Return of the Come-Back Kid

Return of the Come-Back Kid

Good day! After falling sharply after an initial rally on Wednesday's Fed announcement, the index futures had continued lower in afterhours trading. These losses accelerated sharply following the 8:30 am ET unemployment data. The data caught many off guard when the Labor Department reported that initial claims for state unemployment benefits rose 69,000 last week, hitting 375,000. This is the highest level since early October, but also marks the strongest weekly jump in claims since September 2005, shortly after Hurricane Katrina struck.

The gap into the open left the market with a bullish sentiment. I wrote a bit last week about how these extreme gaps leave the market extended and with strong odds for a gap closure. Thursday's open brought with it yet another example of just such a situation, making me bullish out of the open despite the appearance of weakness. Even though the market was very slow to fulfill this bias initially and came into the 5 minute 20 period simple moving average around 10:30 am ET with a short pattern under development, I choose to not go against the larger odds and went to grab lunch instead. Unfortunately, the upside picked up a little more quickly than I'd anticipated and I missed a large chunk of the mid-day rally which followed once the 5 minute 20 sma gave way.

Trader tip: Real traders bring lunch with them to their desk before the market opens or else wait until after the close to eat and they never consume any liquids so they don't need to leave their chairs at all during the day! HAHA! Ok, so not really, but it's sure tempting at times! It definitely helps, however, to eliminate as many distractions as possible. This can be a challenge if you trade in an office with others or at home where folks tend to not respect the fact that simply because you are home does not mean that you are readily available and not actually working.

After the breakout to new highs intraday around 11:00 am ET, the market continued to gain momentum with three waves of upside on the 2 and 5 minute time frames. Each move was more extreme than the last, but most trend moves last three waves when the corrections times are comparable between each wave. This meant that the move just prior to 12:00 ET exhausted the trend and left it open for a larger correction into the early afternoon. At that point I was assuming a slower pullback with the possibility that we'd end up stuck in a range the remainder of the session. I think that in many ways that would have suited the market a bit better. The indices instead had held lows around 13:00 ET and because to break higher too early on a 15 minute time frame. The market didn't have enough time to really correct from the morning move to sustain comparable momentum. The result was a very hesitant climb throughout nearly the entire remainder of the day.

The strong overlap from bar to bar and slower pace of the afternoon move created the risk that at an moment off any resistance level the rally would fall apart and take back all gains. This made it difficult to time an entry if you missed the initial setup since even a channel break for a stop runs the risk of getting flushed hard so that exits at the ideal prices would be more difficult. I switched to stocks fairly early in the afternoon to avoid this risk. The market did fairly well though, making it back into the previous day's highs before that flush took place. A glance at the 5 minute time frame, however, shows just how quickly gains made during a slow upside such as from 13:00 ET onward can disintegrate in just a matter of seconds at times. In one 5 minute bar all three indices had given back about an hour's worth of gains.

The Dow ($DJI) closed on Thursday at 12,650.4 with a gain of 207.53 points, or +1.7%. The gains were not unanimous, however, and 2 of the Dow's 30 components closed lower. These were Merck and Co (MRK) and Altria Group Inc (MO). Top leaders were Home Depot (HD) and American Express Co (AXP). The monthly losses in the Dow came to 4.6%, which was the worst one-month decline since January of 2002.



The S&P 500 ($SPX) rose 22.74 points, or +1.7%, on Thursday. It closed at 1,378.55. The loss on the month came to 6.3%.



The Nasdaq Composite ($COMPX) rose 40.86 points, which was also a +1.7% rally. It closed at 2,389.86. For the month as a whole it still lost 9.9%, which was also the worst performance since January 2002 for this index. Amazon (AMZN) was one Thursday's top performers and one of my afternoon positions. It gained 4.7% on the session, providing a great alternative to trading the index as a whole.



Going into Friday I am expecting the market to slow. A lot of Thursday's gains were attributed to assurances from the bond-insurance company MBIA (MBI) that it would be able to ride out the mortgage market woes. There is a higher chance of a trading range day, but the market is still trying to head into those larger weekly resistance levels from last December, so as long as the selling is kept modestly at bay on Friday then I am looking for more upside into next week with the highs from the second week of January as the next decent daily resistance the market will need to deal with.

50 Basis Point Cut Fails to Provide Sustained Relief

Good day! Wednesday's Fed day began on a slow note. A gap lower into the prior afternoon's lows held and the typical rally which occurs on a Fed day began at about the 9:45 am ET correction period. The Nasdaq, which had underperformed in recent days, actually took over as a market leader and closed its gap the quickest. Both the S&P 500 and Dow Jones Ind. Ave. closed their gap zones around 10:15 am ET at the same time as their 5 minute 20 period simple moving averages hit. A second attempt at a tighter close came heading into 11:00 am ET, while the Nasdaq moved into Tuesday's highs.

The Tuesday resistance levels held very well as momentum slowed on the upside. The indices began to retrace the morning's gains off those levels as light volume failed to create a significant impetus for the bulls to push higher. The volume continued to decline throughout the mid-day trading and into the 2:15 pm ET correction period. The Nasdaq Composite bears returned and it once again began to slide the quickest, while the S&Ps and Dow fell into a trading range until the news hit.

Although many had been looking forward to a 50 basis point cut in the Fed's lending rate, a 25 basis point cut was viewed as a given and the added 25 still caught a number of investors off guard and sent them rushing to buy what they initially considered to be welcome news. The Dow had been down around 30 points going into the Fed. When the news hit the wires all of the major indices spiked higher.

The three waves of post Fed action first took the market to new intraday highs before the second wave hit going into 14:30. The market retraced approximately half its gains before making a third move. This time it was again higher, but volume was lighter and the momentum was slower. By this point the Dow was up almost 200 points and well into the 12,600s level we had been looking at since last week as daily resistance. The S&Ps had also hit the lower end of the daily resistance zone I had drawn on the charts for last Friday's commentary, as well as the 20 day simple moving average we'd been watching. While the Nasdaq failed to even come close to those levels, the other indices held and began a strong and sustained move lower in the final hour of trading.

The Dow ($DJI) closed at 12,442.8, which was about where it was trading prior to the Fed rate announcement. It lost 37.47 points, or 0.3%. American Intl Group (AIG) was its biggest loser, falling 2.36 points, or 4.16%. In second place was Merck & Co (MRK) with a 1.32 points, or 2.75% loss after it reported fourth-quarter losses of $1.63 billion. The Dow's top gainer was Boeing Co (BA) with a 1.91 point gain, or 2.36%, on Q4 earnings. Disney (DIS) followed with a 0.61 point, or 2.12% gain.



The S&P 500 ($SPX) fell 6.49 points, or 0.5%, on Wednesday. It closed at 1,355.81. Leading the index were Robert Half Intl Inc (RHI) with a 12.6% gain, ETrade Financial Corp (ETFC) with a 10.14% gain, Range Res Corp (RRC) with a 7.18% gain, Dover Corp (DOV) (+6.93%), C H Robinson Worldwide (CHRW) (+6.18%), and Unisys Corp (UIS) (+6.06%). Ambac Finl Group (ABK) and MBIA (MBI) were its weakest components, falling hard on concerns that they would lose more than earlier estimated from guarantees sold on mortgage-related securities. ABK closed lower by 16.09%, while MBI lost 12.64%. Allstate Corp (ALL) was also among the losers, falling 7.2% on earnings.



The Nasdaq Composite ($COMPX) lost 9.06 points on Wednesday. This amounted to -0.4%, which was fairly comparable to the Dow and S&Ps. It ended the day at 2,349. The biggest gainer in the Nasdaq 100 was Flextronics (FLEX), which rose 12.51% on earnings news. CHRW was the second strongest, while XM Satellite Radio Holdings (XMSR) was third with a 4.47% gain. Yahoo Inc (YHOO) was the top Nasdaq loser, dropping 8.5% on weak earnings data. Sepracor Inc (SEPR), which had been in positive territory earlier in the day, reversed and began to plunge lower into the afternoon. It ended up down 4.94% by the closing bell.



The Russell 2000 ($RUT) closed lower by 9.71 points, or 1.4%, at 695.49.



Following the closing bell, the index futures continued to sell off, extending the afternoon losses until just after 6:00 pm ET before finally becoming exhausted and rounding off with a slow correction off lows into the early morning hours. It's about 1:45 am ET now and the ES (S&P 500 EMini) is up about 13 points off the afterhours lows. The YM (Mini-sized Dow) is up about 80 points. Although rounded lows tend to hold better than those made on a sharper pivot or "v" bottom, I am still concerned that the market will try to correct more off the daily resistance. Should they hold, it would make it harder to break those levels at all and more likely push the indices into a larger weekly trading range. In order to make it to the next resistance level from the end of last year in the Dow and S&Ps I'd want the 20 day sma to break by the end of this week to do so. It can still lead to a larger weekly range, but would be less likely to give us as much intraday chop next month.

Market Continues to Inch Higher as 2-Day Fed Wraps

Good day! As we head into the second day of this two-day Fed meeting the market is still tacking on some subtle gains. In Tuesday's session the Dow Jones Industrial Average ($DJI) gained 96.41 points, or 0.78%, and closed at 12,480.3. The S&P 500 ($SPX) gained 8.34 points, or 0.62%, and closed at 1,362.30. The Russell 2000 ($RUT) gained 2.81 points, or 0.4%, and closed at 705.2. The weaker Nasdaq Composite ($COMPX) added 8.15 points, or 0.35%. It closed at 2,358.06. Telecoms were among the best performers, while chip stocks closed lower for the most part.



As the Fed announcement draws near, the market volume has dropped dramatically compared to recent trade. It had peaked on the 23rd and has been declining steadily since the recent lows. Tuesday's volume came close to the lowest of the month. Volume on the New York Stock Exchange on Tuesday approached 1.6 billion with the gainers outpacing the losers by 2:1. On the Nasdaq, nearly 2.2 billions shares traded hands with advancers leading decliners by 8 to 5.

Out of the open on Tuesday the market was trading higher, but those gains did not last long. The session began at resistance from prior 15 minute highs and within about 15 minutes the selling began. The gap closed quickly into 10:00 am ET. Although the Conference Board's consumer conference index fell in January, taking back a huge chuck of the previous month's gains, the market actually began to move higher following the data. The preliminary January consumer confidence index had dropped to 87.9 from 90.6 in December, which was short of the 88.6 estimate. This came very close to the 12-month lows.



After coming into support at 10 am ET, the market popped, but the buying did not last long and the indices did not immediately retake the highs. Instead, the buying stalled into 10:30 am ET and the market corrected again into 11:00 am ET. A second attempt to rally failed to live up to the momentum of the first, although the S&P 500 managed to return to highs and the Dow pushed through them to retest the zone of Friday's highs. The slower momentum continued to slow as the market moved into noon. When the 12:00 ET correction period hit the bears returned, particularly in the Nasdaq.

