Market Corrects After Multi-Day Rally

Good day! The market took a turn once again on Thursday, but the S&P 500 and Dow Jones Ind. Ave. vastly underperformed as compared to the Nasdaq, which held up comparatively well. Apple Inc. (AAPL) had a lot to do with this. AAPL closed higher by 5.7% after the company announced that it is confident that it will meet its 2008 iPhone sales targets. AAPL had the help of a strong daily swingtrade setup heading into the session with momentum shifting on the daily time frames coming off a third low at prior monthly lows. The leaders in the Dow included Verizon Communications (VZ) (+2.2%) and AT&T (T) (+2.2%).

Despite these popular issues closing in strongly positive territory, the market as a whole lost ground. The Dow fell 112.10 points, or 0.9%, and closed at 12,582.18. It's top loser was American International Group, Inc. (AIG) (-4%). The S&P 500 lost 12.34 points, or 0.9%. It closed at 1,367.68. The Nasdaq Composite, despite the greater relative strength throughout most of the session, also closed lower by 0.9%, or 22.21 points, at 2,331.57.

A couple of economic releases prior to the open influenced some of the early morning action on Thursday and weighed upon the market throughout the day. Fourth-quarter gross domestic product was revised a tick lower than expected to a 0.6% growth. This marked 2007 as the slowest economic growth in five years, rising at a rate of 2.2% when adjusted for inflation. Consumer inflation was revised higher to a 4.1% annualized pace in Q4, up from 3.9%. Core inflation remained unrevised. Consumer prices rose 3.4% in 2007, while core prices rose 2.1%.

In a separate release, the Labor Department reported that first-time claims for unemployment benefits rose 19,000 to 373,000 last week, this brought those claiming benefits rose to the highest level since Hurricane Katrina.

After gapping lower into the open, the market began to correct, holding the lows thanks in large part to strong support on the 15 minute time frame from Tuesday's early morning price congestion. The first half of the morning was extremely choppy. The market made it's way higher, but could not manage to sustain any decent upside. It was enough, however, to push the Nasdaq to a slightly higher high. These were the very minor highs the market had the potential for heading into the day, but the S&P 500 and Dow both held the 5 minute 200 simple moving average resistance intraday and did not do as well. In the S&Ps this corresponded to a closure of the morning gap, but the Dow only managed to make its way back into Wednesday's afternoon lows. All of these resistance levels hit at the same time into 10:45 am ET and then led to the larger 60 minute correction we were watching for.

When the market reversed, it did so quite swiftly. The initial drop took it to the lower end of the morning's uptrend channel where it paused for a few minutes before plummeting to new intraday lows into 11:00 ET. This created a third wave of selling on the 15 minute time frame in both the S&Ps and Dow and the continuation tool the Nasdaq into the lower end of its trading channel on the same time frame. The momentum shifted as the downside came into support. The result was a bit of a turn-around into noon, but the shift on the the larger 15-60 minute charts was more powerful and the market had a tough time getting off the ground.

The market managed a 50% retracement of the intraday range coming out of 13:00 ET, but the congestion did not start to give way to more solid intraday moves until just after 14:00 ET when the mid-day range broke highs, taking the indices back into the zone of the intraday highs. Another shift in momentum, similar to the one off the morning lows, but in reverse, took place into 15:00 ET and the market sold off steadily for the next half hour, continuing into afterhours trading. As I mentioned yesterday, I am expecting this correction to hold into the weekend. Further downside into early next week is likely as a result of the 60 minute reversal.

Dow Jones Industrial Average ($DJI)



S&P 500 ($SPX)



Nasdaq Composite ($COMPX)

Simple Moving Averages

Email Excerpt

Are there any simple moving average numbers that are especially important which you use in your trading? Also, I did appreciate your straight forward remarks in your article on Fibonacci...

Email Response

Thank you so much!

