Afterhours Trade : 2-Wave Buy

just 'cuz trading only during regular market hours would not make me enough of an addict.....

Trading the Wedge

Hey gang... I am gone for the holiday weekend, so enjoy the extended weekend and the lesson below and you'll hear from me again on Monday evening!

All my best,
Toni


Trading the Wedge

Description: This is a specific type of triangle that has a noticeable slant to it with higher highs and higher lows for an ascending or rising wedge or lower highs and lower lows for a descending or falling wedge. The characteristics detailed below apply to a rising wedge for a short setup, but can be easily reversed for a falling wedge buy setup. The wedge formation is typically a reversal pattern, meaning that the trend within the wedge itself will reverse when the trend breaks, although it can serve as a continuation pattern if the trend is new. For the purposes here, however, it will be discussed in terms of a reversal, with a rising wedge viewed in terms of a break lower and a falling wedge breaking higher.

Criteria: Uptrend with higher highs that break by a lesser degree than before, while the higher lows are still separated by greater differences in price, creating a triangle that slants higher when the upper and lower trend lines are drawn.

Entry: When the lower trend line breaks. Alternate entries are when the last uptrend within the wedge breaks lower or drop down to a smaller time frame and watch for a 2T or Avalanche and utilize those entry criteria.

Stop: Over the highs of the rising wedge, or over the highs of the base on an Avalanche formation if the wedge begins to hug the lower trend line after pulling off the highs before breaking lower.

Target: The target on the wedge depends on where it occurs in the larger trend. The main support levels in a rising wedge will be at each of the pivot lows within the wedge itself. When a downtrend is new and the rising wedge is a continuation pattern, then an equal move out of the wedge as compared to the drop into the wedge is the larger target.




Ideal 5 Tech Tools Traits:

Pace: Above average pace heading into the start of the wedge, followed by a slower trend for the wedge itself. In the case of a rising wedge this means a strong drop lower, followed by a slower rising wedge. Within the wedge itself it helps if the pace slows on the upside as the wedge nears completion. The best circumstance is when the security pulls strongly back into the lower trend channel from the wedge and then hugs that support just prior to breaking down out of the rising wedge. The reverse applies to a falling wedge.

Volume: The volume will ideally increase heading into the start of a rising wedge formation and then decline as the wedge progresses. If the wedge hugs the lower trend line from the move higher just before breaking, then that volume should be the lightest of the entire wedge.

Correction Periods: Higher changes for success when the highs of the wedge correspond to a correction period or the trigger for the wedge corresponds to a correction period.

Support/Resistance: In a rising wedge, it is good to have strong upside resistance, followed by a pullback to the lower trend line. The security then has higher odds for a strong follow through when it hugs that lower trend support just prior to breaking down. A lack of significant support, such as a previous low or congestion zone that would hit right away will also increase the odds for a successful move.

Trend Placement/Trend Development: A rising wedge is common in a downtrend as a correction within that larger bear move. It can also be located at highs as the last move up within a larger uptrend before a larger correction off highs takes place. A rising wedge is higher risk as a short setup when it occurs at the beginning of a new uptrend, since momentum can be building and any break lower at that point out of the rising wedge can easily be just a small base before the wedge then breaks to new highs.

Rising Wedge Examples

Example #1: Occidental Pet. Corp. (OXY) Rising Wedge – A Short Setup


© 2007 Chart provided by Townsend Analytics Ltd.

Pros on Rising Wedge in OXY:

1. OXY made only slightly higher highs, but significantly higher lows as it rose, creating a narrowing channel for the wedge formation.

2. After taking only 15 minutes to drop off the 10:30 ET highs, it then took three hours to return to that level.

3. The prices from the start of the 10:30 ET decline created a strong price resistance level.

4. Volume was the strongest at the start of the rising wedge and then declined throughout most of the upside move.

5. The rising wedge had three waves of upside within it, which is typical of an exhausted uptrend, making is easier for the stock to form a larger correction on a pullback following the third waves of buying that took place coming out of 13:00 ET.

6. The third move higher was much choppier than the prior two and began to hug the lower trend line and test it repeatedly while starting to avoid the upper end of the channel.

7. Volume increased as the wedge broke lower, providing confirmation to the setup.

Cons on Rising Wedge in OXY:

1. The move out of the rising wedge did not correspond directly to any correction period even though the 14:00 ET one was approaching.

2. OXY is a more volatile stock with a lot of overlap from bar to bar which created a somewhat larger stop since a trader could not drop down and short an Avalanche on a smaller time frame as the trigger to the wedge breakdown.

Example #2: ES Rising Wedge Pattern Intraday – A Short Setup


© 2007 Chart provided by Townsend Analytics Ltd.

Pros on 2 Minute Rising Wedge in the ES:

1. The large momentum heading into the wedge was on the downside. It then took 90 minutes to just regain the losses from the gap and immediate selling out of the open.

2. The rising wedge had three waves of buying in it, which is typical for a trend development, creating an exhausted trend before the wedge broke lower.

3. The volume decline throughout the rising wedge and did not increase at all coming out of the last pullback into 10:45 ET, indicating that despite the strong upside, there were not a lot of determined buyers present.

4. The second high in the wedge was only slightly higher than the first and the third high was comparable to the second, whereas each low was significantly higher than the last.

5. The final pivot high within the wedge took place heading into the 11:00 ET correction period.

6. As the wedge hugged the lower trend line leading into the second setup, the volume declined even further, despite the correction to the selling into 11:00.

7. The pace of the moves out of 11:00 and then along the lower trend line indicated a bearish bias since the upside was much weaker than the downside.

Cons on 2 Minute Rising Wedge in the ES:

1. The momentum within the wedge did not slow on the upside until the stock had already traded under the lower trend line, so those taking a trend line break as an entry would have had to have sat on the position for awhile before the stronger selling continued.

2. Volume did not increase much on the selling coming out of the wedge to provide strong confirmation for the breakdown.

Gaps to Watch

Here are gaps I am watching for continuation patterns in the direction of the gap into the open.

Up: SIGM, VIP, TIF, FCEL
Down: ACH, UBS, FRE, KG, CIEN, CWTR

Market Reverses Sharply on Light Volume

Good morning! The market was substantially stronger on Wednesday than I had been expecting heading into the session. While the volume had been light on Tuesday, suggesting that the market would have a difficult time breaking the previous lows, I was still looking for things to remain weaker ahead of the holiday weekend. Once the session began, however, very little weakness manifested itself.



The indices opened higher to begin the day and then fell into a slow decline with the 5 minute 20 sma serving as support before breaking higher out of 10:15 ET. The buying began slowly, but picked up a great deal into 11:00 ET when the first resistance since the open hit at the same time as the reversal period. This resistance was based upon the mid-day congestion from Tuesday. It was the lower end of the congestion in the Dow Jones Ind. Ave. and S&P 500 and the upper end of it in the Nasdaq Composite. A slower continuation took the Dow and S&Ps to the upper end of it just before noon.



The slowdown in the buying into noon created the only real bearish activity of the day. The market rounded off a bit and corrected off these highs into the early afternoon, falling slowly into the 15 minute 20 simple moving average support. The indices then began to hug the upper end of the descent from about 13:45-14:00 ET and when the 14:00 ET reversal period hit the bulls returned with greater conviction than seen throughout the morning's upside. Each of the waves of buying was brief, but 15-20 minute bases consistently led to breaks to new intraday highs throughout the afternoon and into the close.



By the end of the session all three of the major indices had closed the gap zone from the previous session. The Nasdaq closed the gap completely, while the Dow and S&Ps were very close. The Dow ($DJI) added 247.44 points on Wednesday (+1.9%). Top gainers included General Motors (GM) (+4.8%), Intel (INTC) (+4.7%), and Home Depot (HD) (+4.3%). The S&P 500 rose 31.40 points (+2.2%). The Nasdaq had the largest percentage gains of 2.5% (+62.52 points).

Among the top performers on Wednesday was Apple Inc. (AAPL) (+5.7%) after it raised Q1 earnings and revenue forecasts. Nokia Corp. (NOK) rallied with the launch of an iPhone and BlackBerry rival product. Compuware Corp. (CPWR) and Medicis Pharmaceutical Corp. (MRX) rose on buyback news. Additionally, Big Lots Inc. (BIG), Dycom Industries Inc. (DY), Dollar Tree Stores Inc. (DLTR), and Williams-Sonoma Inc. (WSM) leapt higher on earnings. On the downside, top losers were PDL BioPharma Inc. (PDLI) and The9 Limited (NCTY).

These light volume back and forth moves leave me with very little bias heading into Thursday since they are indicative of a trading range. As of now, the range is not favoring one end over the other, so I don't have a lot to go on to suggest what direction it will ultimately break. Instead it seems wise to mainly focus on daytrades the remainder of the week and watch the market intraday for the momentum plays.

Market Trips After 6-Day Rally

Good morning! After rolling over in Monday's session with the three indices each forming 60 minute short patterns, the selling accelerated into the next day. As I mentioned yesterday, the S&P 500 ($SPX) had fallen on Monday morning and then had a slightly lower high in the afternoon with a base along the intraday lows. It triggered a 60 minute short pattern shortly before the close. The Dow Jones Industrial Average ($DJI) and Nasdaq Composite ($COMPX) had also formed reversal patterns with double tops on the 60 minute charts. The significance was the slower momentum and volume into the second high as compared to the first highs which took place on Friday.



The initial follow-through on the 60 minute breakdowns came in the form of a rather large gap down in the overall market. Typically the extreme gaps such as this will attempt to fill in the morning, so while most of the daily setups I was seeing into the open were on the short side, I was leery to initiate much on the downside right away for fear that the indices would quickly reverse and fill the morning gap zone.

At 10:00 ET all hopes for the gap to fill were decimated by the release of the latest economic data. The consumer confidence reading for August fell from 111.9 in July to 105.0 in August, although this was still slightly above expectations. Also released was news on I/S/ home sales from the Standard & Poor. Sales prices fell 3.2% as compared to a year ago, making it the largest year-over-year decline in the 20-year history of the index. The selling did not resume right away at this point, but the market had hit support and instead of bouncing off that support, the data held down the market. This led to a low-level intraday base which was followed by a break to new lows into 10:45 ET. Volume had declined throughout the congestion and increased to confirm the breakdown once the support level gave way.



The morning breakdown continued steadily into lunch, sliding into 15 minute 200 simple moving average support in the Dow and Nasdaq. At this point the market again began to congest on lighter volume, hugging the support level into the afternoon. The 15 minute 20 sma served as resistance and it hit at approximately the 14:00 ET correction period. This also corresponded to Fed news with the release of the Aug. 7 minutes from the FOMC's policy-setting meeting. In it the Fed reiterated its focus on inflation. It is expected that the Fed will cut its fund rates by a quarter-point next month.



The afternoon combination of the low volume base at lows, the intraday resistance, the daily pivot and the Fed news kicked off a very strong continuation on the downside in the market. The indices broke lower out of the range and this selling continued into the close. There was a smaller base that began at about 14:45 ET, but the selling resumed at a faster clip again around 15:15 ET. The session ended within a few ticks of the day's lows. The Dow lost 280.28 points (-2.1%), the S&Ps fell 34.43 points (-2.3%), and the Nasdaq dropped a whopping 60.61 points (-2.4%). The financial sector was again one of the worst-hit after Merrill Lynch cut its rating on Lehman Brothers (LEH) (-6%), Bear Stearns (BSC) (-3.4%), and Citigroup (C) (-3.5%). All three were downgraded to neutral from buy. (Why on earth would anyone have wanted to buy any of these for investments in recent months? I have no idea! They are a wee bit late!)

While there is some support at the lows from the 17th and 20th, the door is now open to retesting price levels from the 25th-16th. I am not expecting an easy retest of the exact lows though. Volume was not that much stronger on Tuesday that during the upside and the last low was an extreme exhaustion move so support will tend to occur a bit above those lows, such as the opening prices from the 16th.

babies come from Walmart....

hey gang.... going to be an aunt again and it's another girl! looks like my brother will continue to be outnumbered...

brandon (my 5-yr old) asked if this meant they didn't want amanda (my neice) any more and if we could buy her. i said no, that i didn't think she was for sale. brandon asked my brother where babies come from and he told him "the store"... so of course brandon wanted to know which store... my brother replied "walmart"... well...

next question of course was "mom, can we go to walmart and buy a baby brother for a hundred dollars?" (not sure where the price came from but it's the biggest number he knows so i guess he figured baby brothers were not cheap....)

i told him that i wasn't sure they had any available at this time and that they probably had to restock them since i didn't see them the last time i was there. he then asked where the store got them. i told him to ask grandpa....

so he called my dad who told him "china... everything at walmart comes from china"... then followed a long conversation on how he could get to china to buy a baby brother... i heard something about a boat...

brandon then holds the phone away and asks if babies really come from china... i agreed that they did... which sent lexie into a fit about me lying to brandon.... so i had to explain that no... some babies do come from china and it's not a lie... she said... "not all babies come from china!" i countered with "i never said they ALL come from china..." (mainly she was jealous to have not been participating in this extremely extended debate and was getting very annoyed by that fact)

after hanging up the phone brandon asked me "did i come from china"... i said "no, you didn't" he then asked if i bought him in iowa... i laughed said "yep" "did you buy me at walmart?" lmao... "nope, i didn't" he then rambled on for another 10 minutes about being an iowa baby and not from china hahaha

p.s. he wants to name his baby brother he plans on buying from china "miguel" hehe

p.p.s. on a more serious note... walmart (wmt) is not looking that hot on the weekly time frame and is actually forming a short pattern after having fallen throughout 2004-2005 and then based since then. on the daily chart it's now basing at those lows as well. the con is that volume increased throughout the weekly based instead of decreased, but part of this was due to the gap a few weeks back. this still has a lot of room to move ont he downside. conservatively, i would say to about $35 before it sees decent support again on the weekly time frame.

Housing Data Dampers Market

Good morning! The market was extremely choppy on Monday. After trending strongly to end the week, the indices were all over the place at the beginning of the new one. The market opened slightly lower into the lower end of Friday's uptrend channel and the Nasdaq pulled higher to attempt to close the gap, while the S&P 500 could not shake the open and fell into congestion right away. At 10:00 ET this uninspiring trading became a bit more lively with the release of the housing data. The number of unsold homes hit a 16-year high last month and within a few minutes the market was making new intraday lows.