The market dropped for about 30 minutes into the early afternoon before running into support again. Although volume declined and the market based along lows, it just never was able to obtain any volume confirmation of a downside bias. Three tests of mid-day lows failed to break and the market pulled higher out of the 14:00 ET reversal period. A smaller congestion around 14:30 ET then gave way to buying into 15:00 ET. The S&Ps made it back to highs, where it hit price resistance, while the Dow managed new intraday highs but failed to surpass the resistance from Friday's highs. The Nasdaq, ever the dog, could not even break the late morning congestion. All of these resistance levels held and the market again chopped around into the close. All in all, the day was very indecisive as investors and short term traders alike tried to get a feel for what as to come in the following day's Fed announcement.



As I mentioned yesterday, the market is assuming a 25 basis point cut, but a number of folks are still looking for 50. The market tends to move higher in the morning, but Tuesday's afternoon lacked a strong bias. We are seeing more mid-day moves on a Fed day than is typical, but volume tends to dry up after about 11:00 am ET. Once the Fed announcement hits the wires all bets are off and the market becomes very volatile. Typically three waves follow: an initial move, a secondary move which can be stronger than the first and then a third in the direction of the initial move. These tend to form first on a 1 minute and then on the 5. Use caution in the first 5 minute swing since this is when quotes tend to be off by the greatest degree for many online traders and risk is at its highest. I will likely wrap up morning trading myself around 11:00 am ET and pick it up again following the first move on the 5 minute charts after the Fed.

Market Inches Higher in Anticipation of Fed's Actions

Good day! The market action on Monday was rather hesitant. There was a great deal of overlap from bar to bar on the 5 minute time frame throughout the session, but the market still managed to post some decent gains by the end of the day, closing at highs. The Russell 2000 ($RUT) posted the strongest gains, up 13.79 points, or 2% to close at 702.39. The Dow Jones Industrial Average ($DJI) rose 176.72 points, or 1.5%. It ended the day at 12,383.9 with 27 of the Dow's 30 components up on the day. The S&P 500 ($SPX) rose 23.35 points, or 1.8%, and it closed at 1,353.97. The Nasdaq Composite ($COMPX) was the weakest link. It only managed to climb 23.71 points, or 1%. It closed at 2,349.91.

Despite the gains by the end of the session, the market did not look particularly optimistic early on. In fact, the opening price action was to the downside. The market had continued Friday's descent to complete a third wave of selling on the 15 minute time frame. This exhausted that trend move and opened the door for another reversal intraday on Monday. This reversal did not take place until the 10:15 am ET correction period. In fact, the 10:00 housing data actually extended the downside even further. Sales of new homes fell 4.7% in December, well under expectations. This marked the lowest level since February 1995. December's sales were 40.7% lower than one year earlier. Meanwhile, November sales were revised lower by 13,000. The total of new and existing home sales in the past year fell 24.6%, which is the largest 12-month drop in 26 years.



Although news from the housing front was still doom and gloom, the market nevertheless managed to bounce back. The Dow Jones Ind. Ave., S&P 500, and Russell 2k all held their 15 minute 200 period simple moving average support intraday shortly after the housing data hit. It did not take long before they began to head back into the highs of the session. Within about 15 minutes they were testing those highs and only a few minutes later they managed to break them.

The initial rally slowed once the indices had obtained those morning highs, however, and this is where the choppier trading really set in. The indices found it difficult to push through all the resistance levels from Thursday and Friday and each new high was made to a lesser degree, with three waves total on a 2 minute time frame into about 11:45 ET. They are still somewhat visible on the 5 minute charts shown here. Prior intraday highs, the 15 minute 200 sma in the case of the Nasdaq and the 200 sma in the S&Ps and Nasdaq all served as resistance as the market rounded off at those morning highs.



Over noon the indices pulled back and corrected on light volume. 15 minute 20 period simple moving averages now served as support and the buyers returned with some hesitation into the early afternoon. Upside was again choppy and slow, and the indices barely made it to new highs before attempting to turn lower into 13:30 ET. The 5 minute 20 sma, however, held, and a third wave of buying followed before the uptrend channel broke lower shortly after 14:30 ET.

The Nasdaq fell apart in the second half of the afternoon. The selling returned with a vengeance and the Nasdaq retraced into the morning congestion zone. As the S&Ps and Dow hit support once again at the 15 minute 20 sma, the Nasdaq also began to roll over. I did not expect it to recover as well as the Dow, which had a more moderate correction, but the Nasdaq still managed to regain nearly all of its afternoon losses and closed within just a few ticks of the day's highs.



In the Dow, the top performers on the day were JPMorgan Chase (JPM), which rose 4.4%, and Citigroup (C), which climbed 3.8%. McDonald's (MCD), on the other hand, fell 5.6% after solid earnings due to stagnant sales in the U.S. I must admit, I did tell my children that we don't have McDonald's here in Florida. Ok, true... we do drive by it every day, but they seem content to let me appear delusional. Did I contribute to their "stagnant sales"? Hmm... Perhaps... While I may not be a patron the establishment, I did, however, have MCD as a position trade over the past couple of years, so while I had bailed before the top last fall, it holds fond memories at least in that regard! Maybe everyone started their New Year's diet resolutions into the holidays... Who knows, but many fear that weakness in one of the Dow's big guys is just additional proof of an economic slowdown in the works. Gee... you think?

In other news, pay attention! Tuesday brings with it the beginning of yet another FOMC policy meeting and expectations are for another rate cut as well. The odds favor a 25 basis point cut, but some are still holding out for a 50 basis point cut. Either way, the typical Fed day action is as follows: upside in the morning, sharp volume decline over noon, occasionally a brief pre-Fed move on light volume, and then it's the running of the bulls... as in Spain and not necessarily the market variety. Unlike in Spain, there is no set route the bulls must take when it comes to the market. Not to mention that here you have to throw in the bears for good measure. So, it's pretty much every man and woman for him or herself. On the plus side, there is a pattern amidst this chaos.

The initial post-Fed move is the most dangerous. There is typically a sharp swing in one direction, followed by a rebound and then a third move back in the initial direction. This happens within just a few minutes and the counter-swing can be larger than the first. This action is then repeated on the larger time frame with the largest of the three swings leading into a first move on a 5 minute time frame and then a counter-move and reversal again. The second move can be larger than the first and the third can be rather minor. The degree of each move varies, but the pattern is fairly consistent. I tend to wait for these larger 5 minute swings before I will jump back into the action. By that time data irregularities have had time to clear up and the volatility has calmed down to a more manageable level.

Earnings and Economic Events for Jan 28 - Feb 1

Economic Reports and Events This Week

Monday, January 28, 2007
Dec New Home Sales: -4.7%. Previous: -12.6%, revised.
Jan Dallas Fed Mfg Production Index: 17.7. Previous: -19.1%.
Dec Chicago Fed Midwest Mfg Index: +0.1%. Previous: +0.5%.

Tuesday, January 29, 2007
7:45a.m. ICSC Chain Store Sales Index For Jan 26. Previous: +0.7%.
8:30a.m. Dec Durable Goods Orders. Expected: +2.0%. Previous: +0.1%.
8:55a.m. Redbook Retail Sales Index For Jan 26. Previous: -0.2%.
10:00a.m. Jan Conference Board Consumer Confidence. Expected: 87. Previous: 88.6.
5:00p.m. ABC/Wash Post Consumer Conf For Jan 27. Previous: -23.

Wednesday, January 30, 2007
7:00a.m. MBA Refinancing Index. Previous: +16.9%.
8:15a.m. ADP/Macroeconomic Private Payrolls Forecast. Previous: +40K.
8:30a.m. 4Q GDP Advance. Expected: +1.2%. Previous: +4.9%.
2:15p.m. Jan Federal Reserve interest rate decision. Expected: 3.0%. Previous: 3.5%.

Thursday, January 31, 2007
8:30a.m. Initial Jobless Claims For Jan 26 Week. Expected: +14K. Previous: -1K.
8:30a.m. 4Q Employment Cost Index. Expected: +0.8%. Previous: +0.8%.
8:30a.m. Dec. Personal Income. Expected: +0.4%. Previous: +0.4%.
8:30a.m. Dec. Personal Spending. Expected: +0.1%. Previous: +1.1%.
9:45a.m. Jan Chicago PMI. Expected: 52.8. Previous: 56.6.
10:00a.m. Dec Help-Wanted Index. Previous: 21.
10:00a.m. DJ-BTMU Business Barometer For Jan 12. Previous: -0.5%.
11:00a.m. Kansas City Fed Mfg Index. Previous: 12.

Friday, February 1, 2007
8:30a.m. Jan Nonfarm Payrolls. Expected: +75K. Previous: +18K.
8:30a.m. Jan Unemployment Rate. Expected: 4.9%. Previous: +5.0%.
10:00a.m. End-Jan Reuters/U Of Mich Sentiment Index. Previous: 80.5.
10:00a.m. Dec Construction Spending. Previous: +0.1%.
10:00a.m. Jan ISM Manufacturing Business Index. Expected: 47. Previous: 47.7.