I know a lot of traders use a number of different moving averages, but the ones I have found to be the best to use on intraday time frames are the 20 and 200 period simple moving averages. I also will use a 10, 50, and 100 from time to time, particularly on a daily and weekly time frame. Some securities will hold a 40 period simple moving averages better than the 50, however, so it's worth scrolling back to see how it reacted to earlier support levels to gain a better feel for which will work the best under more current circumstances.

All my best,
Toni

P.S. Blog readers can check out my article, Fibonacci Trading with Toni Hansen, at TradingMarkets.com at http://www.tradingmarkets.com/.site/stocks/how_to/articles/-75282.cfm



...

Market Corrects After Multi-Day Rally

Good day! Heading into Wednesday's session, the market was shaping up for a larger correction off highs following the 2 1/2 days of upside in the market, whereby it had held the 15 minute 20 period simple moving average throughout the rally. The indices complied right away by gapping lower to open under the 15 minute 20 sma into Wednesday. The gap took the indices into strong support, however, making it difficult to continue the correction past the first several minutes. The Nasdaq Composite had hit the mid-range level from Monday's congestion, as well as its 5 and 15 minute 200 period simple moving averages. The S&P 500 and Dow Jones Ind. Ave. hit support from Monday's highs. The result was that these prices held right away and within a few minutes the market was making an attempt to close the gap.

It was choppy going, but the indices did manage to close the gap zone with the 10:15 ET correction period. That gap level was resistance and the market quickly pulled back off those highs. Just 15 minutes later the onslaught of news moving the markets, which began last Friday, hit once more when the Office of Federal Housing Enterprise Oversight disclosed the pending removal of the restrictions which had been imposed upon Fannie Mae (FNM) and Freddie Mac (FRE) following accounting mistakes. Both stocks soared and the market was happy to tag along.

The news-fed rally took the indices back into the prior 15 minute highs from Tuesday. Given the extended 60 minute time frame and the need for a larger correction, the indices found it impossible to break through that resistance. It attempted the feat three times throughout mid-day trading, but each move was on light volume and the momentum began to favor a breakdown into the mid-afternoon. The fact that each of the mid-day highs corresponded to a strong correction period assisted with the reversal. The first high was made into 10:45 am ET, with the second at noon, and the third into the 13:00 ET reversal period.

The downside momentum immediately picked up once the lower trend channel from the mid-day range gave way. It took the market back into the early morning highs, at which point they formed a nice little continuation pattern into the 14:00 ET correction period, followed by a third move into the early morning congestion. The market found support at 14:30 ET and held really well, pulling higher again for about an hour. The final hour of the day was quite choppy, and when all was said and done the Dow and S&Ps barely posted a change over the previous day's close.

The Dow Jones Ind. Ave. ($DJI) added 9.36 points, or 0.1%, and closed at 12,725.71. The S&P 500 ($SPX) lost 1.27 points, or -0.1%. It closed at 1,384.87. The Nasdaq Composite ($COMPX) did a bit better. It ended the session up 8.79 points, or 0.4%. It closed at 2,356.88. Despite the excitement, not even FRE and FNM were able to hold onto their gains. FRE lost $0.12 and FNM closed higher by only $0.30 despite them both being up more then $4.00 earlier in the day.

In other news, the euro hit a new highs once again against the battered dollar. Gold also hit record highs for April delivery. Assisting these moves were data showing new-homes sales falling again in January, this time by 2.8%, while orders for durable goods declined 5.3%. Comments from Fed chairman Bernanke signaled that the fed was likely to continue to lower rates into the next meeting in further attempts to combat the current economic woes of the nation. Although the market has room still for some slightly higher highs on the 60 minute time frame, I am continuing to expect more of a correction into the weekend.


Dow Jones Industrial Average ($DJI)



S&P 500 ($SPX)



Nasdaq Composite ($COMPX)

Toni Hansen's Feb. Bookstore Specials

Hey Gang,

For those of you looking to pick up some new free reading on market strategies, please take a few moments to browse my Trader's Library affiliate bookstore! You can often find popular titles cheaper than on Amazon! This month's specials can be located at the following link and include a free EBook, to which I contributed a chapter. Thank you so much for your support of my site!

