viewed by CLICKING HERE.

LFC: Two-Wave Pullback & Breakaway Gap

For those of you in Denver who came to see my presentation there two weeks ago, the following setup should look extremely familiar since I spent about an hour on it. :)

It consists of a two-wave pullback and the continuation pattern which followed.

StockTickr Interview with Toni

StockTickr: Tell us a little about yourself, Toni and how you got to where you are today.

Toni: Well, to start with, my name is Toni Hansen. I live in Sarasota, Florida and I got here via a U-Haul… Ok, that probably isn’t what you meant though! Well, first things first… I’m a full time trader who happens to also teach market analysis to other traders. I’ve been trading for nearly 10 years now, before which time I had worked for the Office of the State Archaeologist in Iowa and had originally intended on a career in that field. I became side-tracked though when introduced to online trading and investing.

After having become uninspired by my broker’s rather sub-par results on my investment account, I had decided to take things into my own hands. I originally began by holding stocks up to a few days or weeks at a time, playing mainly daily setups, but have long since expanded into daytrading and now also trade the EMini futures contracts in addition to trading stocks on multiple time frames.

Shortly after I began trading full time and had quit working in the field of archaeology, I began keeping a free website at http://www.swingtrader.net where another trader and I would post our evening scan results and various musing about the market and the educational tidbits we picked up along the way.

Before long, one of the major market education sites on the web at that time approached us, stating how a number of their members were frequenting our site and they wondered if we would be interested in writing a swingtrading newsletter for them. Since we were already essentially doing this and it seemed like a good way to bring in extra income that would help offset the emotional hurdles of relying purely on our own trading for our living expenses, we agreed. Due to its popularity, we were soon invited to host a chatroom for the site, which was a nice way to socialize with other traders as well as create the necessity to be able to explain each and every action we took in the market.

Eventually we parted ways with that site and went on our own. Over time I found that running a for fee room was incredibly draining and was showing a negative effect on my trading since I was often missing my setups and constantly distracted by keeping the room active all day. So, I’ve now moved on and am focusing more on creating educational material which dispenses the same knowledge as I have taught over the years in the real time setting and work more on a one-on-one basis with individual clients.

I am often asked why it is that I bother to teach if I can trade. Well, the main thing is that had I not agreed to do that site early on, I probably still would not be trading today. Teaching forced me to be able to explain each and every thing I was looking at and why it was important. Even today, by working with individual traders, I learn a great deal and am constantly improving because I am forced to look at the reasons behind my clients’ decisions and to explain to them where they are on track versus where they need to modify their system and what they should be focusing on based upon their own personality and style. By working within their mindset I’m then able to identify nuances in their own trading and styles that I can use to my advantage. It forces me to put into words things which I had taken for granted, but had never really given much thought to before. The result is that it reinforces my ideas and builds confidence in my system. I strongly recommend all traders work with newer traders when possible.

StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?

Toni: You know, I guess I must be rather unusual in this regard, since I’ve often been asked this question, but really cannot think of anything that really had that type of affect. Perhaps it is because I am incredibly conservative and have never really put myself into a place that would create the circumstances for such devastation. I’ve certainly had stocks that have gapped a great deal against me overnight, but I managed to keep my shirt.

I guess the worst horror stories, in terms of what has affected me the most in my trading, come more from mistakes in orders. On Friday for instance, I had updated one of my platforms and did not realize that my setting for offsetting an open position had been lost. The result was that since I had closed partials in a position, when I closed the rest of the trade I actually ended up with contracts the other direction, which would have not been bad since I had nailed the high by a tick. The problem was all I saw was that I was now short and had assumed I had simply messed up the order, so when I went and closed that right I then ended up long again! Note how I had said I had nailed the highs by a tick… Well… I am used to reacting very quickly in terms of placing orders and simply didn’t realize that my order had not functioned as it had in the past by only closing what I had open. So, since I didn’t have my P/L up, I didn’t realize that I was now long even as the market was plummeting! Yikes! When I take a loss because I stopped out on something, it does not faze me. This is because I know my odds and the pros and cons heading into a trade, but when something just sidelines me like that I find it harder to get past and it can affect my trading for at least several days, if not longer, since it creates hesitation, which is bad when you are daytrading or scalping!

StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?

Toni: Double check your account and order settings every time you make changes to your trading platform!

Ok, this is probably not the largest lesson though. I would say that lesson would be to accept up front that whenever a new trader is successful right away, it tends to be a fluke. In reality it takes years to really be comfortable with the market and to trust in it to behave in an expected manner and then have the confidence to trade based upon that trust and without an emotional attachment.

StockTickr: Do you see record keeping as a critical part of trading success and how can traders improve upon their trading journals?

Toni: Most definitely, but most traders go about it all wrong! Keeping a spreadsheet of your trades is rather silly in my humble opinion. If you go and look at a spreadsheet of your trades a week or a month later can you remember what the trade looked like and why you took it? Probably not! Instead I feel very strongly that it is important to keep a journal which actually shows a chart of the trades you took and has your entry and exit clearly marked ON THE CHART.

StockTickr: What 3 books do you recommend traders read?

Toni: I’ve honestly never read a trading book from start to finish that really impacted how I trade. In fact, I’ve rarely read a trading book from start to finish period. This is not to say that there are not brilliant traders out there that have written books whom I respect, but I still tend to read history and fiction in my free time.

StockTickr: What is the most common, but easily correctable mistake you see traders make?

Toni: Trading large size without having a grasp of what the best style of trading is which suits their personality. If you can’t make money consistently risking $20, how on earth can you honestly expect to risking $200 a trade?

StockTickr: How do you think the market has changed over the last several years? How have you adapted?

Toni: I don’t believe that market has changed much over the last several years. The patterns and market type that we are seeing now in the indices on the daily, weekly, and even monthly time frames are the same trends and development patterns that are seen over and over on the smaller intraday time frames. The only difference is the scale. While I have learned more about the markets over the years, the basics have not changed at all and my system is just an expansion of the one I used when I first began trading.

One thing that has changed is the technological and industry-related aspects of trading. For instance, it used to cost me $50 in and out, no matter how many shares I was trading, just in commissions alone. After 6 months of trading, the account I shared with my partner was down 20%, but when we broke it down, we discovered that the entire loss was on commissions alone! It is now much easier to reason with new traders to start small, since they can literally pay only a dollar for anything up to 100 shares to take a trade. A disadvantage of beginning to trade in the FOREX or futures market is that you are still subject to much more substantial risk per trade and cannot really control that risk as well per trade.

StockTickr: Do you recommend backtesting and if not, how do traders instill belief in their system?

Toni: The only backtesting I do is reviewing my trading journal to compare current market conditions to those I have seen in the past. I don’t think it’s possible to create an accurate, automated system for backtesting.

StockTickr: What advice can you offer traders who are just starting out?

Toni: Be reasonable. Don’t expect to open a $5,000 account, for instance, and assume that you are going to be able to immediately earn your living trading. Even with initial success, consistency is another matter completely, and it takes time to understand the nuances of market development, even when you do have a mentor assisting you in cutting that learning curve.

Additionally, don’t shell out to buy those $10,000 educational packages you see on tv. Most of the information they peddle can be picked up for free by just scanning the internet! Take time to actually research any mentor or educational site you plan on using and don’t pay them a dime until you have decided that they really do know what they are talking about.

Finally, don’t take for granted the emotional aspects of trading. Those whom I see have the most difficult time are traders who have quit their full-time job, have young children at home, and a spouse that works full time, whom, even though they may have been supportive to begin with, is quickly beginning to think that playing around on the computer all day is not a real job. The pressure to succeed, and to do so quickly, can be overwhelming. This is not to say it’s impossible, but a supportive spouse and a less-hectic lifestyle are huge advantages.

StockTickr: Thanks for taking the time for this, Toni.

Toni: You're welcome!


To view this interview and others by StockTickr, go to http://blog.stocktickr.com/2007/07/30/interview-with-toni-hansen/

Dow Experiences Worst Week of Trading Since 2003

Good day! I hope you are faring well! It was a pretty wicked week of trading for the market, plummeting in a manner that we have not seen for a number of years. Given that this decline came on the heels of very hesitant buying into huge price resistance from the 14,000 level in the Dow Jones Industrial Average ($DJI) and the 2000 highs in the S&P 500 ($COMPX), the odds are very high that we are now going to experience a much larger correction on this monthly time frame while the market corrects from the bull market of the past five years. This has led me to initiate trailing stops on many of my longer term position trades. A number of them took me out of at least partials in this past week.

On Friday alone, the Dow lost another 208.10 points (-1.5%) and closed at 13,265.47. By the end of the week the cumulative selloff amounted to a 4.2% decline. The S&P 500 lost 5% last week. On Friday it fell 23.71 points (-1.6%). The Nasdaq Composite fell in between, sliding 4.6% with 37.10 points lost on Friday (-1.4%). Some of the hardest hit stocks on Friday included Six Flag (SIX), which had broken down in June from a multi-year base at lows and has been experiencing accelerated selling in recent weeks, GoodYear Tire & Rubber Co. (GT), which had rounded off at multi-year highs in the last several months and rolled over sharply in the second half of last week, and QLogic Corp. (QLGC), which gapped sharply out of a 6+ year trading range on lower-than-expected earnings.

Some of the other most extreme losers were Merck & Co. (MRK) (-3.6%), Exxon Mobil Corp. (XOM) (-3%), American Express (AXP) (-2.8%), DR Horton (DHI) (-3.2%), and Blackstone Groups LP (BX) (-5.4). Those hard-hit by earnings include ITT Corp. (ITT) (-4.6%), Ingersoll-Rand Co. (IR) (-5%), and Chevron Corp. (CVX) (-2.6%).

Despite the underlying weakness, a few top names still made gains. Most of these did so after selling off into strong daily support on Thursday and bounced off those support levels on Friday. CME Group Inc. (CME), Quicksilver Resources Inc. (KWK), and Ceridian Corp. (CEN) were several examples. Also on the move were Stericycle Inc. (SRCL), and Dynamic Materials Corp. (BOOM). SRCL was running on earnings news after announcing on Thursday after the close. It gained 13.82% on Friday. BOOM also took off following earnings and gained 12.85%. Interestingly, most the gains in both of these stocks took place during the trading day as market participants were drawn to these rare beacons of strength on the day.



From a technical standpoint, the market was primarily stuck in a trading range on Friday. The indices had regained quite a chunk of the losses from the large intraday decline on Thursday in the final hour of trading. Even though they pulled back a bit for the first 15 minutes of the day on Friday, they continued back into Thursday's afternoon highs around 10:15 ET. They broke those highs by a hair, creating a 2T reversal pattern at this major morning correction period. It corresponded to the 5 minute 200 simple moving average in the Nasdaq.

Since the upside momentum into 10:15 ET was average to above average, it meant that the earlier intraday lows would be support. The momentum increased into this support when the 10:45 ET reversal period hit, but it lacked the volume from the previous day. This suggested that overall a larger trading range would hold, but the momentum and 2T on the 5 minute charts held the buyers in off this initial support and a second wave of selling followed out of the 11:15 ET reversal period. This second decline continued into noon, at which point the bears became more hesitant. The indices finally flushed back into the previous 15 minute lows from Thursday at 12:30 ET.



The comparable momentum on the morning's 15 minute decline as that from Thursday afternoon's rally established the previous lows as significant intraday support, much as the comparable pace on the 5 minute decline created support at 10:15 ET. Essentially, the same pattern that formed on the 5 minute charts ended up repeating on the 15 minute time frame. Just as the market congested with slight upside on declining volume on the 5 minute charts from about 10:45-11:15 ET, the indices moved slowly higher from 12:30 ET into nearly 15:00 ET on a slowdown in volume.

This afternoon upside was choppy with a great deal of overlap on the 15 minute time frame as the market retraced a bit over half the morning's decline to the 62% fibonacci level in both the Nasdaq and Dow. Even though I don't use Fibonacci levels intraday in my own charting, I've found them to be highly accurate in the indices as a confirmation tool for support and resistance levels. Often major moves in the market will begin and end at these zones.



In the final hour of trading on Friday the market again experienced a sharp selloff. Notice that on the 15 minute time frame this came after two waves of upside, which is typical for correction moves in a larger trend as opposed to reversal moves. I did manage to catch the short initially, but unfortunately I took off a bit early on Friday and missed the largest chunk of the move which took place in the final 30 minutes of trading. This only occurred once the trend channel from the move out of 12:30 ET broke lower following congestion at the 5 minute 20 sma support into 14:30 ET.

I am expecting volatility in the market to remain high in this coming week or two of trading, but with a lot more back and forth action on the 15-60 minute charts since the indices are going to need to show some reactionary moves off daily exhaustion. This type of market does not tend to recover easily, so even if the market does pull back up a bit, the action would likely be similar to the 5 and 15 minute charts from the afternoon on Friday. Take a look at the drop in late February for example. Since this is the second such move of the year, it will tend to have an even more difficult time than before.

Earnings: July 30 - August 3, 2007

Monday:

Before: ACV, ARLP, ADM, ARM, BWP, CCJ, CNA, CTCM, DCO, FPL, GEHL, HUM, SFI, JAH, KND, LTR, MNST, NTE, NNN, NSTC, NS, PBI, RSH, ROC, SRP, SPG, TBBK, TSN, WWY

After: ACTU, AATI, AMMD, APC, ANDW, CTV, CYH, CSC, CTS, CVTX, CYTC, EXP, EFII, FARO, FRK, FTI, FDG, HCP, ININ, IVAC, MTW, ODSY, OSIP, OXM, PPS, PWAV, PFG, RADN, RCII, SIE, SIMO, SONI, SFN, SUNW, SPN, TFX, TXRH, TIE, TRMA, UDR, VMC

Tuesday:

Before: AG, AL, ALU, AMED, AEP, AHG, ARJ, ADP, AUXL, AVP, BEAV, BMS, BPHX, BRKR, CAM, CACS, CBS, FUN, COH, CVH, CRY, DBD, ETR, EEE, FSRV, FLML, IT, GM, GPI, GTXI, HC, HW, HMA, HSII, HLT, HEP, HOLX, HUN, IPSU, INFS, IACI, IVC, LDR, LCAV, LIZ, MHO, MMP, MRO, MCS, MLM, MAS, MCGC, MTCT, NCR, NNI, NURO, UWN, GAS, NMX, OMX, ONNN, OSTK, PTI, RBC, RTIX, RJET, SAF, SGK, SMG, SINT, SIRI, SAH, JOE, THOR, TKR, TWP, UA, UTHR, VCI, VLO, VNO, WMI, WEC

During: SNCI

After: ALO, ACAS, AFG, AMKR, ANSW, ANSR, AOC, AVR, BBBB, BUCA, BWLD, CEPH, CMG, CHRD, OFC, CCI, DENN, XRAY, DWA, EDR, EHTH, HLTH, EAC, ENTU, EQR, FEIC, FSLR, FBC, GGP, BGC, GMR, HS, SOLD, HTCH, INTX, KFRC, KYPH, LFG, LEAP, XPRT, LXRX, LNC, LNET, MXWL, MET, MIL, MPWR, MOSY, NVT, NCIT, NAL, OID, OSUR, PDFS, PLMD, RNWK, RNR, RTI, RUTH, SLRY, SVNT, SIRF, SPSS, STAA, SWN, SVR, TRMB, TTMI, TUP, OVEN, VPRT, WTS, WBMD, WFMI, WMGI

Wednesday:

Before: ASF, AGN, AT, ALVT, AHM, APU, AMCS, MT, ASPV, AVA, BEC, BRY, BYD, CBI, CI, XEC, CZN, CTSH, CXR, DWSN, DVN, D, RRD, DRQ, ECLP, EFJI, ENB, ENDP, ETM, EXR, FCL, GRMN, GWR, GTIV, HNT, HP, HWCC, IRM, JNY, KNDL, KFT, ID, LAZ, MKTX, MSO, MA, MWV, MCO, NICE, NTMD, NJR, NBL, NOVA, OSK, OC, PLD, PH, PNK, PNCK, PEG, Q, RHB, SBGI, SPW, SHOO, TSTY, TEVA, THQI, TWX, TWC, RIG, TRX, TRW, UGI, UMC, VZ, VTRU, VPHM, VC, WYN, ZGEN