Key Earnings Announcements This Week:

Monday, Jan. 28:
Before: ACV, ASH, BOH, BDK, CRNT, GLW, DEP, EPD, FSNM, FPL, HAL, HMX, MCD, ONB, PVTB, RDWR, REDF, ROH, SWK, SYY, TSN, VZ, YRCW
After: ACTS, ARG, ALB, AXP, AMLN, ATHR, CLMS, CX, CNW, CR, EEP, GGG, ICUI, JBHT, JDAS, KRC, KFN, MTH, MSPD, NARA, PCL, PLXT, SNDK, SVVS, SSCC, STLY, STLD, UDR, UNM, VMW, VLTR

Tuesday, Jan. 29:
Before: MMM, AAI, AMB, AEP, AXE, ARM, AVY, BMS, BNI, CP, CAH, CRS, CHTT, CXG, CNX, CVG, COCO, CFC, DOW, LLY, EMC, ENR, ETR, ENTU, FSRV, GKSR, GLYT, GNTX, HW, JBLU, KEM, KCI, LXK, NNDS, NWA, NVR, NYB, OXY, OXPS, PCAR, BTU, PBG, PPC, PII, SMG, SHW, SLGN, SII, TROW, TRV, TUES, X, UIS, USG, VLO, WDR, ZMH
After: ALGN, ALGT, ALL, AMIS, ANEN, AJG, BBOX, BXP, BKI, CHRW, CALD, CLZR, CTX, CB, CSGS, CYBS, CYMI, EGLT, FBC, FLEX, FDRY, HLIT, HPC, HIFN, HTCH, IKAN, IPSU, INFA, ISSI, JLL, LDIS, MASI, NATI, NETL, NAL, PXLW, RHI, SHOR, TRMB, TUP, PAY, WBSN, YHOO

Wednesday, Jan. 30:
Before: AMG, AGN, MO, APU, AUO, BHI, BA, BOBJ, CEG, D, DOV, DSPG, EK, FTD, HES, HOLX, ITW, IMN, IFF, K, KFT, LM, MRK, NCR, NI, OSTK, PAS, PNW, RCL, SAIA, SEE, SLAB, SO, STE, UGI, UMC, WWW, XEL
After: ADPT, AFL, ADS, AMZN, BLOG, CAI, CDNS, CRUS, CNQR, CVD, CCK, CTS, CYT, DNB, EXP, RE, ESLR, FNF, FBN, GIL, HRS, HSTX, ININ, JDSU, KEX, MTSN, MIPS, MGI, MUR, NEWP, NVLS, OIIM, OI, PHM, RNOW, SFG, SBUX, TTEK, TLGD, TSCO, VIRL, ZRAN

Thursday, Jan. 31:
Before: AGYS, ARLP, ATK, AHCI, AMSC, AZN, ALV, BPHX, BCO, BMY, BC, BKC, CAM, CRR, CELG, CL, CVS, DCP, RDEN, ENOC, EQT, SSP, FLO, GR, GMCR, GHL, HAE, HBI, HSC, HHS, HP, HERO, HMC, IMCL, RX, ICE, IVC, ITG, FSTR, LLL, LB, LANC, LDR, LSTR, LEA, ERIC, MRO, MA, MAT, MBI, MEG, MPW, MRGE, MESA, MEH, MWIV, MYL, NDAQ, NURO, NYT, NWL, NCX, ODFL, OPXT, PTRY, PCCC, PCZ, PDC, BPOP, PPL, PG, RTN, RSTI, RRST, SAF, SFUN, SEIC, SMI, SPIL, SNA, HOT, TSM, TKR, UTEK, UA, WCC, WU, WYE
During: BUD, IMO
After: ABAX, ACTU, ACS, AFFX, ALTR, ASYT, AVNX, AVID, ACLS, BEZ, BEBE, BCR, CA, ELY, CLS, CERN, CHRT, CSR, COHU, COLM, DDUP, DRIV, DNEX, DLB, DLLR, ERTS, EXAR, FMD, GNSS, GGC, GYI, GOOG, HAIN, INFN, IUSA, ISRG, KTOS, LAVA, MEE, MCK, MNT, MCRL, MCRS, MSTR, MIL, MTX, MNST, NEXT, OMCL, ONNN, OPLK, OHB, PKTR, PSEM, PFWD, RFMD, SLRY, ZZ, SMTL, SWIR, SIMO, SXE, STAR, SYMM, TSRA, TRID, VMSI, VRSN, VSAT, ZHNE, ZIGO

Friday, Feb. 1:
Before: AXL, ACI, ADP, CVX, CMI, EL, XOM, GCI, HPOL, JRC, MAN, MWV, MF, NMX, OSK, PEG, R, SPG, TDW, VVI

Note: All economic numbers and earnings reports are in lines with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column. This list is not a complete list of earnings, so always double check your positions!

Market Retraces Following Two Days of Strong Upside

Good day! After consolidating throughout Thursday's session, the market broke higher afterhours. This led to a decent upside gap into Friday morning, but after a huge rally on the 60 minute time frame, the bulls were exhausted. The highs from the gap held and selling began immediately out of the opening bell. The downside was slow to begin with, but after 10:15 ET it began to accelerate with the indices quickly closing the morning gap.

The selling continued into the 11:00 am correction period. The 15 minute 200 simple moving average and price support from Thursday's congestion held as the market took a break from the downside push. Over noon the markets consolidated, forming a narrow trading range along the support on declining volume. Without any real attempt to recover the morning's losses, the indices were poised for yet another breakdown into the early afternoon.



Friday's morning decline lasted approximately an hour and a half. After the mid-day trading range broke lower, the early afternoon downside mimicked the earlier descent. The indices sold off for another 90 minutes before coming into Thursday's lows and strong price support into the 14:00 ET correction zone. Equal, or measured, moves in the market on breakouts and breakdowns are pretty typical phenomena in the marketplace. They can occur both in time as well as price. Since 14:00 ET is one of the strongest reversal or correction periods of the day, the combination of the the equal move, price support, and correction period allowed the selling to stall once again into the final two hours of the day.



Once again, the market had a difficult time rallying off the intraday support in Friday afternoon. Although they attempted to move higher, the indices ran into resistance at the 15 minute 20 sma and fell back to the lows of the late day range. The day ended with all three indices within just a few ticks of the day's lows. The Dow Jones Industrial Average ($DJI) had fallen 171.44 points, or -1.4%, and closed at 12, 207.2. The S&P 500 ($SPX) fell 21.46 points, or -1.6%, and closed at 1,330.61. The Nasdaq Composite ($COMPX) closed lower by 34.72 points, or 1.5%. It ended the session at 2,326.20.

Top gainers on Friday included Perkinelmer Inc. (PKI) (+17.53%), Technitrol Inc. (TNL) (+17.41%), Peabody Energy Corp. (BTU) (+7.93%), Cummins Inc. (CMI) (+6.10%), China Fin Online (JRJC) (+20.08%), Scansource Inc. (SCSC) (+19.18%), Melco Pbl Entertainment (MPEL) (+12.85%), Sunpower Corp. (SPWR) (+5.9%), and Amgen Inc. (AMGN) (+4.38%). On the other end of the spectrum were the losers. Among them were Triumph Group Inc. (TGI) (-12.16%), Hartford Finl Group Inc. (HIG) (-5.96%), Ace Ltd. (ACE) (-4.95%), Merrill Lynch & Co. (MER) (-4.33%), Synaptics Inc. (SYNA) (-23.42%), Deckers Outdoor Corp. (DECK) (-8.34%), Cymer Inc. (CYMI) (-5.75%), Sears Holdings Corp. (SHLD) (-5.73%), Gilead Sciences Inc. (GILD), and Cephalon Inc. (CEPH) (-4.73%).



A lot of the disappointment on Friday was attributed to reduced expectations out of next week's Fed meeting. Many had been hoping for a 50 basis point cut, but the consensus at this point is for a 25 basis point cut or even that they may not cut rates again at all. I was a bit surprised by both the former and latter, assuming that many, like I, had been looking for the 25 basis point cut. I guess we shall have to see! I don't know that this necessarily was the reason for Friday's move though. The markets had really pushed to extend themselves on Wednesday and I think that move was just a bit too much to be able to sustain a second wave of buying without an intraday correction lasting longer than a day. I still am looking at the potential for more upside into this coming week, but in order for that to occur, the market needs to hold onto a good chunk of Wednesday's gains or else it becomes more probable that it falls into a longer trading range on the daily time frame.

Market Pauses to Catch its Breath After Stellar Move

Good day! After Wednesday's sharp rally, the market did a really nice job of holding up into the morning as Thursday's session kicked off. Picking up where it left off the previous afternoon, the markets continued higher right out of the open. The Labor Department reported at 8:30 am ET that first-time jobless claims fell last week for the fourth week straight by 1,000 to 301,000, bringing it to its lowest levels since September, but this had little affect upon the open. The buying began immediately following the opening bell. This extended Wednesday's move without any break in the intraday trend.

Within the first 30 minutes of trading the Dow had added yet another 100 points to its previous day's gains. Ironically, assisting in this move was news from the housing market at 10:00 am ET. The National Association of Realtors reported that sales of existing homes fell 2.2% in December, bringing the year-end sales down 13%. The median sales price for existing family homes also dropped for the first time on record, falling 1.8%. This is likely the first time such an event has occurred since the Great Depression. The good news, which the market latched onto initially, was that inventories of unsold homes fell 7.4% in December. This little piece of data was not enough to continue to push an already extended rally, however, and within a couple of minutes the Dow was back into negative territory.



After falling quickly from the morning highs, the market began a game of tug-of-war, struggling to hold on near highs, but at the same time giving itself a chance to correct and attempt to rebuild momentum. The drop after 10:00 am ET took the indices back into premarket trading levels and price support before bouncing higher again and flirting between positive and negative territory into noon. Momentum slowed on the upside, with a push from 11 to almost 12:00 ET forming three waves of buying. It was the second upside move on the 5 minute, however, and this created a short setup into the early afternoon on the 5 minute time frame that took the market back to the zone of the morning lows and left the market pace a bit more bearish.



Since the time correction from the earlier rally into the day was still rather minimal, the market was left feeling a bit precarious Thursday afternoon. The bulls, however, were not yet ready to give up their booty and fought to hold the morning's price support. Once more the markets pulled into the morning highs, and once again those highs held. A final push into the closing bell, however, landed the markets firmly into positive territory with closes near the highs of the day. A federal stimulus plan put together by the House and White House was welcome news, but I am not sure that it had much impact upon the markets. Beginning in about late April to early May, households with an annual earnings of under $187,000/year will automatically receive tax rebates up to $1,200, assuming the bill passes within the next couple of weeks.



On that note, the Dow Jones Industrial Average ($DJI) closed at 12,378.6 with gains of 108.44 points, or up 0.9%. The S&P 500 ($SPX) gained 13.47 points, or 1%, and closed at 1,352.07. The Nasdaq Composite ($COMPX), which had been lagging in recent weeks, had the largest percentage gain. It closed higher by 44.51 points, or 1.9%, at 2,360.92.

On the New York Stock Exchange the advancers outpaced the decliners by approximately 2 to 1, while on the Nasdaq advancers beat out decliners by about 4 to 1 on Thursday. Among the top gainers were NVE Corp. (NVEC) (+35.49%), F5 Networks Inc. (FFIV) (+22.89%), Polycom (PLCM (+16.97%), Baidu (BIDU) (+13.69%), Qualcomm (QCOM) (+10.32%), Mosaic Co. (MOS) (+12.26%), Consol Energy Inc. (CNX) (+11.18%), and National Oil Well (NOV) (+11%). Among the notable losers were Expeditors Intl. (EXPD) (-6.08%), Varian (VAR) (-7.01%), AT&T (T) (-2.6%) and THQ Inc. (THQI) (-22.31%).

As the week continues, so too should the market correction off Tuesday and Wednesday's lows. The 12,600 zone remains resistance in the Dow. I have marked the daily resistance zones on the charts of the QQQQ, SPY, and DIA. These price congestion zones also correspond to the 20 day simple moving averages. If the momentum remains strong, we could see it push past those levels over the next week or two and push back up into December's congestion, but it will likely stall first before it could manage such a move.