All my best,
Toni

Toni's Bookstore Specials:
http://www.invest-store.com/tradingfrommainstreet/tl020108.html

Adding Tick Charts to Your Market Analysis - GG

Email Excerpt

Hi, Toni.

I thought you may be able to help me with the following:

I trade GG and want to use tick charts. I usually trade 5 min Candlesticks. How does one figure out the amount of ticks to convert from 5 min Candlesticks to a tick chart?

thanks, Toni, take care


Response Excerpt

The best way to translate a time frame chart into a tick chart is to make two equal-sized charts, one over the top of the other, and on one of them have your 5 minute time frame and on the other test out different settings for the ticks and see which ones show about the same span of time. Make sure the scaling is the same. For GG, for instance, a 5 minute chart is roughly equal to an 800 tick chart of GG. Keep in mind that it will change slightly from day to day and during different times of the day with increased or decreased volume activity. If you go through a lot of charts a day you can’t do this as easily, but keeping a 200 tick chart up gives you a place to start to toss a symbol into to see what the current activity. The less active a security, the smaller the tick chart is you can use.

All my best,
Toni

http://www.swingtrader.net/ (Online Trading Course)
http://www.tonihansen.com/
http://www.tradingfrommainstreet.com/

Market Rally Returns on Improved Outlook from IBM

Good day! The market posted gains for the third session in a row on Tuesday. Heading into the day I was looking for a correction on the larger intraday time frames coming off Monday's highs. The morning certainly began along those lines, selling off in the premarket to open slightly lower. Congestion with Monday's close as resistance was followed by further downside throughout the first half of the morning. Support hit with the 10:45 am ET correction period. This came in the form of previous 15 minute lows in the Nasdaq and the 15 minute 20 period simple moving average in the S&P 500 and Dow Jones Ind. Average.

The momentum of the downside was enough to favor a move higher off the support into the second half of the afternoon, but three waves of downside on the all sessions time frame of the Nasdaq also helped. This created trend exhaustion into the support to allow for a reversal. The ultimate bonus was the release of news from IBM. The company raised its 2008 earning forecast on the heels of a $15 billion stock buyback plan. As in the prior two sessions, the combination of a favorable price level given the technical aspects of the market and the release of intraday news allowed the market to once again surge higher.

The initial reaction to the IBM news was followed by a congestion period along the highs into 11:30 am ET, but then the market continued to push higher well into the early afternoon. The impact it had on the market nullified my bias for a greater correction on the 60 minute time frame and instead created a third wave of buying on the S&P 500 and the Dow on the 60 minute time frame. It also created an equal move on the 60 minute Nasdaq chart as compared to the rally off the lows on the 22nd and into the morning of the 23rd, taking that index back into last Thursday's highs.

One of the major afternoon reversal period is 13:00 ET and the market held this time zone very well on Tuesday after the strong morning trend move hit trend extension and price resistance at that time. The last surge of the rally into 13:00 ET made it difficult for the market to roll over easily right away. Instead, the market pulled back more gradually than that last pop. 14:00 ET and 15:00 ET are the next two afternoon reversal periods and the 14:00 one halted the descent. The correction was not enough to account for the morning rally, however, so the market only crept higher from that point on light volume and when the 15:00 ET zone hit the market plunged.

This 15 minute Avalanche pattern took back a decent chunk of the day's gains, but the market still closed in the upper end of the congestion which followed the fall. The Dow closed higher by 114.70 points, or 0.9%, at 12,684.92. 23 of its 30 components gained ground. The S&P 500 lost 9.49 points, or 0.7%, and closed at 1,381.29. The Nasdaq Composite rose 17.51 points, or 0.8%. It closed at 2,344.99.

In other markets, the euro once again hit new highs against the dollar. It hit $1.4982, pushing past the previous high of $1.4966 on Nov. 23, 2007. The dollar index, which tracks the dollar against 6 major currencies, hit a new all-time low of 74.706. This move began after early morning economic data and continued inflation worries. The producer price index climbed an unexpected 1% last month, driven by increasing food and energy prices. The core PPI, which excluded these, rose 0.4%. This was thanks primarily to higher drug and auto prices.

