Oil Falls Under $40 for the First Time in 4 Years

Oil Falls Under $40 for the First Time in 4 Years

(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.)

Good day! The market opened relatively unchanged on Thursday as it held the zone of Wednesday's lows. The Labor Department announced ahead of the open that filings for initial jobless claims fell 21,000 last week to 554,000. They are up 59% from this same time last year. Continuing claims fell 47,000 to 4.38 million, up 66% from last year. The news had little impact upon the market. In fact, the market had a difficult time finding anything to get it going either way on Thursday morning.

Nasdaq Composite ($COMPX)


Following the opening bell, the indices congested for a few minutes and then continued lower. The index futures now had two clear highs in place on a 60 minute time frame with a slower paced move into the second high. This change of pace on the upside confirmed when the pullback off Wednesday's highs was a great deal stronger than the rally into them. What the market favored next for a larger price reversal off highs was a third slower upside move. Although it failed to create such third more gradual uptrend, the indices nevertheless complied with the pace change. After hitting morning lows at approximately 10:00 am ET, the indices fell into a triangle on the 15 minute time frame.

Volume declined throughout the morning as each wave of upside with the 15 minute triangle paced itself more gradually than the previous one and the downside maintained a more rapid momentum. This, combined with the rounded 60 minute highs, left the market with a strongly bearish bias into the afternoon on Thursday. The triangle first began to break lower out of the 12:00 ET correction period. The lower channel still held, however, and the indices fell into a base along that lower trend channel. It finally broke free around 13:30 ET.

When the triangle broke, the pace of the selling increased. Volume increased as well, which confirmed the breakout and the bearish bias for the afternoon. Both continued to build upon each other throughout the afternoon. The session ended on Thursday in the midst of last week's trading range.

Dow Jones Industrial Average ($DJI)


The Dow Jones Industrial Average ($DJI) lost 219.35 points, or 2.5%,and closed at 8,604.99. 25 of the Dow's 30 index components closed in negative territory on Thursday. The decliners were led by General Motors (GM), which fell 16.25% on reports that it was in merger talks with Chrysler. Meanwhile, General Electric (GE) fell 8.2% after Standard & Poor's lowered the rating outlook on the company's financial-services sector.. Other top losers included Intel Corp. (INTC), which fell 6.55%, and Alcoa Inc. (AA), which lost 5.6%. Caterpillar (CAT), J.P. Morgan & Chase (JPM), DuPont (DD), Citigroup (C), and Exxon Mobil (XOM) all lost more than 5%. The S&P 500 ($SPX) fell 19.14 points, or 2.1%, on Thursday and closed at 885.34. Crude oil continued to stumble, down approximately 10% to close at $36.22 a barrel. Crude oil prices are now down more than 75% since peaking in July. The Nasdaq Composite ($COMPX) shed 26.94 points, or 1.7%, to close at 1,552.37.

S&P 500 ($SPX)


Over the past several days we have been looking at the potential for a continuation short pattern forming on the daily time frame. The indices had pushed higher with two waves on light momentum into last week, but even though it triggered the third wave attempt on Tuesday with the Fed announcement, its had a difficult time continuing that third wave. Although the indices broke free of the channel of the pullback last week, the market was not able to break to a higher high. This is not what I had wanted to see in order for the momentum reversal to take place to pull the market back into a third low, but the Dow in particular is still at risk. To continue to favor this occurrence, some additional downside into the weekend would be most likely, followed by congestion early next week before another break lower.



Note: I'll be out of town over the next week for the holidays, but my Daily Market Action letter will resume at the start of the new year! Have a wonderful break!