Dow's Stellar Recovery: -325 points to +299

Good day! The markets managed another stunning recovery on Wednesday after gapping significantly lower for the second day in a row. After moving higher in the early morning hours on Wednesday, the market turned around quickly. Beginning at about 3:00 am ET the markets began to once again slip lower. By 8:30 am ET, however, the Dow Jones Industrial Average and S&P 500 had managed to complete a three-wave trend move to the downside. This trend exhaustion, creating yet another extreme gap (which, as we saw yesterday, tend to fill) made it very favorable for the bulls to once again position themselves into the open.



Although things were a bit slow in the first 15 to 20 minutes of the day, the buying slowly built up steam and the market pushed higher over the next half hour. The S&Ps and Dow easily closed the morning gap zone, but unfortunately this was also a very strong resistance zone and the momentum stalled. We had seen the same thing happen just the previous day. The Nasdaq continued to severely lag, weighed down by a disappointing forecast for the second quarter from Apple (AAPL).

In addition to the gap closure resistance, the market also had to deal with price resistance from the previous session, as well as a number of moving average levels coming together. These included the 5 minute 20 period simple moving average intraday and the 15 minute 20 sma in the S&P 500 and Dow. The indices began to slide down these moving average resistance levels as the morning wore on, falling into 10:45 am ET where they formed 5 minute Avalanche patterns by basing along support before giving way to additional selling between 11-11:30 am.



The mid-day downside was rather choppy, but around 12:45 pm ET the S&P 500 and Dow ran into price support on the 15 minute time frame from earlier in the session and from Tuesday's trading. The drop into 12:30 pm ET was also a third move on the 5 minute time frame in the S&Ps and Dow, completing a trend move. The market began to recover somewhat slowly, puling up into the 5 minute 20 sma. The indices then based along the 20 sma for about 20 minutes before triggering a buy setup at about 13:15 ET. The buying was choppy, but steady, and before long the S&Ps and Dow were back at their morning highs.

Very few of the afternoon correction periods held well on Wednesday, but the 15:00 was the exception. The market had pulled back on the 5 minute time frame after hitting the morning highs and corrected into the 5 minute 20 sma support at the same time as the correction period hit. They worked together to lead to the strongest upside move of the entire day. Buying remained steady from that point onward into the closing bell. The Nasdaq closed its gap zone and the S&Ps and Dow broke Tuesday's highs with all three of the major indices closing in positive territory.



The Dow Jones Ind. Ave. ($DJI) gained 298.98 points, or 2.5% on Wednesday and closed at 12,270.2. The S&P 500 ($SPX) rose 28.10 points, or 2.1%. It closed at 1,338.60. The Nasdaq Composite also managed to lock in some gains. It rose 24.14 points, or 1.1%, on Wednesday and closed at 2,316.41. The afternoon rally created an equal move on the all sessions charts of the EMini S&P 500 and Dow futures contracts as compared to Tuesday morning, but for the Dow, the intraday point swing of 625 points, or 5.4% was the second largest point change ever. The largest was a 702 point swing on July 24, 2002 amounting to a 9.4% move for you trivia buffs.

One of the best performing sectors throughout this shortened trading week thus far has been the retailers. The rate cuts and widely held belief of further cuts next week have given the retail index a bit of a boost. It is up 9.7% so far this week. Nordstrom (JWN), Circuit City (CC), and Staples (SPLS) were some of the favorites. All were up well over 10% on Wednesday.

The financial sector also took a moment to catch its breath and breathe a sigh of relief... at least for the time being. Wells Fargo (WFC) gained 9%, while Wachovia (WB) was up more than 10%, and JPMorgan Chase (JPM) rallied 12% to come in first place in the Dow. 25 of the Dow's 30 components closed higher, as did 391 in the S&P 500 and 68 in the Nasdaq 100.

Apple (AAPL), Google (GOOG) and Motorola (MOT) were a few of the underperformers adding dead weight to the market's recovery. All in all though, I continue to think we will see this market correct off these levels in the short term. It would not be surprising, however, for the moves to remain a bit of a roller coaster ride along the way. The price levels from January 8th-15th will serve as initial daily resistance. This is the 12,600 zone in the Dow.

Fed "Saves the Day", but Long-term Remains Hazardous

Good day! Wow! What a ride! I was thinking yesterday how I should have waited to have sent the previous column yesterday instead of at the start of the weekend! A great deal changed in the world as the United States awaited the start of trading following the extended three-day weekend. It began in the early morning hours on Monday as the markets began to plummet overseas. At one point I had logged on and saw the Dow Jones futures down more than 600 points. I thought it must have been some sort of data issue. I had gotten a call around 2:00 am ET that the markets were crashing, but little did I know!



Shortly after 8:00 am ET the Fed announced an emergency rate cut in an attempt to ward off further declines. They reduced the benchmark rate by 75 basis points to 3.5%. This was the first move of this scale since the aftermath of 9/11 and they left the door open for another 25 basis point cut next week. When the market actually opened, however, a lot of the immediate gains following the Fed's announcement had been erased. Nevertheless, as you may recall from previous posts, huge gaps such as the one Tuesday morning almost always attempt to fill. This is particularly true when they follow several days of selling and gap lower or several days of buying and gap higher.



The market spent a decent chunk of the morning on Tuesday attempting a recovery. The buyers emerged right away again into the open and the market climbed very quickly for the first 20-25 minutes of the day before stalling. Two more waves of upside followed. Each was slightly less extreme than the previous one. The third push came around 11:00 am ET and both the S&P 500 and Dow Jones Industrial Average managed to return to the zone of Friday's close. The Nasdaq Composite fell a bit short. It only returned to Friday's lows before stalling at that resistance level.

The extent of the morning's rally, combined with the resistance, helped push the market into a correction phase intraday over noon. Although the market was very extended and showing significant exhaustion, the bulls were definitely feeling some pain and lacked confidence to push the market higher into the afternoon. Instead, the remainder of the trading day was spent in a range along the intraday highs. The market chopped back and forth at those levels before breaking lower again afterhours. The selling continued with two waves of downside into midnight before turning higher again into the early morning hours.



At the time of the closing bell on Tuesday the Dow was down 128.11 points (-1.1%) and closed at 11,971.19. The S&P 500 ($SPX) lost 14.69 points (-1.1%) and closed at 1,310.50. The Nasdaq Composite ($COMPX), which felt the brunt of the selling pressure, lost 47.75 points (-2%) and closed at 2,292.27. Given Tuesday's flush, there is a very strong probability that the market will attempt a larger correction off the lows as the week progresses. In the long run, however, I would not be betting on any new record highs for quite awhile. Upside on the monthly time frame is just likely to lead to yet another larger downside move to give us those larger corrections we have been watching out for since this past summer.

Lower Lows in a Choppy Session

Good day! The market attempted a correction off Thursday's support in Friday's session. It began with a gap higher into the open and was followed by a pullback into 10:00 am ET before breaking to new intraday highs following the University of Michigan's preliminary consumer sentiment survey for January, which climbed from 75.5 in December to 80.5.

The morning rally continued into the mid-day congestion from Thursday, which hit at the same time as the Nasdaq Composite's ($COMPX) 5 minute 200 period simple moving average and the 10:15 am ET correction period. Although the momentum was on the strong side with the gap and then the continuation, it turned over once the resistance hit, falling gradually to begin with, but with increased intensity as the morning wore on.



The market reacted very little to each of the initial support levels on the 5 minute time frame as it slid lower. The first support was the congestion into 10:00 am ET. This was approximately the 5 minute 20 sma as well. Prices stalled there for only a couple of minutes before breaking lower and closing the morning gap. This level also had very little impact upon prices. The Nasdaq Composite did bounce for about 15 minutes at that point, but there was no volume increase to show exhaustion even though this gap closure corresponded to the 11:15 am ET correction zone. The Dow and S&Ps didn't bounce at all, but chopped sideways during that same period of time before breaking strongly lower at 11:30 am ET.



This third continuation move on the 2-5 minute time frames finally brought with it the volume necessary for a larger correction on a 15 minute time frame. This volume increase can be seen most easily on the 15 minute charts. The increased momentum on this third move also helped flush out the market. The pivot off the lows following this flush began within minutes of the 12:00 ET correction period. The Nasdaq popped sharply to begin with, making its way into the 5 minute 20 sma. The S&Ps and Dow began more gradually, forming 2 minute Phoenix patterns before breaking higher once again into 12:30 ET. The Nasdaq also pushed through its 5 minute 20 sma at this time.

The previous day's lows in the S&Ps and the previous day's close in the Dow made up the larger time frame resistance zone which stalled the market's afternoon reversal attempt. The 15 minute 20 period simple moving averages also hit in this same time period. Throughout the morning the market had been on the choppy side, even though the trend lower was steady on the 15 minute time frame. When the market corrected off the mid-day lows, however, this "chop" became even more pronounced.



The market made its way lower once again out of the 13:00 pm ET correction period. An initial drop was followed by a smaller congestion zone into nearly 14:30 ET before a second wave of afternoon selling took place on the 5 minute time frame. These moves were very short-lived and only the Dow managed to touch its earlier intraday lows before pulling back up into the larger range at 15:00 ET. The rest of the session was spent within this range between the day's lows as support and the 15 minute 20 sma as resistance.

The week ended with a loss of 59.91 points (-0.5%) in the Dow Jones Industrial Average ($DJI) on Friday. The Dow closed at 12,099.3 for a weekly loss of 507 points, or 4%. The S&P 500 ($SPX) fell 8.06 points on Friday (-0.6%). It ended the session at 1,325.19 for a loss on the week of 5.4%. The Nasdaq Composite ($COMPX) fell 6.88 points (-0.3%). It closed at 2,340.02 for a weekly loss of 4.1%.

Verizon Communications (VZ) was the largest loser in the Dow. It fell 4.4% on Friday, while American International Group (AIG) came in a close second with a loss of 4.1%. 18 of the Dow's 30 components posted losses. General Electric Co. (GE) (+3.3%), and International BUsiness Machs. (IBM) (+2.3%) were the top gainers. Both companies had been able to beat earnings expectations.

The selling in the past two days has brought the indices into that equal move territory on the weekly time frame that we have been following. In other words, the market managed to mimic the decline from October into November in terms of price. The difference is that the recent selling took place on stronger momentum than in that previous weekly decline, which has pushed prices a bit lower than an exact equal move. It is also going to make it more difficult for the market to pivot quickly off lows and instead make it more likely that the market will round off with slightly lower lows before pulling higher or else will hold this past week's lows and instead chop higher. The first scenario would allow for a stronger bounce following the lows, whereas the second would tend to be weaker with more overlap from day to day.