Due to Tuesday's rally, the S&Ps and Dow have now moved higher by nearly 2 1/2 sessions whereby they have held their 15 minute 20 period simple moving averages intraday. I cannot remember the last time that the market has been able to maintain a trend move such as this for more than 2 1/2-3 days. After that point the indices will correct more strongly in terms of price, time, or both and break through the 15 minute 20 sma support.


Dow Jones Industrial Average ($DJI)



S&P 500 ($SPX)



Nasdaq Composite ($COMPX)

Trading Style

Email Excerpt:

In your managed accounts what time frame do you usually operate in, i.e., holding period? Having said that let me ask you if there a particular time frame you teach or is your material good for all time frames? I think by temperament when I do start trading I'll gravitate toward day trading.

Excerpt from reply:

I manage funds on several time frames, but daytrading in stocks is my favorite. I tend to take 3-6 trades a day on average and hold 30 minutes to several hours on most.

I use the same basic concepts on every time frame and security I trade, although intraday I focus more on momentum stocks and a lot of gap style plays. The building blocks I use are exactly the same though. I like these because on days when I'm busy I can come in 15 minute before the open and be done within about 90 minutes if I need to be and don't need to do as much for research afterhours....

http://www.swingtrader.net/

Flags vs. Avalanches

Email Excerpt: "One thing that I find hard to determine is how to tell the difference between a bull flag and an avalanche, since both setup in a similar way. My way of judging those setups and to evaluate the next move is to look at divergence in certain indicators. I don't know if you have a better way to determine that. Thanks again for your comments..."

Response: There are a few things to watch for. First of all, the downside pace should be increasing while the upside pace descreases in an Avalanche as opposed to a Bull Flag. In a Bull Flag, the upside moves at least as the flag nears completion should be stronger than the downside moves, within the flag itself.

Additionally, a more extended trend and larger time frame or multiple resistance levels overhead will increase the odds of an Avalanche as opposed to a Bull Flag.

All my best,
Toni Hansen
http://www.tradingfrommainstreet.com/

Question on Trading News

Please view the past two day's of market commentary for charts to accompany this discussion.

Toni

I hope you're doing well.
I was noting your chart of the phoenix yesterday on the NQ. Though it may look like a phoenix on the chart now, it was news that came out at the time, as you know (ambak). Is it your view that you should trade such things when, as you know, news is very unpredictable. You will note the huge decline after the initial reaction.
You would have had to be very fast to do that one and not get hurt.
Your views?

Thanks,
(name withheld to protect privacy)


Hey -----,

If there is a pattern setting up that combines with news then yes, I will still trade it. The thing with this phoenix yesterday was that the base of a Phoenix itself will have two moves quite often. In this one the second pullback had actually made a higher high instead of holding the entire base highs longer. This is not ideal, but does happen a lot. A risk is that if you take the early trigger, in this casearound 14:15, then it can do what it did around 13:00 and just pop a little and fail.

If you buy any signs of upside cont. after the second move though, then the risk is significantly less. So, had it triggered again at 13:30 for instance on that one, or in the case of the afternoon one, as soon as buying began on the news.

On Friday, even though news really ran the market that afternoon, I had already been buying because the market pattern was favoring an afternoon rally anyway. The news just fueled it further than it would have had it not had news. It's actually rather common for the market to show signs of favoring one way of the other into a news event. It can be very subtle, but still there.

Another way to play news is to take the first continuation pattern by buying the first pullback into support when it starts to bounce, or looking for the 2-wave cont. patterns such as the one into 15:30 ET.

All my best,
Toni

Market Pushes Higher on Positive Data

Good day! The market has been chopping around, uncertain just what to do next for the past week and a half. On Friday, however, the bulls welcomed news out of bond insurer Ambac (ABK) regarding plans for providing relief. The market surged into the close, but this left it extended into the morning on Monday. The result was a pullback immediately out of the gate, which lasted into the 10:00 am ET home data.