After: TW, APKT, ARM, AEL, ASCA, APPB, ATML, AVB, ACLS, BARE, ABX, CA, ELY, CHE, COGT, FIX, CCRT, CNQR, DSCO, DLB, DRCO, EDS, ERTS, FRT, FBN, GPRO, GYI, GIVN, GMKT, GXP, GW, GLF, HIW, IVGN, ITRI, LF, LHCG, LQDT, MANT, MIPS, MOBE, MOLX, NABI, NANO, NAPS, NFS, NHP, OIIM, OII, ASGN, OKE, OKS, OPNT, PDLI, PVA, PVR, PNSN, PGTI, LGBT, POWI, PRU, QTM, RMKR, RCRC, SFLY, SMDI, SMSI, SOHU, SPTN, STAK, SBUX, SUNH, SUN, SYNM, TK, TTEK, THRM, CLUB, TRN, UPL, UDRL, VIRL, DIS, WCAA, WTW, WSH

Thursday:

Before: EYE, AGYS, ATG, AMRI, ATK, ALD, AMT, ANPI, ANSS, AIV, WTR, ILA, ASTSF, AACC, AIZ, ATPG, RATE, B, BNT, BIOS, BCO, BKC, CVC, CNQ, CNP, CETV, CTL, CHTR, CKP, CSK, CTEC, CBB, CLX, CMS, CDE, ED, ECI, CRPY, CVS, DNR, DSX, DMRC, DRAD, DJO, EK, ECIL, EDO, EMS, ENTG, ENZN, EXPE, EXTR, FAF, FA, GSX, GET, GTOP, GIL, GBBK, GMCR, HAE, HPY, HL, HOS, HYC, IDEV, IPCC, IP, ITG, IWA, ISTA, KBR, KBALB, LEA, LCUT, LIOX, MAC, CLI, MTRX, MDTH, MM, MGM, MORN, MWIV, NRP, BABY, NSR, NI, NOK, NRG, NYX, OGE, OMG, OCR, OPXT, OPTN, ORCH, VITA, OSCI, PTRY, PTEN, PRFT, PDGI, PDC, PPL, PDE, QCCO, PWR, RRI, REV, RSTI, RDC, RYI, SRE, SPIL, SNN, HOT, SPH, SUP, SFY, SMA, SYPR, TLM, TICC, TE, TOPT, TWGP, THS, TRMP, TRXI, TXU, USPH, ULBI, UNT, UIC, USM, VRX, VNDA, VSE, VIAC, VIA.B, VICL, VSH, WPI, WST, WLK, WMB, WPL, XFML

During: CUB, DIOD, EPEX, GSF, BID, THO, WRES

After: TFSM, ATVI, ADPT, ABCO, ARE, AW, AEE, ANDE, NLY, ARBX, AH, ASYT, ADBL, SAN, BBND, BKHM, BRS, BRKS, BUCY, CAB, CBOU, CBEY, CBL, CEGE, CTLM, CEDC, CENT, CEM, LNG, CHK, CQB, CSTR, CLRK, CVLT, DVA, TRAK, DNEX, DESC, HILL, EMKR, EVC, ERES, FOXH, GTW, GHCI, GHDX, GERN, GFIG, GES, HVT, HLEX, HIH, IDSY, IMMR, INSP, INPC, IBI, IN, ITMN, SWIM, JRT, JSDA, LVS, LEV, LPSN, LOOK, MEDX, MRX, MIDD, MWY, MOH, MOVE, MNTG, NFG, NATL, NKTR, NEM, NT, NFI, NUVO, ORH, OPWV, OPLK, OEH, PAAS, PDII, PEET, PYX, PL, PSA, QSII, SAFT, SLXP, SBAC, SGMS, SIMG, SINA, FIRE, SM, SXE, SRP, SYNA, TWLL, TELK, TX, TSRA, TBL, TRLG, URI, USTR, UEIC, UHCO, VSAT, WLT, WCG, WPTE, UBET

Friday:

Before: ASX, AFR, BRNC, BW, CSAR, EOG, FCN, HERO, ZEUS, PG, TTI, THI, TNP, WY, WLSC

After: TS

Economic Reports and Events This Week

Monday, July 30, 2007
10:30a.m. July Dallas Fed Mfg Production Index. Previous: 14.0.

Tuesday, July 31, 2007
7:45a.m. ICSC Chain Store Sales.
8:30a.m. June Personal Income. Previous: +0.4%.
8:30a.m. June Personal Spending. Previous: +0.5%.
8:30a.m. 2Q Employment Cost Index. Previous: +0.8%.
8:55a.m. Redbook Retail Sales Index For July 28.
9:45a.m. July Chicago PMI. Previous: 60.2.
10:00a.m. June Construction Spending. Previous: +0.9%.
10:00a.m. July Conference Board Consumer Confidence. Previous: 103.9.
5:00p.m. ABC/Wash Post Consumer Confidence.

Wednesday, August 1, 2007
7:30a.m. July Challenger Layoffs. Previous: -21.6%.
10:00a.m. June Pending Home Sales. Previous: -3.5%.
10:00a.m. July ISM Manufacturing Business Index. Previous: 56.0.
10:30a.m Crude Inventories5:00p.m. Truck Sales

Thursday, August 2, 2007
8:30a.m. Initial Jobless Claims. 10:00 a.m. DJ-BTMU Business Barometer.
10:00a.m. June Factory Orders. Previous: -0/5%.

Friday, August 3, 2007
8:30a.m. July Nonfarm Payrolls. Previous: +132K.
8:30a.m. July Unemployment Rate. Previous: +4.5%.
8:30a.m. Hourly Earnings
10:00a.m. July ISM Non-Manufacturing Business Index. Previous: 60.7.

Risk Control Cheat Sheet

Question: Toni, how do I manage my risk and keep myself in the game the longest? I am never certain how many shares I should take on a trade.

Answer: That's a VERY important question! A lot of traders I run into on a daily basis haven't the foggiest clue on how to manage their risk. Many take the same number of shares or contracts no matter what the security is or how far away their stop is and other take a stop with a security moves against them a certain amount, no matter what the setup or what the support or resistance levels are that will affect the security's movement.

Ideally stops should be placed under price support levels for longs (over resistance for shorts) and share or contract size should be adjusted so that each time a stop is roughly about the same amount. I do change it a bit now based upon the odds of a position, risking more on higher quality setups and in certain market conditions and less in more risky situations, but this should be avoided to begin with until the trader has a very firm grasp upon their style and abilities to judge market conditions and setups accurately.

To help you with knowing just how many shares are appropriate in a stock, I've included a sample of a risk control cheat sheet. I tend to round my share size to the 50 share level... such as 50, 100, 150, 200, 250, 300, 250, etc, etc... but when beginning I'd keep them as little as 10 share increments for the first few weeks of trading to establish a rudimentary system before increasing risk. Just keep in mind that if you trade odd lots (meaning not in 100 share increments) that it is NOT first come, first serve on the order books and it will be more difficult to get fills.



To submit your own question for me, just submit it via the comment feature or email me at toni at tradingfrommainstreet dot com.

All my best,
Toni

Wall Street Experiences its Worst Session of 2007

Good day! So, that train I was talking about earlier this week? Well, it turns out that the vehicle stalled on the tracks was a full tankard truck of explosive materials and it created a bit of a chain reaction... Yikes! The indices gapped down sharply again on Thursday, continuing to display underlying weakness. As on Tuesday, the Nasdaq made a strong effort to close that gap and managed to do so within the first 45 minutes of trading, while the S&P 500 and Dow Jones Industrial Average remained weaker, holding their 5 and 15 minute 20 simple moving averages as resistance.

The continued selling in the market didn't begin right away. Instead the intraday momentum needed to turn over a bit more. It did so between 10:30 and 11:00 ET by hugging the lower intraday trend channel and moving only slightly higher on declining volume. When the 11:00 ET correction period hit the bottom dropped out. Volume increased sharply as the market fell quickly to new intraday lows.



The market found exhaustion and support around 10:30 ET and rounded off a bit in order to form two small waves of upside on the 1 minute time frame heading back into the 5 minute 20 sma. As you may recall from previous my ramblings, correction moves often take the form two waves, whereas larger trend moves are more likely to take three. The second wave of buying hit highs at the 12:00 ET reversal period and the market again turned lower.

The second selloff was similar to the first and stalled just after 12:30 ET. It also experienced a similar correction, pulling up twice on the 1 minute and again into the 5 minute 20 sma resistance before rolling over a final time around 13:15 ET for a third wave of downside into the early afternoon. The volume at this time was dramatically higher than average and even though the market exhausted at about 14:30 ET, it put in a slightly lower low at about 14:50 ET to create a small 2B setup on the 2-5 minute charts.



This third wave of selling on the 5 and 15 minute charts took the market smack into that 50 day sma we were targeting on the daily charts. The S&P 500 had already surpassed our 100 day sma target within its mid-day decline when it stalled at it, yet still broke through. The Nasdaq support, however, was hitting at the same time as the zone of the previous daily lows in the Dow and this combination of the daily support with the intraday trend exhaustion was enough to have me finally feeling that the worst of the selling at least was over intraday.



At one point during the day the Dow Jones Industrial Average ($DJI) was down nearly 450 points, but by the closing bell it had bounced back a decent amount compared to the larger decline and ended up losing 311.50 points (-2.3%) to close at 13,472.57. Alcoa Inc. (AA) alone fell 7.1%, while Exxon Mobil Corp. (XOM) lost 4.9%. Citicorp. Inc. (C) also fell a bit harder than the overall index to lose 2.8% on the session.

By the end of the day the S&P 500 had also lost 2.3%, or 35.43 points in this case. It ended the day at 1,482. The Nasdaq Composite experienced the greatest reversal into the close, taking back a huge chunk of its intraday losses to close down 48.8 points at 2,599. This was a large improvement over its session lows of 2563.8. Apple Inc. (AAPL) helped out a bit with gains of 6.4% after announcing a 73% profit increase on its Macintosh brand computers.

The volume in the market during this massive decline reached 2.8 billion shares on the NYSE and about 3.5 billion on the Nasdaq.

After a strongly trend week like this into these daily support levels, I am expecting to do more pivot type of trading on Friday while folks ponder just how wise it is to hold their battered positions into the weekend. This will more easily create trading range activity, although volume is likely to remain a bit heavy despite it being a Friday.

Trades 3 & 4

Very quickly, here are the other two stock daytrades I had today. Both were short on range breakdowns...

http://www.tradingfrommainstreet.com/images/trades/trades20070726b.gif

Trades from today's daily watch list:

Trades from today's daily watch list:

OMTR and CMI long....

http://www.tradingfrommainstreet.com/images/trades/trades20070726.gif

Good Daily Charts for Upside Cont. Intraday

The following stocks have favorable daily charts for cont. upside intraday today.

WFR, CMI, BG, OI, BDC, NOC, HSC, GVA, AAPL. SYMC, BIDU, CELG, VDSI, OMTR, CCMP, SCRX, FSTR

Volatile Day in the Markets Leaves Mild Recuperation

Good day! It was quite a crazy session on Wednesday after Tuesday's massive selloff left investors and traders alike wondering just which door to run to. The indices did manage to recover some of Tuesday's losses as we expected, but it was not at all easy, and the S&P 500 and Dow Jones Ind. Average even managed to establish lower intraday lows. This took place after the indices moved higher in the premarket and opened into the 15 minute 200 simple moving average zone intraday, as well as price resistance from Tuesday's morning lows. With an extreme gap now in play, the odds were strong that the gap would attempt to fill. Some initial hesitation for the first 30 minutes of the session led to a better test of the 15 minute 20 sma zone, but volume declined on this slight upside move and the market turned around quickly into 10:00 ET on the heels of June's existing home sales data.

Last month the real estate market experienced a sharp drop in the sales of existing homes. The 3.8% decline marks the lowest sales pace in nearly 5 years as more and more home sellers are pulling their listings. Even with this decline, the supply of homes on the market remains at a 15-year high with 8.8 months' worth of sales (or 16 months and a price reduction of 18% if you want to just count how long my completely renovated home in southern Florida has been listed! Ugh!). Countrywide Financial Corp. (CFC), which is the nation's largest mortgage lender, and who reported a 33% drop in quarterly profits on Tuesday, fell another 1.6% on Wednesday.

All in all though, home prices are still out of reach for many would-be home owners, and unfortunately I am in complete agreement with many who feel that this slump is still quite a ways away from the bottom. I would not be at all surprised to still be stuck here for the next year given the massive overdevelopment of new homes in my area and the insane deals these developers are making in a feeble attempt to unload their inventory. New home sales data for June is due out on Thursday. If by chance anyone would love to live in a gorgeous courtyard home in a well-established gated community, 10 minutes from the beach, feel free to give me a call! Preferably sooner than later since hurricane season is about to start! With the addition of two new family members this past year, ages 4 and 8, I REALLY need a larger house!!! Thanks in advance! =)



Ok, ok, since I still haven't quite convinced you, I suppose I better get back to telling you about the rest of the market action on Wednesday...

Once that 10:00 ET selling hit, there was no turning back until the market had made its way back into Tuesday's lows. The major indices didn't even stall enough at 5 minute 20 sma support to form more than a cursory continuation pattern with an inside range bar and then a return of the bulls at 10:15 ET. The momentum increase somewhat as the previous lows approached and finally formed an exhaustion move as the 10:45 ET reversal period hit. This corresponded nicely to the previous day's lows in the Nasdaq Composite, but was a slightly lower low in the Dow and S&Ps. The result was a 2B reversal in those indices and a double bottom in the Nasdaq which eventually took the market back to the 15 minute 20 sma resistance that had held earlier in the session.



After heavy volume throughout the morning, the volume finally died down a bit mid-day. After hitting the 15 minute 20 sma, the momentum within the indices also began to turn back over. The market pulled back off the resistance into noon and then hit the 15 minute 20 sma again around 12:30 ET, but this time at a much more gradual pace than before. This upside into the resistance occurred on the lightest volume of the session so far, which indicated a lack of truly dedicated buyers and after a small pullback into 13:00 ET, the selling increased for a second time on the day going into 13:30 ET.

As in the morning, this low held the previous one in the Nasdaq Composite, but the Dow once again saw a slightly lower low, creating a second 2B low in that index. The slight flush into this low, but on lesser volume than into 10:45 ET, showed us that while the bears were still unsure about buying, they recognized the support and were hesitant to break it. After a brief pause when they contemplated the level, the market popped quickly back to the 5 minute 20 sma resistance zone. This pushed the indices into a sloppy range along that level into the 14:00 ET correction period, at which point the resistance broke and took the indices back into the 15 minute 20 sma for the third time.

Typically a third test of support or resistance is the one most likely to break. The market had not broken the third test of lows because in the Dow each low was slightly lower than the last, hence creating more of a rounded appearance. Each test of lows was also at a more gradual pace than before, leaving less momentum to push through the support. As a result, in this case the third test held. On the upside, however, the resistance became closer and closer each time, so the market had less and less work to do to make it into that level and the slowing downside momentum meant that more steam was available for the bulls. The indices broke through this 15 minute 20 sma resistance when the 15:00 ET correction period hit. This happened after it hugged it for about half an hour beginning just before 14:30 ET with lighter volume throughout that congestion.

The indices rallied sharply out of 15:00 ET and within only a few minutes they were all the way back into the congestion from the opening prices. This stalled the buyers, but the pace was so strong that it was difficult for the market to simply turn back around. Instead, the 5 minute 20 sma support held into the close, even though this close still left the market looking weaker on the 5 minute charts by hugging that 5 minute 20 sma instead of bouncing right back off it.



Although I had a slew of stocks on my watch list which gapped strongly into the open on Wednesday, many of the gaps were too extreme for decent momentum continuation moves and they spent the day stuck in choppy trading. On the upside these included CB, PLT, AMZN, EGLE, and PRAI. Chubb Corp. (CB) gapped on earnings that were up 19% from the previous year, adding 6% by the end of the day. In Plantronic Inc. (PLT) its rally was another earnings move in which it gained 11.3%. Amazon.com (AMZN) made headlines when it reported earnings that more than tripled in the second quarter and sent the stock higher by 24.4% into the closing bell. Eagle Bulk Shipping Inc. (EGLE) rallied 15.4%, all of it with the morning gap, when it announced plans to acquire a fleet of ships from a Greek company. PRA International (PRAI), on the other hand, saw its 7.8% rally resulting from plans to be taken private.