This Week's Economic Reports and Earnings Annoucements

Economic Reports and Events This Week

Monday, January 21, 2007
There are no economic indicators scheduled for today.

Tuesday, January 22, 2007
8:30a.m. Dec Chicago Fed Natl Activity Index. Previous: -0.27.
10:00a.m. Jan Richmond Fed Manufacturing Index. Previous: -4.
5:00p.m. ABC/Wash Post Consumer Conf For Jan 20. Previous: -24.

Wednesday, January 23, 2007
7:00a.m. MBA Mortgage Refinancing Index. Previous: +43.4%.
7:45a.m. ICSC Chain Store Sales Index For Jan 19. Previous: -0.9%.
8:55a.m. Redbook Retail Sales Index. Previous: -0.1%.

Thursday, January 24, 2007
8:30a.m. Initial Jobless Claims. Expected: +19K. Previous: -21K.
10:00a.m. Dec Existing Home Sales. Previous: +0.4%.
10:00a.m. DJ-BTMU Business Barometer. Previous: +0.1%.

Friday, January 25, 2007
There are no economic indicators scheduled for today.


Key Earnings Announcements This Week:

Monday, Jan. 21:
Before: PHG
After: WGOV, INVX
Uknown: DST, SAY, LEE

Tuesday, Jan. 22:
Before: ADTN, AKS, ABK, AMFI, BAC, BKUNA, BJS, CSX, DST, DD, ETN, ELS, FAST, FITB, FMER, INVX, JEC, JNJ, KEY, LEE, LM, MDP, VIVO, NCC, PETS, PTEC, BPOP, PCP, RDN, RF, RGS, SAY, SIFY, SLG, SU, TLAB, UAUA, UNH, USAP, WB, WAT, WGOV
After: DOX, ACF, AAPL, CAMD, CREE, FIC, FULT, HBHC, HOKU, IBKC, NSC, PKG, PHHM, PLT, SPSN, STM, SUPX, TXN, TRMK

Wednesday, Jan. 23:
Before: AOS, ABT, APD, ATI, AME, AIT, ACAT, EAT, CHKP, CNH, COH, CNB, COP, CFR, DAL, DSL, ETH, EXC, FCFS, FCF, GD, IIVI, JEF, KMT, LPX, MPX, MKC, MOT, PMTC, PFE, PJC, PX, RLI, ROK, RES, SLM, SMTS, LUV, STJ, STI, TCB, UTX, WLP, WERN, WTNY
During: EGN
After: ACXM, AMCC, ASIA, BKHM, CBT, COF, CAVM, CLDN, CHIC, CTXS, CNS, CBST, DGII, EBAY, EFII, FFIV, GILD, HXL, ISIL, KNX, LSI, MRCY, MOLX, MGI, MTSC, NFLX, NE, NVEC, PTV, PRXL, PLXS, PLCM, PSSI, QLGC, QCOM, QTM, RJF, RGA, RKT, TYL, SANM, SBCF, SOV, SYK, SRDX, SYMC, TER, TSS, VLY, VARI, VAR, WSTL, WDC

Thursday, Jan. 24:
Before: FLWS, ALDN, ALK, ABC, ABI, T, AVT, AVX, BLL, BAX, BDX, CCMP, CRA, CPS, CMCO, ED, CBE, CORS, CY, DHR, DLX, DDE, DVD, EQT, FCS, F, BEN, GMT, HSY, HUB.B, IKN, IMCL, ISCA, IONA, ESI, JNS, KEI, KELYA, KMB, KLIC, LEN, LMT, LYTS, HZO, MHP, MEH, MNRO, MWRK, NOK, NOC, NUE, NVR, ORI, OVRL, PCCC, POT, RYN, REDF, RESP, COL, SPWR, SY, TDY, TEN, TXT, UNP, LCC, USAK, UST, VIGN, WRLD, XRX, XOMA, ZOLL
After: ABAX, AMGN, ARBA, AVCT, EPAY, BRCM, BPL, BCR, CSH, CSR, CYN, CPWR, CNXT, CVTI, DV, ETFC, EMN, ESIO, ELX, EXAR, EXTR, EZPW, FII, FRNT, HIG, HTLD, IDTI, IBKR, JJSF, JNPR, KLAC, KTOS, LSCC, LEG, WFR, MCHP, MSCC, MSFT, NTY, NINE, OPWV, OPLK, PKI, PMCS, RLRN, SCSC, PCU, SNS, JAVA, SYNA, SNV, TNL, TPX, TRID, TGI, UB, VSEA, VPRT, ZL, ZION

Friday, Jan. 25:
Before: ABFS, CAT, CBH, CCUR, FO, HOG, HON, IDXX, KNSY, MBFI, MDU, MOG.A, LABL, NS, PRSP, WFT, GWW

Note: All economic numbers and earnings reports are in lines with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column. This list is not a complete list of earnings, so always double check your positions!

Market Plunges to New Lows on the Year

Good day! I hope that you had a wonderful trading session yesterday. After breaking the 60 minute trading range several days ago, the market has had a difficult time making any headway on the upside. The bears have dominated the playing field. I discussed yesterday that the market was creating a potential two-wave correction within a larger trend move. These type of move tends to continue in the direction of the larger trend. In this case, that meant a continuation of the selling on the 15 minute time frame.



The market did an excellent job of living up to expectations. While the indices did move higher out of the open, they created a bear flag which led to a break to new intraday lows at about 10:30 ET. This confirmed the larger bearish bias and kicked off the third straight day of losses in the indices. By the end of the day on Thursday, the Dow Jones Industrial Average had lost 306.95 points, or 3.5%, on Thursday. It closed at 12,159.2.The largest loser was American International Group, Inc. (AIG), which fell 6.3%. Merck Co, Inc, (MRK) came in close, however, with a loss of 6% on Thursday. The S&P 500, meanwhile, fell 39.95 points, or 2.9% and closed at 1,333.26. The Nasdaq Composite lost 47.69 points, or 2%, on Thursday. It ended the session at 2,346.9.



There was very little bullish action at all on Thursday. While the market experienced numerous corrections off support levels, not one of them managed to gain the upper hand and take over the momentum from the bears. The market continued to chop lower throughout the entire day on Thursday. The 5 minute 20 period simple moving average was the main resistance throughout the trend move. Over noon the market formed another 2-wave correction. This time it was on a smaller time frame, but the outcome remained the same. The bears were able to regain control and the market closed within several ticks of the day's lows. This was a move into the -38.2% Fibonacci retracement level on the daily time frames in the Dow Jones Industrial Average and S&P 500.



As we head into the weekend, i to think some very slightly lower lows may be possible, but for the most part I am expecting some corrective action off this larger daily price support. The 20 day simple moving average is going to serve as the first major resistance level in the indices.

On Frustration in Achieving Success

Another email I had this week was from a trader who was expressing frustration at not being able to achieve consistent rewards in his trading despite studying many different strategies and styles of trading. Part of my reply was as follows:

I think that nearly every single one of us has had to deal with that point in time where we have asked ourselves if it was worth it.... I know very few traders that are "a natural." Most that are instantly successful quickly learn that they did not become such through skill and that they had a great deal still to learn to actually achieve consistency. It is more typical, to be stuck at breakeven or loose. It is not unusual for it to take several years to turn the corner.

A lot of it comes down to hesitation and not trusting our instincts by that point, because after a couple of years you should have a decent understanding of market dynamics, although it does often surprise me how so many people get wrapped up in different intricate strategies that they have never even considered many of the things I included in my CD course you were asking about. With time though, as long as you are using those methods and not flipping back and forth between strategies, then that comfort level will develop and you'll find yourself not hesitating or making as many incorrect decisions.

I remember that the one thing that always drove me insane was that I would find 6 or 7 great setups in a day and take 2 which underperformed and for whatever reason I simply could not pull the trigger on the others, even though I saw them develop and was convinced they would work. It was almost as if I could not take something that looked perfect and was settling for mediocre. So, I certainly understand where that frustration comes from, although identifying where it comes from and how to overcome it can still be a challenge! For me, it was really just seeing things over and over again, keeping records of them that built the confidence necessary to act correctly. Most traders never actually keep a trading journal in which they print out charts of the trades to study afterwards, let alone print out the ones they saw yet didn't take. If they did so, however, it would cut their learning curve dramatically!

My Charting Platform

I was asked earlier today which charting platform I use for my trading and when publishing my commentary. I use Real Tick by Townsend Analytics. Their website is http://www.realtick.com. For a trading platform I use Interactive Brokers... http://www.interactivebrokers.com.

Market Takes Another Stab at Lows

Good day! In Tuesday's session we saw the market break down out of a multi-day trading range at the year's lows. The indices primarily congested throughout mid-day with some slightly lower lows and then in the afternoon attempted another breakdown. This move did not have a chance to pick up on the momentum from earlier in the session, but the mid-day congestion had held on a minor correction off lows just prior to the close and the selling resumed afterhours. This downside then continued into Wednesday's morning trading and the market was able to resume the larger 15 minute breakdown that it had been robbed of in the prior afternoon.

After an initial wave of selling into the close on Thursday on the 5 minute charts and into Wednesday's open with the gap lower, the market attempted a minor rally. The small gap was easily filled, but the 5 minute 20 period simple moving average held as resistance and a second wave of selling on the 5 minute time frame was soon under way. Trends typically come in waves of two or three with corrections more likely in waves of two and more directional trends in waves of three. Since the market still had plenty of room before the morning breakdown even came close to mimicking Tuesday's morning selloff and the larger trend was to the downside, it made it easy for the market to continue the trend with a second correction around 10:15 am ET. The third wave of selling on the 5 minute charts took the indices to new lows intraday before concluding.



Morning trend moves in the market have a habit of correcting on larger time frames heading into lunch. This is what had happened on Tuesday and Wednesday followed suit. Since Tuesday's correction was more of a congestion move and the breakdown momentum into Wednesday was not as strong as Tuesday's, it created the potential for a larger price correction off Wednesday's morning lows than when compared to the prior session.

The market popped higher off the morning lows and into the 5 minute 20 sma, which had been holding as resistance throughout the morning. It then proceeded to fall into a sloppy range as it congested on the 5 minute time frame along that moving average resistance level. This resistance corresponded to earlier intraday congestion as well for those who do not use moving averages to help identify support/resistance levels.

Congestion zones often last a bit longer than the move leading into the congestion before they can break and continue. This took the market into about 11:45 ET before the buying resumed. The momentum was once again on the stronger side and the market was able to rally into the morning's highs, as well as the mid-day congestion from Tuesday. Another bonus in the resistance department which hit at the same time was the 15 minute 20 sma. All of these worked together with the 12:00 noon correction period to hold back the buyers over the next several hours.