Friday's uptrend continued on the heels of the release of January's existing home sales numbers. Even though resales of homes in the U.S. slipped 0.4% in January to a seasonally adjusted annualized rate of 4.89 million, it was stronger than the 4.8 million expected. This stronger-than-expected report brought hope to a housing market plagued in foreclosures and extremely sluggish sales. The low mortgage rates and dramatically lower housing prices have led to speculation that the market will start to see an increase in sales.

With tougher lending practices and the widespread credit woes of the nation, however, I am not hopeful that my house here in Southern Florida, which I first listed 2 years ago, is any closer to selling than it was then! Of course, it might help if I relisted it.... Hmmm... On the plus side, you can get simply amazing deals if you are relocating, including in the rental market. Just yesterday I came across several multi-million dollar homes renting for as little as $900 a month for a 5 bedroom in Orlando. Crazy....

In all seriousness though, I would not expect any rapid recovery in the real estate market without a nice rounding off at lows and a more gradual reversal to begin with. Market prices in real estate can be analyzed in much the same way as the prices of any security and a good comparison to look at would be the 2002-2003 lows in the Dow, S&Ps and Nasdaq. A pop and retracement lower once again would be normal and probably correspond to typical seasonal highs and lows in the housing market.

After bottoming out at 10:00 am ET, the market established three decent moves higher on a 2 minute time frame before running into solid price resistance on a 15 minute time frame. The Dow Jones Industrial Average ($DJI) hit its highs from Thursday, while the Nasdaq Composite ($COMPX) returned to the late Thursday morning congestion zone before stalling its ascent. Since three waves usually exhausts a trend move, the resistance cinched the deal. The Nasdaq had stalled a bit earlier at its resistance level and fell into a triangle trading range, while the S&Ps and Dow pivoted off highs a little later in the morning at the 11:00 ET reversal period.

The momentum of the rally, while not as steep as the prior afternoon, was still faster-than-average, so it didn't turn over too quickly at the highs initially. Instead, the indices began to favor the lower end of a small range along the highs. Real selling did not begin until about 11:30 am ET, but it was followed by a steady retracement off the highs into the 15 minute 20 sma 200 simple moving averages in the major indices intraday.

Although the support held at 12:30 ET, the bulls were not able to immediately regain control. A small two-wave bounce reversed again into 13:30 ET, leading to a retest of morning lows in the Nasdaq. All three of the indices then fell into a trading range with a somewhat uncertain outcome until news once again rocked the boat at roughly 14:25 ET. The bond insurers again made waves when Standard & Poor affirmed the AAA rating of ABK's bond insurance business. Additionally, it took the AAA rating of MBIA's bond insurer until off its CreditWatch. ABK continued its rally with a 15.9% gain on Monday, mirrored in MBIA Inc. (MBI), which rose 19.7%.

All the major indices popped on the latest development. An initial surge was followed by a picture-perfect two-wave continuation move, which took the market into new intraday highs just prior to the closing bell. The Dow closed higher by 189.20 points, or 1.5%, at 12,570.22. The S&P 500 gained 18.69 points, or 1.4%, and closed at 1,371.8. The Nasdaq Composite added 24.13 points, or 1.1%. It ended the session at 2,327.48.

I am looking for a correction off Monday's highs going into Tuesday. We may see some slightly higher highs in the morning, but then a pullback which materializes on a 60-minute time frame is going to be most probable. The 12,800 level remains Dow resistance on the daily time frame, but the 12,700 zone will hit first intraday to provide for a little bit of a pullback should it manage to hold up enough to attempt to work its way higher. The correction on the 60-minute will help with a more solid outlook, but a week of choppy trading seems likely as a whole.

Dow Jones Industrial Average ($DJI)



S&P 500 ($SPX)



Nasdaq Composite ($COMPX)

Market Soars on News for Bond Insurers

Good day! The market extended Thursday's losses early on in Friday's trade. Although the day began with a modest upside gap following some afterhours recovery off the prior day's lows, the gap landed the major index futures contracts, including the S&P 500, Dow Jones Ind. Average, and Nasdaq, right at their 15 minute 20 period simple moving average resistance levels. This was also price resistance from early afternoon congestion on Thursday and it was enough for the market to decide that it just was not quite ready to do more, thanks in large part to the more substantial bearish daily action that had been trying to shape up.