On the downside the extreme gaps which saw little action past the open were SKX, PNRA, NTRI, and JOYG. Sketchers USA Inc. (SKX) shares fell 21.4% after announcing a 27% increase in operating expenses with its earning release. Panera Bread Co. (PNRA) also fell victim to rising costs. In the past year, even though revenue rose 28%, costs increased 33%. Another stock tumbling on earnings news was NutriSystem Inc. (NTRI), which fell 10.8%. Ironically, it actually beat earnings expectations of about 85 cents a share with earnings per share of 96 cents. Joy Global Inc. (JOYG) lost 11.9% when it cuts its fiscal 2007 financial forecast.

In the overall market, the Dow Jones Industrial Average ($DJI) gained 68 points to end the day at 13,785 on Wednesday. It was led by Boeing (BA), which had rallied 3.3% into the open on better-than-expected earnings. The S&P 500 ($SPX) rose 7.05 points, closing at 1,518. The Nasdaq Composite ($COMPX) climbed 8.31 points. It closed at 2,648.

Despite the somewhat higher prices on Wednesday, the Dow and Nasdaq still have room before hitting the larger 50 day simple moving average support. In the S&P 500 the next major support level is the 100 day sma, which is slightly above June's lows. The market still has room to bounce to its 60 minute 20 sma resistance, but the larger daily support remains a magnet for decent potential to hit still at some point this week.

Importance of Utilizing Time Frames

A very important thing to look at when determining whether or not to take a setup or not is to look at it from several points of view. In the market these are called Time Frames. The ones that are the most pertinent to you will depend on your objective as a trader. For instance, let's say you are a swingtrader. Your primary focus is going to be to look for patterns on the daily charts for buying or shorting opportunities. Once you have a list of stocks that caught your eye, however, it is usually so many that you then need additional means for trimming down that list. One of the ways to do so it to look at those symbols on several other time frames.

For a swingtrader for instance, it is helpful to look at a weekly chart. This will show you where your pattern is at in the larger trend. If you have a bull flag on the daily, but on the weekly you can see that the stock is coming into very strong resistance, such as an equal move from the last weekly breakout, then the odds for success on your swingtrade are going to be lower. This is because, with the weekly so extended, you are nearing the probable end of that swing upwards on the weekly chart and more likely to start to see reversal patterns begin to form. Now let's say you still have a pretty decent list to choose from. Most of your daily charts still had room to move on the weekly as well.

What you want to look at next are the smaller intraday time frames. For a swingtrade, these will be the 15, 30 and 60 minute charts. What you want to watch for are smaller buy patterns on these time frames as well that can lead into a trigger on the daily chart. If you have a bull flag on the daily, look on a 30 minute chart for a base along the highs of the trend channel in the bull flag. As that base breaks, you can use that as your entry trigger, instead of having to wait for the daily breakout, which might not occur until the pace and volume in the market have already picked up and are moving strongly higher. If that is the case at the time of your entry, the odds of you getting in near a short term top are much higher. What this does is make it easier to mess up your trade by getting scared out of the position on a rather significant intraday pullback well past your entry point.

If you are a daytrader only, the weekly charts won't matter as much to you. Even if a stock is at weekly resistance, you can still get a nice upside move intraday. On the other hand, the smaller intraday charts like a 5 minute or even a 2 minute will matter. They will be like the 15-60 minute charts for the swingtrader. You can use these smaller charts to help time your entries.

The same can be done with exits. As a stock is coming into a target level and you want to look to get the most out of it without having to hold through any more pullbacks, you can use the patterns and action on the smaller intraday charts to help you time an exit. This is where the multiple time frames really come into play: as a way to manage and reduce risk, as well as increase your reward potential.

You want to be very careful, however, to pay attention to the time frame you took the pattern on. If you took a daily bull flag, you don't want to use a 15 minute chart halfway to your target for anything other than assistance on trailing stops. Just because you see resistance on a 15 minute chart doesn't mean that the daily rally is over with. More likely, it will just lead to a temporary correction before moving higher again. Too many traders drop down to smaller time frames and start trying to micromanage the trades when they are in play. What this will most often do is just get them out at temporary resistance levels, diminishing their risk:reward potential and keeping them from reaching their targets or objectives.

Chatroom Guidelines

Hey gang,

Folks have asked to have a list describing the general guidelines to the chatroom that I moderate. As such, I have put together a list and posted it here for easy access.

The login link is as follows: http://www.tradingfrommainstreet.com/roomsetup.html. You can also use http://www.icechat.net/ to access the room for free without the mIRC registration.

The room will remain completely free, but to keep it from getting too crazy and out of control and to be a place where everyone feels welcome and comfortable participating. So, please observe the following...

1) Clean family-style fun only… i.e. no cursing (or mock cursing), excessive/undeserved trouting (deserved trouting still approved)

2) Everyone knows how difficult trading can be at times, so let’s keep all posts positive and encouraging… discussing difficult issues with trading is encouraged, but avoid unconstructive complaining

3) Only post stocks and setups which are similar to those you see posted by Toni (mwah). This way even newbies will be able to catch on easier to the style traded here.

4) If watching a security for a trade, post the symbol ahead of time when possible, as well as buy/short and the general type of trade, i.e. breakout, 2t, etc. There will be times we will post missed setups though in order to expand our familiarity with certain patterns and learn from them.

5) For stocks which fit the criteria of the room’s style of trading, you are welcome to post these in purple to make it easier to follow the setups and pick them out from the rest of the chat dialogue. You can do this by typing for example “/me watching XYZ.” (without the quotations), which will post “watching XYZ.” in purple as an action. I will use similar commands on the setups I am watching as well.

See you there!
Toni

Indecision Gives Way to Massive Selloff

Good day! Tuesday was quite similar to watching a train wreck where you see the stalled vehicle on the crossing, but no one is able to control the outcome. The day started on a sour note for the bulls, giving way to the Nasdaq's rounded highs and bearish bias in that index. The indices slid lower throughout the wee hours of the morning, gaining momentum as the opening bell approached. The NQ, which is the Nasdaq 100 Emini futures contract, opened lower by 14.50 points. The ES (S&P 500 EMini) opened lower by 9.75 points. The YM (mini-sized Dow) lost 86 points by the time it opened. In the indices themselves, The Nasdaq Composite ($COMPX) lost 25.40 points (-0.95%) by 9:45 ET, the S&P 500 ($SPX) had fallen 14.25 points (-0.9%), and the Dow Jones Ind. Average ($DJI) was already down by 121.6 points (-0.87%).

As I've discussed in the past, when the market has an extreme gap, it tends to try to close that gap in the morning and into the early afternoon. The two main exceptions are when there was already another similar gap the day before or when the market is at a major turning point. Due to the large daily resistance with the Dow 14k and all of the extended weekly and monthly charts, it is quite possible that the latter exception was the case on Tuesday. As such, I was not as aggressive on buying the gap right away this time around.



The indices immediately showed greater difficulty in attempting to fill that gap by falling into a trading range for the first hour of the day. This range did develop a bullish bias into 10:30 ET when the market began to hug the upper end of the range on declining volume. This created an upside breakout, but it lacked volume confirmation and the momentum was not sustainable. When the 11:00 ET reversal period hit at about the Nasdaq's 15 minute 200 simple moving average resistance, the indices rounded off at highs and pulled back into noon.

Strong price support hit in the indices when they retested the zone of the morning congestion, but they did not bounce right away. Instead the market slowed, congested a few minutes and rounded off at the support on the 1 minute time frame before pulling higher again. The Nasdaq was displaying the best relative strength by this point by closing a greater percentage of the morning gap and retracing off the highs by a lesser degree. The Dow and S&Ps, on the other hand, had almost returned to the morning lows on this pullback.



When the market bounced, it was much easier for the Nasdaq to establish new intraday highs, whereas the Dow and S&Ps ran into resistance from its previous highs at 12:30 ET. The Nasdaq strength surpassed the others to the extent that it even managed to completely close the morning gap with a move equal to its first intraday rally, but that price resistance hit right at the same time as the 5 and 15 minute 200 simple moving averages. In the Dow the 5 minute 200 sma and 15 minute 20 sma hit at the same time. and the S&Ps also ran into their own 15 minute 20 sma. All of these levels hitting at once halted this second upside move dead in its tracks.

Seeing the slowness of the Dow and S&Ps and general lack of decent intraday buy setups, I became very hesitant to buy anything into the afternoon. There was still the potential that the market would hug the 15 minute 20 sma and then break higher, although the trend placement was certainly not ideal for it. When that resistance had hit, I immediately favored the bears. The indices were back to the lower trend channel intraday by 13:30 ET. They then based there along the support with almost no price reaction, confirming the odds for a breakdown into the afternoon.



Once the 15 minute trend channel support did give way the indices barely cast a backward glance. All the typical support levels like 5 minute equal move, previous lows and moving averages stalled the moves, but we never got any decent 5 minute bear flag or base for the best types of continuation patterns. Instead they stalled only slightly at each support and soon continued lower. This selloff remained in play all the way into the last 15 minutes of the day when the market stalled again at daily price and moving average support.

By the end of the day, the Dow had lost 226.47 points (-1.6%), the S&P 500 lost 30.53 points (-2%), and the Nasdaq Composite fell 50.72 points (-1.9%). While the indices are now a bit extended on the downside intraday, it's now going to be difficult for the market to break to new highs without at least falling into a larger daily trading range. That would require a very rapid bounce on Wednesday. Moves like this usually do retrace somewhat the next day, although they can continue a bit into the open. I would expect the overall correction to any of this selling to be a lot more gradual overall than the selling itself though. The 30 and 60 minute 20 simple moving averages are the main resistance levels I would watch for.

Famous Quotes

I always love a good quote, so here are some of my favorites:

I don't measure a man's success by how high he climbs but how high he bounces when he hits bottom. -George S. Patton

In order to succeed, your desire for success should be greater than your fear of failure. -Bill Cosby

A man may fall many times, but he won't be a failure until he says that someone pushed him. -Elmer G. Letterman.

If you believe you can, you probably can. If you believe you won't, you most assuredly won't. Belief is the ignition switch that gets you off the launching pad. -Denis Waitley

Each morning when I open my eyes I say to myself: I, not events, have the power to make me happy or unhappy today. I can choose which it shall be. Yesterday is dead, tomorrow hasn't arrived yet. I have just one day, today, and I'm going to be happy in it. -Groucho Marx

There are no great people in this world, only great challenges which ordinary people rise to meet. -William Frederick Halsy, Jr.

Someone's sitting in the shade today because someone planted a tree a long time ago. -Warren Buffett

The tragedy of life doesn't lie in not reaching your goal. The tragedy lies in having no goal to reach. -Benjamin Mays

Many of life's failures are people who did not realize how close they were to success when they gave up. -Thomas A.

Indecision Permeates Monday's Trading

Good day! The market was all over the place as we kicked off the new week. Mondays can often be a bit more hesitant and this time around there was again a very discernible difference in market strength. The Dow Jones Industrial Average ($DJI) rallied from the start with a modest upside gap into the open. The intraday trend was ugly, but the Dow managed to add 92.34 points (+0.7%) to close at 13,943 with 22 out of 30 securities advancing on the session. In the Dow Jones Composite ($DJC), AMR Corp (AMR) (+1.96), Merck (MRK) (+3.31), Procter & Gamble Co (PG) (+1.19), and Exxon Mobil Corp. (XOM) (+1.50) were among the top leaders. Conway Inc. (CNW) (-2.02) and Hunt JB Trans Svcs. Inc. (JBHT) (-0.87) were two of the top percentage losers.

The S&P 500 and Nasdaq Composite did not fair quite as well. The S&P 500 ($SPX) added 7.47 points (+0.5%), but the Nasdaq Composite ($COMPX) only managed to tack on 2.98 points (+0.1%). A number of stocks moved strongly on the day on merger and acquisition news. The biggest of these was news from Transocean Inc. (RIG) and GlobalSantaFe Corp. (GSP) that they were now planning to merge. Additionally, United Rentals Inc. (URI) announced their buyout by Cerberus and Hewlett-Packard Co. (HPQ) is purchasing Opsware Inc. (OPSW), which makes automation software. A larger mover was Tellabs Inc. (TLAB) (+3.0%), gapping and moving higher by as much as 15% into the open when it became known that it was a potential target for a buyout by Nokia Siemens Networks. It was unable to hold most of those gains, however, and sold off steadily throughout the session.



Even though I found a couple of really nice setups intraday on Monday, I also found it very difficult to stay motivated and mainly ended up flipping through what I considered to be garbage as I was scanning for intraday setups. The indices themselves split right away out of the open with the Nasdaq opening into Friday's afternoon highs and the S&P 500 opening right at its 15 minute 200 simple moving average resistance. The Nasdaq reacted very sharply to this resistance and closed the gap within only about 15 minutes. It then based into 10:00 ET and fell back into Friday's late day lows. The S&Ps did pull back a bit as well, but didn't even come close to closing its gap, instead hitting support at the 5 minute 20 sma at the same time as the Nasdaq was finding support. The Dow was stronger though, and it held the zone of its first 15 minute lows even when it retested those lows at about 10:10 ET.

One of the strongest trends intraday in the market began when the market reacted to this mid-morning support. After a small 15 minute bounce, congestion set in. When this broke, however, out of 10:45 ET, the momentum increased a great deal. The Nasdaq had managed to move all the way back to its morning highs about 10 minutes later and the Dow and S&Ps were breaking to new intraday highs. The resistance then hit at the 11:00 ET reversal period and the volume, which had not been particularly strong to begin with, declined steadily into mid-day.



Over noon on Monday the volume was back to levels similar to Thursday's mid-session trading and a similar market reaction resulted. The indices rounded off a the highs with more gradual upside and more rapid downside within the range before it finally broke lower out of the 13:00 ET correction period. A second wave of selling on the 5 minute time frame followed into 14:00 ET that dropped both the S&Ps and Nasdaq back into zone of the morning lows. The Dow hit support at the same time at its 5 and 15 minute 200 sma zone and the indices were able to establish a pivot that led to a retest of the highs in the Dow. The market turned back around once again despite the attempt at stronger upside momentum and another two waves of selling took the indices back into the previous 5 minute support at lows before the closing bell.



I don't have a strong intraday bias into Tuesday. My intraday strategy is going to depend a great deal upon what happens into the open. A larger market correction would have been better off had the indices, particularly the Dow, not pulled up quite as much intraday on Monday. Right now we have a trading range in play on the 60 minute time frame, but it lacks a strong breakout bias. The S&Ps and Dow are looking a bit more bullish thanks to the narrow intraday range along the 60 minute 20 sma, but the Nasdaq more bearish on that time frame due to the rounded highs.

Subprime Woes and Lukewarm Earnings Give Way to Selling

Good day! The market had a rough session on Friday. The weakness we were watching for heading into the open was strong enough that the indices were quickly trading under Thursday's lows. The inability to show any strength out of the open when these previous lows hit soon led to panic. By the 9:45 ET reversal period the market was breaking the opening lows and gaining momentum on the downside. This wiped out any chance the market had at making new highs on the last daily upside move. This selling continued to gain pace until the Dow Jones Ind. Ave. ($DJI) hit its 15 minute 200 simple moving average. The Dow, as well as the Nasdaq Composite and S&P 500 all came into congestion from Wednesday on this drop and it stalled the decline temporarily.



Unlike the previous several days of trading, the market reacted very little to the support levels throughout the entire morning on Friday. They barely retraced in terms of price and instead just fell into sideways congestion. At about 10:00 ET the selling resumed, but it was a bit early for a decent 5 minute breakdown, so the 10:45 ET correction period held and pushed the market into a longer congestion zone until about 11:15 ET when the 5 minute 20 sma zone held and led to another larger breakdown. This second move within the congestion itself allowed the market to gear up for a more decent decline. This type two-wave correction or congestion is actually what I like to look for to lead to some of the best continuation moves.