Despite the stronger action out of the open in the Nasdaq Composite, the indices diverged in the opposite direction following the 10:00 ET data. All three indices flushed lower at 10:00 ET, but the Nasdaq and S&Ps then based and continued lower again while the Dow Jones Ind. Ave. held that low and fell into a more bullish congestion and trading range. It was not until the 11:15 ET reversal period that the rest of the market also began to turn back around and those reversals were not terribly pretty. The Nasdaq and S&Ps flushed into 12:00 ET, and while the momentum was strong, the move was brief and the volume was light. This meant that the selling, while steep, was not much of a concern and did not have a lot of players.



Momentum turned over into the early afternoon, moving higher with several steady moves on the 1-5 minute time frames. The cleanest trend was on the Nasdaq Composite, where a nice three-wave trend move took the market back into the opening congestion. The Dow, as a result of its greater strength in the latter half of the morning, was able to close its morning gap with this rally, closing it coming out of the 13:00 ET reversal period. Another three-wave trend followed, but this time it was on the downside into 14:00 ET on the 1 minute time frame. It took back a huge chunk of the early afternoon buying, but the momentum was not extreme and a second test of intraday highs took place shortly after 14:30 ET when the Nasdaq broke the highs of that early afternoon level and retested the morning highs, which were slightly above the early afternoon ones.



Whenever the market establishes a very slightly higher high after pulling back by 50% or more, the risk is higher that the market will form a 2T pattern, which is a type of double top with a very slightly higher high. The slightly higher high creates a bit of a trap and can lead to some strong selling as long as the upside on the second high is slower than the first. This was not really the case on Monday afternoon, so the market found support in the zone of the 14:00 ET zone. The momentum did change after this second test, holding the 5 minute 20 sma and the market was able to sell-off again into the close. The end result was a loss of 56.74 points in the Dow, 12.58 points in the S&P 500 and 15.44 in the Nasdaq Composite.

The afternoon selling in the indices triggered an Avalanche short pattern on the S&Ps and a 2T/double top on the Dow on the 60 minute time frame. The slowing and rounding off at highs on this time frame has opened the door on Monday to further downside into the morning on Tuesday even though the daily charts still have room to wiggle. I want to be very careful to not just assume that because there is some room to move that it means it will. The continued weakness is more plausible given the intraday action going into the morning.





Economic Reports and Events This Week

Monday, August 27, 2007
10:00a.m. July Existing Home Sales. Previous: -3.8%.
10:30a.m. Aug Dallas Fed Mfg Production Index. Previous: -9.7.
12:00p.m. Chicago Fed Midwest Mfg Index. Previous: Unch.

Tuesday, August 28, 2007
7:45a.m. ICSC Chain Store Sales Index For Aug 25. Previous: +0.2%.
8:55a.m. Redbook Retail Sales Index For Aug 25. Previous: -0.7%.
9:00a.m. Aug

Market Continues to Advance

Good morning! The market experienced its strongest uptrend day in a number of months on Friday, climbing throughout the session in a narrow trend channel with the 5 minute 20 simple moving average serving as support throughout the session. The day began rather unexceptionally, but at 10:00 ET the July home sales data was released and the indices surged to new intraday highs thanks to an expected jump in sales last month. A number of housing-related stocks have been showing downside exhaustion the past couple of weeks and while things still don't look very peachy for the likes of Countrywide Financial (CFC) and a number of others, but I think that a lot of folks will be doing a bit of dumpster diving at these levels in over the next few weeks. Home price data on Tuesday with the Case-Shiller index and then on Friday from the Office of Federal Housing Enterprise Oversight will be watched by many closely monitoring this sector.



The market fell into a slow correction off highs soon after 10:00 ET, but the volume declined throughout the pullback and the pace of the move was very gradual into the 5 minute 20 sma. The range continued on light volume as a triangle formed and then shortly before 12:00 ET the indices again began to advance. At about 12:15 ET they popped sharply through the intraday highs and out of a small 1 minute base. The Nasdaq Composite and Dow Jones Industrial Average both retested Thursday's highs on this breakout and the S&P 500 came very close before the three again fell into a level of congestion along the highs of the day and again on light volume.



One of the most interesting things to me on Friday was that whilst the market again broke higher out of the 14:00 ET correction period, the overall volume throughout the session was lighter than it had been all week and even all month. This seems to indicate a bit of hesitancy and confirms the cautiousness of the optimism that has been attempting to build ever since the Fed's surprise rate cuts the week before. At least the lightest volume was during the correction moves on Friday and it would then increase a bit with each break to new highs. Since most of the day was spent in corrections with shorter, but stronger rallies, the lighter volume is not really that surprising. I think that if we had seen longer bases at highs with stronger breakout that the overall volume would likely have been higher. Instead the market resembled a staircase of worn out steps as the buyers continued to push again into the closing bell.



By the end of the session the Dow ($DJI) had risen 142.99 points (+1.1%) and closed at 13,378.87. 29 of its 30 stocks posted gains. Top advancers included Exxon Mobil Corp. (XOM) with a gain of 2.3%, Home Depot Inc. (HD) with gains of 1.9%, and Boeing Co. (BA), which climbed 1.8%.

The S&P 500 ($SPX) rose 16.87 points on Friday (+1.2%) and ended the day at 1,479. The Nasdaq Composite climbed 34.99 points (+1.4%). It closed at 2,576. Apple Inc. (AAPL) helped a great deal by gaining 3.2%.

Other top gainers were Mentor Graphics Corp. (MENT), Biogen Idec Inc. (BIIB), Blue Coat Systems Inc. (BCSI), National Oilwell Varco Inc. (NOV), Ann Taylor Stores Corp. (ANN) and Nucor Corp. (NUE). The financials remained among the weakest, pulling lower off 10 and 20 day simple moving average after taking back some of its sharp losses earlier in the week.

I again remain bullish this week, but expect a lot more choppy trading to continue with days like Friday remaining the exception. The indices are also still subject to the price resistance from a highs few weeks back, which is also the 50 day simple moving average level in the Dow and S&Ps. As the week progresses, keep in mind that next weekend is going to be a three-day weekend due to the Labor Day holiday, so expect volume to decline a great deal on Friday. This will be particularly true after the first hour of trading.

Buying Slows as Congestion Gets the Best of the Bulls

Good day! The market opened strongly higher again on Thursday, but it's been a tough road for the bulls. Despite the strong open, the market has been moving upward for a number of days and after such a sharp decline just a week ago, it's been hard to maintain strong upside momentum. While the market has given us the gains we were looking for, on Thursday they failed to hold onto those gains. Right away after the gap higher things began to sell off.

The first support in the market hit at the 5 minute 20 simple moving average in the Nasdaq Composite and S&P 500. While this stalled the sellers, it provided very little relief and before long the market was again heading lower. The Nasdaq led the bears, giving up its recent relative strength. It broke down out of 10:15 ET, while the S&Ps and Dow Jones Ind. Ave. managed to hold those lows.



At about 11:00 ET al three indices did give way to stronger selling, breaking to new intraday lows and then continuing only 15 minutes later into about 12:00 ET. At this point the market was coming into even stronger support. This was the previous day's lows in the Nasdaq and the 5 minute 200 simple moving average in the S&P 500. The Nasdaq displayed the greatest correction off this support, but it failed to gain momentum as compared to the previous selling and the volume remained on the lighter side as compared to recent activity.

Before long the market was again testing lows. These hit at the 13:00 ET correction and it was this support which held throughout the remainder of the day. The 13:00 ET lows hit at about the same time as the previous 15 minute lows in the S&P 500 and the 5 minute 200 sma in the Nasdaq Composite. Support from the prior lows in the Nasdaq also remained in play at this time.



The morning's decline was not an idyllic one. There was a a great deal of hesitation and second guessing throughout the move and I lost a bit of money trying to play support given that the support levels generated very little upside or corrective action before giving way to further selling. Even after bouncing at noon, the market had a difficult time holding onto gains and the upside.

When the 13:00 ET correction period hit ad the market headed higher, it rallied very sharply, but still could not bust through the morning congestion which took place earlier in the morning. Those levels served as resistance and soon after 14:00 ET the market was again heading lower with some decent strength. It was not significantly greater momentum than the previous selling, however, and hence not as important from a contract perspective. The remainder of the day held this congestion and neither the bulls nor the bears could sway the indices in one direction or another for more than a daytrade or scalp move.



Even though the market had a tough time on Thursday, the odds are still favoring more upside. Of course, the further it goes, the more hesitant I become. The indices are starting to come into some strong resistance from earlier in the month and I am not excited about those price levels. Typically when an index or security returns to a prior zone of congestion they will not break it, but rather base and break it later. I want to be very on guard at this point, since it would not take much to move things in either direction and I do not want to be locked too strongly into one bias over another now.

Market Posts Gains After an Intraday Struggle for Control

Good day! Well, we got our additional upside finally on Wednesday! That was the good news and those who have been holding longs all week were no doubt very happy with the day. Unfortunately, this upside initially came in the form of an extreme gap in the indices. As I've discussed numerous times in the past, extreme gaps in the indices have a VERY difficult time holding the gaps, let alone continuing in the direction of the day. Instead, they prefer to close the gap zone on the day of the gap itself.

On Wednesday, to give the bulls some credit, they did a fair job of holding things up throughout the beginning of the session. While the market managed to hang onto most of its gains, it was again extremely choppy. After repeated attempts to break the highs of the congestion, the market fell quickly lower when the 11:00 ET correction period hit.

Even though it tried, the market simply could not take back the upside momentum to regain control. The indices did move back into highs and even into slightly higher highs shortly after 12:00 ET in the Dow, but ultimately the slower upside wore the bulls down and a second and more extreme selloff began only a few minutes later. Within half an hour all three of the major indices were at new intraday lows. The Nasdaq Composite found support at its 15 minute 20 sma, while the S&P 500 closed the gap zone by pulling into the afternoon highs which occurred just prior to the end of the day on Tuesday.



After a brief respite, the market again headed lower into 13:00 ET. The correction off the 12:30 ET lows was not long enough to sustain as significant of a move lower, so the indices only barely penetrated the previous lows and did so at a much more gradual pace than the initial afternoon decline. Shortly before 13:30 ET they were again heading higher and climbed steadily back into the previous highs. While the reversal periods did not hold very well on Wednesday, the support and resistance levels did. This back and forth action continued throughout the remainder of the daily with nice pivots until around 15:00 ET. At that time the volume dropped off a bit more as the indices pulled back slowly. This change in momentum was all the market needed to make a break to new highs and many stocks closed near their intraday highs, while the overall market came within a few ticks of doing the same.



Among the top intraday and daily gainers on Wednesday were Blue Coat Systems Inc. (BCSI), Dryships Inc. (DRYS), and Bally Technologies (BYI), all of which came to my attention early into the open due to their favorable upside gaps and corresponding daily charts that supported a great deal of room for further upside. BCSI, however, greatly exceeded my expectations. Other notable gainers included China Mobile Limited (CHL), McDermott Intl. Inc. (MDR), Apple Inc. (AAPL), Express Scripts Inc. (ESRX), and Sina Corp. (SINA).

By the end of the session, the Dow Jones Industrial Average ($DJI) had gained 145.27 points (1.1%), the S&P 500 ($SPX) gained 16.95 points (1.17%), and the Nasdaq Composite ($COMPX) gained 31.50 points (1.2%). While they didn't get far past the early morning trading, MGM Mirage (MGM) and Nymex Holdings (NMX) were both also at the top of the gainers lists. MGM climbed 8.9% on news that Dubai World would be acquiring a 9.5% stake in the company and NMX rose 6.1% after announcing talks with potential investors and its intended cost-cutting measures.



Heading into Wednesday's close, the market still remains more bullish. I wouldn't bet on the rumors circulating that this is all there is to it and that the market is going to again be able to break to new highs on the year. This is the second flush already on the weekly and monthly time frames and each time it becomes more and more difficult for the bulls to regain control. It is not looking, however, that we are going to get another extreme downside move beginning just yet, but other than swingtrades and daytrades, I am investing very little in the market at this point and my focus on the larger time frames is merely managing the ever dwindling position trade positions I still have open.

Triangle Breakout SLG

I know, I know.... Why would I trade something like SLG with the spread that it has? Sometimes it's about 20 cents. That did cause me to pause. I could have gotten an entry easily at $114.10 but instead got $114.24 by waiting for a little more confirmation. Basically on a trade like this I constantly have my hand on the trigger button so that when things start to change I can bail quickly. I did figure I would have about 10 cents slippage, but the reward compared to the risk was still greater since this setup will nearly always retrace at least back into the zone of the morning highs. I used a target of the $115 zone since I figured that would be the easiest, although I think there is room it can move a bit more as the day progresses. I put my order on the books to take gains nearly right after I got in it at $114.94 to best guarantee that I would get filled since on a stock that does have a wide spread it might only trade at the resistance a tick or two and then fall. It does have a high shown of $115.15 on this chart but that was only one tick with all others at $115 or lower....



Update: It is ot 10:56 and in fact SLG is not hitting higher highs again with $115.44. Should I have held partials? Maybe... but with something like this I often just like to take my gains and move my attention elsewhere instead of having to monitor something like SLG where I pretty much have to keep an eye on it at all times. Even that $115.44 only hit once. Most trades near highs on this continuation have been the $115.20 area.

DKS 2-Wave Breakout

One of my favorite gap setups... Two wave pullback then continuation.... Notice the light volume on the second drop... No real selling!

Nasdaq Gains Ground, but Dow Struggles

Good day! It was a mixed session for the market on Tuesday. While I managed to find some great setups in individual stocks such as Dicks Sporting Goods Inc. (DKS), the overall market had a tough time making any headway. Even though the market had some core setups in terms of the 5 and 15 minute time frames as you can see on the charts shown below, the main problem was that in forming and following through on the setups there was a great deal of chop and overlap from bar to bar. This would have made it easier for many to time entries and exit incorrectly and get flushed out on minor moves before the larger target levels hit. Although I saw some nice setups in the afternoon that would have worked out quite well, I ended up staying away from them for this very reason. I have not yet decided if that was a good or bad choice on my part since this time it obviously cost me a lot!



