Hmmm.....

Important Announcement:

Good day! Just a reminder: The "Daily" Market Action Letter has become a weekly letter at this time. It will resume, however, as a regular daily column on September 22! In the meantime, I will be resuming the Weekly Market Action Video, which will be updated each weekend by the open on Monday is posted at the following url: http://www.tonihansen.com/marketactionvideo/.

All my best,
Toni


Hmmm... Where to Begin...?

(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)

I have one simple word to describe the action of the past week: "Wow..." Let's start with the sectors which, while in the news a great deal in recent months, have been eclipsed by the meltdown in the financial sector. These include crude oil and currencies. We have been following crude prices very closely. In the past week crude oil futures hit my target zone for the breakdown setup which triggered in mid-July. The key level we had been targeting was the $89-$100/barrel zone with greater emphasis on the lower end of the range. On Tuesday crude fell briefly under $91/barrel and closed at $91.15. From this point the focus shifted towards a larger correction off this support zone. This should begin to materialize on a weekly time frame.

Another area of the market that has been in our headlights has been the euro. It had also turned over several months ago, offering a nice reversal pattern, and has been selling off steadily. It has also been the focus of a larger correction off support. After hitting lows on 9/11, it has been moving steadily higher. As with crude oil, I expect the euro to also continue to correct higher off this support zone for several months and be visible on a weekly time frame.

Nasdaq Composite ($COMPX)


This summer oil and euro prices grabbed the market's attention. Over the last several weeks, however, the financial sectors have taken over with one surprise after another shaking up not only the financials themselves, but the market as a whole. Early in the week the Federal Reserve made an emergency move to lend insurance giant American International Group (AIG) some much needed support, to the tune of an $85 billion loan. The market was not immediately impressed.

Monday morning had begun with a strong gap lower that, despite an initial attempt, failed to fill. The gap lower had negated a potential momentum reversal buy setup in the Nasdaq Composite. By doing such, it triggered a short instead. The indices continued to work their way lower throughout the first half of the week despite a ban by the SEC against naked short selling. This form of short selling involves the sales of a short without shares or contracts necessarily being held available for shorting or borrowing. Rumors began to circulate that the SEC would move to place additional bans on short selling. This helped to turn things around Thursday afternoon, but the technical pattern on the 60 minute charts also created a reason to buy.

The repetition of gap after gap lower and a choppy trend channel into lows this week created a shift in the larger momentum of the market. This was the same concept that had been at play in the Nasdaq heading into last week which had failed to materialize. This time, however, the market triggered the setup and did so with a great deal of strength in both the S&P 500 and Dow Jones Ind. Ave. The upside momentum continued into Friday morning when the ban on short-selling was confirmed. An end date for the ban, which affects nearly 800 financial stocks, is set on October 2, 2008. The market gapped significantly higher on Friday, but failed to sustain the momentum and held price resistance at highs from several weeks prior. The exhaustion intraday as a result of the prior afternoon's rally and subsequent upside gap was followed by congestion into the close.

To continue the plethora of financial-related news, over the weekend, the last two independent investment banks were turned into bank-holding companies thanks to the Federal Reserve. Goldman Sachs (GS) and Morgan Stanley (MS) are now both subject to new capital requirements and additional oversight and will now allow both companies to accept deposits.

Dow Jones Industrial Average ($DJI)


Even though the indices closed off highs on Friday, the move off the week's lows and into Friday was the largest two-day point gain in both the S&P 500 and Dow Jones Ind. Ave. since March of 2000. From Thursday's low into Friday's close the Dow was up over 930 points. The Dow Jones Industrial Average closed at 11,388.44 on Friday. Despite the end-of-week gains, this was a loss of 0.3% from a week prior. The S&P 500 gained 0.3% from the previous Friday's close and closed at 1,255.07, while the Nasdaq Composite closed at 2,273.90 for a gain of 0.6% on the week.

S&P 500 ($SPX)


As I perused the various sectors of the market over this past weekend I couldn't help but notice how many sectors are at major support zones on the weekly and monthly time frames after having pulled back over the past several months. The sharp rally at the end of last week would also seem like a favorable trait for a larger market recovery. Unfortunately, such false hope is common at lows such as this. When a stock or the market as a whole has a rapid rally such as the one from Thursday into Friday, it can be difficult to sustain them. More often than not they will pull back and can even lead to a slightly lower low and flush out those that had bet on it holding. Even when this does not happen, overhead resistance after just two to three days of upside will tend to push the security into more of a choppy daily range. Even if there is a trend, the overlap from one day to the next can cause increased difficulty, particularly for swingtraders. Expect volatility to remain high and risk as well.


Economic Reports and Events This Week

Monday, September 22, 2008
No major economic indicators scheduled.

Tuesday, September 23, 2008
7:45a.m. ICSC Chain Store Sales Index For Sep 20:
8:55a.m. Redbook Retail Sales Index For Sep 20:
10:00a.m. Sep Richmond Fed Mfg Survey: Previous: -16.
5:00p.m. ABC/Wash Post Consumer Conf For Sep 21: Previous: -41.

Wednesday, September 24, 2008
10:00a.m. Aug Existing Home Sales: Previous: +3.1%.
10:35a.m. Crude Inventories

Thursday, September 25, 2008
8:30a.m. Initial Jobless Claims For Sep 20 Week:
8:30a.m. Aug Durable Goods Orders: Previous: +1.3%.
10:00a.m. Aug New Home Sales: Previous: +2.4%.
10:00a.m. DJ-BTMU Business Barometer For Sep 13:

Friday, September 26, 2008
8:30a.m. 2Q Final GDP: Previous: +3.3%.
8:30a.m. 2Q Revised Corporate Profits: Previous: +1%.
10:00a.m. End-Sep Reuters/U Mich Sentiment Index: Previous: 63.0.


Key Earnings Announcements This Week:

Monday, September 22, 2008
Before: AZO, KMX, NSSC (?)
After: COMS

Tuesday, September 23, 2008
Before: FDS, LEN
After: FUL, WOR

Wednesday, September 24, 2008
Before: NEOG, OHB (?)
After: BBBY, NKE, PAYX, RHT

Thursday, September 25, 2008
Before: ALOG, CHTT (?), CRAI, DFS, MKC, RAD, SCHL, MTN
After: ACN, CBK, CPRT (?), DMND, FINL (?), INTV (?), RIMM, SMOD, SNX, TIBX

Friday, September 26, 2008
Before: AM, AZZ, HMX (?), JBL, JBH

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.