The second move on the 15 minute charts continued steadily lower throughout the morning and into 12:00 ET, which is a huge correction time when the market has been in a trend all morning. This decline came up a bit short in terms of the 15 minute 200 sma in the Nasdaq. In order to turn around into the afternoon the market increased its pace on a bounce into the 5 minute 20 sma at 12:30 ET and then had another decline and flush on somewhat lighter volume than on the 12:00 move going into 13:00 ET. This led to a better test of the 15 minute 200 sma in the Nasdaq and a test of the 20 and 50 day simple moving averages in the Dow. It resulted in a nice 2B type of setup whereby the indices established a very slightly lower low to create a trap type of double bottom.

Since the move into 13:00 ET was not a lot slower than the first drop into 12:00 ET, however, the afternoon bounce was a choppier one with more overlap from bar to bar on the 15 minute time frame, even though the overall pace was similar on that time frame as compared to the second morning decline. This similar momentum meant that the start of that previous drop would serve as strong resistance. It hit right at the end of a three-wave uptrend move on the 1-5 minute time frames. The smaller trend completion and the corresponding resistance served as a nice trigger for another reversal into the final 90 minutes of trading.



Friday ended with a loss of nearly 150 points in the Dow, about 19 points in the S&P 500 ($SPX), and just over 32 points in the Nasdaq Composite ($COMPX). Weighing heavily in the minds of many market players lately has been the plethora of negative news surrounding subprime mortgages. Citigroup (C) joined the fray on Friday when it warned that it could be stuck holding leveraged loans for corporate buyouts when it failed to sell debt to investors on four separate occasions last quarter, which means that it has taken a hit in revenues as a result. Shares of Citigroup (C) fell 0.8% on Friday despite a positive open. Meanwhile, Bank of America (BAC) fell 1.9%, J.P. Morgan (JPM) slid another 2.2%, and Wachovia Bank (WB), which beat earnings estimates, dropped a whopping 3.2%. Other financial-related stocks, such as Merrill Lynch & Co (MER) (-3.2%) and Goldman Sachs Group (GS) (-2.7%) also were very hard-hit and topped the NYSE losers list on Friday.

Another stock to take a big hit on Friday was Caterpillar Inc. (CAT). It opened with a very extreme downside gap of nearly 6.8% after announcing a 21% decline in profits. The gap was so steep that it opened into the 50 day simple moving average and price support from congestion a few weeks earlier. The reaction to this support was enough that CAT recouped some of its losses to end -4.3% off Thursday's close.

Google Inc. (GOOG) experienced a similar loss when it opened on Friday. It posted a quarterly growth in profits of 28%, but this came in short of Wall Street's expectations and it also opened with an extreme downside move of nearly 6.7%, which was smack into its own 50 day sma and congestion from June's mid-month prices. It also pulled up a bit intraday off the support though, and ended the session down 5.2% off Thursday's close.

For anyone heading to Europe from the States any time soon, the bad news continues... As I talked about earlier in the week, the dollar again fell to new record lows against the euro on Friday. As of 9:30 pm ET, Sunday, the euro is at about $1.38. Not all sectors succumbed to the larger market decline.

Hardware stocks, multimedia, and internet stocks managed to post gains overall. Gold, silver, and oil services were also able to at least hold up overall. The top NYSE gainers included SLB, FCX, WDC, WSM, COF, WFT, BA, GSF, KCI, and TPX. In the Nasdaq the gainers were AAPL (yet again!), SNDK (which did give in to selling after a sharp upside open), ISRG, APOL, OMCL, and NWRE (which shot higher into positive territory in the afternoon), ATMI, FOXH, and one of my favorites in recent months: RVBD.

I am expecting this coming week to have more of these choppy days of trading but with an overall downside bias. The 50 day simple moving averages in the Dow and Nasdaq are my target zones on this correction, although the Nasdaq will have to increase its downside momentum quite a bit to make it back into that support level which was last hit in late June.

Earnings July 23-27, 2007

Monday: Before: ACI, ASTE, BOH, CRNT, CNH, DSPG, EEFT, GNTX, HAL, HAS, JRN, LEE, MRK, PETS, PVTB, RPM, SGP, SIFY, TASR, TOMO, WFT; After: ALTR, AXP, AMLN, ATHR, BRO, CTHR, CVTI, CR, DGII, EW, EFX, RE, FWRD, HPC, HXL, INTL, JDAS, LNCR, MSPD, NFLX, PTV, PRE, PCL, PLXT, SLG, STLD, TXN, TNB, UCTT, VLTR, BER, WCN, WGOV, ZRAN

Tuesday: Before: ABY, AKS, AXE, T, AVY, BIIB, BJS, BOW, BNI, CP, CDWC, CNC, CRDN, CHKP, CME, CMCO, CBH, CPO, CFC, CYNO, DPZ, DD, ECL, LLY, ENR, ESV, SSP, FMER, GOL, HHS, IEX, JEC, JBLU, KELYA, KMB, LH, LM, LXK, LMT, MCD, MHP, MDU, MICC, MWRK, EDU, NOC, OXY, OMC, BTU, PNR, PEP, PCP, DGX, RVSN, RYN, ROH, SAIA, SII, SWK, STFC, SVU, TLAB, TSS, X, UAUA, UIS, USAP, UPS, USG, WDR, WAT, WSO, WU, WTNY, XTO, ZL; During: EMC, SNV; After: RNT, ACE, AFL, ALB, AMZN, ACAP, AMIS, AMSG, ANAD, ANGO, AJG, BXP, BTUI, BWLD, BOB, CHRW, BCR, CLMS, CACS, CRI, CSCD, CEC, CTX, CENX, CERN, CAKE, CB, CGNX, EXBD, CSGS, DFG, DBTK, DDR, EGLT, EGP, WIRE, WPIQ, EZPW, FIS, FR, HOKU, IBKC, ILMN, JLL, LRCX, LDIS, LLTC, MANH, MEOH, MRH, NETL, NTRI, ORLY, OMI, PNRA, PFWD, PLT, PTP, PRAA, RDN, RFMD, RHI, RKT, SEAB, SIAL, SKX, STM, SUPX, TCO, VRTX, VOCS, WBSN, XL, ZHNE

Wednesday: Before: AMG, APD, ALXN, ALGN, ATI, ABK, ABI, ACAT, ABFS, ARW, ASH, ASPM, ATMI, BA, CACH, CSL, CRA, CHIC, CPS, CBR, CXG, CL, COP, CVG, GLW, CFR, DADE, DOV, ECA, EPIC, ETH, FNF, FLIR, FCX, GD, GLS, GENZ, HES, HMC, IHP, JAKK, KEM, KMT, KRC, LII, LIFC, LPX, MPX, MDP, MNC, NBR, NOV, NYT, NSC, NCX, NYB, PCAR, PMTC, PAS, PFCB, PLUG, PRAI, PX, RAI, ROK, RES, S, SEE, SEIC, SLAB, SNA, SNWL, SPNC, STN, STE, SY, TIN, MDCO, TRAD, TRB, XPRSA, WLP, XEL, XRX, ZBRA; During: BUD; After: ACXM, AEA, AEIS, ADVC, AFFX, ARG, AKAM, ACL, ACLI, AGP, AAPL, AMCC, ARBA, ARRS, ASIA, BIDU, BOL, BDN, CBT, COG, CDNS, CLDN, CRUS, CVGI, CLB, CSGP, CVD, CVA, DSCM, ETFC, EQIX, ESRX, FFIV, FIC, FADV, FISV, FRK, FMC, FORM, GDI, ROCK, GGG, GRP, GSIC, GSIG, HLIT, BLUD, IRBT, KEX, LFL, LOOP, LSI, LMNX, MTSN, MDC, WFR, MCRL, MCRI, MTSC, MUR, NARA, NEWP, NHWK, NMSS, NUVA, OMTR, OSG, OI, PCTI, PHRM, PLXS, PSSI, PSYS, PHM, QCOM, STR, RARE, RESP, RNOW, RIMG, RYL, SANM, SCRX, SCSS, SMTL, SFG, STNR, SYMC, SMBI, SMMX, TEX, TSCO, TZOO, TQNT, TGI, TYL, VARI, WSTL, WLL, ZMH

Thursday: Before: MMM, ACPW, AET, AAI, ALK, ACV, ALEX, ALY, AHM, ABC, ANDW, APA, ASN, ARQL, ARTG, ABG, AZN, AGIX, AUO, ALV, AN, AVX, BLL, BLDP, BKUNA, BZH, BDX, BDC, BHE, BDK, BBI, BWA, BMY, BC, BBW, BG, CCMP, CRR, CRS, POS, CDI, CELG, CEN, CKP, CTEC, CCE, CMCSA, CNMD, CNX, CMI, DLX, DO, DTG, DDE, DOW, DHI, DEP, ELNK, ELON, ELN, EME, EPD, EQT, EVVV, EXC, FSS, FSNM, F, BEN, RAIL, GPN, GGL, GR, GHL, HAE, HCR, HW, HTV, HSIC, HTZ, HOLX, ICLR, ICON, ICTG, IFLO, IKAN, IKN, IMCL, INCY, IFS, IR, IDC, ICE, ESI, JNS, JNY, KTO, KSU, KEI, K, KSWS, KLIC, FSTR, LLL, LVLT, LTM, LECO, LKQX, LYO, MGLN, HZO, MATR, MBI, MEDE, MESA, MLNM, MKSI, MNRO, MOG.A, MPS, MYL, NCC, NCI, NWL, GAS, NIHD, JNC, ODP, ODFL, ORI, OFIX, OSTK, PMTI, PCCC, PENN, PCZ, PNW, POT, PCH, POZN, PDS, PLD, QLTI, RHD, RDWR, RKF, RTN, FRZ, REDF, RGC, RBC, COL, RCKY, RCL, SFUN, SO, SPAR, SPR, STRA, SU, SYNT, SYPR, TSM, TE, TDY, TEN, TRA, PNX, TMO, TSCM, TWTI, TOC, TDW, TRV, UTEK, LCC, UST, VDSI, VIGN, WAB, WEN, WHQ, WLSC, WRLD, WPL, XMSR, ZOLL; During: EGN, MEH, NFX; After: TW, ABAX, AMGN, APLX, AH, ARTC, ATW, AV, AVID, BEZ, BJRI, BFAM, BPL, BLDR, BLG, CALD, CSH, CHRT, CLF, CNET, COHU, COLM, CTV, CBSS, CPWR, CNXT, DVW, CW, CYMI, DECK, DRIV, DSCO, DTE, DRRX, BOOM, EMN, EQ, ESLR, EXM, FALC, FII, FLEX, FDRY, FRNT, GNSS, GNW, GGC, GMRK, HIG, HTGC, HITT, IUSA, IM, INSU, IDTI, ITMN, SWIM, XXIA, JJSF, KCP, KLAC, KOMG, LDSH, LNCE, LSCC, LWSN, LPNT, LAD, LNET, LAVA, MCS, MEE, MFE, MCK, MRN, MRCY, MMSI, MTH, MTD, MCHP, MSCC, MSTR, MTX, MOBE, MRT, NATI, NTY, NTGR, NTCT, NBIX, UWN, NXG, NGPS, NVDA, OLN, ORCC, PTC, PKI, PHTN, PXLW, PWER, PGI, QLGC, QDEL, RACK, RADS, RSYS, RSG, RVBD, ROP, SCUR, SIGI, SMI, SWIR, SIX, SSCC, PCU, STMP, SPF, STTS, SUPG, SPRT, SYNA, TNL, KNOT, THQI, TBL, TMWD, ULTI, UHS, VSEA, WOOF, VRSN, EICU, VLCM, WRI, WDC, YRCW

Friday: Before: ALE, AXL, BHI, BLC, BPO, CE, CVX, CCU, CCO, CEG, XOM, FO, GMST, HUB.B, IDXX, IGTE, ITT, KDN, KIM, LZ, MHS, SCG, SEPR, TROW, VECO, VVI, VVUS; After: BVN, CLS, EEP, POWI, SRCL, SPSX, TZIX

Economic Reports and Events Next Week

Monday, July 23, 2007

• 8:30a.m. Chicago Fed Natl Activity Index. Previous: -0.22.

Tuesday, July 24, 2007

• 7:45a.m. ICSC Chain Store Sales Index For July 21 Wk. Previous: +0.3%.
• 8:55a.m. Redbook Retail Sales Index For July 21 Wk. Previous: +0.4%.
• 10:00a.m. July Richmond Fed Manufacturing Index. Previous: 4.
• 5:00p.m. ABC/Wash Post Consumer Conf For July 22 Wk. Previous: -11.

Wednesday, July 25, 2007

• 7:00a.m. MBA Mortgage Refinancing Index. Previous: +4.9%%.
• 10:00a.m. June Existing Home Sales. Previous: -0.3%.
• 10:30a.m. Crude Inventories 7/20 2:00p.m. Beige Book. Thursday, July 26, 2007
• 8:30a.m. Initial Jobless Claims For July 21 Wk. Previous: -8K.
• 8:30a.m. June Durable Goods Orders. Previous: -2.4%.
• 10:00a.m. Conference Board June Help-Wanted Index. Previous: 27.
• 10:00a.m. June New Home Sales. Previous: -1.6%.
• 10:00a.m. DJ-BTMU Business Barometer. Previous: +1.1%.
• 11:00a.m. Kansas City Fed Mfg Index. Previous: -2.
• 12:00p.m. Chicago Fed Midwest Mfg Index. Previous: -0.2%.

Friday, July 27, 2007

• 8:30a.m. 2Q GDP, Advance. Previous: +0.8%.
• 8:30a.m. 2Q Chain Deflator-Adv.
• 10:00a.m. End-July Reuters/U Of Mich Sentiment Index. Previous: 92.4.

Using Indicators in Technical Analysis

Here is an excerpt from my chatroom regarding my use and thoughts on indicators in terms of trading and market analysis. The room is free for anyone who wishes to stop by and just chat and share ideas throughout the day. For instructions on logging in: http://www.tradingfrommainstreet.com/roomsetup.html Other platforms to access the room besides mIRC are http://pidgin.im/ and http://www.icechat.com/.

11:08: FWallet- I am afraid of going down that path of being a chartist and looking for patterns etc...cause there probably is one failed pattern for every successful one...but people tend to foget the failed ones and are willing to place all their eggs in one basket...
11:08: charlie- it is no doubt a lot of the indicators are great or people wouldnt not use them, but too many things confuses me
11:09: Toni- indicators are just based upon price movements and volume anyway... just learn those... then you dont need the indicators that try to read it for you
11:09: FWallet- it's really tough...a good trader will think in probabilities...but it takes a long time...the concept of pace reminds me of Time and sales...which I think is cool
11:09: Toni- essentially it is like reading time and sales.. but reading it on a chart
11:10: FWallet- yes yes...that why I love the concept...it not the tradition crap TA we are all used to
11:11: FWallet- Larry Williams once said that in 20 years of trading...he has yet to me a rich chartist
11:11: thiscoloradokid- I still like indicators for scans. A great one is finding a crossover of an sma10 on a stock's ATR. Sounds pretty chartists, but...
11:11: FWallet- I like the simplified TA...that to me is good and very useful
11:11: Toni- this 2B is going perfectly
11:11: opw- anything simplified suits me :)
11:12: Toni- well for price reversals, like a daily high reversal, the 10 crossing the 20 sma is a great indication of a base having gone long enough
11:12: FWallet- I think for scans indicator may be good...cause it keeps thing consistent...you can't flip through 500 stocks every 15 mins...
11:12: Toni- to allow for a strong breakdown like a drop off highs, then a base... basing until the 10/20 start to really converge
11:13: opw- T, that is exactly what I do with the 10/20 crossing
11:13: Toni- the actual crossover can take a bar or two later but the convergence is a good sign that it has rested long enough... that it wont as likely be a false breakdown trigger
11:13: opw- yes, quite often it crosses just before the breakout
11:13: Toni- yes, but within that base itself so there are practical aspects. also watch for slower upside towards the end of the base... so watch the pace within the base and dont rely just on the crossover... also watch for declining volume within the base
11:14: Toni-Avalanche: For more information on this setup, please see http://www.tradingfrommainstreet.com/techanalysis.html#4
11:15: Toni- those example dont have the crossover but that is the type of setup i mean... the example with the crossover though would have the base at the 20 sma then the 10 sma coming down to cross it. these are basing at the 10 sma

Dow Closes Over 14K

Good day! The market posted some strong gains once again on Thursday with a large gap higher into the open following a round of strong earnings and continued follow-through from the late day reversal on Wednesday when the market took off into the close after a great deal of weakness earlier in the session. Leading the rally based on earnings was IBM (IBM) after it reported its strongest quarterly performance since 2002. It gapped higher, continued to run for about 15 minute and then held a trading range for the remainder of the day. By the closing bell it had added 4.78 points and 4.3%. In other news, Juniper Networks, Inc. (JNPR) rose 3.33 points, or 12.5%, following an upgrade by Goldman Sachs from neutral to buy.