The day began on Tuesday with a bit of downside as the market continued to correct off Monday afternoon highs. The back and forth action created a bull flag and trading range on the 15 minute time frame in the indices with the 15 minute 20 simple moving average serving as support. The pace turned over within the range with a base along highs from about 10:45-11:15 ET. The range broke upwards out of that final morning correction period and within a few minutes the Dow, Nasdaq and S&Ps were all at new intraday highs and following through with my expectations for upside on the day, although only the Nasdaq really mirrored my expectations.

The rally continued throughout the remainder of the morning and into the early afternoon with a final push out of the 12:00 ET correction period. This time the momentum was slower, and while the Nasdaq was free and clear of intraday resistance, it did have the 10 and 100 day simple moving averages to deal with. The Dow had even stronger resistance intraday. It had ran smack into the previous afternoon's highs and held them perfectly. The slowing momentum on this last push higher in the Dow and S&Ps allowed the market to pivot sharply off the resistance into 12:30 ET. The Nasdaq fell back to its 5 minute 20 sma, but the Dow and S&P 500 both plunged back into the morning congestion where they finally found support.



Throughout the first half of the afternoon following the market's initial decline, the indices fell into a narrow trading range as volume dropped to one of its lowest levels in a number of weeks. The upside momentum was very slow and at 14:00 ET the support began to break. Keeping in line with its choppier trading activity, however, it took a bit more time before the selling began to increase.

As the market descended there was a still a lot of overlap from one bar to the next until the indices hit equal move support as well as price as moving average support around 14:45 ET. This was where previous lows intraday hit, as well as the 15 minute 20 sma in the Nasdaq. In the Dow and S&P 500 the 5 minute 200 sma was tested at this time and in the Dow this also corresponded to the 15 minute 200 sma. The pivot off this merger of support levels was one of those "Duh, Toni, you should have traded it" setups where I had the order up and ready, but didn't push the button. It triggered at the same time as the 15:00 ET correction period as well and the market made its way back into its earlier afternoon congestion before stalling a bit again into the closing bell.



By the end of the day the Dow Jones Industrial Average ($DJI) lost 31.49 points. Among the weakest stocks were United Technologies Corp. (UTX), which fell 2.4%), and Exxon Mobil Corp. (XOM), which lost 1.6%. Top gainers were Home Depot Inc. (HD) and Verizon Communications Inc. (VZ). In the other indices, the S&P 500 ($SPX) gained 1.57 points, while the Nasdaq Composite ($COMPX) led with a gain of 12.71 points, or +0.5%. Broker dealers, financials, and airlines were leading sectors on the day, while oil and gold struggled.

My bias heading into Wednesday could be labeled "cautiously bullish." I do still feel there is room to continue to rebound this week and I am most comfortable given the current daily dynamics to take positions in that direction. I am aware, however, that the bullish sentiment is paper thin and it would not take a lot to create another panic move intraday, even though I think that we are probably going to see a much longer correction off recent lows over the next couple of weeks. Whether this ends up being a decent correction in terms of price or remains a choppy, range-bound type of correction is yet to be seen since both scenarios have approximately equal weight at this point.

Market Posted Minor Gains, but Congestion Prevailed

Good day! The market did things a bit backwards on Monday as compared to what I had been expecting going into the day. I was expecting upside in the morning and then a late day reversal. Instead the market displayed greater weakness throughout the morning and turned around into highs in the afternoon. All said, however, it was still the choppier type of indecisive trading that we HAD been looking for. This was particularly the case throughout the first half of the day.

The indices gapped very slightly higher into the open on Monday, but while many individual stocks did gapped higher, they also hit resistance with the gap. As they pulled back, so did the overall market and the gap was quickly squelched. Support hit close to the 9:45 ET correction period and the market began to move up off the early morning lows, but the momentum in both the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) were slower than the earlier selling. The Nasdaq Composite ($COMPX) managed to make its way to new intraday highs, but all three indices turned over once the 10:15 ET reversal period hit and were soon back at the earlier support levels.



At that point the volume was showing a great deal of wariness. It dropped off as the indices hugged support, favoring a late morning breakdown. The financials and broker/dealers led the selloff, falling very sharply to new intraday lows. Goldman Sachs (GS), Bear Stearns (BSC), Capital One Financial Corp. (COF), and Prudential (PRU) led the fray. These sectors were not the only ones feeling the sting. Retailers also had a hard time. Target (TGT) kicked off an new intraday downtrend that would last throughout the remainder of the session and Kohls Corp. (KSS) and Penney J C (JCP) also had strong selloffs.



Despite the great show of weakness as the market fell sharply from its morning congestion, the indices were unable to maintain such momentum once they ran into support from Friday. Keep in mind that despite the selling, the larger daily bias was still in favor of some additional upside. The market again began to congest along intraday lows over noon. The upside was a bit more than before and the market broke down too early to sustain another sharp decline. For the bears to have regained real control, the market would have had to have based along the lows into about 14:00 ET. Instead the market broke down into 13:00 ET and created only a slightly lower low, allowing the pace to turn over into the afternoon as the choppy trading formed rounded lows mid-day.



The market showed some gumption shortly after 13:30 ET originally by popping quickly back to the highs of the mid-day congestion. The bias really began to look favorably upon the bulls on the pullback that followed, however, when the indices pullback back into the lower end of the range and continued to round off. Since I had missed the morning drop by taking lunch just a few minutes too soon, this was my first futures trade of the day. I picked up the NQ at 14:20 ET at 1886.25.

The first resistance on this late day turn-around was just above the previous 5 minute high and then the market based slightly into the 15:00 ET reversal period before heading into the second and more substantial resistance at the morning highs. The pace slowed at this level and the market spent the rest of the day pulling back with continued selling after the bell.

Going into Monday, I had anticipated greater overall strength and a stronger push into the daily resistance from a few weeks back. The Dow did gain 42.27 points, but the S&P 500 lost 0.39 point and the Nasdaq Composite only added 3.56 points. This means that the market still has that overhead room to move on Tuesday, whereas a stronger upside on Monday would have made it more likely for the market to have fallen on Tuesday.

Fed's Surprise Rate Cut May Have Had Little Effect

Good day! I know what you are saying... The market closed quite a bit higher on Friday, with gains of 233.30 points (+1.8%) in the Dow Jones Ind. Average ($DJI), 34.67 points (+2.5%) in the S&P 500 ($SPX), and 53.96 (+2.2%) in the Nasdaq Composite ($COMPX). Given that the highs of the day on Friday were shortly after the open following the Fed's surprise rate cuts of 50 basis points, why would I then say that the move may have had very little effect upon the market? It seems like a simple case of cause and effect. I disagree.

The market established a fairly strong downside exhaustion day on Thursday. Volume hit record highs and after strong selling throughout the morning the indices bounced back sharply into the close. A reversal like this on substantially higher than average volume will typically see more upside following through into the next trading day. Did the Fed help things out? Sure. The market had not been doing much at all in the premarket before the Fed news hit. Then shortly after 8:00 am ET the news hit the wires and the futures surged. I believe that what this news did was simply let the buyers gain a hold earlier than they would have otherwise, but that they still would have gotten their on their own.

Unfortunately, the result of the premarket move is that it did circumvent the momentum the indices had been building into the day and left it wondering just what to do once the opening bell rang. Those who would have otherwise been willing to view Thursday's close as a buy opportunity into the next day were nervous by the gap higher after so much weakness and volatility. The open itself took place into a great deal of resistance on the 15 minute charts. In the Dow and S&Ps it was the 15 minute 20 sma, while it was also price resistance from earlier in the week in all three of the major indices.



Typically a larger-than-average gap in the overall market will close on the morning of the gap, or at least into the early afternoon, in at least one of the three indices, if not all of them. It's very difficult for the market to continue to move in the direction of the gap past the first 15 minutes of the day. It is true that the extreme upside gaps can hold better than the downside ones in the indices, but the bias still remains in favor of a closure of the gap. Friday's trading was a great example of the rule as opposed to the exception. By the 9:45 ET reversal period the bears had begun to regain control and the market swiftly turned and began to head lower.

This initial wave of selling on the 3 and 5 minute time frames experienced the sharpest momentum. A second continuation took place coming out of the 10:15 ET correction period. This one broke to a lesser degree, but a second base or correction followed and a third wave of selling closed the gap zone in both the Dow, as well as the Nasdaq. There was also price support in the S&Ps at this time, and the Dow hit its 5 minute 200 sma support. All of these came together with the 10:45 ET correction period and since typical trend moves last 2-3 waves, this meant the trend intraday was now exhausted as well and due for a larger correction intraday off the support.



When the market did turn, it was a choppy reversal. The momentum picked up, but it didn't sustain itself. The descent off the morning highs was simply too strong to allow for a rapid reversal and although the market went for a continuation at 11:30 ET, it didn't make it past some of the early congestion levels from the intraday downtrend and the overall upside was quite a bit weaker than the decline had been. This allowed the market to move lower at a more rapid pace into the 12:00 ET correction period, even though it held the support from the price congestion between 11-11:30 ET.

The pattern which developed mid-day on Friday was one of my favorites. After the sharper pullback, the indices moved fairly well to take back more than 50% of the losses from the 11:45-12:00 ET move. The lighter volume during this action then declined further as the market based and the 5 minute 20 simple moving average served as support. When this base or slower pullback breaks higher it triggers a buy. This took place out of the 13:00 ET correction period on Friday and led to another nice daytrade or scalp move higher.



Despite the buy setups, the larger trend was still slower than average and much slower than the morning drop. This more gradual pace continued throughout the remainder of the day. After the early afternoon breakout, another correction followed with the market pulling back a bit more quickly into the 14:00 ET correction period and then slowing to form a longer correction until about 15:00 ET. Once again this correction period held as well and another move higher on the 5 minute charts took the Nasdaq nearly back into the opening price levels on both the Dow and S&Ps where they held throughout the remainder of the day.

I am expecting the bulls to again attempt to peek their heads out on Monday, however the typical action following a daily move such as we have seen over that couple of weeks would be for a narrower range to occur with a lot of indecision intraday. Barring news, an upside gap would be common. Morning upside intraday, however, can more easily give way to a reversal in the afternoon. The 20 day sma will be strong resistance.

Market Recovers After Nearly a 350 Point Loss in the Dow

Good day! I have one word to describe Thursday's session: Yikes! Ok, so we were looking for more downside ahead of the weekend, and we weren't looking for support until the price congestion from late last year and early this year hit. Nevertheless, seeing it follow-through with our bias and the wickedly volatile trading that accompanied it was quite something!

The market began the day with a downside gap into the open. This was a logical extension of Wednesday's late-day selloff and I took it as more of a non-event. The gap quickly closed heading into the 9:45 ET reversal period, but when that resistance hit the sellers returned. The momentum which accompanied the morning descent was comparable to that of the prior afternoon and the trend channel already in play at that time held. Two waves of intraday selling led to a pivot low at about 10:30 ET.

This 10:30 ET low was the first level intraday where the market had a chance of holding and establishing a larger correction off lows on the 15 minute time frame. Even though the market did bounce here, however, the pace on that bounce was still more gradual than the morning decline. In order to really gain momentum on the upside we would need to see at least some sort of rounding off at lows to allow that momentum to turn over. Instead the market moved slowly higher on a break in the 5 minute 20 sma after a brief stall and ended up forming a bear flag on the 15 minute charts.



A large intraday downtrend followed the 15 minute bear flag on the 5 minute time frame. The trend began coming out of the 11-11:15 reversal zone and an initial move took the market into morning lows. The first continuation took place at noon after a base on the 5 minute charts. Volume declined throughout the base to uphold the bearish bias and increased once the support gave way to confirm it. A second correction leading into a third wave of selling formed into 12:30 ET. Once again the volume declined throughout the base at lows and once again increased when the base broke lower.

Trend moves often last for three waves, so this paved the way for an afternoon correction off the mid-day lows. The momentum was still quite extreme to the downside, however, so an initial stall at support at 12:45 ET had a rough time holding and another test of lows into the 13:00 ET reversal period gave the market that rounded low that it was lacking earlier in the session. It established a very slightly lower low to form a 2B type of double bottom and the reversal period itself also pointed towards an afternoon reprieve.

Once the buying got under way, it did so very quickly by popping up to the 5 minute 20 sma in a matter of minutes. Instead of forming any strong 5 minute base and continuation, the market only stalled at the sma for about 15 minutes before it continued the new intraday uptrend. This created a trend channel not unlike that of the prior afternoon's selloff. Corrections within the trend move itself only allowed for setups on a 1 minute time frame and not on anything higher. The rally lagged a bit in the Nasdaq, but the S&P 500 and Dow Jones Industrial Average maintained an overall pace on the upside move that was more rapid than the decline and made it likely that the indices would hold the 13:00 ET lows throughout the remainder of the session.



After losing about 340 points at lows in the Dow, the market regained the majority of the ground it lost as it rallied into 14:15 ET. The indices had a bit of an exhaustion move on a 1 minute time frame (hard to see here), where the pace spiked. This is common at highs and the indices pulled sharply into the lower end of the uptrend channel. Upon breaking out of the channel, the market began to hug the 5 minute 20 sma, forming an Avalanche setup which triggered in the final hour of trading.

The afternoon selling nearly took the market back into its mid-day lows, but the support held as the market hugged its 15 minute 20 sma and then turned around again to rally into the close.Thursday was the highest volume day of the year to date. Amazingly, the Dow ($DJI) managed to close with only a loss of 15.69 points. JP Morgan Chase (JPM) was one of the top gainers on the day, adding 5.7%. Citigroup Inc. (C) also had a great day, adding 4.3%. The S&P 500 ($SPX) had such a strong recovery that it added 4.57 points before the close, while the Nasdaq Composite ($COMPX) lost 7.76 points.



Thursday was an exhaustion day for the market. I expect to once again see some corrective action off the daily support heading into next week for a few weeks, but the odds are again high that such a correction will be choppy with more overlap from day to day. The 10 and 20 day simple moving averages will serve as resistance. I am expecting to take Friday very slowly. It has been an extreme week and folks will be positioning themselves ahead of the weekend. My focus will be on scalps and shorter time frame daytrades.