After pulling slightly lower to close the tiny gap in the first 15 minutes of the regular session, the market congested along the 5 minute 20 sma support before breaking lower once again at 10:00 am ET. The steady selling which followed took the market into new lows on the week. Although the momentum slowed into 10:45 ET and the market attempted to correct off lows, there was not enough volume to trigger exhaustion on the downside. Due to the average volume on the selling the market would have to at least round off at the lows to turn back around and move higher at a stronger pace.

Without the exhaustive volume or the rounded lows, the market was able to hold the 5 minute 20 sma resistance around 11:30 ET and moved lower with a 15 minute bear flag. Notice the lighter volume even as the market moved higher into that 5 minute 20 sma. This indicated a lack of motivated buyers and helped keep the door open for further downside. Although the selling resumed into 11:45 ET, it picked up with the 12:00 ET correction period on a small Avalanche continuation pattern. The strongest drop lasted about 15 minutes, but the market was able to roll over a bit into 12:30 in the Nasdaq.

Another attempt at a correction off lows began at 12:30 ET. The 5 minute 20 sma once again served as resistance. The market congested along this resistance level as volume remained light. A second wave of buying on the 5 minute time frame barely broke the market past the 5 minute 20 sma resistance, but this feat, along with the shorter downside move in terms of price on the second 15 minute drop began to show signs of rounding off on the larger 15 minute time frame.

Since the second drop on the 15 minute time frame was to a lesser degree than the first, the odds were strong that a third attempt at lower lows would be even less substantial than the second. The market attempted this third move into 13:0 ET, but previous lows held in both the Dow and S&Ps. After two attempts to break, with a lower low of only a few ticks in the Nasdaq, I began to buy, anticipating a much larger break of the 5 and 15 minute 20 period simple moving averages.

One final test of lows took place just prior to the final reversal period of the day. At this point, that afternoon reversal attempt received a huge boost thanks to news from the financial sector. Even though a correction off the lows was already probable into the close, it would have been highly unlikely to get the type of momentum we saw in that final 30 minutes of trading had it not been for reports coming out at that time that several large banks were looking to bail out Ambac Financial (ABK), a flailing bond insurer, resulting in a 16% gain for shareholders. American Intl Group, Inc. (AIG), which had already been forming a momentum reversal pattern on the 15 minute time frame, was grateful for the added impetus to break higher and closed with a gain of 2.7%.

While the rising tide of the market didn't quite raise all ships, it came rather close. Even many of the top losers up until that point in the day managed to recover somewhat in the final 30 minutes of trading. The Dow, which had been down by about 120 points mid-day, managed to close higher by nearly 100 points with a 96.72 point gain, or 0.8%. It ended the day at 12,381, up 0.3% on the week despite making new lows on the week just a short time earlier. Within the index itself, only INTC, MSFT, GM, GE, and MRK closed in negative territory. The S&P 500 rose 10.58 points, or 0.8%, on Friday. It closed at 1,353, gaining 0.2% on the week. The Nasdaq Composite had the smallest percentage gain, weighing in at +0.2%, or 3.57 points. It closed at 2,303, down on the week by 0.8%.

Due to the late day rally, the market failed to confirm the daily weakness. Instead, the larger range along the 20 day sma held. Since volume has been light throughout this congestion, as soon as it does break, we should expect a multi-day trend. Currently the bias has shifted slightly in favor of an upside resolution to the range, but I don't expect the rally to continue far into the morning on Monday without correcting, and I'm not going to commit whole-heartedly to an upside breakout just yet. It would actually be rather difficult given the 60-minute chart action to really continue this type of buying and would not require much of a shift for the bears to regain control. Any immediate continuation of the upside would be more likely to be rather subdued at this point, barring additional news-based catalysts, with12,800 serving as strong resistance in the Dow.