By sector, one of the top movers were metals and mining stocks. The index itself climbed 2.4% on the day. One of my favorites was Freeport-McMoran Copper & Gold (FCX). It had pulled back nicely into the 10 day simple moving average on Wednesday and then gapped up slightly on Thursday. After a small 15 minute rally it caught my eye when it fell into a range throughout most of the morning. It took off after hitting the 5 minute 20 sma at the 11:00 correction period and climbed throughout the remainder of the day.

Although the market had more than its fair share of upside breakouts, a number of stocks found themselves facing quite a bit of pressure. Alcoa Inc. (AA) fell sharply after an announcement by BHP Billiton PLC (BHP) that it is not longer considering Alcoa as an acquisition target. Qualcomm Inc. (QCOM) also took a hit when Broadcom Corp. (BRCM) and Verizon Wireless (VZ) announced a licensing agreement that will allow Verizon to sell mobile phones which contain a chip made by Qualcomm which was banned by the U.S. International Trade Commission last month. Verizon announced that as a result, it would cease efforts to overturn the ITC ban.

Other stocks which found themselves under water on Thursday were the financials, which continued to feel the strain of subprime woes. Standard & Poor again downgraded more than 400 mortgage-backed securities. Goldman Sachs Group Inc. (GS) fell 1.5%, Morgan Stanley (MS) dropped about 1.4%, and Merrill Lynch & Co. Inc. (MER) shed nearly 1%.

After the strong open, the market had a really difficult time establishing an intraday bias. The result was that even though the indices are still seeing a bit more upside, the range is essentially still in play on the 60 minute charts and our bias has continued to hold well. A great deal of divergence existed on Thursday between the indices themselves. The Nasdaq Composite held the greatest relative strength, forming a nice breakout setup coming out of 12:00 ET, but the Dow was favoring the bears throughout the mid-day when it failed to break higher with the Nasdaq at noon. The S&Ps leaned towards the Dow's bias.

In the end, all three indices had their way. The Nasdaq broke higher while the Dow and S&Ps still based with slower upside. Then at 2:00 ET the FOMC Minutes were released. The result was a sharp move lower, which broke the Dow and S&Ps out of their range. They fell sharply into the morning lows and the 5 minute 200 simple moving averages. The S&Ps found support at the morning lows, but the Dow moved slightly under those morning lows before it hit its own 5 minute 200 sma. In his release, Federal Reserve Chairman Ben Bernanke told member of the Senate Banking Committee that the pangs felt from foreclosures and delinquencies will "likely get worse before they get better."



After the minutes were released the indices switched roles. The Dow and S&Ps climbed into the close, but while the Nasdaq did pull up somewhat, it stalled shortly after 15:00 ET and fell sharply into the bell. Even with the struggle for upside though, the market still has room on the 60 minutes charts to continue to press the highs. They do look to head slightly lower into the open though, so given the added chop this week, I'll be focusing mainly on the news plays intraday for setups on Friday.

Trading From Home

It always amazes me just what a difference there can be trading from home vs. in an office environment or else a very structured home environment. As you know, it is currently summer vacation and I have a 4 year old and and 8 year old. Well, for the past month, they have been up in Iowa visiting family and such and while I had noticed a change in my trading at the start of summer vacation, it was much more pronounced today.

At the start of the summer I began to see one of my accounts go sideways and the others also saw slowing growth. It was not that I was not finding as many things, but rather constantly missing many of them or showing greater hesitation. After I got back from vacation though my trading began to fall back into place. I've been "in the zone" so to speak.

Yesterday, however, I picked up my kids and today, even though I still found a number of nice setups, I managed to only bank literally a couple of dollars after commissions. All day I felt distracted and not at all focused. After about an hour I began to notice a trend... every 10-15 minutes my 4-year old was coming in... just little things... "look at this" etc.

His timing was immaculate. I would find something I was watching to trade and he would pop in. I was quite surprised at just how much difference this made in my ability to place trades. I felt very much on the edge of my chair all day and finally just gave up. I let three completely textbook setups in VMI, INFY and FCX slip by. Even though I had the stocks up and ready to hit the button, FCX was the only one I was even looking at when it actually triggered!

My day went much like this:

"Mommy, look what I got for you!"

I am then presented with a toothbrush.

"Do you like it?"

Of course I have to say how it's a very wonderful tooth brush.

He then stops and yells into the other room "Grandma, can I give mom a toothbrush?"

She replies, "I don't care."

He looks at me and states very matter-of-factly, "That means yes."

"Now here he how you use it."

I am trying to watch a setup forming at this point.

"You are not looking, Mom! See... you use it like this."

I reply something about how wonderful a job he is doing as I'm trying to watch my screen. You see, by this point I had given up on trying to keep him out of the office and was trying to ignore him without him realizing I was not paying much attention since it was his first day back afterall...

"Mom, do you want to give it a try? Look at how shiny my teeth are!"

So I accepted the toothbrush, saying how I would try it out later and sent him off to play.

By the end of the day I had acquired not only a toothbrush, but also a stuffed teddy bear, a christmas tree ornament, a pen, a homemade telescope, 12 drawings, a cat hairbrush, a set of aviation wings and a book about dinosaurs.

So, for any of you thinking that you can be a stay-at-home parent and trade full-time with very young children... I must warn you... You are nuts!!! It is very difficult to stay in the right frame of mind for trading and still be the type of parent that your kids don't live in fear of! :) Granted, I was more lenient today than earlier in the summer simply because they have been gone so long.

Even with that more structured setting, however, whereby they could not distract me at all unless someone was bleeding in the first 2 hours of the trading day, it was still difficult since kids still have to be fed and will interupt with things that they feel are truly important. So, the lesson here is to be sure to take in the realities of how the environment you trade in can affect your ability to focus. It's something that a lot of us seem to overlook at times, or at least underestimate. I, for one, will tend to go so far as to screen all my calls during the day, letting most go to voicemail and checking them when things or slow or afterhours since even that can be quite distracting. I like the text-based chatroom I have over a voice-based one simply for that reason. I can talk and respond without it taking away from my trading as much. Anyway... just things to consider if you find yourself often frazzled during the day as well and can't quite pin down why!

Market Correction Gains Momentum

Good day! The market was pretty choppy throughout the entire day on Wednesday. The session began with a larger-than-average downside gap which opened at Tuesday's lows in the Nasdaq Composite ($COMPX) and under those lows in the Dow Jones Industrial Average ($DJI) and S&P 500 ($SPX). By the end of the day the indices had not moved far from those levels. The Dow lost 53.33 points, while the S&P 500 fell 3.2 points and the Nasdaq Composite shed 12.80 points. This was well off the worst levels of the day, however, when the Dow was down more than 140 points.



After the weak open the market attempted to pull higher initially, but the S&P 500 only managed to come within a few ticks of the previous day's close before turning over and making its way back to the intraday lows. I found very few setups in individual stocks that caught my eye early on, but found the indices themselves very methodical and easy to trade throughout the entire morning. There were a number of very nice pivots or reversals on the 1-5 minute time frame with strong follow through for those time frames no matter which direction the market was heading.



The momentum throughout the morning began to favor a bearish bias early on by pulling up more gradually from the lows of 10:15 ET on declining volume. Just before they hit the 5 minute 20 period simple moving average, the market stalled and broke to new intraday lows. Even though the Nasdaq was hit hard by Yahoo (YHOO) when they cut their earnings outlook for the year, the Nasdaq still tried to hold onto its recent daily gains.



Wednesday's gap and continued intraday weakness confirmed the rounded highs we have been following in the last couple of sessions and it allowed for an increase in the selling pressure. That pressure slowed when the market flushed out into price support from several days back. The momentum on the 15 minute decline was a sloppy one and not above average. When that downtrend channel broke around 12:45 ET, then the bulls began to raise their heads out of the sand again for a bit. Even though there was another decent correction off highs when the indices hit the 15 minute 20 sma, the pace increased sharply when the 15 minute 20 sma broke. This is confirming a larger trading range on the daily and 120 minute time frames. The range has room to continue into Thursday, but the larger daily time frame still appears to have more room to play around with at the highs.

Dow Hits 14,000

Good day! The market on Tuesday was one of those days where anything goes. There were a lot of stocks heading lower, a lot heading higher, and many just looking at each other confused and shrugging their shoulders. Despite the lack of strong bias, there were a number of really great setups on the day, particularly in the afternoon. Many well-known names made the gainers and losers lists, which is always a good sign for ample opportunities.

The top stocks to start the day were Novellus Sys. Inc. (NVLS), Sandisk Corp. (SNDK), and LAM Research Corp. (LRCX). The semiconductors as a whole had a stellar session. NVLS had beat second-quarter earnings and revenue and KLA-Tencor Corp. (KLAC) later soared when it announced early in the afternoon that bookings for the quarter rose by more than 2%. VSEA, LKQX, VCLK, FORM and GMKT were the other major Nasdaq players. Top stocks on the NYSE included AXP, ROH, CIB, DHR and LEA.



The indices climbed higher right out of the gate on Tuesday as earnings news drew the bulls back into the fray. All was not peachy, however, and some of the popular stocks lately, such as NYX and ICE were having a more difficult time holding up. When the Dow ($DJI) finally smacked into the 14,000 level, the bears were able to take the lead briefly and the market pulled back into the opening price zone. This price level hit at the same time as the S&P 500 and Nasdaq Composite hit the previous day's highs. Even though the drop was on the strong side in the S&Ps and Nasdaq, it was not extreme and the support level held well, corresponding to the 5 minute 20 period simple moving average and the 10:15 ET correction period.

The indices fell into a trading range on the 5 minute time frame throughout the remainder of the morning. Volume declined and the upside momentum slowed compared to the earlier selling. This created a bearish bias into noon. Market volume hit its lightest levels of the day as the 12:00 ET correction period approached. The S&P 500 was showing the weakest performance by hugging its 5 minute 200 sma, while the Dow and Nasdaq Composite each formed 5 minute Avalanche patterns as they hugged the 5 minute 20 sma within a larger Head & Shoulders pattern on the same time frame. When the moving average gave way it triggered a short which slid the indices lower mid-day.

The S&Ps experienced the greatest decline into the afternoon, breaking through the 5 minute 200 sma and 15 minute 20 sma. Within 30 minutes the S&Ps were back at previous 15 minute lows. At the same time as the S&Ps were finding support, the Dow and Nasdaq both had established equal moves on the 5 minute time frame as compared to the 11:00 decline and were retesting the 10:15 ET price support. The combination of support levels across the broader market created a mid-day pivot low that ended up holding throughout the remainder of the day, although this was barely the case in the Dow and S&Ps.

The momentum began to pick up almost immediately in the indices on the upside, but slowed with minor congestions into 13:30 ET at the 5 minute 20 sma resistance. When that resistance level broke, however, the bulls swiftly regained the lead. The Nasdaq gained the most strength and soon it, as well as the Dow, were making new highs. The S&Ps, which were under greater pressure throughout the mid-day, provided the resistance levels that would stall the rally in all three indices. This hit first at its 11:30 ET highs and then the S&Ps high of the day at about 14:30 ET, which completed three waves of buying and hence exhausted the afternoon uptrend. In the Nasdaq this level of resistance was also the 15 minute equal move (shown in blue).

By the end of the session the Dow Jones Industrial Average ($DJI) rose 20.57 points and closed at 13,971.55, a record closing high. The S&P 500 ($SPX) barely moved, losing 0.15 of a point to end the session at 1,549.37. The Nasdaq Composite ($COMPX) had the largest percentage gain, rising 15.68 points to close at 2,712.29.

Not a lot has really changed since yesterday. The indices are still trying to round off at highs, but still lacking any confirmation for a change in momentum to favor a breakdown. I do still favor a greater correction off the high zone this week, but I am going to still just stick to following the intraday action for guidance on short term trades. It will still be relatively easy for the market to give way to sharper intraday declines, such as those in the S&Ps on Tuesday and all three of the indices on Monday afternoon.

Market Creeps Higher, but Shows Exhaustion

Good day! The market opened a hair lower on Monday, showing pressure from the slow down of last week's rally and the hangover it has left in its wake. As I talked about yesterday, the momentum in the indices had begun to wane in Friday's session, but had yet to display any real advance of a bearish bias to correct from that move. The pressure continued to build throughout Monday morning and the indices fell into a choppy trading range in the first half hour of trading, but managed to break higher into the 10:15 ET correction period.

The volume on the 5 minute charts failed to increase with the breakout, indicating a growing concern amongst the bulls over just how long they could hold up without a decent correction on the larger intraday and possibly even daily time frames. I caught a bit of this move in the Dow, which greatly outpaced both the Nasdaq Composite and S&P 500 in the mid-morning ascent, but the increasing risk of rapid flushes as a result of the pace kept me focusing on scalps as opposed to longer intraday holds. This caution became even more important over noon when the pace on the upside slowed even more and began to hug support moving average support levels even as they pushed higher.



The Nasdaq was the first to give way. It broke lower on an Avalanche pattern on the 5 minute charts shortly after noon and pulled back in to the early morning congestion. The S&Ps joined in with a channel break at noon, whereby it also fell under its 5 minute 20 sma support. The Dow still logged a new high, pressing for that 14,000 level and nearly succeeding with a high of 13,989.11. When the Nasdaq and S&P hit their 5 minute 20 sma, however, at about 13:00 ET after climbing on declining volume, the Dow found itself also under a strain and the market fell quickly for several minutes. It ran into congestion when the Nasdaq and S&P hit the morning trading level again, but that soon gave way to a second decline into 14:00 ET. At this point the volume increased on the 5 minute charts as the indices hit support from Friday's session. The ES (S&P EMini) also came into moving average support from the 5 minute 200 sma intraday. All of these support levels hit at the exact same time as the pivotal 14:00 ET correction period and a nice correction was soon under way to trigger a nice buy in the indices.



Up to this point in the session, our expectations heading into the day held very well, beginning with the creeping move higher to the sharper 15 minute corrections off those highs. The rest of the day simply followed suit with a more gradual rally in response to the rapid afternoon decline. The decline was not extreme, however, so the indices did manage to retrace a good chunk of that afternoon selloff, even though it took longer to regain the ground lost than it did to loose it in the first place. The 15 minute 20 sma became the main resistance, much like the 5 minute 20 sma one had been at 13:00 ET. It held perfectly in both the S&P 500 as well as the Nasdaq Composite and the market fell as the closing bell approached, but stalled in the final 15 minutes of trading to hold the ES's 5 minute 200 sma a second time.



The Dow Jones Ind. Average added another 43.73 points by the closing bell and ended the session at 13,950. The S&P 500 and Nasdaq Composite, on the other hand, both posted losses. The S&P 500 fell 2.98 points to close at 1,549, while the Nasdaq lost 9.67 points and closed at 2,697. Declining issues beat out gainers by 11 to 5 on the NYSE and 19 to 10 on the Nasdaq.

In the Dow, 18 out of 30 of the stocks rose on the day. Verizon (VZ) led the pack with early morning gains on the heels of speculation of a takeover by Vodaphone Group (VOD). Vodaphone denied such an interest. Con-way Inc. (CNW), a major trucking company, also made headlines with an announcement on Monday to buy the privately held Contract Freighters Inc. for $750 million. In continuing the surge of buyout speculation, CNW is also considered to be a possible buyout target by DHL. It reports earnings on Wednesday. Dow components KO, INTC, and JNJ all report on Tuesday.

On Tuesday I'm pretty much up for anything. The markets are still showing exhaustion so it appears most likely that we'll continue to see more of a response to this resistance level, particularly since the volume is rather light. There is not enough of a change in momentum yet, however, to confirm the start of any larger pullback and higher highs this week are still quite plausible.