Premarket News - Stocks of Interest

· CAI up 1.7% - this Q comes in better....they reit F08 outlook
· CRM - this Q comes in better, raise F08 outlook.....the low-end of FQ3 is below Street
· TMA Price Target to $7 from $19 at DB
· INTC - coverage transferred at CSFB and stock upgraded from underperform to outperform
· NTAP up 5.4% - this Q inline w/warning...the Oct Q outlook is "better", but prob. inline
· AMGN announces restructuring on lower Aranesp revs -- cuts '07 EPS view and '07-08 CapEx, reduces workforce by 12-14%
· VITL Vital Signs Buys Fluid Warming Technology
· BZH up 4.5%, files 8K
· KOSN up 3.7%, files $75M mixed shelf
· AMFI up 2.8%, names Donald Wilson Pres/COO
· USTR up 2.6%, ups stock repurchase authorization by $200M
· HOC up 2.6%, Navajo refinery unit back online
· CGNX dn 7.7% Cognex Tops Q2 Estimates But Sees Q3 Below Forecasts
· LDG Longs Drug Tops With EPS, Revenue Shy as Guidance Straddles
· NTAP Network Appliance Tops Q1 Estimates, Sees Q2 in Line to Above, OKs Buyback MN Sets $50 Mln Stock Repurchase Program
· PETM PetSmart Beats on Earnings, Meets on Revs, Sets Guidance MN 08/15 16:19
· CPWR says Won't Take On Debt to Buy Back Shares Due to Mkt Condition
· NOIZ Micronetics' Q1 Results Down Vs Yr Ago
· DITC Ditech Networks Misses Q1 EPS Estimate, Sales Meet, Q2 Sales Seen In Line
· CRM Salesforce.com Down 3%, Reports Improved Q2 But Updated Guidance is Mixed
· COP Conoco Phillips Unit to Pay U.S, $97.5 mln for Fraudulent Underpayment
· UTSI dn 1.8%, gets Nasdaq Notice Due to Late 10Q Filing, Requests Hearing
· LMRA --Lumera CEO Resigns, Names President and Interim CEO \
· PLAB Photronics Q3 Results Down vs. Year Ago Levels, but Beat Estimates
· SPWR SunPower Inks Long-Term Supply Pact with SMA Technologie AG –
· CXM --Cardium Therapeutics Files Up to $50 Mln Shelf Registration With SEC
· IMOS up 1.3% - ChipMOS Firmer - Q2 EPS In Line, Guides for Revenue to Miss

New Monthly Lows for Dow, Nasdaq and S&Ps

Good day! The market remained under pressure on Wednesday as heavy late-day selling once again bombarded the bulls. The Dow ($DJI) closed under the 13,000 level for the first time since April after losing 167.45 points. It ended the session at 12,861 with a loss of 1.3%. The S&P 500 ($SPX) lost 19.84 points (1.4%), and closed at 1,406.7. The Nasdaq Composite ($COMPX) ended the day lower by 40.29 points (-1.6%), at 2,458.8. One of the top losers was Countrywide Financial (CFC), which fell 3.17 points, or 13%, after it was downgraded from buy to sell status by Merrill Lynch. Another stock which has been extremely hard-hit by the fiasco with sub-prime mortgages was KKR Financial Holdings (KFN). It fell another 31.2% on Wednesday after announcing the sale of $5.1 billion in residential mortgage loans and suffering a downgrade from Lehman.



Wednesday's economic data had very little impact on the day's activity. During premarket trading the Labor Dept. reported a rise of 0.1% in July in the Consumer Price Index. This serves as a measure of price inflation on food, energy, and consumer products. The core consumer price, which excludes the food and energy portion, increased 0.2%. Both of these numbers were in line with expectations. The Empire State Manufacturing Index, which also came out at 8:30 a.m. ET and measures manufacturing activity in the New York area, slipped lower to 25.1 in August off the 26.5 level in July. This index had been expected to fall to 19.0.



Although the end result of Wednesday's session was a marked decline on the day, intraday things got off to a sloppy start and patterns throughout the day were less obvious than usual. What I mean by this is that there were fewer clear-cut setups and trend moves were hesitant at best. Even the start of the late-day decline was not overtly suggestive that such a move would take place because the move began after an increase in upside momentum when the market rallied back into its morning highs. Once the uptrend channel broke, the market sold off without any real correction to catch a continuation move on anything other than a 1 minute chart throughout the remainder of the day. The trend channel was narrow and steady. Typically a late day trend will at least have a bear flag or such on a 5 minute time frame. Not this time!

I was in and out throughout the day on Wednesday. I had an early morning drive up to Tampa to drop off a friend at the airport and missed the morning trading. When I came back and began to scan in the early afternoon, I found that most of the decent setups intraday were on the downside, but many of the top gainers and losers that came up on my scans were rather thin. I didn't find a single thing that I felt was worth the risk to trade and spent the afternoon moving my office instead. I'm now on dsl and hoping that the noticeable difference in speed between this and the cable in my main house will not affect trading tomorrow! My only trade of the day was in the afterhours session when I made a tick on one contract in the NQ when I was testing out my connection! Let's see... That's 20 cents after commissions! So, at least it was a positive day!



I was expecting the market to have should a bit more of a reprieve from the selling this week, but the failure of the market to hold the support zone on Tuesday and into Wednesday now has the indices open to move even lower ahead of the weekend. The break in Tuesday's lows essentially confirmed a continuation pattern on the weekly time frame and it is now the price levels from late late year into early this year that will serve as the next strong support level.


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.

Dow Hits New Low on the Month

Good day! The carnage continued on Tuesday with a nice bearish base out of the open. The market had pulled to the lower end of the trading range on Monday before it closed, so the fact that the indices stuck to that level to begin the day on Tuesday was not a great sign. I once again had a difficult time locating much for decent momentum plays out of the open, but Tuesday did follow through with the promise of being a more active session than the previous one had been.

After congesting for the first 30 minutes or so of the day, the indices gave way with a rapid plunge to new intraday lows. A second base took place into 10:45 ET. The declining volume throughout this congestion signified continued weakness and supported a second wave of selling into the 11:00-11:15 ET correction zone, thus completing three waves of selling on the 5 minute time frame beginning with the previous afternoon.

Along with the correction period, the market had quite a few reasons to move higher into noon. Friday's lows were hitting in both the S&P 500 and the Dow Jones Industrial Average, as were Friday's afternoon lows in the case of the Nasdaq Composite. The market also tends to break its trend channel after three waves of downside and will try to establish a larger correction before it continues. These traits opened the door for mid-day bounce off lows.

Due to the pace of the selling, however, the upside got off to a bit of a hesitant start, but managed to increase in momentum once the 5 minute 20 simple moving average gave way. The buying accelerated into the Nasdaq's 15 minute 20 sma and 5 minute 200 sma. This was also the 50% retracement level off the day's lows for the move off the premarket highs. The correction periods also came into play, since 12:00 ET is a common time for the market to reverse its course, or at least correct from the trend move heading into that time zone.



Almost right away upon striking resistance, the market began to again favor the bearish sentiment. The selling off the highs was much stronger than any attempt to retest them, particularly after 12:30 ET when the indices fell back to their 5 minute 20 sma and then just flatlined. This base along the moving average support created an Avalanche setup on that time frame which initially tried to break lower around 13:45 ET. The selling didn't gain steam until around 13:45 ET, however, when the market finally dropped back into the morning lows, hitting them at the same time as the 14:00 ET correction period. Although I attempted to play this pivot, the larger 15 minute charts were still very bearish and I only managed to come out of it with a small scalp gain before I had to step aside in favor of another new intraday low into 14:30 ET.

After 14:30 ET things became quite a bit choppier. The market finally managed another larger correction off support, but there was a great deal of overlap on the bounce and it did not amount to much in terms of a price correction. Once the 15 minute 20 sma hit again then all bets were off and the bears led the way into a close within a few ticks of the day's lows.



Tuesday's selloff has provided us with that additional flush into support that I first talked about on Monday. The momentum of the move, however, does not have me looking quite yet for many buying opportunities. I would like to see a bit of slowing and rounding off first. The Dow fell more than 200 points on Tuesday (-207.61, -1.6%), with 29 of its 30 component stocks posting losses. Wal-Mart (WMT, -5.1%), who lower its guidance for the year, and Home Depot (HD) were particularly hard-hit. The S&P 500 fell 26.38 points (-1.8%). The Nasdaq fell 43.12 points (-1.7%). The worst sectors included broker/dealers (-3.1%), financials (-2.9%), and airlines (-2.6%).

Pivot Pattern - NQ example

Hey gang.... Here is a variation of that FSLR pattern but in the NQ....



It was not quite as nice because the third low was not lower and had more volume to it... I got in a little early thinking that little pullback into 14:15 on declining volume was going to go and had to hold through a small little 4th flush. The overall market was not at the best support, so I was a bit leery on this one. My exits ended up being at 1925.25 and 1924. Not the best gain since my entry was 1922.75, but risk was small enough to have me give it a try anyway.... The slowing pace into the 1925 level when it kept making slightly higher highs but without the momentum FSLR had is why I kept it on a tighter leash and choose not to hold to its 5 minute 20 sma, which had been my initial target.

High Probability Pivot Pattern

Hey gang,

I wanted to take a minute here to share with you a new pattern I've added to my repetoire. I've mainly been studying it on the futures, but took it on an equity today. Essentially the criteria are as follows:

- Extreme downside move
- Series of three lower lows, with the last one often being a rapid flush and retracement
- Typically highest volume heading into the first low and lighter volume on the last low
- Larger time frame support
- Entry when the channel going into the third low breaks higher
- Max stop under the third pivot low, but typically can cut that in about half since it is pulls back into that third low it's more likely to fail so those more experienced with time & sales can cut the stop quite a bit.
- Target is approximately a 50% retracement of the larger drop... watch for a 20 sma like the one I have circled in FSLR. These can continue and pull all the way up, but usually will at least stall at that 20 sma zone. Watch the pace into the sma, since a sharp pace will more likely have a continuation higher.

Note: This pattern can start out a bit slow before it pops, so the thing I have had to work on has been not bailing on it just because it doesn't get going right away. You can see on the 1 minute that moves ot the move didn't even begin until about 10 minutes or more after the buy trigger.

Trading Slows as Uncertainty Prevails

Good day! The week kicked off on a hesitantly bullish note on Monday. The indices gapped higher into the open with the Dow Jones Ind. Ave. futures opening higher by more than 100 points, aided by the 8:30 am ET better-than-expected retail sales data. This provided that upside action we were watching for as a result of Friday's closing bias, but the larger time frame bias was not as strong and the market fought with teeth and nails to hold onto those gains. As the session played out, this larger time frame's pressure made itself more well known by keeping constant pressure on subsequent attempts for the overall market to move higher throughout the morning.

Right away out of the gate it looked like we were going to be in for a tough session. Out of the momentum players, very few on the upside showed even the slightest promise for great rewards. Those which caught my eye initially as possibilities included BX, ANAD, VCLK, BEAS, SHLD, and TWC. If you happen to go through that list now, however, you will notice that only SHLD even bothered to give a clear-cut buy trigger following its announcement to increase its stock buyback, and it was the only one of these 6 to manage to hold up against the overall market. I did take a stab at BX after it pulled back in the morning, but was flushed out on the bounce with a tiny loss when I let my concerns about the overall market persuade me to step aside. Whoops! Even this "leader", however, closed just off intraday lows and nearly closed its morning gap, at which point it had gained 3% on better-than-expected Q2 earnings.



A much better stance for the day would have been if I had stuck to my statement early on that it would be a much better day for trading the EMini futures than individual stocks.... Double whoops! In that area of the market, things played out rather well throughout the day for daytraders and scalpers, although it's a bit tough to see that on the 5 and 15 minute charts. While the market was stuck in a range for the most part, the moves back and forth were very solid and support and resistance levels held perfectly, allowing for some really nice pivot and continuation moves on the 1-5 minute time frames.

The open in the market placed the indices directly into the path of resistance from Friday's highs with the 15 minute 200 simple moving average intraday not very far off. The indices pulled back a bit off these levels to form a two-wave correction in the Nasdaq on the all-sessions charts going into 10:00 ET. The second pullback was somewhat slower than the first and on some lighter volume, allowing the market to pivot out of 10:00 ET. Due to additional economic data in the form of the June business inventories, this time zone held a lot better than the typical morning reversal periods and the market made its way higher with another two-wave trend heading back into the earlier highs. The similar momentum allowed the highs to hold and the range persisted intraday into the second hour of trading.



After retesting the morning highs, another correction followed without any strong bias as to which direction the indices were planning on breaking. The previous lows held again at support at 11:15 ET and a third pivot high was established shortly thereafter. It was only after this third high in the intraday trend that a larger bias began to form. The larger intraday trend move took place from about 11:30 ET to 13:20 ET when the market pulled off the mid-day highs. An initial drop led to the market hugging the 5 minute 20 simple moving average support. At first I was a bit more bullish, because if the market had hugged that third intraday high into noon, then it would have been possible to break higher. Instead the momentum of the pullback was too rapid and instead of bouncing back into the third high to hold the range at noon, the market created a small Avalanche pattern that allowed the 5 minute 20 sma to break and for the momentum to pick up a bit on the downside.

The early afternoon selling first took the indices into the previous lows and then they began to hug the support into 13:00 ET before breaking down with a third drop on the 5 minute charts into the 13:20 area. Even though I was bearish at this time, the selling was not any stronger than any of the prior back and forth moves throughout the day so far and it nixed the chances for a stronger breakdown, which I had been hoping for to simply bring in some decent moves beyond the scalp time frame. Instead, this comparable momentum meant that the larger range had a better chance of holding into the close.

A three-wave uptrend brought the market back into its upper resistance zone into 14:30 ET or so, after which time the bulls again succumbed to the pressure and fell once more into intraday lows with the 15:00 ET correction period. The momentum in the market began to increase slightly to the downside, but was unable to bust out of the range before the closing bell. It was only afterwards that they finally gave in and the selling continued.



I haven't made up my mind at all regarding Tuesday's upcoming session. I do tend to find that Tuesdays in general offer more opportunities than Mondays, likely because there are more news events to move the market, but I don't have a strong directional bias heading into the session at all. The market is stuck in the middle of a range and the momentum within that range has not yet began to favor one side over the other for a decent breakout. My bias overall is that we experience a larger correction off the support levels of the last couple of weeks, but I am still open to the possibility of those levels being tested one more time, so I am not doing much at all for swingtrading at the moment and have been focusing almost exclusively on intraday activity.