Dow Jones Industrial Average ($DJI)



S&P 500 ($SPX)



Nasdaq Composite ($COMPX)

Key Earnings Announcements This Week:

Friday, February 22, 2008
Before: AYR, ENDP, EVVV, GEL, HTV, HUN, LTM, LECO, GAS, PCG, SYNT

Monday, February 25, 2008
Before: AMT, DCO, FE, GEHL, GLF, HSIC, LOW, MGA, MRT, ZBRA
After: ACMR, CNTF, CNK, DCI, XCO, FMCN, HLS, HGSI, LDK, NHP, JWN, OKE, OKS, OWW, OEH, RADN, SNDA, TNS, USU, GB

Tuesday, February 26, 2008
Before: ASTE, AZO, BBG, BBI, CALP, CBRL, CBS, CRDN, CFSG, CZN, COWN, DK, DISH, DXYN, DPZ, EP, ESV, FWLT, FDP, FTO, GRB, GVHR, GPI, HSII, HNZ, HD, ISPH, IGLD, KBR, KWSW, LIOX, M, MEDE, MCCC, MDH, BABY, ODP, PKD, PEI, PFGC, PNK, PMI, POZN, KWK, RSH, RRI, SAFM, SRE, SIRI, SAH, SSYS, TGT, TDS, THC, TNC, TTI, TWTI, TWP, UNT, USM, VNO, WNR
During: NX, THO
After: ALO, AHS, APSG, ARUN, ADSK, AXTI, BARE, BMRN, BTUI, CRI, LNG, COGT, CVA, CVTX, DWA, DY, EDR, ERES, GCFB, GSIG, HCKT, HCN, HLEX, HLF, JRT, MASI, MXWL, ORA, OSG, PZZA, PCR, RRC, SONE, SCRX, SEAB, SCI, BID, LNUX, STAA, SGY, SPN, TX, TIE, URS, WRNC, WRI

Wednesday, February 27, 2008
Before: AER, AMED, WTR, ALC, ATPG, BLT, BYD, CBI, CHTR, CKP, CLHB, CCOI, DLTR, RRD, DYN, EIX, ENOC, FRP, FSS, ICTG, IHP, IHR, KNDL, LAMR, LXP, LIFC, TVL, LKQX, MCGC, PCS, MTCT, NIHD, NBL, OC, HK, PDC, PXP, SPW, TOL, VPHM
After: AIRN, ARNA, CDR, CEDC, CNL, FIX, CTRP, DDS, DBRN, DRCO, EGLE, BAGL, ESPD, DAVE, FVE, FLS, GMR, GMKT, GEF, INTX, LEAP, LHCG, LTD, MANT, MDR, MEDX, MRX, MGI, NKTR, NUVO, PDLI, PSA, CRM, SMSI, STAK, STNR, TK, TELK, TS, TYL, WLL

Thursday, February 28, 2008
Before: ABH, ACW, ABV, ARCC, AACC, AVCI, BRL, BNT, BX, BRKR, CVC, CPHL, CDI, CNP, CETV, GTLS, CSK, CTB, CMLS, DLM, DT, DTG, DRQ, EMCI, EPL, FAF, FLR, FRE, GTI, HANS, HSP, IDCC, VTIV, IPGP, IRM, SFI, KG, LNY, MIC, MEMY, MPR, MDS, MINI, NAFC, NZ, NRF, NOVN, NRG, OMG, OCR, OPXT, PEIX, PRX, PDGI, PDE, RHD, RAS, FRZ, REV, SGK, SHLD, SFD, S, SRT, SCMR, SYPR, TSTY, TEF, TWGP, ULBI, VRX, VVUS, WTI, WMAR, WPL, XMSR,
During: GCA, RDC
After: JOBS, AIG, ARBX, ADBL, BEAS, BGFV, BIO, BVN, BLG, CPHD, JRJC, CMED, CTV, RIO, DECK, DELL, DWRI, DRH, DRC, DTSI, EVC, FCH, FGXI, FNET, FCN, GPS, GRP, GUID, HEI, HLX, IDSY, IGTE, IMMR, INAP, IGTE, IMMR, INAP, DMX, KSS, KOSN, LINE, LOOK, MENT, MOVE, NLST, NINE, NXG, NOVL, OVTI, LGBT, SAPE, SGMS, SIE, SONS, SWN, TLM, TFX, URI, UHS, YSI, UTSI, VMSI, PAY, VIA.B, VIMC, INT