The momentum turned over somewhat into the early afternoon, but the bears never gained the upper hand. The earlier trading ranges from the morning served as strong support and the market merely rounded off at them once they hit. It did take until the 14:00 ET correction period before the bulls really felt comfortable making a stand again, however, and this was due in part to the release of the Fed Beige Book at that time.

The market gained momentum throughout the middle of the afternoon and rallied back to the upper end of Tuesday's mid-day congestion. The 5 minute 200 simple moving average held at the same time and indecision arose once more into the final hour of trading. The market had reacted sharply to the afternoon resistance, fell into the 5 minute 20 sma and continued with an Avalanche short setup into the final thirty minutes of trading, essentially repeating the mid-day correction off highs but on a larger scale and with stronger downside momentum.



Remember how earlier I mentioned that corrective moves will often come in two waves? Well, the morning rally, followed by the upside continuation into the afternoon created two such waves. This makes it possible now for us to again see some more downside into Thursday. Neither the downside nor upside moves on the 15 minute time frame on Wednesday were particularly extended. This increases the risk that further downside can be a bit more on the choppy side and that as the market corrects off lows on the 60 minute charts we will see more of a rounding off at those lows as opposed to a sharp pivot or "V" type of bottom on those time frames, although it can still appear as such on a daily time frame. Right now it is still a little too early to tell, however, and you will want to monitor the pace on the intraday moves on the 60 minute time frame closely over the next day or two since it is likely to take that long for momentum changes on that time frame to begin to establish a larger bias.

Despite the turnaround off the day's lows, the market had a difficult time holding onto the afternoon gains and closed with losses across the board. The Dow Jones Industrial Average ($DJI) lost 34.95 points, or 0.3%, to end the session at 12,466.2. 16 of the 30 Dow components closed lower. J.P. Morgan Chase (JPM) was one of the exceptions. It gained 5.8% after earnings despite a 34% decline in 4th-quarter profit, which was better than many had feared. Citigroup Inc. (C), on the other hand, fell 2.6%. The largest hit in the Dow came from Intel Corp. (INTC). It dropped a whopping 12.4% on Wednesday. Even though it reported a 51% increase it net profit, it did not live up to expectations and its forecast for the new year was disappointing. In the other indices, the S&P 500 ($SPX) shed another 7.75 points, or 0.6%, and ended the session at 1,373.2. The Nasdaq Composite ($COMPX) lost 23 points. It closed at 2,394.59.

Market Breaks Lower, Kicking off a Trend Day

Good morning! The trading range that we've been dealing with over the past four days gave in on Tuesday to the bearish pressure I discussed in yesterday's column. While the indices had closed higher, the upside momentum had been very gradual into Monday's closing bell as compared to prior price declines and the volume on that buying was also on the lighter side as the indices hugged the 15 minute 20 period simple moving average throughout the second half of the trading day.



The correction off Monday's highs began in afterhours trading and resulted in a large downside gap in the indices into Tuesday's opening bell. Early in the day the Commerce's Department released of the December retail sales data, which fell 0.4%. Excluding both autos and gasoline, sales fell 0.2%. This was the first decline in sales in 6 months and was more than economists had been anticipating. It deepened fears that the U.S. economy has now fallen into a recession. Stock and index prices tumbled as a result, although bonds received a boost from the data. Meanwhile, the Labor Department announced that producer prices declined 0.1% in December, while core producer prices (which exclude food and energy) climbed 0.2%.



Gap and pivot levels from the previous two sessions held the market in a vice out of the open following the premarket data. I found almost no buy setups or strong upside momentum gainers in my scanning out of the open, making continued downside the path of least resistance. The momentum resulting from the gap and the break in the 60 minute range also supported more downside intraday. Nevertheless, many market participants sat on the sidelines out of the open, waiting to see how the support/resistance zone would play out. The market was unable to get off the ground, however, and at about 10:00 am ET the bears had caught their breath and were ready for another move.



While the selling out of 10:00 am ET was steady, this would be the only move of the day to display such conviction on the 15 minute time frame. The indices continued lower into the 10:45 ET correction period, at which time they corrected for the second time intraday. The 5 minute 20 sma held as resistance, but the momentum had shifted enough to make it more difficult to break sharply to new lows. Without any strong momentum one way or the other, the downtrend continued as a series of slightly lower lows and even a number of slightly lower highs throughout the remainder of the day.

The market did spike quickly higher into the final 30 minutes of trading to flush out weak hands and offer a glimmer of hope to the bulls, but the larger time frame pressure won out in the end and the session ended near the lows of the day. The Dow Jones Ind. Ave. ($DJI) fell 277.04 points, or 2.2%, and closed at 12, 501.1. The S&P 500 ($SPX) lost 35.30 points, or 2.5%, and closed at 1,380.95. The Nasdaq Composite ($COMPX) dropped 60.71 points, or 2.4%. It closed at 2,417.59. This selling continued sharply in afterhours trading and the market is well on its way to the equal move on the weekly time frame. This is a comparison of the Oct-Nov drop to the one which began late last month.

Market Continues to Consolidate

Good morning! The indices continued to form a trading range on the 60 minute time frame into Monday morning following an initial reaction to support last Wednesday. This slower path was to be expected given the momentum on the selloff as well as apprehension from recent economic data and the advent of the current earning's season. What is not yet clear, however, is whether or not the market will be able to establish enough of a change in momentum to favor a stronger correction off this support or whether the upside is going to remain weaker and give way to further selling as the week progresses. As things stand now, while the market did post gains on Monday, the upside is slower than the prior selling on the 15 minute time frame and was established on significantly lighter volume. Both of these characteristics are bearish in nature.

Monday's session ended with a gain of 171.85 points in the Dow Jones Industrial Average ($DJI). This was the equivalent of a 1.4% increase. The index closed at 12,778.2 with International Business Machs. (IBM), whose earnings come out on Thursday, leading the bulls. It closed higher by 5.4%, while Hewlett-Packard Co. (HPQ) also assisted the Dow, gaining 2.5% on the session. Merck & Co. (MRK), on the other hand, slid lower after a disappointing cholesterol drug study. It fell 1.3%. In the other indices the S&P 500 ($SPX) climbed 15.23 points, or 1.1%, to close at 1,416.25, while the Nasdaq Composite ($COMPX) rose 38.36 points, or 1.6%, and closed at 2,478.30.



From a technical standpoint, despite the solid price increases in the indices, the market was once again very choppy. I found it rather difficult to locate the higher probability setups that I favor and instead had to make do with a lot which were rather mediocre. A substantial portion of Monday's gains were established at the open when the market gapped sharply higher into price resistance from Friday's session. Without strong momentum from top index players, it was very difficult for the market to hold onto and hug the resistance. Instead it gave way to the pressure almost immediately and began to close the morning's gap.

While the indices did not quite make it back into Friday's closing prices, the market did fall into the highs of the closing move on Friday. This support zone hit at the same time as the 15 minute 20 period simple moving average intraday in the S&P 500 and Nasdaq Composite after about 15-20 minutes of selling. That support held well and the market again began to climb as the morning wore on. The upside retested Friday's highs around 11-11:15 am ET. This resistance held once again and a pullback of approximately equal momentum as the prior rally got under way.



The market fell gradually until coming to rest upon the 15 minute 20 sma for the second time on the day. This level hit around 12:30 pm ET and the market did not show any immediate reaction other than to stall the price decline. By the time the 13:00 ET correction period hit, however, the upside was beginning to pick up on the 1 minute time frame and, after a bit of congestion along the 5 minute 20 sma, the bulls regained control.

The market continued its afternoon rally right into the closing bell, holding the 5 minute 20 sma throughout the uphill climb. The momentum was never able to sustain a strong pace, but there were still some rapid scalp moves on the 5 minute charts off the 20 sma support each time it hit. The market managed to establish new intraday highs in the final two hours of trading, but never quite broke through the near-term resistance levels. The 15 minute 200 sma held, as did the highs from Friday on both the S&P 500 and Dow Jones Ind. Ave. The Nasdaq did break Friday's highs, but found resistance at Thursday's closing prices when it filled that gap. The result was that the market held the afternoon highs for the final 15 minutes of trading. This resistance continued to hold past the closing bell and the market corrected off those highs in afterhours trading.

Heading into Tuesday's session, this continues to support a range on the 60 minute time frame and leaves me waiting for more data for larger time frame positions while playing on the smaller intraday time frames in the interim.

Market Consolidates into Earnings Season

Good morning! While the market continued to correct off last Wednesday's lows into the weekend, the correction has taken the slower path we were expecting. Instead of rallying strongly off the support from the week's lows, the indices fell into a trading range on the 60 minute time frame and on Friday they gave back a huge chunk of the gains made mid-week.

By the closing bell, the Dow Jones Industrial Average ($DJI) had fallen 246.79 points, or -1.9%, off Thursday's close and ended the session at 12,606.3. The result was a loss on the week of 1.5%, or -5% on the year to date. The S&P 500 ($SPX) lost 19.31 points on Friday, or -1.4%, and closed at 1401.02. The loss for the week came to 0.7%. The Nasdaq Composite ($COMPX) experienced the largest decline on the week and ended lower by 2.6% after adding a 48.58 points loss, or -1.9% move, in Friday's session alone.

Volume remained elevated on Friday. On the New York Stock Exchange it amounted to almost 1.8 billion, while on the Nasdaq about 2.4 billion shares were traded. On both the NYSE and the Nasdaq declining stocks beat out gainers by approximately 2:1, with the Nasdaq ratio slightly higher and the NYSE ratio slightly lower.

Although news on Thursday of a buyout by Bank of America (BAC) bolstered Countrywide Financial's (CFC) well-beaten shares, the enthusiasm waned into the weekend. CFC gave back 17.3% of its gains from the previous session, while BAC fell 2%.

Another big loser on Friday was American Express (AXP), which added to the credit woes by announcing that it would take a record $440 million Q4 charge due to economic strains and downwardly revised its earnings forecast, particularly due to stress in the Florida and California real estate markets. Another credit lender, Mastercard (MA), fell 8.6%, while Discover Financial Services (DFS) lost 3.7% on Friday. Although Capital One (COF) also lowered its profit forecast on Thursday, it held up pretty well on Friday, posting a loss of only 0.8% (a huge feat compared to others in its sector.)

A lot of the market really took its cue from these top losers, boosted mid-day by a speech from Fed Gov. Frederic Mishkin. In it he emphasized a shift in focus away from typical strategies focusing upon incoming economic data to institute policies aimed at growth with minimal inflation and towards action aimed at preventing the most damage in the longer term. In other words, moving away from short-term rate-cut discourse to placing more focus upon proactive measures to prevent longer-term financial havoc.