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!

Central Banks Attempt to Forestall the Another Meltdown

Good day! Market volatility has been a huge concern for traders and investors alike these past several weeks and it increased even more on Friday. A number of central banks from around the globe began increasing liquidity on Thursday by injecting billions of dollars worth of funds into the banking systems to attempt to offset some of the effect of the subprime-credit fiasco. This was stepped up on Friday, but the lasting impact of such a move has yet to be seen. In an effort to curtail further excesses in borrowing, the European Central Bank, which has provided the largest infusion of funds, appears to be set on raising interest rates in September.

The market was off to a wicked start on Friday and many credit the central banks for assisting in the mid-day reversal which began around 10:15 ET. I don't know that I really buy into the view that the banks are responsible for the recovery the markets experienced coming off the intraday lows. Selling exhaustion and momentum in and of itself stands as a purely technical reason as well and the mid-day bounce was not something that was unique to Friday's session. The market had been in an extreme decline beginning mid-morning on Thursday. The momentum from this selloff began to build again into the closing bell and followed through into the open where support from previous lows in the Dow and the 100 day simple moving average in the Nasdaq Composite held.

The morning gap on Friday was the second extreme gap to the downside in a row. The first time such a gap occurs, it nearly always fills in at least one of the three major indices. The second day is less certain, but still has a decent shot of again closing the gap in at least one of the three indices. If the markets were to experience a third gap lower of a similar magnitude, however, its preference would be to hold the gap and not attempt to fill.



On Friday the market began the session by playing with the bulls. Even though it opened into support, a strong momentum move in the market as a whole typically needs some slower selling following the larger momentum move before it is able to adequately correct from the selloff. When the market was unable to sustain any stronger-than-average upside out of 9:45 ET, it opened the door to further morning downside. In this case the support levels gave way coming out of 10:15 ET and led to new lows in the Dow, S&P 500, and Nasdaq Composite. The S&P 500 experienced the least weakness, barely breaking the previous lows and instead creating a 2B reversal pattern, whereas the Nasdaq had the strongest break of support due to how it had based sideways while the Dow and S&Ps had crept somewhat higher out of 9:45 ET.

When the 10:45 ET reversal period hit in the market, the trend channel from the last leg of selling gave way to increasing momentum on the upside. Within less than half an hour the indices were back at mid-day highs and the pace of the buying began to accelerate. The resistance from the price levels of the morning highs in the market was not strong enough to combat the increased buying pressure and the market fell into more of a sideways type of congestion on the 5 minute time frame throughout the rest of the morning.



The slower downside, greater degree of overlap in prices, and declining volume which took place as the market corrected into noon were all strong indications that the resistance would give way and another bout of buying would follow. The channel break for the pullback came a bit earlier than the 12:00 ET reversal period and the buying was a bit on the slow side initially, but then increased as the upside move continued. By 12:30 ET the gaps had closed in the Dow Jones Industrial Average ($DJI), S&P 500 ($SPX), and Nasdaq Composite ($COMPX). The buying came to a halt when the gap filled in the Dow and Nasdaq and a little higher at the 15 minute 200 simple moving average in the S&P 500.

Even though the indices pushed through the 15 minute 20 sma initially, that resistance level plagued the market throughout most of the remainder of the day. This moving average was under the closing gap prices, but when the market corrected off that price resistance it was the 15 minute 200 sma that gained its attention. The first wave of selling on the 5 minute time frame coming off the resistance was the strongest. An Avalanche pattern then ensued as the market hugged the 5 minute 20 sma in much the same way as the indices would soon be reacting to their own 20 simple period moving average, except for the fact that the 5 minute time frame was a short setup, whereas it would need to be flipped upside down to be a bullish one.



A second wave of mid-day selling hit at about 13:30 ET as the Avalanche gave way. This time the move was much more stunted than before. After only testing the 11:45 ET lows zone the market again pulled somewhat higher into 14:30 ET. This was a sloppy move with greater price overlap from bar to bar than earlier. Combined with the briefer selloffs, the third was was even more ugly than the second. Volume dropped off more and the indices began to hug the 5 minute 20 sma resistance, as well as the 15 minute one. The trigger on both time frame setups took placing coming out of the 15:00 ET reversal period, but the market never really got too far off its feet before the closing bell rang.

Friday ended with a loss of 31.14 points in the Dow to close at 13,239. The S&P 500 gained a fraction of a point and closed at 1,453. The Nasdaq Composite fell 11.60 points and closed at 2,544. For the weekly gains, the Dow rose 0.4%, the Nasdaq rose 1.3%, and the S&Ps rose 1.4%. Bear Stearns (BSC) was again a big loser, falling 3.4%. My intraday bias heading into the new trading week is somewhat more on the bullish side, but it would not be difficult to put in another slightly lower low on the 60 minute charts first, so I'll be taking it slow again. Volatility is going to remain high.

Earnings This Week:

Monday:
Before: GTLS, GRRF, LCRY, SYY, VAL, VYYO, XFML
After: ARII, ANSW, BOBE, CNTF, CPII, DV, DTE, ERJ, EXM, LINE, NTES, PAAS, FACE, STEC, WNS

Tuesday:
Before: CSIQ, DDS, ESLT, FOSL, GKSR, GIGM, HD, IGLD, MTRX, SCHS, TJX, WMT
After: A, ANST, AMAT, BBOX, JRJC, GUID, DISK, LZB, LCBM, NLST

Wednesday:
Before: CTR, CPA, DAKT, DE, IAG, ORCT, SLE
After: BCSI, CAI, IMOS, DITC, LDG, NTAP, NUCO, PETM, PLAB, CRM

Thursday:
Before: BKS, BIG, DKS, DHT, EL, FLO, FTD, GMTN, HAR, JCP, LANC, MGPI, SHMR, TWB, WW, WCI
During: THO
After: AFCE, ACS, ANEN, ADSK, CSC, DIET, RDEN, GES, HPQ, HRAY, KSS, NINE, JWN, OHB, PBY, RRGB, VIMC, ZIGO

Friday:
After: CCUR, SJM

Economic Reports and Events This Week:

Monday, August 13, 2007
8:30a.m. July Retail & Food Sales. Previous: -0.9%.
8:30a.m. July Retail & Food Sales, Ex-Autos. Previous: -0.4%.
10:00a.m. June Business Inventories. Previous: +0.5%.

Tuesday, August 14, 2007
7:45a.m. ICSC Chain Store Sales Index. Previous: -0.3%.
8:30a.m. June Trade Deficit. Previous: $60.04B.
8:30a.m. July Producer Price Index. Previous: -0.2%.
8:30a.m. July PPI, Ex-Food & Energy . Previous: +0.3%.
8:55a.m.Redbook Retail Sales Index. Previous: +0.6%.
5:00p.m. ABC/Wash Post Consumer Conf. Previous: -9.

Wednesday, August 15, 2007
7:00a.m. MBA Mortgage Application Survey. Previous: +9.1%.
8:30a.m. July Consumer Price Index. Previous: +0.2%.
8:30a.m. July CPI, Ex-Food & Energy. Previous: +0.2%.
8:30a.m. Aug NY Fed Manufacturing Index. Previous: 26.46.
9:00a.m. June Treasury International Capital Flows. Previous: $112.6B.
9:15a.m. July Industrial Production. Previous: +0.5%.
9:15a.m. July Capacity Utilization. Previous: 81.7%.
10:00 a.m. Crude Inventories
3:00p.m. Aug NAHB Housing Market Index. Previous: 24.

Thursday, August 16, 2007
8:30a.m. Initial Jobless Claims. Previous: +7K.
8:30a.m. July Housing Starts. Previous: +2.3%.
10:00a.m. DJ-BTMU Business Barometer. Previous: +0.3%.
12:00p.m. Aug Philadelphia Fed Business Index. Previous: 9.2.

Friday, August 17, 2007
10:00a.m. Mid-Aug Reuters/U Of Mich Sentiment Index. Previous: 90.4.

Museum Trip

This coming week is Brandon's 5th birthday! I can't believe that he was only 18 months old when I had him in foster care... He still has the exact same goofy grin as when he was a baby! It's now been 6 months since the kids have come to live with me in Florida and it's been incredible! Everyone says how I must be a saint to do foster care, etc., but I wish they would realize it's not as hard as they might think and it's really amazing how much kids can grow and change in just a relatively small period of time. I couldn't be prouder of "my" kids!

For Brandon's birthday, "Big B's" sister came down from Iowa and today we went up to the South Florida Museum in Bradenton. We are all very worn out now, but I got a huge hug and a "thank you, thank you, thank you" as we left after a morning of imax movies, treasure hunting, manatee watching and general insanity!

The picture at the top is when we joined the native Floridians for a brief visit! And yes, Oscar, those are my birks I'm wearing! :) LOL!

Creating and Managing a Trading Journal

A trading journal is probably the most important, and most often neglected, tool in determining your success or failure in the market. Do you keep a trading journal? If so, do you've feel you've actually learned something from it?

One of the most common, and least helpful, forms of a trading journal that people use is the spreadsheet. I despise spreadsheets... We are talking a level much higher than simply disliking them. If I ask a client to bring me their trading journal and they show up with a spreadsheet showing things like stock symbol, entry time and price, exit time and price, amount gained or lost and that is all, then I just want to take that spreadsheet and throttle them with it...

What exactly does that type of spreadsheet tell you? Even if you list things you liked and disliked... if you went back a few months later would you actually be able to tell what that trade was, why you really liked it and how it compares to a trade you are taking today? If not, it's a bad trading journal. Spreadsheets will usually only tend to tell you if you are up or down. While they can tell you if you take your gains too fast, in general there is very little useful information to be gleaned from a spreadsheet.

It is a great deal more constructive to use charts in your trading journal. After all, what are you looking at when you take a trade in the first place? Here is how I make my journal entry: After a trade, usually a few hours later, although sometimes at the end of the day, I will print out the charts I was looking at that helped me determine to take a trade. On the top of the chart in the corner I write what the pattern I traded was. I also write the symbol, sector, entry time, price, exit time, price and gain or loss there.

Then on one side of the chart I write my pros and on the other I write my cons. On the chart itself I mark all relevant info: support and resistance, trend lines, volume, etc. so that when I look back at my chart, I automatically focus in on the main points that helped me decide to take the trade. Then, under my chart on one side I write the things that I did correctly and on the other I write down things I could have improved upon. I then organize my journal according to patterns. There is of course some overlap, but news trades on gaps I keep together, three test triangles, etc. I put those that work in the front of that section and those that stop out in the back of that section.

At the front of each section I then have a list of pros for that pattern and cons for that pattern which builds on itself as I learn. I also have a sheet that lists things I constantly do correctly on that pattern and my most common mistakes. Organization is essential. Your journal must be something you can actually learn from. If you want, you can add equity curves. These can help you narrow down times of the day or week where you trade better and even times of the year. On an equity curve I'd suggest marking significant life events as well.


On my trade page one of the things I write is how I am feeling on that day in general about trading. It helps me see what days to avoid trading. Let's face it, your emotions and how you are feeling will determine how well you do that day. Recognizing those situations ahead of time will save you money. I try not to trade on days where I will have to be in and out all the time, on days where I feel I am coming down with a cold, or actually have one, on days where I only got a few hours or sleep, etc. These are just obvious ones. Unfortunately, sometimes still do it despite knowing better... Let's face it.. if you are sick and bored... do you really want to just lay around in bed, or do you still want to follow the market and see what's going on? I hate laying around in bed myself. Besides, the market is distraction from feeling like garbage... until you lose money... and feel even worse! So, send your significant. other out to rent movies instead.... and vegge out on the couch.

I once had someone ask me that if I am following a set of rules for entering a trade, then why does it matter how I feel when I take a trade. After all, if I stick to the rules, in theory my outcome should be the same regardless of how I feel. The problem is that your ability to stay focused is greatly impaired if you are not feeling up to par. Maybe you are on cold medicine, maybe you are tired from only getting two hours of sleep the night before, etc. Whether you admit it or not, this will affect how you trade, even if you are following your rules. If there was no difference in how you felt as compared to how you perform, then everyone would be able to more easily match results made to their simulation trading. You can plan into simulated results to allow for slippage and not count trades you don't think you could have gotten filled on. There will still be the emotional difference though.

A lot of times with being sick for instance, it can cut down to reaction time. You don't get your orders off as quickly and are slower on execution. Hence, it is easier to miss the better, quicker trades when you might not have otherwise. Instead you are more prone to taking the slower stuff and having them fail more often. Or, if you do get something quick, your exit timing can be off. It really just comes down to being on the ball. Not having a coughing fit or something when you are trying to exit a trade and hit a buy button instead of a sell button is always a good thing!

I made a mistake just like this a few months ago. I had been out sick and was so bored by Friday that I came in. I entered a nice trade. It went my way. I was so slow though from feeling under the weather that I messed up on my exit order and missed my target. I only got out of half of the position. The rest turned into a loss because it was a scalp trade, so I bailed. I used a market order, which is something I almost never do, but forgot to change the order to half size. So, guess what? I ended up short a half lot.

In the end I was very lucky. I made just enough to cover commissions. It never would have happened though had I not been trading when I was sick, because my reaction time was slow and my ability to think quickly and make adjustments was greatly impaired. Sometimes, even when you learn a lesson... you need a reminder!

A journal doesn't have to take a lot of time, even with the amount of data I've asked you to keep track of. A chart is easy to print out and you can mark it up pretty quickly. Not having enough time is one of the biggest excuses I have heard for not keeping a trading journal. If you print out your charts an hour or so after each trade for a daytrade though, you can work on your journal during slow times throughout the day and it doesn't take away from your day at all, since you'd likely be sitting here watching the market anyway.

I know very few successful traders that do not have a journal of some sort unless it took them many years to become successful. At that point they pretty much have a mental journal from seeing things over and over so often. It takes a lot longer that way, however, to actually make the connections and be able to explain them. We all have that to some extent, "I just knew that was going to work but I didn't take it!" The reason is typically just not knowing why it would work... The subconscious had processed it but the conscious had not.

When I am printing out the charts for my journal I print out the time frames that were relevant to making my entry and exit decisions. I use Paint Shop Pro to create the image, so on my charting platform I just have my significant charts grouped together. I can then hit the PrtScn button to copy the image and crop it down to the charts that are important. This allows me to put my 1 min, 5 min, 30 min and daily (or whichever ones I feel are most important) all on one page. It saves me both time and paper that way.