Market Rallies into Record Highs

Good day! The market had a really nice run while I was away! That "bit of strength coming in" turned out to be a wee bit more than just a "bit"! The indices broke higher out of the daily range early on in the day on Thursday after a nice momentum gap. Higher-than-anticipated sales numbers from retailers such as Wal-mart (WMT) and Costco Wholesale (COST) helped quite a bit with the upside. Thursday's gap itself had brought the market into previous highs, so that created some congestion out of the open, but that range was soon breaking to new highs in the latter half of the morning. The trend then continued throughout the remainder of the session, gaining momentum in the final 90 minutes of trading. This momentum continued somewhat into Friday morning for the first 15-20 minutes of the day.



Things did slow down a bit on Friday though after the opening action. The market had become very extended after putting in the strongest upside move of the entire month. The indices fell into a range just as it had the previous morning as volume declined into the 5 minute 20 simple moving average. This range narrowed as it approached that support level and the volume in the market hit its lightest level of the morning just before the indices again broke higher. The S&P 500 and Dow Jones Industrial Average led the move and moved on to record levels, but the Nasdaq, which had formed a lower level congestion, had a difficult time with the initial morning highs and this resistance held all three of the major indices in and led to a second correction coming out of the 10:45 ET correction period.

Market volume declined a great deal over noon on Friday. The second pullback in the market was much more significant than the first, allowing the indices to pull back into the 15 minute 20 simple moving average. When the 12:00 ET correction period hit it held perfectly, pulling up into the 5 min 20 sma with a marked change into momentum, albeit on just a very small intraday time frame. This change in momentum was confirmed, however, by a choppy base for the next 45 minutes of the day, eventually breaking higher around 13:15 ET . Although this breakout lacked the strength of the move into Thursday afternoon, it was nevertheless a steady one, holding the 5 minute 20 sma well into the final half hour of trading. The Dow and S&Ps did break that support in the final minutes of trading, but the Nasdaq spent the afternoon attempting to make up for the ground it had lost earlier in the day and closed within a few ticks of the day's highs.



By the end of the session on Friday, the Dow Jones Industrial Average ($DJI) had made a new record closing high at 13,907.25 (+45.52 points). It ended the week up by 1.8% and is rapidly coming into the 14,000 price resistance level. The S&P 500 ($SPX) gained 1.3% last week, adding 4.80 points on Friday to close at 1,552. This also marked a record closing high. The Nasdaq Composite ($COMPX) had the smallest percentage gain on Friday, but outpaced the S&Ps on the week with a gain of 1.4%. 5.27 points were added to the index on Friday and it closed at 2,707.

Financials such as Merrill Lynch & Co. (MER: +1.2%) and JP Morgan Chase and Co. (JPM: 1.0%) performed very well into the weekend despite a rather wicked start to the week. Nearly all of them jumped sharply on Thursday after turning around on Wednesday off lows and this momentum moved the sector higher into Friday as well.


There was a lot of talk hype week regarding the merger talks between Rio Tinto (RTP) and Alcan Inc. (AL), which it hoped to acquire. Alcoa Inc. (AA), which was viewed as a rival, announced on Thursday that it was withdrawing its bid and the stock rose 4.5% on Friday following the news.

Some other names which made substantial gains on Friday were AAPL, RIMM, PAYX, PDLI, GOOG, WFMI, and SIGM. The market can still creep higher on Monday as some additional follow-through on these gains, but with momentum slowing and several days of upside already under its belt, it's going to be more difficult to sustain the buying and some rapid pullbacks are now a risk on the 5 and 15 minute time frames.




Economic Reports and Events This Week:

Monday, July 16, 2007
8:30a.m. July NY Fed Manufacturing Index. Expected: 17.50. Previous: 25.75.

Tuesday, July 17, 2007
7:45a.m. ICSC Chain Store Sales.
8:30a.m. June PPI, Ex-Food & Energy. Expected: +0.2%. Previous: +0.2%.
8:30a.m. June Producer Price Index. Previous: +0.9%.
8:55a.m. Redbook Retail Sales Index. Previous: -1.3%.
9:00a.m. May Treasury International Capital Flows. Previous: $76.5B.
9:15a.m. June Capacity Utilization. Expected: 81.6%. Previous: 81.3%.
9:15a.m. June Industrial Production. Expected: +0.4%. Previous: Unch.
1:00p.m. July NAHB Housing Index. Previous: 28.
5:00p.m. ABC/Wash Post Consumer Confidence: Previous: -9.

Wednesday, July 18, 2007
8:30a.m. June Consumer Price Index. Expected: +0.1%. Previous: +0.7%.
8:30a.m. June CPI, Ex-Food & Energy. Expected: +0.2%. Previous: +0.1%.
8:30a.m. June Housing Starts. Previous: -0.1%.

Thursday, July 19, 2007
8:30a.m. Initial Jobless Claims. Expected: +4K. Previous: -12K. 10:00a.m. June Leading Economic Indicators. Expected: -0.1%. Previous: +0.3%.
10:00a.m. DJ-BTMU Business Barometer. Previous: -0.2%.
12:00p.m. July Philadelphia Fed Business Index. Expected: 10.0. Previous: 18.0.

Friday, July 20, 2007
There are no economic indicators scheduled for today.


Key Earnings This Week:

Monday: ETN, MAT, MERX, GWW, ADTN, INVX, NVLS, STLY, and UFPI

Tuesday: KO, JNJ, MER, STT, WFC, DTLK, INTC, PHHM, CHIP, YHOO.

Wednesday: ABT, MO, AMFI, BLK, JPM, KLIC, PFE, LUV, STJ, UTX, DOX, CTAS, CBST, EBAY, ISIL, JNPR, LOGI, MOGN, MGI, NE, NVEC, TER, and WM

Thursday: ALDN, AVCT, BAC, BBT, CAL, DJ, FCS, FHN, F, FCX, HON, IGT, IONA, OXPS, SPWR, WYE, AMD, BRCM, GOOG, MSFT, and SNDK

Friday: BSX, C, JRC, KCI, SLB, and WB

Thank you!!!

I just wanted to send out a thank you to everyone who made it to Denver yesterday for the Denver Trading Group meeting that I spoke at! I really enjoyed meeting everyone and particularly those of you who I was fortunate enough to get to know a bit better over lunch and dinner with Ron and the gang! Also, a special thanks to the Chicago Board of Trade, which, as of last week, is now the CME Group, Inc and particularly Barbara Schmidt-Bailey for inviting me to speak and sponsoring the event! I wish I could have stayed a few more days to take everyone up on the site-seeing invites, but I don't know that I could keep up!

I must say, in terms of what they say about folks in the Denver area being incredibly outdoorsy and into fitness activities must be true though, because I have never seen so many people in casts and slings and whatnot in a line at an airport before in my life as I saw of those getting on a flight leaving Denver! In fact, my seatmates respectively had managed to bust their hand open hacking wood and broke their toe rock climbing! Sheesh! Luckily, I made it out uninjured! =)

A few people have contacted me that they wanted to make it, but could not and have asked about getting a copy of the presentation. My tech guy, Vic, did record it for me so that we can put it out as a video, so if you would like more information on it I will be posting the link within the day under "Trader Education" on my website: http://www.tonihansen.com/trader-education.html

1-2-3 Pattern Examples

This post is follow-up to a pattern I posted awhile back. The link to the original post is http://www.tonihansen.com/blog/2007/06/1-2-3-continuation-pattern.html

these patterns are observed on KMGB from 6/4 thru 7/6: upward patterns occured 4 times, downward 3 times within this time frame.For the recent downward(short) starting on 7/2, support line is drawn at 24.50. If, on 7/9, KMGB breadowns the next support is 23.00 then 22.00 - Alex

Hey Alex,

KMGB has a lot of nice examples of this setup... I printed up the best one and have posted a chart of it below... It is text-book perfect! Thanks for the heads-up!

Forex and the Pattern Day Trader Rule

(Click on the quote to see the original post regarding the elimination of the uptick rule)

They are making progress :), now for the elimination of the pattern day-trader rule. It amazes me how they can require 25k minimum account balance to day-trade stocks but you can trade much more highly leveraged markets such as Futures and Forex with as little as $250? I thought the entire purpose for the pattern day-trader rule was to protect people from blowing out their entire savings? Didn't they impose that law after many "traders" shot up daytrading boutiques? I wonder who they are really trying to protect???? Just my 2 cents. Glad to see that they reversed the uptick rule. Good post! - Dave

I have often thought the same thing! It makes no sense to me because I think that the easiest market to learn to trade is in securities, and yet that is now one of the most difficult for new traders to participate in! This ease is really made possible by how cheap commissions are on securities now! A new trader can pay just $1 in commissions and learn to trade by risking only $5/trade by just taking small lots until they catch on and work out a system that suits their personality. They do NOT need $30k to do this!!! (I say $30k to have padding so as to not slip under the $25k level as easily, which is the cut-off level to have a margin account for daytrading and most brokers will make you have it even if you trade cash only.)

They can also focus on very specific sets of criteria by focusing on things such as news and momentum driven stocks which are influenced to a lesser degree by the overall market, whereas if you wish to trade FX or futures you must have a much larger repetoire of patterns and a much greater understanding of overall market dynamics to be active enough to have any real success! Learning to trade options is then even more difficult and there is even more to know and understand trading them than just the straight securities! The only thing that I wish is that they would make taxes as easy to handle on stocks as on futures!

At any rate, I agree completely and it really hits a nerve when I see how pushy all these companies are when trying to get new traders into the FX market. Yes, I do think it's becoming a bit less... umm... questionable... since the liquidity is leading to greater transparency and the need for many firms to alter their business practices, but it is still not where I would recommend most traders begin.

Unfortunately, it has occurred to me that I am going to have to start addressing just these types of traders since that is exactly what the hot market is right now. While my style can be translated easily to the Forex market, the risk practices that are endorsed by that sector still leaves me feeling "dirty" by association so I haven't even put out any publications on how to apply my system to Forex yet since I am nervous about the implications that I could be considered to support such insanity.

If a trader understands the risk and doesn't go in it with the assumptions that all of that margin is a good thing and actually approaches it like they would any other market, then I am starting to have more confidence in where that marketplace is going, but I feel like the girl sitting next to the lake that is freezing over while others are out there testing the ice to see if it's really safe to skate on!

In the meantime... who do we need to pay off to get that pattern day trader rule revoked...

"Sleep Deprivation" Follow-up

Hey Toni, Great post... food for thought. The thing is, I know these exercises can help results, I often plan on doing them, yet I hardly ever use these visualisation techniques. At the start of the trading day I usually am to eager to enter and tend to see things that are not there (in hindsight). Around 11 I tend to be more relaxed and the succes rate goes up.So most of my bad trades happen during the first 45 minutes of trading. Ideally I should do the relaxation exercises before starting trading, however since I do have a job too, it is usually hard for me to take the time to do that. You might ask why I am still trading the opening hour: its because it's also the time I enter some of my best trades and the end result of trading the opening hours adds to the bottom-line. This sleep deprivation might just be the thing for me; it might give me the detachment that is needed and gives me 3 hours extra a day. So, from now on I will try sleeping only 4 hours a day... lets see what happens :) July 10, 2007 12:34 AM - opw

Hey Oscar!

LOL! I am not sure how Petra will appreciate the new schedule!

I had the same problem for the longest time on trading near the open... Yes, some of my largest winners were at this time, but at the same time, I was CONSTANTLY making mistakes! It was almost like I was TOO eager to trade!

I seemed to be more focused and "in the zone" by the afternoon, although I had to be careful to not get too frustrated from missing the great morning setups... That didn't really change overnight and I really don't know quite what it was that did change that issue, but I think a huge part of it came from me really sticking to ONLY trading SPECIFIC types of trades at the open, whereas before I would take a lot of types of setups. Now I MUST have a strong daily in my favor to enter any daytrades in securities near the open. Whenever I stray from that rule I tend to end up paying greatly for my mistake...

Market Bounces Back Tuesday, Dollar Remains Weak

Good day! Volume picked up very slightly overall as compared to Tuesday, primarily in the Dow Jones Ind. Average, as the indices attempted to retake the ground they had lost in the previous session. The market had sold off quite a bit after Moody's Investors Service downgraded nearly 400 subprime residential mortgage-backed securities and the Standard & Poor's dealt a sharp blow to more than 600 of them as well.

The weakness actually continued into Wednesday morning, gapping slightly lower and then selling off again into about 10:00 ET. The drop was enough that it created an equal move on the 15 minute charts as compared to the first breakdown on Tuesday afternoon to provide a nice exhaustion move. I was able to pick up the NQ (Nasdaq Emini) at 9:56 am ET at 1985 on the 5 minute 2B when the market came back into some premarket support as it completed the 15 minute decline. Notice that this also corresponded to daily moving average support on both the Nasdaq and Dow with the 10 day simple moving average. The reversal held well and these early morning lows proved to be the lows of the day, kicking off the retracement of Tuesday's selloff.

The market bounced back quickly after 10:00 ET despite my initial concerns heading into the day that this would not be the case. It did not take long to break through the lows of the first afternoon decline on Tuesday which were established at 14:00 ET. The sharp morning rally then stalled as the market came into the congestion that was a part of the correction from initial drop on Tuesday. It was also the Nasdaq Composite's 15 minute 20 simple moving average and the Dow Jones Industrial Average's 15 minute 200 sma. This stronger pace created the odds that, instead of seeing another downtrend day, the market would be more likely to fall into a range on the 30-60 minute charts.

I tested out a small short position on the NQ at that time due to the upside exhaustion going into the 10:15 ET reversal period, but didn't have much luck with it and ended up with a gain of only a few ticks. Instead of seeing much price correction, the index fell flat along the resistance. This was not too surprising given the momentum, but usually there will be some sort of price reaction off the resistance level, so it's not very high risk to attempt such a scalp given that often in the worst cases the market ends up with this type of sideways move.

I actually would have been a bit better off if I had gone with the S&Ps (ES) or Dow (YM) since both of those pulled back a somewhat greater percent in terms of price into the 10:45 ET reversal period. This was a bit of a mistake on my part since the Nasdaq was the index with the sharpest upside move, but it's what I was still watching the most closely since I had just closed it out on the earlier reversal. It had also hit the 15 minute 20 sma resistance exactly, so it was fairly simple to identify the resistance level.

The market began to climb again going into 11:00 ET, but it lacked the earlier enthusiasm. Trading became choppy with a lot of overlap from bar to bar on the 5 and 15 minute time frames and risk slowly increased while the volume dropped off. The "mid-day doldrums" had officially begun. I hate trading within those type of market conditions, so I was in and out of the office throughout the next several hours taking care of the fun clean-up from my recent plumbing fiasco... now known as "The Great Hansen House Flood." (I figured it needed an official name =).

The market continued to display an upside bias mid-day, but without any setups that stood out throughout most of that time. There was a small scalp on the 5 minute charts at 13:30 ET with a Phoenix that broke out the mid-day range, but the indices promptly hit resistance again and fell back into 14:00 ET. This correction continued with a second wave into the 15:00 ET reversal period, which then kicked off the final intraday pivot and the last decent setup of the day.

Although it didn't quite have the same momentum as the morning rally, the indices managed to steadily make their way back into the zone of the day's highs by the closing bell. The Dow Jones Industrial Average ($DJI) rose by 0.6% (76.17 points) on the day. The S&P 500 ($SPX) also added 0.6%, or 8.6 points. The Nasdaq Composite ($COMPX) came in close with a move of +0.5% (12.6 points).

Although Bear Stearns (BSC), Lehman Brothers (LEH), and Goldman Sachs (GS) still spent the day reeling from the previous session's losses, other financials managed to recover fairly well. JP Morgan Chase (JPM) rose 1.3%, while Citigroup (C) even closed above Tuesday's intraday highs with a gain of 0.8%. It was still about 20 cents shy of Monday's close though.

On the merger front on Tuesday, Alcan (AL) made headlines on an unconfirmed story that it has begun negotiations to merge with Rio Tinto PLC (RTP). Alcan had rejected an unsolicited offer of $27 billion by Alcoa (AA) earlier in the year, but while things seem to have taken a bit more of a serious turn recently with regard to RTP, its still up in the air. AL climbed 4% on Wednesday in the U.S. market and RTP rose 2.8%.