The weakness in the market on Friday began in Thursday's afterhours and Friday's premarket trading, resulting in a modest downward gap into the opening bell. The market found support immediately at the 5 minute 200 period simple moving average. This stalled the sellers briefly while a range formed along the support before breaking lower into 10:00 am ET. Trade was sketchy from that point on into noon. While the indices established some slightly lower lows, they were quite minor and support levels from the previous session held well. In the Nasdaq this meant Thursday's lows, while in the Dow it was the mid-day lows and then the afternoon lows in the case of the S&P 500.



The S&Ps corrected the strongest into mid-day, but none of the major indices was able to break through the 15 minute 20 period simple moving average resistance and instead the momentum shifted once more into the early afternoon as the sellers began to take over. The downside was steady throughout Friday afternoon, but it remained choppy as well. This resulted in a slower overall downtrend into the close than represented with the gap and morning decline. When the S&P 500 hit Thursday's lows and the Nasdaq hit support from mid-day on Wednesday the downside faltered. Having been put on edge by the sloppy nature of the downtrend, it was easy for the market to pop higher off the strong 15 minute support into the final 45 minutes of trade. This continued into afterhours trading on Sunday.



Going into Friday morning I was expecting that we would hold Wednesday's lows into this week. Friday's performance, however, has me more open to the possibility of another drop on the daily time frame before we see a larger daily and weekly correction. There is still a bit of room before the market hits equal or measured move support on the weekly charts as compared to the drop from October and early November, so the market may attempt to complete that move this week. I will mainly be focused upon intraday time frames since the shifting momentum intraday on a 60 minute time frame is going to be the main clue in determining whether this can play out or not. If the momentum slows on the downside, then the indices will more likely round off at the lows and correct more from here, but if the buying wanes, then it will be easier for the bears to push things lower. We are also heading into earnings season now, so pay attention to major earnings releases when holding overnight.

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, January 14, 2007
There are no economic indicators scheduled for today.

Tuesday, January 15, 2007
7:45a.m. ICSC Chain Store Sales Index For Jan 12. Previous: +0.4%.
8:30a.m. Jan NY Fed Manufacturing Report. Expected: 8.25. Previous: 10.31.
8:30a.m. Dec Producer Price Index. Expected: +0.2%. Previous: +3.2%.
8:30a.m. Dec PPI, Ex-Food & Energy. Expected: +0.1%. Previous: +0.4%.
8:30a.m. Dec Retail & Food Sales. Expected: -0.1%. Previous: 1.2%.
8:30a.m. Dec Retail & Food Sales, Ex-Autos. Expected: -0.2%. Previous: +1.8%.
8:55a.m. Redbook Retail Sales Index For Jan 12. Previous: -0.7%.
10:00a.m. Nov Business Inventories. Expected: +0.5%. Previous: +0.1%.
5:00p.m. ABC/Wash Post Consumer Conf For Jan 13. Previous: -20.

Wednesday, January 16, 2007
7:00a.m. MBA Mortgage Refinancing Index. Previous: +53.9%.
8:30a.m. Dec Consumer Price Index. Expected: +0.2%. Previous: +0.8%.
8:30a.m. Dec CPI, Ex-Food & Energy. Expected: +0.2%. Previous: +0.3%.
9:00a.m. Nov Treasury International Capital Flows. Previous: -$101.5B.
9:15a.m. Dec Industrial Production. Expected: -0.2%. Previous: +0.3%.
9:15a.m. Dec Capacity Utilization. Expected: 81.2%. Previous: 81.5%.
1:00p.m. Jan NAHB Housing Market Index. Previous: 19.
2:00p.m. Federal Reserve Beige Book.

Thursday, January 17, 2007
8:30a.m. Dec Housing Starts. Expected: -5.0%. Previous: -3.7%.
8:30a.m. Initial Jobless Claims For Jan 12 Week. Expected: +18K. Previous: -15K.
10:00a.m. Jan Philadelphia Fed Business Index. Previous: -5.7.
10:00a.m. DJ-BTMU Business Barometer. Previous: -1.0%.

Friday, January 18, 2007
10:00a.m. Mid-Jan Reuters/U Of Mich Sentiment Index. Previous: 75.6.
10:00a.m. Dec Conference Board Leading Indicators. Expected: -0.1%. Previous: -0.4%.


Key Earnings Announcements This Week:

Monday, Jan. 7:
Before: FCSX, MTB
After: DNA

Tuesday, Jan. 8:
Before: SCHW, C, FRX, MI, MESA, EDU, STT, USB
During: CBSH
After: CAMP, FUL, INTC, LCBM, LLTC

Wednesday, Jan. 9:
Before: AMR, ASML, JPM, NITE, LCRY, NTRS, PGR, WFC
During: TONS
After: CLC, GKK, KMP, LOGI, RMBS

Thursday, Jan. 10:
Before: APH, BK, BBT, BLK, BGG, CIT, CMA, CBH, CAL, DSL, FHN, HBAN, IIIN, IGT, MMR, MER, NVS, PH, PNC, PPG, AMTD
After: CREL, FNB, IBM, NVEC, PNFP, STX, SWKS, TRMK, PAY, WM, WIT, XLNX

Friday, Jan. 11:
Before: ACO, GE, JCI, SLB, WL

Note: All economic numbers and earnings reports are in lines with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column. This list is not a complete list of earnings, so always double check your positions!

Market Rallies on Correction and News

Good morning! The market was all over the place on Thursday. The day began a bit slowly following Wednesday afternoon's sharp correction off lows. As expected, the correction continued into Thursday, but it got off to a slow start. The indices had gapped lower into the open after steady premarket selling and then climbed slowly out of the open as volume dropped off while market players moved to the sidelines ahead of expected remarks out of the Fed.



The uptrend channel on the 5 minute time frame broke lower with the 10:15 am and 10:45 am ET correction periods, but very little activity followed. The volume continued to decline and the market chopped around into the 15 minute 20 period simple moving average until noon. At that point the indices had pulled slightly higher within the congestion and were basing along the 5 minute 20 period simple moving average. This created a buy setup that just took off when the Federal Reserve remarks came out and Chairman Bernanke announced that more rates cuts are likely necessary to support growth and hold off "downside risks."



The initial reaction to Bernacke's news was a sharp rally. The rally did not last long, however, and only about 10 minutes later began to pull in once more. Support hit initially at the 5 minute 20 period simple moving average, which had originally been the resistance, and after congesting along that support for about an hour it gave way to another rapid drop. The second decline took the indices back to the mid to lower end of the late morning congestion. They found support at that level, corresponding to the 14:00 ET correction period.



The market began to roll back over once again into the final two hours of trading, but it really received a boost at about 14:15 ET when more news hit the wires about Countrywide Financial Corp. (CFC). CFC rallied 51.5% on news that Bank of America is interested in taking over the mortgage lender and is in advanced talks to acquire the company. This provided the catalyst for still more buying and kicked off three waves of buying on the 3 minute time frame before stalling and pulling back in a bit during the final 45 minutes of the day after hitting resistance at prior highs on the 15 and 30 minute charts.

At the time of the closing bell, the Dow Jones Industrial Average was up 117.78 points, or 0.9%. It closed at 12,853.1. The S&P 500 was up 11.20 points, or 0.8%, and closed at 1,420.33. The Nasdaq Composite experienced the smallest gains, adding only 13.97 points, or 0.6%. It closed at 2,488.52. As I've mentioned over the past two days, we are likely to see this correction off lows continue into this coming week.

Market Extends Selling into Tuesday

Good morning! The market posted gains on Wednesday, but not without breaking to new lows on the year first! The session began with a lot of choppy activity as the indices corrected from the previous afternoon's massive selloff. Such moves have a difficult time bouncing back quickly, so the range type of action was fairly typical. As the range narrowed the volume dropped off and the momentum stalled on the upside moves within the trading range on the 5 minute time frame as compared to the downside moves. These all set the stage for continued selling on the day.



The indices broke down originally out of the range at about 11:30 am ET. This was too early given the larger 15-30 minute selloff and the result was only a brief 30 minute drop into the 12:00 correction period. At that point the indices had established a slightly lower low on those time frames. The slower selling compared to the previous afternoon helped the market bounce higher into the early afternoon, but the congestion from the morning's activity held the move and another range on the 5 minute time frame formed, creating a second breakdown on the 15 minute time frame into 13:00 ET. This is another typical correction period for the market intraday.



The momentum again slowed on the selling as the indices chopped their way lower. They broke to new lows once more on the day and this created a momentum reversal pattern on the 15 minute charts with three established lows once the third downtrend channel broke higher into 14:30 ET. At this point it became fairly certain that the day's lows would hold. Within about 15 minute of hitting those lows the momentum began to increase and quickly overtook the bears. The market shot first back into mid-day congestion and then rapidly broke through that resistance and into the morning highs. At that larger resistance they fell into some congestion, but still managed to force their way to new intraday highs into the closing bell.



The Dow Jones Industrial Average ($DJI) finished higher on Wednesday by 146.24 points, or 1.2%, to close at 12, 735.3. 24 of its 30 components posted gains on the session. It was led by E.I. du Pont de Neumours & Co. (DD). DD rose 4.8% on the day. General Motors Corp. (GM) was one of the main losers, dropping 2.2%. The S&P 500 ($SPX) rose 18.94 points, or 1.4%. It closed at 1,409.13. The Nasdaq Composite also climbed 1.4%, which amounted to a 34.04 point gain and a close at 2,474.55. This was the first positive close in over a week. Earlier in the session, gold futures hit record highs of $894.40 in electronic trading. In other news, rumors on Tuesday of Countrywide Financial Corp. (CFC) filing for bankruptcy, which were denied by the company, continued to weigh down the stock, which closed lower by another 6.4%.

As the week progresses, we are likely to see some movement now off these current daily lows, but as I said yesterday, the odds are higher for more choppy upside with wider swings on 15 minute charts. The volume was strong in Wednesday's session and this will help a correction off lows, but sustaining rapid upside move intraday from one day into the next will be difficult.

A Bit of Humor

Ok, so this post has absolutely nothing to do with the market... Although maybe if i stretched it a bit I could come up with a yarn to relate it to... but really, I just wanted to share a really funny advertisement my brother sent me from one of the local Iowa papers... I now know for sure that I was raised there because this is EXACTLY something I would do! It is so funny how I thought my parents were the worst when I was a teenager and now find myself exactly the same! LOL! Anyway, the ad is as follows and was on page 3F in the Sunday Marketplace the other day in the Des Moines Register for those of you that like fact checking, so no hoax! I did block out the number though since they may not want it posted all over the inet... even if posted all over the state!

OLDS 1999 INTRIGUE,
Totally uncool parents
Who obviously don’t love
Teenage son, selling his
Car. Only driven for 3
Weeks before snoopy
Mom who needs to get
A life found booze under
Front seat. $3,700/offer
Call meanest mom on
The planet. 515-XXX-XXXX


HEHE! I am lucky so far... My kids are not yet teenagers and still think I'm the best mom in the world even during many of the times they are in trouble... Will see how long that lasts though!