One review method that works really well following a trade is to cover up the outcome and walk through it bar by bar as it develops to help cement that progression into my mind. It allows me to focus more clearly on the key points as a pattern develops that I might not have seen initially. That way I can recognize it more quickly the next time you see the same action forming.

The Pattern Day Trader Rules

Well, this is a really old article I wrote back when the Pattern Day Trader Rules were first introduced. I'm reposting it now, however, because I still get a lot of questions from newer traders on what exactly this rule is and how does it affect them. Namely, putting it to them in straight terms instead of with some legal mumbo jumbo... So, here it is:

The Pattern Day Trader Rules

Beginning September 28, 2001 margin rules and requirements for one group of traders changed dramatically. The new rules apply to traders categorized as Pattern Day Traders (PDTs) . These are traders who make 4 or more day trades within a 5 day period, unless his/her day-trading activities do not exceed 6% of his/her total trading activity for that time period. Thus, if you have only 4 daytrades in a 5 day period but have done more than 67 trades during that time, then less than 6% of the trades were day trades and hence do not categorize you as a PDT.

A day trade refers to opening and closing a position within the same trading day. If you are in a position with one entry of 1000 shares and you take two exits of 500 shares each within the same day then this is only considered one day trade. You could also be categorized as a PDT right away without waiting to see your 5 day record if your trading firm has reason to believe you will be a PDT. For instance, if the broker trained you solely to day trade, then they will label you as such from the beginning.

There are several main changes which now affect pattern day traders that did not apply before 2001. One is that PDT's must have a minimum of $25,000 to open a margin account as opposed to previous requirements of a mere $2000. Funds deposited into a day trader's account to meet the minimum equity requirement have to remain there for at least two business days following the close of business on the day the deposit was made.

Many brokers now require all PDTs to have the minimum $25,000 even if they are trading from a cash-only account as the new rule is unclear about trading from cash accounts. It does clearly prohibit it and yet, neither does it state that it is allowed. Day trades in a cash account cannot violate the free-riding prohibition of the Federal Reserve Board’s Regulation T. Generally speaking, free-riding is failing to pay for a security before you sell that security in a cash account. It can take 3 business days for your purchase of a security to settle. If determined that you free-ride, then your broker must place a 90-day freeze on your account. Typically, the free-riding label is determined based upon repeat behavior. If you are a longer term trader, for instance, but are forced to exit a position due to a stop hitting, you will not generally be considered to be in violation of this regulation.

Another major change is that PDTs now have twice the buying power as they did before. While traders once had access to 2:1 margin, they now have 4:1. Whether you choose to use this increased buying power or not is completely up to you, although you should still base your risk per trade upon your account size, not the amount you have available to you as a result of margin.

There are several notable changes on how margin calls are handled as well. One which used to be a thorn in the side for many traders has now been eliminated. In the past, a position sold and repurchased on the same day which was opened on a previous day was considered a day trade and often led to margin calls by traders due to differences in intraday and overnight margin. This possibility no longer exits since the sale of the position is now treated as a liquidation of the existing position and the subsequent repurchase is considered to be the establishment of a new position which is not subject to the rules affecting day trades unless it is also closed that same day.

Additionally, cross-guarantees to meet daytrading margin calls, as well as minimum equity requirements, are now prohibited. This means a trader cannot borrow from another trader to meet a margin call or minimum equity requirement. The trader is independently responsible for meeting margin calls or minimum equity requirements.

Should a trader receive a margin call, his/her buying power will be cut in half. Instead of 4:1 they will only have 2:1 margin until the call is met. If the call is not met by the fifth business day then the PDT would be limited to trading on a cash basis for 90 days or until the call is met.

Swing traders and position traders are not affected by the PDT rule, but you must be careful. Traders mixing styles or taking stops in the same day the position sets up are at risk of being considered a pattern day trader as only six trades out of every 100 you make within a 5 day period can be day trades before you are labeled a PDT. For those unfamiliar with these terms, a swing trader is typically one who holds a position overnight for about 3-5 days based upon daily pattern setups. A position trader is one who is trading based upon weekly or monthly setups and tends to hold for several weeks to several months.

For more in depth information on these rules please refer to the NASD Regulation Website at http://www.nasd.com/.

Bears Yell "PSYCH!"

Good day! After just posting one of the best days in the market in years, the bulls were yanked back to reality in Thursday's session with the second worst close in the Dow thus far this year. The session reminded me a bit of the school-yard bully in elementary school. He was the kid who was really mean and would tease another kid mercilessly, but then when a new kid came around he could taunt he would be really nice and jovial to his prior victims. When his new obsession wore out, however, he was soon back to picking on his old favorites. Well, after being held back for most of the year, this bully has decided that it's his day to shine. He took a back seat after the market hit support a few weeks ago as he considered his next move. He concluded that he would play with the bulls for a bit on Thursday before he proceeded to shove them into the mud puddle...

The day began on a sour note for the bulls with an extreme downside gap. The futures had been selling off steadily since the wee hours of the morning, but they did manage to open smack into support intraday at the 15 minute 200 simple moving averages and price support from the last couple of days. Most extreme gaps attempt to fill and this meant a bullish bias out of the open when the bulls thought for a minute that the market bullies had moved on. As soon as the gap closed in the Nasdaq Composite, however, the bulls were grabbed by the collar and yanked back off their highs.



A bit of a scuffle ensued in the latter half of the morning. The market tried to pull back up out of 11:00 ET, but was unable to break through the earlier highs. That price resistance and the more gradual climb gave way to selling again around 11:15 ET. The Nasdaq Composite was the hardest hit of the three major indices and pulled back to well under the 10:45-11:00 lows before finding support at noon with the 12:00 ET correction period and the 5 minute 200 sma. The S&P 500 and Dow Jones Ind. Average also came into the 5 minute 200 sma at the same time, but they had almost no room to move before they hit, so the impact was lessened.

The market then continued to roll over into the early afternoon. The indices fell nearly flat coming out of 12:00 ET and volume dropped as they managed two waves of upside into 12:30 on a 2 minute time frame. These moves were barely discernible on a 5 minute chart before the 5 minute 20 sma hit, along with another wave of selling. This move was a bit stronger than the last and took the market all the way back to the opening lows. These corresponded to the 15 minute 200 sma. Volume increased and the Nasdaq rounded off slightly to trigger a scalp buy setup shortly after 13:00 ET. The index had three waves of selling into major intraday support and slowing momentum, both of which was rather bullish on at least a short-term time frame. The 5 and 15 minute 20 sma overhead served as resistance for the correction off these lows and acted as the "guaranteed" target for the pivot higher. While a longer correction off the support was possible, getting any more substantial gains past the 5 minute 20 sma was more "iffy" due to the proximity of the 15 minute 20 sma and the underlying market weakness.



When the 15 minute 20 did hit, the 14:00 ET correction period was right there to catch it and the selling resumed. The remainder of the day was a lot more difficult than earlier in the session. I actually took off at about 14:30 ET to hang out with a friend who is visiting from out of town, but I don't think I would have done much in the futures market due to the greater degree of overlap on the 5 and 15 minute time frame that would have made it more difficult to see a lower risk continuation pattern after the 14:00 ET pivot. The main thing that did hold steady was the 5 minute 20 sma resistance. All three indices were unable to penetrate this resistance zone throughout the remainder of the day and the market closed right at the zone of the intraday lows. If you take a look at the daily charts, this was also the moving average support zones that had stalled the Dow and the S&P 500 in recent weeks.

By the closing bell the Dow Jones Ind. Ave. ($DJI) had lost nearly 400 points (actual loss was 387.18, 2.8%). Citigroup Inc. (C) and JP Morgan Chase Co. (JPM) were among the hardest hit. They each lost more than 5% in Thursday's session alone thanks to news of continued worries over credit. The S&P 500 ($SPX), in which the financials carry even more weight, fell 44.40 points, or 3%. Within this index, Walmart (WMT) fell 4.1% after it posted earnings. The Nasdaq Composite ($COMPX) suffered the smallest decline in percentage terms. It lost 56.49 points, which translates as 2.2%.



I'm not very optimistic on Friday. This week has been a great deal better for trading than I had anticipated. I was pleasantly surprised by the number of high quality setups I found, not only in individual stocks moving on momentum unrelated to the overall market, but in the indices themselves. Sure, there were some huge chunks of time where volatility was simply too high to justify the risk, but overall it was a pretty nice week.

I am still concerned about the daily time frame, however, when it comes to follow through. I had expected the market to hold up a bit better on Thursday before it gave way to selling again, but now the door is open for another test of the month's lows. It is even going to be easier for the market to try to break to new lows on the month within the next week. That would not necessarily be the best scenario for the bears, however, because the market really has not corrected enough off the current lows to as easily sustain another mammoth daily selloff quite yet under normal circumstances. For that to happen, ideally the market would continue to chop around for at least one more week, if not two, and do so on declining volume before breaking down.


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!

Trading "Blindly"

I mentioned in my previous post that one of my equities trades was MSA. Well, while it ended up being a nice trade, it was not nearly as nice as it should have been! I entered MSA thinking that at the very LEAST it was going to get to $58. I was a little late on the entry over $57 because I pulled up the stock right as the setup was triggering, but I had an extremely tight stop due to the narrow range it was moving out of. On this type of setup the larger target is a few ticks under the original high, which meant $59, with initial resistance at $58 because it would be the smaller equal move and whole number resistance.

Well, not too long after I was in the setup, all my charts went down. I was completely BLIND! I am a chartist. I read them like I do a book and now someone went and suddenly took away my eyesight and I was a goner. There was this little voice in the back of my head that said, "Don't worry, this is going to work out. Don't change your plan." The naughty voice took over though, saying, "You can't see anything! Ha! Ha! This could be rounding off here at highs and you can't tell!"

So, what did I do? Well, first I took off half my size into the $58, still trying to listen to the reasonable voice telling me that just because I didn't have charts didn't mean the stock was going to perform any differently than normal. When it didn't break through the resistance, however, I went and just said, "Forget it! I have no idea when or if I'm going to get charts back today and I can't just keep sitting here watching time and sales all day!"

Of course, as soon as I hit the sell button, I knew I'd mucked up! The sane voice said, "You dummy! Now look what you did! Just watch!" Sure enough, three minutes later my charts came back online and it was obvious that the correction off the $58 resistance was not going to lead to a reversal and when the stock broke through the $48.40 level the momentum it was gaining had me realizing at that point that it would go through my original target very soon, but I just couldn't bring myself to get back into it after having so many charting problems all day and not knowing if they would fail again or not...

Lesson: Stick to your plan even if you end up blind! It's very hard to not let things which catch you off guard like this faze you, but it's very important to listen to the sane person! Yeah, ok, so this is really easier said that done! I think I need to go back to keeping my notebook in front of me though where I write down my plan when I enter the trade... the target, stop, etc. It helps to keep the sane voice on top when you have something in print in front of you reassuring you that this is the "sane" way to manage your trade!


http://www.tradingfrommainstreet.com/images/trades/trades20070809MSA.gif

Drive by Trading

Ok... So my friend in here for the week for vacation, but I still can't just leave the market! I know... sad.... very sad.... Anyway.... I've been doing drive-by trading... popping my head in, seeing a setup, grabbing it, then taking off again. I'm three for three on excellent setups. The only futures trades I've done was the NQ a few minutes ago. (Other two trades were EXPE and MSA this morning.) The NQ is as follows:

Pros:
- Three waves of selling
- Smack into morning lows
- Volume spike on initial drop into lows
- Congestion where pace slowed into lows
- Lesser volume on subsequent retests of lows
- No immediate overhead resistance
- Slower pace on subsequent lows following spikes off the lows
- 15 minute 200 sma on the ES and NQ at the same time as the lows hit
- Larger congestion and trading range on the 60 minute charts to allow for decent pivots

The market has plenty of room to continue to correct more off this support, but this was pretty much the "sure thing" and I don't want to have to stick around and wait it out! Then I'd have to call this post something other than "Drive-by Trading"!

http://www.tradingfrommainstreet.com/images/trades/trades20070809NQ.gif

Market Rally Continues

Good day! Volatility in the market remained high in Wednesday's session as the major indices continued to react to the support levels which have been hitting over the past week or so. This was in line with our expectations heading into the session. Fortunately, the continuation of the move off support did lead to some very nice intraday setups in individual stocks, even though the indices were a bit more difficult to follow.

Among my favorite gainers due to the daily charts serving as favorable setups for a trend day were SPG, ATI and NMX. Unfortunately, I had to take off early on in the session and missed the best action on the day. Given the number of pivots off support on Wednesday and the fact that Wednesday was the third day of upside in the overall market, I am expecting things to be a bit more difficult in equities again into the weekend. My overall bias is still short-term bullish, however, so I will be focusing primarily on buy setups with more of a scalp perspective on the short side unless it is something moving on news.



Wednesday began with a nice upside gap into the zone of Tuesday's highs. Instead of reacting to that resistance level, the market held the gap without hesitation and fell into a trading range without any pull back into the gap zone. This was a promising start for the bulls. A trading range ensued until the 10:15 ET correction period when the indices broke to new intraday highs. In the larger scheme of things this early morning breakout was too soon on the 15 minute time frame where a rally had been in play ever since reversing after Tuesday's Fed announcement. Without some sort of base or pullback on the 15 minute time frame, it would be difficult to sustain much more upside. The market did creep higher into about 10:45 when the next correction period hit, but then succumbed to the larger time frame exhaustion and began to pull back into noon.



Interestingly, Wednesday's trading in the overall market did not differ a great deal from that of the previous session if you line up the trading that began at 10:15 ET to the activity which began at the open on Tuesday on the 5 minute time frame. After the steady move higher, the market began to pull back. It did so with a very typical two-wave correction which lasted into noon. Volume dropped off a bit and was the lightest during the second wave of selling on the 5 minute charts over noon, suggesting an upside resolution to the trading range. This bias was supported by the fact that the second wave of selling was also slightly more gradual than the first and made a smaller move to the downside, even though it took nearly the same amount of time as the drop out of 10:45 ET.