As a whole it still seems likely that the market is going to continue to try to correct off these levels on the monthly time frame. There's a bit of strength coming in that can push it to new highs over the next week or two if earnings go well, but the time it has taken to correct thus far from the earlier rally this year is not enough to typically sustain an upside breakout at this point, so my concern is that it would roll over quickly, much like it did on the early breakout attempt intraday around 13:30 ET on Wednesday.

In the currency market the dollar continued to slide against the pound after a sharp decline on Tuesday and is near an all-time low against the euro. Many believe that this will compel the Federal Reserve to begin cutting interest rates. Currently (11:00 pm ET) the euro stands at $1.3756. I would not be surprised if we continue to see more negative news on credit ratings and this is going to keep the pressure on the dollar, even though many key Fed officials keep saying that all is "just peachy". Due to the momentum on the euro's rise against the dollar, it is not likely to retrace easily. The euro is starting to become a bit extended on the 8-hour time frame, however, so I don't think it's the best buy at this time. The pace would actually have to slow and round off at highs on that time frame though for us to see any strong correction. Otherwise a range is more plausible.

News: I will be traveling this weekend for a presentation in Denver and as I result, I will not be publishing my daily column tomorrow. I will return on Monday though! Feel free to drop by if you are in the area!

Trading Picks Up as Market Corrects

Good day! The market had a bit of a tough day on Tuesday after hitting strong daily resistance at previous highs in the Dow Jones Industrial Average ($DJI) and S&P 500 ($SPX). By the end of the session the Dow had lost 148.27 points (-1.1%), while the S&P 500 fell 21.73 points (-1.4%). The Nasdaq Composite ($COMPX) dropped 30.86 points (-1.2%).

Broker/dealers were among the hardest hit on Tuesday, falling 2.9% as a whole. Lehman Brothers (LEH) lost 5%, Bear Stearns Companies Inc. (BSC) fell 4.1%, and Goldman Sachs Group Inc. (GS) lost 2.8%. All three of these had gapped somewhat lower into the open along with the rest of the market, but after falling into a trading range on the 15 minute charts they all trended steadily lower throughout the afternoon. Even though this sector was at resistance and underperforming the overall market in recent months, the fact that Wall Street's two largest credit rating agencies downgraded billions of dollars of subprime residential mortgage-backed securities was not particularly helpful.

The day really got off on a bad footing right away. The market gapped significantly lower into the open on Tuesday. In and of itself this is not necessarily an indication that the day as a whole will be a weak one. In fact, many such gaps will actually be followed by an upside trend day and nearly all of them will fill the gap in the morning and into the early afternoon. The main exceptions are when there was already an extreme gap the day before that had filled, particularly if there have been two days in a row, and when the market is at a major resistance level on the monthly time frame. The second one was the case on Tuesday, but I was still leaning towards at least the fill of the Nasdaq gap, which was the least extreme of the three indices.



In terms of equities there was not a lot on the radar out of the open since so many stocks had gapped lower, but had done so to a point that they were exhausted. With a daily pivot in play, however, it made buying the top gainers a lot higher risk than usual. This is where focusing on the futures is the way to go and after making the mistake of trying the YM (Dow) first and only making a few points, I quickly moved over to the NQ (Nasdaq) to focus on for upside.



The Dow and S&Ps barely got off the ground on Tuesday morning, but the Nasdaq rallied higher out of the 9:45 ET reversal period. Most of the gap had closed within about 30 minutes, hitting the 5 and 15 minute 20 simple moving average resistance at the 10:15 ET reversal period. After a less-than-ideal correction along that resistance into 10:45 ET the gap finally closed at about 11:15 ET and the upside momentum slowed as the 15 minute 20 sma remained strong resistance

When the 12:00 ET reversal period hit the bears began to show a desire to take over the lead. Federal Reserve Chairman Ben Bernanke spoke early in the afternoon, but the market wasn't sure at first what to make of it. With no real insight given on the central bank's interest rate plans, the bears finally took over and the momentum on the selling increased a great deal into 13:45 ET.



When the 14:00 ET reversal period hit the market took a bit of a reprieve. I had caught the NQ a few minutes earlier and the slight 2B on the 1 minute chart led to a decent bounce back into the 5 minute 20 sma resistance before the market again turned around off the highs and sold off into the close. My last trade in the futures ended up being the 14:35 pivot off the resistance. I should have held on a bit longer than I did though! The market ended the day in the zone of the intraday lows. This correction on the daily time frame still has plenty of room to continue this week, so I will be treating upside setups on just a daytrade/scalp basis at this time.

Market Edges Highs, but Trading Remains Light

Good day! Although the holiday week is behind us and we are heading into earnings season, volume remained light on Monday. This continues a string of slower than average Mondays in the overall market which was primarily range-bound throughout the session. By the end of the day the Dow Jones Industrial Average ($DJI) had risen 38.29 points. It was the leader in the relative strength department, but still only gained 0.3%. The S&P 500 ($SPX) climbed a mere 1.41 points. The Nasdaq Composite ($COMPX) also had only a slight gain with 3.51 points. Both of these were only an increase of about 0.1%.

I have a presentation coming up this weekend in Denver sponsored by the CBOT, so a lot of my trading since I returned from vacation has been focused on the EMinis in order to use them for examples. While I've done well, a focus on individual stocks would have served me better, since a lot of individual stocks on Monday really outperformed the market as a whole.

Leading the Dow on its steady journey were some of the most recognized names in the market. Alcoa Inc. (AA), which is always one of the first to announce earnings and which was due out after the closing bell, led the way with an increase of 1.7% (+$0.70) on Monday. Incidentally, it later reported that while net income fell 3.9% last quarter, revenue rose 3.4%. This was somewhat short of expectations and AA did end up moving lower by about 1% in afterhours trading.

Boeing Co. (BA) also moved strongly higher in Monday's session on news, but while AA climbed throughout the day, BA's gains came in the form of a strong upside gap smack into price resistance at the year's highs. BA had hit $101.45 just over a month ago and it retested that zone with a high shortly after the open of $101.32. It had been moving higher over the course of the past two weeks after a nice two-wave pullback off those earlier yearly highs. On Sunday the company then announced that it had orders for 35 of its new 787 Dreamliner commercial jet that made its debut on Monday. The first deliveries are slated for 2008 with the 787 seating between 210-150 passengers. One of the highlights is that it is anticipated to use up to 20% less fuel per passenger than other planes of a similar size.

The other top Dow movers were American Express Co. (AXP) at +1.5%, Caterpillar Inc. (CAT) at +1.3%, Intel Corp. (INTC) at +1.1%, Exxon Mobil Corp. (XOM) at +1.1%, and General Motors (GM) with a gain of +0.8%.

Johnson & Johnson (JNJ), another Dow component, rose 0.9% on news of a share repurchase program. While not in the Dow, ConocoPhillips (COP) also made headlines intraday when it surged at 2:30 ET on news that it planned to buy back up to $15 billion of its shares through the end of 2008. One attraction of these buybacks is that since they reduce the number of shares outstanding in a stock, they will tend to give per-share earnings a nice boost. Buybacks in the S&P 500 hit a record monetary level in the first quarter of this year of $117.1 billion. This is a 17.5% increase as compared to the same period last year.

Even though Nasdaq as a whole did not make many waves on Monday, some of the largest gainers in the overall market were not in the Dow, nor the S&P 500, but rather the Nasdaq. Among the strongest intraday movers were Taser Intl. Inc. (TASR), Amazon (AMZN), Sandisk Corp. (SNDK), Crocs Inc. (CROX), First Solar Inc. (FSLR), Isis Pharmaceuticals Inc (ISIS), JA Solar Hldgs (JASO), and my favorite stock of the year... Schnitzer Stl. Inds. (SCHN). Each of these had at least a very strong morning, and the majority had a very nice trend day on Monday.



Despite some really great moves in equities, the overall market was not terribly exciting. A slight gap higher was followed by a couple of small pivots back and forth in the first hour of trading. The Dow and S&Ps had ran into the previous highs, which we had been watching for resistance, and the rally from the previous afternoon served to exhaust the buying even though the market made a second attempt at highs into the 10:15 ET reversal period intraday after a somewhat faster drop out of 9:45 ET. Volume was lighter on the second bout of intraday buying on the 5 minute time frame though, and shortly after 10:30 ET the downside momentum increased, leading to new intraday lows and about a 50% retracement of the previous day's range in the Nasdaq and S&P 500.



The price retracement and support, combined with the Dow's 15 minute 20 sma support and an increase in volume exhausted the sellers into 10:45 ET. I picked up the NQ (Nasdaq EMini) at 2003.25 at 10:46 ET for a pivot trade. The momentum was also slowing and rounding off at lows in the Dow at the same time. I choose to buy the NQ first because it showed the greatest exhaustion. I added the YM (Mini-Dow) soon thereafter at 10:55 ET. I had to hold through a very slight flush of a few points, but the rounding off continued and the 11:00 ET reversal period held the Dow as it completed its closure of its morning gap and soon the three major indices were all heading higher.

The late morning bounce began quickly enough, moving nicely into the 5 minute 20 sma, but after taking back about half the earlier losses they ran into trouble. The daily charts were still very extended and the morning decline was simply too strong to sustain decent upside momentum on Monday. While I continued to favor the bulls, trading became very sloppy in the indices and it was necessary to just hold on and trust my bias since there were very few "pattern" setups throughout the remainder of the day. The uptrend channel on the 5 minute broke lower for about 30 minutes at 2:00 ET, but soon reversed back to the upside and was retesting the morning highs by the 3:00 ET reversal period. The sloppy action then returned for the final hour of trading with the 15 minute 20 sma serving as support.



Although we don't really have any reversal pattern triggering at this point on the larger intraday and daily time frames, the upside momentum has me concerned because the types of declines we experienced mid-morning on Monday are very common with this type of buying. It simply does not take much for the bears to grab hold. I am not going to be very aggressive on the short side just yet though, and will likely treat those setups that I do come across intraday more as daytrades than swings. Exceptions would be setups such as Panera Bread (PNRA) on 6/6 and Genzyme Corp. (GENZ) on 7/6. These types of gaps tend to have continued selling and are nice for swings when you catch them early on.

Sleep Deprivation and Rebooting Your Brain

As many of you who have known me for quite some time are aware, I tend to have bouts of insomnia. It is not so much that I cannot sleep, since when I actually do get to bed I am often out before I can so much count to 10. The problem is that I tend to simply not feel tired at night. I am very much a night owl, doing most of my work, my writing, and my reading in the wee hours of the morning. I also like to do my market research at this time.

Ironically, I have found that on nights where I get very little sleep, I often have some of my best trades the next day. It seems to create an emotional detachment of sorts whereby I do not end up overanalyzing and instead act more on my instincts, which after all these years tends to be correct more often than not. I think that when I first began trading this would have been devastating, but now it works in my favor...

For most traders, myself included, emotions play a huge roll in their success or failure. I'm often asked about different methods to try to work through emotional setbacks that a trader has. I honestly believe that many of the problems traders experience in terms of their emotions affecting their trading comes from a lack of confidence in their system and that with experience it becomes easier and easier to act and respond appropriately. The problem is that most traders simply don't keep the right types of journals that allow them to develop as a trader. Hence they never really develop a great system that fits their personality.

The more you understand the dynamics at play in the market and how patterns develop in the first place, the easier it becomes to follow it... easier still if you aren't too hyped up in the morning and are in a more relaxed frame of mind. Now I am certainly not endorsing getting 3-4 hours of sleep a night as a successful trading strategy! It was a bit of an unexpected side effect though that I felt was intriguing to note.

So, what are some of the healthier means of achieving this same state of mind? The most obvious is relaxation exercises. These include things like yoga and visualization techniques where you picture different trade scenarios in your mind and walk through the correct ways to handle them, much like a football trader would study different plays and the other teams strategies to give them a heads up before the big game.

Although I certainly support both of these and have practiced both on and off over the years, I admit that I am a bit lax and will go for weeks on end without doing either. I really admire those who are more diligent than I at these techniques.

One of the mini ways I achieve the same type of thing is to just make sure I get up and walk around throughout the day, making sure I am not stuck in my chair all day. It gives me a breather, refocuses my thoughts, and often I come back, flip through my charts and suddenly things just pop up. A lot of my greatest setups are found like this. I like to think of it a bit like a computer reboot... If you go for too long without restarting, your computer slows down. Merely rebooting it helps speed things up!

For those of you reading this, I'd like to encourage you to send me your comments about how you "reboot" and what works for you to help block out all those crazy irrational thoughts that can throw you off track!

Markets Creep Higher in Light Holiday Trading

Hey gang! I hope you had a good week last week despite the slower than average trading where each day the volume came in at a bit less than half of the average day from the previous week. Even with lighter than average volume, the session saw some major stand-outs. There has been a lot of excitement this week with buyouts, mergers, and rumors thereof creating some nice moves. Among the top names on Friday were CME, BOT, M, and TGT. The Chicago Mercantile Exchange Holdings (CME) raised its offer for the 3rd time for CBOT Holdings (BOT) to $11 billion. Macy's (M) shares also climbed in the session, moving higher by 5.6% on buyout rumors. Then there is Target (TGT). It's stock rose 6.1% on Friday over speculation that increased pressure by a major stock holder will lead the company to shed its credit card business.

In addition to the buyout news, gold and mining stocks also saw some nice moves. Newmont Mining Corp. (NEM) and Anglogold Ashanti Ltd. (AU) in particular performed extremely well. Other top movers were Raymond James Financial Inc. (RJF), American Capital Strategies (ACAS), Baidu (BIDU), Apollo Group (APOL), Infosys Tech. (INFY), and Cognizant Tech. Solutions (CTSH).

Not every sector and stock kept up with the overall market. Utilities, estate investment trusts, and biotechs all lost ground. Among the stocks which were hardest hit were Parametric Technology Corp. (PMTC) due to significant losses in licensing revenue, Genzyme Corp. (GENZ) thanks to poor trial results for its drug tolevamer, Healthway Inc. (HWAY) on news of a pilot program with the Medicare system, and Host Hotels & Resorts Inc. (HST) which gave up some of its previous day's extreme gains made in sympathy with the Hilton (HLT) buyout news.



After a strong intraday trend move into Thursday's close throughout the afternoon, the market was a little bit exhausted at the beginning of the trading day on Friday thanks to three small upside moves on the 5 minute charts. This small uptrend broke lower right away into the opening bell with a modest retracement in the first 15 minutes of the day. At the 9:45 ET reversal period the momentum slowed and the indices rounded off at support at the 15 minute 20 simple moving average intraday, price support from the previous session, and the Dow's 5 minute 200 sma. Small 2B patterns on the 1 minute charts soon turned things back around. As I mentioned in the morning commentary, the overall bias remained more on the bullish side and at 10:00 ET the bulls once again took the lead coming out of this minor reversal pattern.



Although the initial buying in the indices was rather strong, there was little change in volume as compared to the downside and once the market retook the previous day's highs the enthusiasm began to wane. A short base along the highs followed, while volume continued to decline. A third test of highs on the 1 minute time frame within this base led to a second wave of buying on the 5 minute charts, but the market barely even came into the equal move zone as compared to the first move higher before it began to correct once again.

On this second correction off higher following the 10:00 reversal, the market pulled into the 5 minute 20 sma support zone. Instead of bouncing back up into the highs as they had at 10:45 ET, the market instead just slid higher along the support on very light volume. This created a 5 minute Avalanche pattern which gave way to a nice scalp setups as a short out of noon.



Often corrections will come in two waves before a trend resumes but while this was true on Friday as well, the pivot off the second low was accompanied by a continuation of the light trading as well as lighter momentum. This opened the door for the potential of a 15 minute Avalanche, but the trend placement on the larger time frames suggested that the indices could very easily just creep higher off the 15 minute 20 simple moving average throughout most of the afternoon. This confirmed when the second small bounce off mid-day lows at 13:00 broke higher into 14:00 on slightly higher volume.

The main concern with this type of trend move is that it can reverse quickly if the trend just continues to climb with a great deal of overlap in prices from bar to bar on the 5 and 15 minute charts. In order to catch the move once it's underway a trader must enter on very minor corrections into the lower trend channel.