Market Plunges on News from AT&T

Good morning! The market had another high volatility day on Tuesday as the first full week of trading of the new year continued. It was also another very disappointing day for the bulls. Heading into the session I was looking for a greater correction off Monday's lows and into the 20 day simple moving average. Weakness hit rather early on, however, making it very difficult for the bulls to gain any hold on the market whatsoever. Yes, the market did begin on a positive note, continuing the previous afternoon's closing rally, but the bulls were sluggish and only made their way back into the zone of previous 15 minute highs and the highs of the larger congestion zone on the 30 minute time frame. Once that resistance level hit, the bears again took over.



The market headed steadily lower throughout the second half of the afternoon and into the 12:00 ET correction period. The move was steady on the 15 minute time frame, but choppy on the smaller time frames. There was not a strong indication of exhaustion when the lows were established, merely the 12:00 ET correction period hitting and support from Friday and Monday price levels. This was due to the slower momentum on the selling than had taken place on Monday morning and it was also an indication that the market would then attempt another move higher into the afternoon.



When the market did reverse, the momentum still failed to confirm a change in bias. The buying was even slower than the morning's decline and the volume also dropped off, meaning that while the market did manage to climb higher, the bulls were also lacking conviction. As the Nasdaq Composite hit the morning highs it suggested that a double top was in the making. The slower momentum and lighter volume played a big factor in those highs holding and it allowed the market to turn around into the final hour and a half of trading.

Aiding the late day plunge was news out of AT&T (T). A report out at 14:30 ET announced slowing U.S. growth in the U.S. as a contributing factor in hurting the company's consumer business. The overall market was barely holding on before the news hit, but once it did it opened the flood gates. The market sold off sharply and even though it found support initially at about 15:20 ET with AT&T, it resumed its selloff into the close while AT&T held the 15:20 ET lows.



By the closing bell, all three of the major indices were trading at the day's lows. The Dow Jones Industrial Average ($DJI) had fallen an additional 238.42 points, or 1.9%. It closed at 12,589.1 with 25 of its 30 components losing ground. AT&T (T) alone lost 4.6%. Citigroup Inc. (C) was close, falling 4%. J.P. Morgan Chase (JPM) also lost 4%. The S&P 500 ($SPX) lost 25.99 points, or 1.8%, or Tuesday, while the Nasdaq Composite ($COMPX) fell 58.95 points, or 2.4%.

Countrywide (CFC) was one of the largest losers on the day, falling 17.2% after a story in the New York Times led to speculation that the company may end up deciding to file for bankruptcy. At one point it was down by more than 30%. Gold futures, on the other hand, soared to new all-time highs. February's delivery contract hit $884/ounce.

Due to the extended selling on Tuesday, my bias has changed a bit for the remainder of the week. The door is now open for some continued selling and corrections off support are now likely to be even more gradual than they would have been had the market held Monday's lows.

Market Finds Support Following Strong Selling

Good morning! Monday was a very active day of trading in the market with over 1.7 billion shares traded on the New York Stock Exchange and nearly 2.6 billion on the Nasdaq. The indices had opened up higher with a small gap, but after about 30 minutes the selling set in once again to create the lower lows on the daily time frame that we were looking for before turning around once again.

This morning decline was very rapid and flushed hard into the November lows in the Dow Jones Industrial Average. These hit at about 10:30 am ET as the volume spiked to indicate intraday exhaustion. Heading into the day I had expected the reversal to take place at some point mid-day. This was a bit on the early side, but I switched gears nevertheless and began to focus on the upside from 10:30 and throughout the rest of the morning.



The late morning rally was a nice one, quickly taking the indices back into the opening congestion, particularly the hard-hit Nasdaq Composite. Three waves of buying on the 5 minute time frame brought that index back into the morning highs. The Dow and S&Ps did not quite make it all the way, leaving a little more room mid-day for another test of highs. I had shorted the Nasdaq into noon, but ended up playing it only as a scalp into the 5 minute 20 simple moving average as a result of that larger potential for upside in the Dow and S&Ps.

Given the early bounce off the morning lows, the market's momentum did not quite have enough time to turn over to favor the bulls on the larger time frames. This set the stage for another round of selling into the afternoon. I was a bit premature on my second attempt at the highs just prior to 13:00 ET, but was able to catch them again coming out of that reversal period. 13:00 ET and 14:00 ET are typically very good times to play market reversals.



The afternoon breakdown began slowly, gained momentum into 14:00 ET and then as that correction period hit the congestion once again began to set in. The market whipped back and forth for nearly 2 hours, making slightly lower lows on each drop and holding the 5 minute 20 sma as resistance on each bounce. It then shot higher in the final 20 minutes of trading, leading to positive closes in the Dow and S&Ps and nearly positive in the Nasdaq.

The Dow Jones Ind. Ave. ($DJI) gained 27.31 points, or 0.2%, on Monday. It closed at 12,827.5 with Altria Group, Inc. (MO) leading the gainers and closing higher by 3.1%. 21 of its 30 components closed in positive territory. McDonald's Corp. (MCD) was another winner for the index with a 1.7% gain after announcing plans to begin serving cappuccinos and lattes. The S&P 500 ($SPX) rose 4.55 points, or 0.3%, and closed at 1,416.18. The Nasdaq Composite ($COMPX), however, had a much weaker open and morning trading and did not quite make up enough of that lost ground by the end of the day. It lost 5.19 points, or 0.2%, by the closing bell and ended the day at 1,499.46.



As we head into the remainder of the week I am expecting some more corrective action off these levels. It will likely not be anywhere as strong as the selloff, but can create some very nice back and forth moves on the 15 and 30 minute time frames which will make for favorable daytrading conditions. The 20 day simple moving average zone will serve as decent resistance initially on a daily correction.

Market Slides Lower with the Onset of the New Year

Good morning! I hope that you have had a wonderful holiday season! The New Year has certainly gotten off to a rough start! As you may recall, we have been watching for a breakdown into the New Year. Originally I had been expecting a retest of the previous highs from late October/early November, but the Fed threw in a bit of a curve ball in early December, leading to some earlier weakness and holding the indices down by only granting the lower end of the expected rate cut with a 25 basis point cut instead of the 50 point cut many had been looking forward to. The result was more of a congestion zone as the market continued to correct off early November lows as opposed to a stronger price correction higher off those lows. Now the market is looking even lower, although as we head into the new week we do have price support that can stall the breakdown for a few days.



This past week of trading was very similar to the action which took place in mid-October in the S&P 500 $SPX) and Dow Jones Industrial Average ($DJI) other than the fact that the market is at a different place in the larger trend. Nevertheless, the similarities are enough to influence the market over the next week. Friday's flush after selling gradually increased throughout the week leaves the door open for some slightly lower lows on Monday, but then corrective action is most likely, whereby selling stalls for a few days at least.



Friday's climactic selloff began with a strong downside gap after a very narrow trading range on Thursday which continued the intraday range from the prior afternoon. The gap created the trigger for a breakdown from a strong trading range on the 30-60 minute time frames. Since this also triggered a daily 1-2-3 continuation pattern, the gap held rather easily and the indices moved lower right out of the open before basing and continuing lower into the 10:15 ET correction period.

The market continued to selloff until the 11:00 ET correction period. At that point the Nasdaq was running into its November lows and the indices were hitting equal move support intraday as compared to the drop on the morning of the 2nd. While the market headed higher over noon, the volume declined. After hitting the 5 minute 20 period simple moving average, the momentum on the upside also dropped off. The market had congested along the resistance and broke higher with the 12:00 ET correction period, but it failed to confirm the breakout with either an increase in pace or in volume. Hence, this second wave of upside mid-day easily broke lower into the early afternoon. As 12:30 ET the market then began to base, creating a classic short pattern on a 15 minute time frame which triggered initially into 13:30 ET and then increased into the 14:00 ET correction period.



The afternoon breakdown in the market quickly mimicked the move into the mid-day congestion. Equal move support hit on the 5 minute time frame going into the 15:00 ET correction period. A small bear flag on the 5 minute charts followed with another two waves of upside correction prior to the breakdown into the close. The resulting breakdown led to a close right in the zone of the day's lows. The loss amounted to 256.54 points (-2%) in the Dow with a close at 12,800 and a 35.53 point loss in the S&P 500 (-2.5%). It closed at 1,411. The Nasdaq Composite had the greatest difficulty following downgrades in semiconductors. It fell 98.03 points, which translated as a whopping 3.8%. It closed at 2,504. The weekly results were losses of 4.2% in the Dow, 4.5% in the S&Ps and 6.4% in the Nasdaq.

This Week's Econ Reports and Earnings Announcements

Economic Reports and Events This Week


Monday, January 7, 2007
none

Tuesday, January 8, 2007
7:45a.m. ICSC Chain Store Sales Index For Jan. 5. Previous: -0.2%.
8:55a.m. Redbook Retail Sales Index For Jan. 5. Previous: -0.7%.
10:00a.m. Nov Pending Home Sales. Previous: +0.6%.
3:00p.m. Nov Consumer Credit Outstanding. Previous: 4.7B.
5:00p.m. ABC/Wash Post Consumer Conf. Previous: -20.

Wednesday, January 9, 2007
7:00a.m. MBA Refinancing Index. Previous: -15.4%.

Thursday, January 10, 2007
8:30a.m. Initial Jobless Claims. Previous: -21K.
10:00a.m. Nov Wholesale Trade. Previous: Unch.
10:00a.m. DJ-BTMU Business Barometer. Previous: +1.2%
10:30a.m. Crude Inventories

Friday, January 11, 2007
8:30a.m. Dec Import Prices. Previous: +2.7%.
8:30a.m. Nov Trade Balance. Previous: -$57.82B.



Key Earnings Announcements This Week:

Monday, Jan. 7:
After: SCHN
Others: BLUD, LWSN, QMED

Tuesday, Jan. 8:
Before: AYI, CYCL, STZ, CMOS, FDO, GAP, GBX, KBH, NUHC, RPM, SVU
After: APOL, EXFO, INTV, OXM, XRTX

Wednesday, Jan. 9:
Before: EMMS, HEE, MERX, MOS
During: TONS
After: AA, ETP, RBN, RT, WDFC

Thursday, Jan. 10:
Before: CRAI, MTB, MTRX, MTG, MSM
After: CAMP, IHS, SHFL, SNX, PAY

Friday, Jan. 11:
Before: INFY
After: HALO

Note: All economic numbers and earnings reports are in lines with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column. This list is not a complete list of earnings, so always double check your positions!