The two-wave correction in the market triggered a buy setup shortly before 12:30 ET in the indices. The momentum was still on the slow and choppy side, but a number of individual stocks which had been showing strength earlier in the session experiences strong upside breakouts as the overall market began its climb. The mid-day pattern in the indices was a variation of the same pattern we experienced on the daily time frame over the past two and a half months. Just look at the daily charts and compare them to the 5 minute time frames. I've marked both in green to show the comparable moves. In a recent presentation in Denver I spent a great deal of time on this particular market development because it's one that repeats over and over again in the indices as well as in individual stocks.

Throughout the first half of the afternoon the market moved steadily higher. At 14:30 ET, however, the gradual uptrend gave way and the market flushed quickly lower. This was due to the slower upside momentum and has been the primary risk throughout the past two days as a result of the slower pace of the buying and the greater degree of overlap from one bar to the next on the intraday time frames. When the channel support broke, the selling was quite extreme. It reclaimed all of the gains in the Dow and nearly all the gains in the S&P 500 and Nasdaq Composite. In the final half hour of trading the bulls lucked out and the gap support held. The Dow ($DJI) managed to add back 153.56 points before the bell, while the S&P 500 ($SPX) rose 20.78 points and the Nasdaq ($COMPX) gained 51.38 points.

Market Posts Gains Following Fed

Good day! The market managed to close modestly higher on Tuesday after a slow session heading into the day's FOMC statement and large whip-saw action following the announcement. All-in-all it was a rather typical Fed day. The morning began with a small downside gap into the open, but the 5 minute 20 simple moving average held it and the indices crept higher until the gap zone had closed. This took place shortly after 10:00 ET and the indices then fell back and sideways as the volume began to dry up. This made it difficult to do much with the index futures since choppy trading set in and the upcoming Fed announcement meant that the closer the day came to that announcement, the higher the risk would become.

Even though the market as a whole had a really difficult time to start the day, moving only slightly higher, a number of individual stocks had some nice momentum, creating a number of strong opportunities in individual stocks. Among those stocks which did trend pretty well intraday on the upside were NILE, NOV, DE, MR, OII, GES, FMCN, ELON, JASO, OMTR and EQIX. A problem many traders I talked to had, however, was that many of the gappers didn't really go very far after the open and just chopped around instead, so they got cut up a bit. One thing to watch out for when you are trading stocks gapping on news is to avoid those which ran for several days before gapping or are gapping and moving right into a 20, 50, 100 or 200 day sma. Those levels are more likely to hold the first day they are hit on a reversal or correction.



The indices split heading into noon. The Dow Jones Industrial Average ($DJI) and S&P 500 ($SPX) both broke higher out of the 15 minute triangle than began with the previous afternoon's highs. The Nasdaq Composite ($COMPX) had pulled back more and failed to react as much off support. While the Dow and S&Ps managed to climb into noon, the Nasdaq could not bust through its morning highs and the 15 minute 200 sma that was hitting at the same time. The 12:00 ET reversal period corresponded to this resistance and the S&Ps also hit equal move resistance in that zone. This led to a second correction off intraday highs into the early afternoon.

Support hit on the second pullback at about 13:00 ET. This was the 5 minute 20 sma again in the Dow and S&Ps. Volume was now even lighter. The financial sector really began to take off at this time with the Fed only about an hour away. As they soared, the market as a whole slowly climbed. It hugged the 5 minute 20 sma zone, however, and this was a strongly bearish indicator since it was the third move higher on the 5 minute time frame. This meant that the trend was also exhausting itself going into the Fed.



After the Fed announcement hit with no change in rates, we saw the typical three wave reaction. First the market dropped, popped and dropped again on a 1 minute time frame. It then repeated on the 2 minute. This was the easiest to see in the Nasdaq. I had a lot of charting issues after the Fed, as did many I spoke with, whereby many of my charts lost data. It didn't affect how the market reacted, however, and before long the indices were beginning a second wave on the larger 5-15 minute charts by turning around off lows around 14:35 ET with a pattern very similar on the 5 minute of the Nasdaq as compared to the move off Monday morning lows. Resistance hit at 15:00 ET, but then the buying continued into 15:30 ET before pulling back into the close. The Dow ended the session with a gain of 35.52 points, while the S&Ps rose 9.04 points and the Nasdaq Composite gained 14.27 points.



Going into Wednesday I think we are going ton continue to see the market react off the lows of the last couple of weeks, however the momentum coming out of Monday's low is slower than it was heading into it. This leaves the door open to pull back on Wednesday since the pace would ideally need to turn over better with more gradual downside before we would normally see a strong upside momentum move or correction off support. This means that while I expect longer corrective action off this recent support, I think it's going to continue to be a bit more difficult for now with greater chop.

Comparative Trade Analysis

I thought you guys might love this chart comparison on two trades in the NQ on different time frames... A favorite pattern of mine which I also showed in earlier posts located at:

http://www.tonihansen.com/blog/2007/08/ym-trade-2-premarket-trade-reincarnated.html

and

http://www.tonihansen.com/blog/2007/08/premarket-ym-trade.html


Image link:

http://www.tradingfrommainstreet.com/images/trades/trades20070807NQ.gif

Morning Hesitation Gives Way to the Bulls Ahead of Fed

Good day! Monday was an interesting day in the market. The lack of bias that was showing heading into the open continued early on in the session. A slight upside gap quickly closed, but after finding support at Friday's lows in all three of the major indices, as well as Wednesday's lows in the Nasdaq, the momentum began to change and a stronger intraday bias began to emerge. From 10:00 ET into 11:00 ET the market pushed back into the lows, but refused to let go of the 5 minute 20 simple moving average resistance levels. It just slid lower with a great deal of choppy trading and on lighter volume than the first decline of the day. This tug-of-war eventually wore out the bears, which had been working hard since Friday to push for stronger tests of daily support. Soon after 11:00 ET they simply gave up and let go. The market soared.



Even though the market was rapidly gaining momentum, most of the stocks that would end up closing with the strongest gains on the day were not those that began the session on the gainer's list. This made it more difficult from my standpoint to really find decent, class-act setups in stocks since most of the setups were similar to those which took place in the indices. This meant that they rounded off at lows and then took off late in the morning, but only had 5 minute continuation patterns with bull flags and such on that time frame. So the scale of the setups made it difficult to scan for them and take advantage of them unless you just happened to have the charts up at the time these smaller setups formed or choose a few early on and just played those out intraday. Since my initial scans for the day resulted in almost nothing of interest in stocks, however, I didn't even bother to put much effort into scanning for them and stuck purely to trading the futures in Monday's session.

Some of the most notable gainers on Monday were BSC, MER, GS, FNM, FRE, MA, MBI, LVS, JCP, AAPL, FITB, ERTS, APOL, TROW, LRCX, WYNN, and NTRS. Notice that among the NYSE stocks many of the top performers were in the financial sector, which had suffered one of the strongest beatings in recent weeks. Merrill Lynch (MER) was even rewarded with an upgrade to buy from UBS. After checking out its weekly and monthly charts, I concur that the downside move is quite exhausted in that security at this point. The volume has spiked and its run smack into support from last summer. It makes sense that it will recover some of its recent decline in the near future. I don't expect the buying overall to be nearly as strong as the selloff though. Check out the drop into March and subsequent recovery to that selloff for an example of a typical correction following a stronger than average decline. Typically the correction off a second comparable drop in a row is even choppier than the first.



As the market pulled up off lows, it followed textbook technical rules very well. Three waves of buying into about 12:30 ET were then followed by a two wave correction into the 14:00 ET reversal period. The second wave of this correction was more gradual than the first on volume was lighter on the entire move off mid-day highs, creating a nice continuation to the upside right off the 15 minute 20 simple moving averages in the Dow Jones Ind. Average, S&P 500, and Nasdaq Composite.



The final two hours of trading once again took over where the morning rally had left off. Three waves of buying into 15:15 ET on the 5 minute time frame were followed by a slightly longer correction into 15:30 and a final move higher into the close. By the end of the day the Dow was back near Friday's highs and the S&P 500 was hitting previous 15 minute highs and its 15 minute 200 sma. The Nasdaq lagged behind on the afternoon upside and did not quite make it into those comparable price levels, but still managed to close a few ticks from the high of the day.



Monday's rally tacked on a whopping 286.87 points to the Dow ($DJI). This was the largest single day performance for an upside move since June of 2003 and it came within only a few points of recovering all of Friday's losses. The Dow closed at 13,468 with 29 out of its 30 stocks advancing. The S&P 500 ($SPX) rose 34.61 points after falling 39.14 points on Friday and closed at 1,467. The Nasdaq Composite gained 36.08 points, which was only a tad more than half of Friday's decline of nearly 65 points. It ended the session at 2,547.

Even though Monday ended up being a great deal more active for me than I had been expecting heading into the day, I am still leery going into Tuesday. Often a Fed day begins with some upside out of the open and then things slow down a great deal a few hours ahead of the 2:15 ET announcement. I tend to close down most of my level II windows and time and sales at this time to help prevent my computer from getting clogged up with data when the announcement hits on what changes, if any, the Fed plans on making in interest rates. Most believe they will leave them unchanged this time around.

The reaction to a Fed announcement tends to be pretty similar each time. There is usually an initial move, a corrective move which may be greater than the initial move, and then a third move back in the direction of the initial one. This takes place first on a 1 minute time frame and repeats on a 5 minute one.

Economic Reports and Events - Aug 6-10, 2007

Monday, August 6, 2007
There are no economic indicators scheduled for today.

Tuesday, August 7, 2007
7:45a.m. ICSC Chain Store Sales. Previous: +1.1%.
8:30a.m. 2Q Preliminary Productivity. Previous: +1.0%.
8:30a.m. 2Q Preliminary Unit Labor Costs. Previous: +1.8%.
8:55a.m.Redbook Retail Sales Index. Previous: +0.5%.
2:15p.m. FOMC policy statement
3:00p.m. June Consumer Credit. Previous: +$12.9B.
5:00p.m. ABC/Wash Post Consumer Confidence. Previous: -8.

Wednesday, August 8, 2007
7:00a.m. MBA Mortgage Application Survey. Previous: +1.8%.
10:00a.m. June Wholesale Trade. Previous: +0.5%.
10:30a.m. Crude Inventories

Thursday, August 9, 2007
8:30a.m. Initial Jobless Claims. Previous: +4K.
9:00a.m. Chain Store Sales.
10:00a.m. DJ-BTMU Business Barometer. Previous: Unch.

Friday, August 10, 2007
8:30a.m. July Import Prices. Previous: +1.0%.

Earnings Announcements - Aug 6-10, 2007

Monday:
Before: LNT, WTR, CTB, CXW, DRAD, ENCY, MCY, NRP, NWN, ORBK, RAE, SNTS, ELOS, TDG
After: ACMR, ALGT, ASEI, AHS, AGII, AUDC, AXD, BLKB, NILE, BMC, BDE, BEXP, CBM, CDR, CLWR, CRK, CNO, CTRP, CUTR, DNB, EBS, GHDX, HLEX, HLF, HIMX, HLF, HIMX, ITWO, JCOM, LOCM, MNT, MIVA, NAVR, NVTL, OMPI, OTTR, PRXL, PKY, POM, PAA, QGEN, QSII, RSCR, RTEC, WINS, SINA, SRSL, STAA, SYKE, TTEC, TBBK, TNS, TMTA, YSI, WNG, WYNN

Tuesday:
Before: ACW, ANR, BBG, BLTI, BXC, CTIC, CHD, CINF, CCOI, CYNO, DF, DK, DTPI, DTG, DHT, DUK, EP, ESLT, EMCI, EMS, EMR, ENG, EXPD, FE, GVHR, WOLF, HET, HSIC, HEW, HURN, ICON, IIVI, IDEV, IART, IPG, IFF, ISE, IPGP, KG, LINC, MMC, MLM, MVL, MMS, MCCC, MDH, MEND, MSA, MINI, TAP, MNTA, NNDS, NGPC, NOVN, OPTN, OFIX, VITA, GLT, PFGC, PQ, PCG, PNK, PNCL, PXD, PXP, PLA, PBH, SBSA, SPC, SHOO, SURW, TECH, TICC, THC, TSO, TRMP, TXU, TYC, UCO, USM, VICL, VTAL, WTI, WRNC, WMG, WCI, WXS
During: SAM, SNHY
After: ADPT, MDRX, ALJ, ATO, ATW, CAR, BMRN, BIO, CEGE, CPHD, CRL, CSCO, COGO, CREE, CCRN, DCT, DEPO, DRRX, EGLE, EQY, ESE, EXEL, FLR, FST, GOLF, GTRC, HRS, HSTX, HCN, HLYS, NSIT, JRT, KND, LEAP, LTRE, MVSN, MFB, MSSR, MDR, MRX, MBLX, NGAS, NUAN, ONXX, OPMR, PACR, PZZA, PSPT, PSEM, PCR, PLCN, QMAR, RENT, RMD, SALM, SCI, SGTL, SOMX, SONS, TWTC, TRLG, UPL, UNCA, UNTD, UTI, GB, WMS, WPTE, UBET, ZIPR

Wednesday:
Before: FLWS, AGU, ALD, ALY, ALLT, AHII, ABTL, AVT, BRL, BECN, BVF, CVC, CRZO, CSK, CLHB, CDE, EMAG, EPL, XJT, FWLT, FTO, GEO, GNA, HANS, HL, HSOA, HSP, IDA, NRGY, ISPH, TEG, IDCC, IHR, VTIV, IWA, JBX, JRCC, KTO, LAMR, LXP, LMIA, TMR, MEK, NOOF, RL, PGN, KWK, REV, SKYW, S, STN, SWSI, WR, WIN
After: AAP, AIRN, AIG, ARP, ACF, ARBX, BAS, EPAY, CELL, CECO, CENT, DIGE, DCEL, ESPD, EXLS, FLS, FOXH, FNDT, GGC, GOL, GDP, SRVY, GES, INSP, INWK, IO, IPAR, IPAS, DMX, JUPM, KNXA, MEAS, MRN, MRGE, NKTR, NWS.A, NTN, OMRI, ORA, PLLL, PDII, PGIX, PRSC, QLTY, BID, SRX, SGY, STKL, TOA, TELK, KNOT, URS, VTR, VSAT, VSTA, VNUS, WEDC

Thursday:
Before: KDE, NDN, ABBI, AIXD, AES, AHCI, AMSC, AIT, AQNT, ASN, ARCC, STST, ATPG, BCRX, BGG, BCRX, BGG, EAT, CALP, CAH, CYCL, CNTY, CDL, CNSL, CEI, XTEX, XTXI, CMLS, CYPB, DBD, DTV, DRS, SYN, EIX, EFD, FRP, FOE, FTD, GTOP, GILT, GCA, GLBC, GSOL, GG, GBBK, HEES, HLS, HB, HOC, HDIX, IAR, IFOX, KBW, KOP, TVL, MIC, MGA, MTRX, MPW, MEMY, MOVI, MGAM, NAT, NRF, CHUX, OVRL, PTIE, PRFT, PRGO, POP, ROLL, RCNI, RTK, SONE, SIRO, SUG, TRK, STXS, STRL, SPH, STP, SUP, SYNM, TLCV, TRGL, TRXI, TWTR, RMIX, URBN, VIAC, VG, WNR, WON
During: ARD, CKFR, EPEX, VLCCF, THO
After:JOBS, ACS, AIRM, ANEN, AH, AGO, ASFI, AXCA, BOL, BORL, BDY, BRKS, BUCA, CPKI, LNG, CLRK, CSC, COSI, CUZ, DWRI, DNEX, DEIX, DESC, DIVX, HILL, DTSI, ECLG, ELX, EXM, FMD, HINT, DISK, IMAX, IFON, INPC, INTX, KNTA, LEV, LCBM, LGF, MCHX, ME, MIDD, MNTG, NEXT, NFI, NVDA, OPLK, PSUN, SAPE, SFC, SNS, SYMM, SYNA, TMRK, NCTY, TIE, TRMS, VIMC, INT, ZOLT

Friday:
Before: AYR, CRYP, DISH, NVAX, UIC, WCRX

Market Takes Another Plunge

Good day! Well... We knew it wasn't going to an easy correction off the daily support! This certainly proved the case with Friday's session! The day essentially confirmed in my book that this time around the market is not going to be able to make a recovery like it did with February's decline. My weekend scans also make me wary of buying anything other than very short term positions, meaning setups that take place on a 60 minute time frame or smaller.