The best guess for a target on such an entry is just the upper end of the trend channel, although if the trend is fairly new there is of course the potential for more. If the security or index cannot seem to let go of the lower trend channel line, however, then watch out, since a breakdown is typically pending. This was the case on Friday going into the last 30 minutes of trading when the 15:30 ET reversal period hit and traders offset positions going into the weekend. Both the Dow and the S&Ps were back at their 15 minute 20 sma support within a mere 15 minutes of trading, taking back an hour's worth of gains in a matter of minutes.

The week ended with a gain of 1.8% in the Dow ($DJI), rising 45.84 points on Friday to end the day at 13,611.68. The S&P 500 ($SPX) rose 1.8% for the week, adding 5.04 points on Friday to close at 1,530.44. The Nasdaq Composite ($COMPX) had the largest weekly percentage gain of 2.4%, closing at 2,666.51 with a gain on Friday of 9.86 points.

Heading into Monday and the onset of earnings season, the market remains bullish. The highs from the middle of the month last month in the Dow and S&Ps will serve as resistance. Currently the momentum continues to cause added concern for sharp 15 minute corrections off the highs. Some of the major names with the potential to move the market this week on earnings include AA, GE, YUM, PBG, MAR, MTB and DNA.

Note: Charts provided by Townsend Analytics, Ltd.

Economic Reports and Events July 9-13, 2007

Monday, July 9, 2007
3:00p.m. May Consumer Credit. Previous: +$2.6B

Tuesday, July 10, 2007
7:45a.m. ICSC Chain Store Sales. Previous: +0.1%.
8:55a.m. Redbook Retail Sales Index. Previous: -1.1%.
10:00a.m. May Wholesale Trade. Previous: +0.3%.
5:00p.m. ABC/Wash Post Consumer Confidence: Previous: -7.

Wednesday, July 11, 2007
7:00a.m. MBA Refinancing Index. Previous: -2.6

Thursday, July 12, 2007
8:30a.m. Initial Jobless Claims. Previous: +2K.
8:30a.m. May Trade Deficit. Previous: $58.5B.
10:00a.m. DJ-BTMU Business Barometer. Previous: Unch. n/a Chain Store Sales.
2:00p.m. June Federal Budget Statement. Previous: -$67.7B.

Friday, July 13, 2007 8:30a.m.
June Import Prices. Previous: +0.9%.
8:30a.m. June Retail & Food Sales. Previous: +1.4%.
8:30a.m. June Retail & Food Sales, Ex-Autos. Previous: +1.3%.
10:00a.m. Mid-July Reuters/U Of Mich Sentiment Index. Previous: 85.3.
10:00a.m. May Business Inventories: Previous: +0.4%.

Key Earnings Next Week

Monday: NUHC, SCHN, AA, QMED, WDFC

Tuesday: AYI, CHTT, EMMS, ETP, GBX, HELE, ISCA, PBG, RAME, INFY, ZZ

Wednesday: AIR, ACGY, HITK, IGTE, WWW, CHAP, DNA, RECN, RT, YUM

Thursday: FAST, FLE, MTB, MAR, METH, PGR, TXI, BYI, CAMP, CTAS, CREL, EDIO, UWN

Friday: GE

Stock to Watch : GENZ for Continued Downside

Genzyme Corp. (GENZ) made headlines on Friday after a late-stage trial showed its drug tolevar (which was hoped to be a treatment for bacteria-induced diarrhea) was not any more effective than what is already in use for standard treatment. I'd been keeping an eye on GENZ for a few weeks now for a longer term short because it's already had a couple of tests of the lower end of a larger weekly and monthly descending triangle and this news now creates a third test and the most likely breaking point.

Uptick Rule Repealed

Just a reminder to all you short sellers.... Beginning today (Friday, July 6th)traders will NOW be able to short all securities on an up, down, or zero tick. This marks the end of that dreaded "uptick rule" whereby shorters could only short a position on an uptick. This meant that if a stock traded at $50 and you wanted to short it, then you would have to at $50.01 if it ticked higher or wait for it to trade under $50 at $49.99 for instance and then back to $50.

Of course, you still have to find shares available for shorting! So, in reality, it's possible this might make it a bit more difficult to short since it will remove some of the inhibitions many traders have about shorting in the first place... I guess we will just have to wait to see about that one...

For more info on eliminating the "Tick Test" which once required an uptick for shorting, go to http://www.sec.gov/news/press/2007/2007-114.htm

As a bit of background, the "tick test" rule, as it's called, was implemented in the 1930s following the market crash as a means of preventing market participants from singling out a particular security and driving down its price. At the time the market was not very transparent and not as efficient. The thought is that now, in addition to stronger regulation, average investors would not support such an attempt and that this concern is no longer valid.

Strong Divergence Coming Out of Holiday Trading

Hey gang! After a series of slow trading days, volume remained light on Thursday as market participants extended their holiday, but underneath it there was still quite a bit to take note of. Perhaps the most apparent was the action in hotels. This sector surged following the $26 billion deal Blackstone made for Hilton (HLT). It seems like all the major hotel stocks took off well before the open with monumental gains in HST, HOT, MAR, MGM, LHO and many more. Casinos and other investment property types of companies followed suit.

Despite the fact that most of the well-known hotel names are on the NYSE, it was the Nasdaq Composite that had the greatest relative strength. While the Dow Jones Industrial Average ($DJI) and S&P 500 ($SPX) fell for a few minutes out of the open, the Nasdaq not only held up very well, opening above Tuesday's highs, but it was soon making new highs on the year. The divergence became even more pronounced as the day progressed. The three indices fell into a trading range throughout the morning, but the range narrowed in the S&Ps the most, forming a triangle on the 5 minute time frame before breaking lower on a third test of the lows of the triangle at about 10:45 ET. Both the Dow and Nasdaq returned to morning lows at this time and found support at the 11:00 ET reversal period. This also corresponded to the 5 minute 200 sma and 15 minute 20 simple moving average in the Nasdaq.



The Nasdaq retraced nearly all of its prior decline out of 11:00 ET, but the S&Ps and Dow only managed to regain about 50% of the losses. This was followed by another triangle on the 5 minute time frame and second breakdown into the early afternoon which took the S&Ps and Dow to new intraday lows. The Nasdaq continued to hold up very well, however, and could not break the lows of the day which hit again at the same time as the S&Ps came into price support from last Monday and the Dow came into price support as well as its 5 minute 200 sma at 12:30 ET. This completed three waves of selling on 5 minute time frame in the S&Ps and made it highly probable that the market would experience a more significant correction off support into the afternoon as compared to the earlier ones which lasted only about 75 minutes each.



Even though the S&Ps and Dow got off to a slower start, all three of the major indices did a fine job of holding the mid-day lows. Volume continued to drop into the afternoon, however, which was a bit of a concern as the indices tested resistance on the 5 minute charts at about 13:30 ET. It remained light on the pullback off those highs though and the slower pace combined with the 5 minute 20 sma support led to a nice upside continuation out of the 14:00 ET reversal period. The momentum actually increased on the upside coming out of this setup, and while the volume did increase, it still remained lighter than average as the Nasdaq soared once more to new highs.



After putting in an equal move and then some as compared to the 12:30 ET rally, the market again hit a snag. The S&Ps ran into the middle of the range from the morning as price support and the 5 minute 200 sma resistance. The Dow stalled at the previous highs from the morning and the Nasdaq EMini came into the zone of price resistance at 2000 (with a high of 1999). I went ahead and shorted the YM at 14:54 ET off a 1 minute 2T since it had the strongest resistance. As those of you who read the blog earlier will note, I made a bit of an order entry mistake on my exit (whoops), but the pullback was decent, falling back to the 5 minute 20 sma before putting in a third and final 5 minute rally into the final 30 minutes of the day.

The Dow didn't quite manage to make back its earlier losses by the close. It fell 11.46 points (-0.1%) on Thursday to close at 13,565.84. The S&P 500 faired little better with a gain of a mere half a point, ending at 1,525.40. The Nasdaq ($COMPX) did pretty well though, gaining 11.70 points (+0.4%). Apple Inc. (AAPL) had a lot to do with it. It broke out sharply on Tuesday and continued with that momentum when trading resumed on Thursday.

Friday's trading is expected to again be light. The bias is still more on the bullish side, but not as strong as it was heading into Tuesday and Thursday. The three waves of buying on the 5 minute time frame will also make it easier to stall, so I'm not going into the day stuck on that mindset. Additionally, buying in a lot of stocks on Thursday was rather extreme and that type of momentum has a difficult time sustaining itself.

Note: Charting brought to you by Townsend Analytics, Ltd (http://www.realtick.com)

Silly Mistake

Today was one of those days where I didn't find a lot of setups, but I did find a couple really great ones such as TNE at 10:00 ET. Nevertheless, there was one really silly mistake I made which was annoying!

I was scalping the EMinis this afternoon and caught the YM short at 14:54 ET. I had been watching the 1 min 2T setup (type of double top) and I hit the bid price to get a fill at 13654. Since I was looking at it as just a scalp I went and was looking at 13645 for a target based upon the place it broke out from around 14:30 ET. I don't trade a lot of quick scalps like this so I often place my target order in ahead of time to just have the best chance of getting a fill. Since the indices were at a lot of resistance on the 15 minute charts I figured it would be an easy move.

Unfortunately, when I went to place the order at 13645 I had gone in to change the limit order to that price and hit 13655 instead! argh! They filled me immediately of course since the YM was trading at 13651 on the ask. The low before it popped a bit was 13644, so the only validation I had was that I had at least wanted the right price! (ok... so that really doesn't help, but hey...)

Granted, it could have been worse... It could have been trading at 13655 when I did it! Of course when I go and here that ding right away when I pushed the trasmit button I knew I had messed up and got that sort of "deer in the headlights" reaction until I realized what I had done... Another reminder to always double check your prices! In any case, here is the chart of the setup with where I had THOUGHT my exit order was placed at! :(

Speaking at the Denver Trading Group

I'm heading out of town next weekend to spend a few days in Denver where I'll be speaking on behalf of the Chicago Board of Trade for the Denver Trading Group.

It's on Sat., July 14th at the Radisson Hotel Denver Southeast (Jefferson Room).

It's located at 3200 South Parker Road, Aurora, CO. I speak from 9am-1pm mountain time.

The fee is a mere $25 for members of the DTG and $35 for non-members.

Topic: "Trading Made Simple... No Indicators Necessary"

Things I'll be covering:

· Learn the building blocks of pattern development without having to learn a single indicator.
· Develop an understanding of the ebb and flow of market moves.
· Why do some seemingly “perfect patterns”, such as flags or cups with handles fail while others work perfectly?

Hope to see some of you there!

Holiday Trading Slowdown

Hey gang! It was a slow first day back to trading for me after getting back from Iowa! I missed the first hour or so of the day playing catch-up. It seems like for every day one takes away from home and work, it then takes three days to make up for it! =) Most of the activity in the market on Monday took place before 10:00 ET. After flipping to move higher into the final 30 minutes of trading on Friday, the indices continued the momentum into Monday morning with a gap higher. The move stalled at some previous highs on the 15 minute charts before resuming to the upside out of the 9:45 ET correction period for a rapid 15 minute rally. June's ISM Manufacturing Business Index came out at that time, but had very little impact on market direction. The data came in a full point higher than the previous month, at 56.0%. This was 0.9% higher than expected and indicates the highest level of production since July of 2004. The report also suggested that core inflation is moderating, so it has increased speculation that the Fed will soon lower interest rates.

With little news generated from earnings results and earnings warnings, much of the momentum at present is from stock buyouts and mergers. On Monday the most notable of these was an agreement by AT&T (T) to buy Dobson Communications (DCEL) at $13/share. BCE Inc. (BCE) also received a strong boost when a group led by the Ontario Teachers Pension Plan reached an agreement to purchase it for $40.13/share. Manor Care Inc. (HCR), which has been a favorite stock of min in recent years, had a much more subdued reaction due to earlier hype back in April of a pending buyout and was nonplused by the official announcement for a buyout from a private-equity firm for about $6.3 billion. A huge drawback to merger and acquisition news is that once a price has been agreed upon, the takeover stock often has very little intraday price change and is not a great candidate at that point for daytrading. The best movers on this type of news are when the first waves of speculation hit, but before a price has been settled upon, and that was not the case with Monday's announcements.

After the market hit strong resistance from the highs of last week, trading slowed a great deal. The market fell into a narrow trading range and the volume dropped off to levels similar to last week's pre-Fed trading on Thursday with similar results. The momentum began to turn over somewhat as the afternoon progressed, and even though the market overall did not make any notable gains, a few select individual stocks managed to shine. EXC, CLF, NOV, DO and CMI were among the top NYSE performers, while BIDU, JASO, FWLT, and FSLR were some the strongest late day leaders in the Nasdaq Comp. RIMM, however, outshone these in terms of overall daily performance thanks to a strong morning move on the heels of Friday's stronger-than-expected Q1 fiscal results that had boosted the stock by more than 20% in that session alone.

The market closed on a positive note at the end of the day on Monday with all three indices winding down the session at the day's highs. The Dow Jones Industrial Average ($DJI) posted gains of 126.81 points, while the S&P 500 ($SPX) rose 16.08 points and the Nasdaq Composite ($COMPX) added 29.07 points. The closing action is most favorable for more upside on Tuesday, and the narrow range throughout most of the session on Monday leaves room for some greater swings intraday on Tuesday, but overall I expect trading to remain on the light side and that we will find relatively few momentum movers given that the holiday will also mean very little news to drive anything. Many of the traders I spoke with Monday afternoon expressed their intentions to not even show up to trade and to begin their 4th of July holiday a day early since the U.S. markets will be closed for trading on Wednesday.


Note: Charting brought to you by Townsend Analytics, Ltd (http://www.realtick.com)

Pics from Chicago

While up north, I took my kids to Chicago and the Field & History Museum. Lexie loves Egypt and mummies and Brandon is obsessed with dinosaurs, so it was an obvious choice! Here are a couple of our pics!

First Trade After My "Vacation"

Wow.... The last two weeks have just flown by! I got back home to a COMPLETE MESS! My pipes had ruptured and the house had flooded just hours before I had to leave FL to catch my plane to Iowa so after dragging a plumber over I had them repipe the house while I was gone and got home to everything covered in plaster dust, all the stuff out of the cupboards, and a mysteriously missing toilet tank lid of all things... Not to mention the mess from having cats left to their own wiles for that time!!!! UGH!!!!

So, of course to relax in between slowly making my way through the destruction, I popped in for some trading today... not that this was particularly exciting given that it's a holiday trading week! I did catch a nice little scalp though in MTW (Manitowoc, Inc.). It ended up being the only trade I took and doesn't even come close to covering the huge plumbing bill I now have, but at least it is a start!!!

I will be using this blog to not only post my daily market action report, but also to share with you some of my trades... the good, the bad, and the occassional ugly! MTW was a so-so trade. I had started watching it around 13:00 ET but it was after that little pop at that time, so I put it up in the corner of my screen to look for a secondary setup. I missed the trigger though by just a few minutes. $82.72 at 13:46 is where I SHOULD HAVE taken it, but wasn't looking at the chart at the time and forgot to set an alarm... drr... Then when I went to execute it I put $85.90 instead of $82.90 in my order and got a fill at $82.92... At least I didn't do that mistake in a stock with a huge spread!!!

So, anyway, it wasn't realy a great start, but I felt confident about the position overall and it was one of those that won't hurt you too badly for making mistakes, which is why I chose it as my first trade and had passed on a few others.

I put an exit order on the books at $83.45, expecting $83.50 to be the resistance to watch for, but the market overall was exhausting itself heading into the 14:00 ET correction period and since I was only wanting to take that first move on MTW to get a good trade under my belt, I went ahead and took my modest gains on MTW with an average exit price of $83.25.

I could have finessed the exit a bit more since my anxiousness at the market hitting resistance led me to not pause for just one more minute which is when it popped up another 10-15 cents. Since the market did stop at about the same time I got out though, I think this decision was not completely unjustified, since many stocks will in fact stall at the same time as the overall market, especially when it had been behaving in much the same manner as the market up to that point in the day, which was certainly the case in MTW....

A chart of MTW can be seen below. The chart is from Townsend Analytics, Ltd. (www.realtick.com):