Heading into the day on Friday, I was a bit more bullish on the smaller time frames given how the market closed the previous day. Right away, however, an initial attempt to move higher based upon Thursday's close failed. The main catalyst was a weak July jobs report in the premarket. The market chopped around for about 15 minutes out of the open and then gave way to selling out of the 9:45 ET reversal period. The momentum of this move led to higher odds for a trading range to hold throughout the morning and the indices became a bit more difficult to trade due to the overlap and chop from one bar to the next on the 5 and 15 minute time frames.



The market fell back into the lower end of the 15 minute trading range by shortly after 10:00 ET. Despite a 2B attempt at the 10:45 ET reversal period, the market failed to regain any significant upside momentum. When the 5 minute 20 sma hit, the indices fell into congestion along it, breaking higher on a Phoenix, essentially triggered a reverse head and shoulders pattern on the 5 minute time frame, but they barely pushed higher even with the more bullish type of pattern. At 12:30 ET the mid-day uptrend channel broke and two waves of selling followed into 13:00 ET. the market attempted again to regain some upside, but when this second uptrend channel break on the 5 minute time frame it triggered a much more substantial short pattern on the 15 minute time frame. All of my focus at this point flipped to the downside.

It was not the easiest selloff to work with once under way. There were no clear-cut bear flags or even bases at lows for decent continuation patterns. Instead, the market just chopped lower with more overlap from bar to bar as it chopped up traders left and right before finally plummeting into the final minutes of trading. The closing drop in the S&P 500 even took this index to new lows on the month, although the Dow and Nasdaq still managed to hold Wednesday's lows.



By the closing bell on Friday the Dow Jones Industrial Average ($DJI) was down 281.42 points. The S&P 500 lost 39.14 points. The Nasdaq Composite fell 64.73 points. In each of these it meant a decline of more than 2% during that session alone and was a second straight week of steep losses. Among the hardest hit on Friday were those wrapped up in the housing debacle. Brokers such as Bear Stearns' (BSC) (-6.3%), Goldman Sachs (GS) (-4.2%), and Lehman Brothers (LEH) (-7.7%) all had a rough day. Even Home Depot (HD) (-4.3%) experienced a sharp decline.



The Fed makes another interest rate announcement on Tuesday and I suspect that Monday and Tuesday morning are going to be slower and lacking in higher number and high quality momentum moves in individual stocks. Many traders and investors will be sitting on the sidelines after the last two weeks of carnage and will await the Fed's news before looking to establish any new positions of greater size. The Fed is expected to leave rates unchanged, but everyone will be watching to see what, if any, clues their may be for helping ease the current credit crisis. So far the Fed has taken quite a back seat approach and shown no signs that it plans to do anything at all to really address these concerns.

Investment Stock of Interest - CHK

I did a great deal of scanning this weekend, and nearly every one of the S&P 500 looks lower on the weekly and monthly time frames as the year continues. I've had a very difficult time in recent months in finding decent setups on the larger time frames for position trades and longer term buys and very few of the stocks I scanned through this weekend are even close to what I would consider to be an ideal buy. In fact, not a single one of them was one I would deem to be a low risk setup.
I do have one stock that still really stands out on the weekly and monthly time frames that I do like, but as is the case with MMM from a few weeks ago, this stock can also still hold its base and congestion for several months or more before it really gets going, so these two are things I am more comfortable accumulating coming off the lower levels within the range itself for the time being instead of take any new break to weekly highs, since those are more likely to not hold for the time being. This second stock is Chesapeake Energy Corp. (CHK).

Chesapeake Energy Corporation, an oil and natural gas exploration and production company, engages in the acquisition, exploration, and development of properties for the production of crude oil and natural gas from underground reservoirs. As many of you may recall, CHK has been on our radar since last December, when I also expressed that a longer consolidation was likely. I will continue to monitor this for additional setups within the congestion itself, as I will with MMM. Do not be surprised it it attempts to take out the lows made at the beginning of this year before it can turn back over again. FWLT on the weekly time frame early last year has a pattern similar to CHK on the monthly time frame. RVBD on the weekly into the end of last year was also the same pattern. Notice how both flushed lower before taking off. Even though FWLT and RVBD were weekly setups, the same potential exists on the monthly time frame in CHK. You can check out these comparisons in the charts displayed below. The blue arrows point to the corresponding locales on each of the stocks and show where CHK is likely at in this same pattern development. MMM is very similar.

httphttp://www.tradingfrommainstreet.com/images/positiontradeletter/PT20070806chk.gif

YM Trade #2 - Premarket trade reincarnated!

I love how patterns repeat themselves! Check out trade number 2! It's the premarket one, but instead of on the 1 minute, it's on the 5 minute... same pattern though!


http://www.tradingfrommainstreet.com/images/trades/2WaveYM2.gif

Premarket YM Trade

Ok, so I usually don't trade the premarket at all, but today I saw a setup so perfect that I could not pass it up, and it was kind enough to reward my by buying me breakfast.... (ok... a little more than breakfast....)


http://www.tradingfrommainstreet.com/images/trades/2WavePremarketYM.gif

Market Congests as Participants Attempt to Digest Recent Selling

Good day! Market volume remained high on Thursday after last week's steep selloff, but the indices continued to try to correct from the daily support levels which hit late last week in the S&P 500 and Dow Jones Industrial Average. The market resumed Wednesday's late day surge right away into the open, moving higher for the first 15 minute of the day. When the 9:45 ET reversal period hit, however, the indices began to round off and correct off the extreme momentum move on the 15 minute time frame. The extent of the 15 minute move meant that the indices would have a very difficult time resuming the buying without a correction taking place on the larger intraday time frames. The momentum of the move also meant that such a correction would tend to be more gradual overall than the rally, which created a strong chance for a trading range throughout the session on Thursday. This is, of course, what we had been expecting heading into the day, so at this point not a lot had changed in terms of the day's outlook.

At first the indices were a bit on the bearish side, pulling back off the 9:45 ET highs at a steady clip. Support hit initially at the 10:15 ET reversal period and volume dropped off a bit as the indices hugged the support zone with only a very gradual upside move before giving way to a second wave of selling out of the 10:45 ET reversal period. I've talked a lot about corrective moves in the market and how typical corrections will take place with two waves of downside. The same was true this time around as well. In the Dow and Nasdaq the second decline only barely pierced the initial low and this led to a form of double bottom pattern called a 2B, which took those indices back into the previous 5 minute highs at about 11:30 ET.



The momentum coming out of the second wave of selling was faster than the first correction off lows, favoring a bullish bias into noon. The indices based slightly along the upper trend channel intraday and broke to new intraday highs heading into noon. A major problem with this otherwise ideal breakout was that fact that on the 15 minute time frame this breakout attempt was still very premature and the market had not corrected nearly long enough to sustain a strong continuation move after the extreme rally from the previous afternoon. So, while the breakout was nice from a daytrade or scalp standpoint, it only managed to establish an equal move as compared to the bounce off lows into 11:30 ET when it broke higher into noon on the 1-5 minute time frame.



Another two-wave correction took place in the market in the early afternoon. As in the morning, the market fell off highs and into support from about the 5 minute 20 simple moving average. Volume again declined as the indices hugged this support zone and for the second time on Thursday. The indices again broke this support for another quick daytrade/scalp into 13:30 ET. This time the amount of the break was greater in the Dow and Nasdaq than before and the corresponding correction off the second low was hence a bit more choppy and uncertain as well. The market had two hesitant upside moves into about 14:15 ET on the 1-5 minute time frame, but pulled back before reaching the previous highs.

This third pullback off the highs finally did the trick. After the 15:00 ET reversal period hit, the market began to creep upwards. At about 15:30 ET the volume began to climb and the bulls scrambled higher as the day's range broke to new highs on the session. Even though they pulled back slightly into the close, the Dow ($DJI) still managed to 100.96 points on the day, while the S&P 500 ($SPX) rose 6.39 points and the Nasdaq Composite ($COMPX) added 22.11 points, exceeding the Dow and the S&Ps in terms of percentage gains with a 0.9% increase, as compared to the Dow's 0.8% move and the S&P's 0.4% gain.



Despite the range, a few stocks managed to make waves with extreme up and downside moves. One of the top gainers was Hewlett-Packard Co. (HPQ), which gained 3.2% aftter Bank of America upgraded it to a buy. Advanced Medical Optics Inc. (EYE) climbed 5.2% when it withdrew its bid to buy Bausch & Lomb Inc. (BOL). Beazer Homes USA Inc. (BZH) managed a bit of a comeback after rumors of bankruptcy plunged it more than 40% on Wednesday and closed up13.6%. Checkfree (CKFR) had one of the largest gains, rising 23.3% after agreed to be acquired by Fiserv (FISV).

Earnings news also managed to move a lot of securities on Thursday. Credit Suisse Group (CS) rose 5%, while Eastman Kodak (EK) rose 5.4% on earnings. Furniture Brands International Inc. (FBN), Invitrogen Corp. (IVGN), Nokia Corp. (NOK), Sirenza Microdevices Inc. (SMDI), and Unum Group (UNM) also rose strongly.

Not fairing as well were Accredited Home Lenders (LEND), which fell a whopping 35.3% to add to the concern of credit woes when it delayed it annual report for 2006. Ameristar Casinos Inc. (ASCA) drop 9.5% on earnings and Bare Escentuals Inc. (BARE) dropped 12.5%. ELY, CHE, CLX, GTW, and GYI also had difficult sessions and closed at least 5% lower.

My outlook at this point remains the same. I am looking for more of a correction off this support zone, but the odds remain higher that things will continue to be rather choppy. My intraday bias heading into Friday is slightly bullish for the short-term. My commitment level is not that high yet though.

Market Continues to Correct Off Daily Support

Good day! I've been out of the market for most of this week, but in the interim the indices have continued to correct along the support zone which hit late last week. The S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI), which had experienced the greatest selling last week, have been holding those lows the most diligently. The Nasdaq Composite ($COMPX) had taken back less of its gains from the last couple of months last week and on Tuesday it broke through the 50 day simple moving average support and nearly hit its 100 day sma on Wednesday.

After gapping higher on Tuesday, the market slid lower throughout most of the day, gaining momentum into the closing bell. This momentum followed through into Wednesday morning, but stalled when the 9:45 ET reversal period hit. A rather rapid, albeit brief, rally took the indices into 5 minute 20 sma resistance around 10:15 ET as the next reversal period hit. This time the overall decline was somewhat slower than before and slowed even more into 11:00 ET. By putting in only a slightly lower low at this next reversal period it created a double bottom trap called a 2B and the market reacted by moving higher throughout the mid-day.

Even though the selling had slowed somewhat into 11:00 ET, the pace of the decline was still above average. So, even though the market bounced quickly right away off the 2B lows, the 5 minute 20 sma again stalled the move and pushed the indices into a range which slowed the overall upside on the 15 minute time frame. This momentum was similar to the larger adjusted pace of the morning to date and created the greater potential for a trading range on the 15 minute charts. Previous highs served as resistance and the market pulled lower again out of 12:30 ET with a second move lower into 15:00 ET. This second move experienced a great deal of overlap from bar to bar and on the 15 minute charts the entire afternoon drop was hugging the 15 minute 20 sma resistance, creating a bullish setup into the final half hour of trading. Volume spiked as the resistance gave way and eager bulls jumped at the chance for what they believed to be a great buying opportunity in an oversold market environment.

By the closing bell the Dow had gained 150.38 points. The S&P 500 rose 10.54 points. The Nasdaq rose to a lesser degree with only a 7.60 point gain.

I don't know that I am as excited as these late day bulls were. Yes, intraday it was a perfect opportunity, but I am not quite ready to believe in the odds of these exact lows actually holding. I think that it will be very simple for the market to try to chop around here for a few more days before we really see another decent attempt to correct off these lows. Greater overlap on the daily time frame and slightly lower lows over a few days would actually allow the market to jump more quickly and sustain a larger correction in terms of price movement on the upside than it it does just try to begin that move on Thursday. When the correction does take place, I still expect just under the previous highs to serve as very strong price resistance.

On Thursday I'll again be back to trading and will return with a more in depth market letter. For now though, it's time to catch up on the sleep I've missed out on this week! Have a wonderful trading day tomorrow and don't forget to get out and enjoy the weather this week while it's still summer!