Friday, February 29, 2008
Before: AFR, AMCS, BF.B, CSAR, CDL, CDE, XTEX, XTXI, IART, IPG, IWA, MGLN, MSA, NNI, SEPR, SUG, WCRX, WR
After: FOE, POM


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!

Economic Reports and Events This Week

Monday, February 25, 2008
10:00a.m. Jan Existing Home Sales. Previous: -2.2%.
10:30a.m. Feb Dallas Fed Mfg Production Index. Previous: 17.7%.

Tuesday, February 26, 2008
7:45a.m. ICSC Chain Store Sales Index For Feb 23.
8:30a.m. Jan Producer Price Index. Previous: -0.1%.
8:30a.m. Jan PPI, Ex-Food & Energy. Previous: +0.2%.
8:55a.m. Redbook Retail Sales Index For Feb 23.
10:00a.m. Feb Conference Board Consumer Confidence. Previous: 87.9.
10:00a.m. Feb Richmond Fed Manufacturing Index. Previous: -8.
5:00p.m. ABC/Wash Post Consumer Conf.

Wednesday, February 27, 2008
8:30a.m. Jan Durable Goods Orders. Previous: +5.2%.
10:00a.m. Jan New Home Sales. Previous: -4.7%.

Thursday, February 28, 2008
8:30a.m. Initial Jobless Claims For Feb 23 Week.
8:30a.m. 4Q Prelim GDP. Previous: +0.6%.
10:00a.m. Jan Help-Wanted Index.
10:00a.m. DJ-BTMU Business Barometer For Feb 9.

Friday, February 29, 2008
8:30a.m. Jan Personal Income. Previous: +0.5%.
8:30a.m. Jan Personal Spending. Previous: +0.2%.
10:00a.m. End-Feb Reuters/U Of Mich Sentiment Index.

Toni's NY Power Point - Momentum Position Trading

Hey gang!

You can download last Sunday's NY expo power point presentation from my session on Momentum Position Trading at
http://www.tonihansen.com/MomentumPositionTrading.ppt

I hope that you enjoy it!
Have a wonderful trading day!

All my best,
Toni Hansen
toni@tradingfrommainstreet.com

Market Trends Lower on Heels of Dismal Economic Data

Good day! Although the range was not extreme in Thursday's trading, the market still found itself in a strong intraday downtrend throughout the entire session. The day had actually began on a positive note with a large upside gap into the opening bell. Premarket upside had begun around 3:45 am ET and continued into 7:30 am ET. Research in Motion (RIMM) had helped with the move, boosting technology issues as it rose 9% after announcing that it expects 4th quarter account additions to be 15-20% higher than previously anticipated.

After the strong premarket action, the indices reacted very little to 8:30 am ET initial jobless claims. The government reported a drop in weekly U.S. jobless claims, but revised the previous week's claims count higher. First-time jobless claims fell 9,000 last week to 349,000, while the prior week's claims were revised higher to reflect an increase of 1,000 to 358,000, as opposed to prior estimates of a drop of 9,000. The jobless claims reflect recent layoff activity and currently are pointing towards a weakening labor market.

When the opening bell rang, the morning's gap had taken the market smack into really strong price resistance from the opening highs on the 19th. Unable to push past those levels, the market was hit by more economic data at 10:00 am ET when the Conference Board reported a 0.1% decline in leading indicators in January. This was the index's fourth straight decline. Market prices immediately began to head lower with all three of the major indices breaking to new intraday lows and making headway on closing the morning gap.

Wednesday's closing prices in the S&P 500 and Dow Jones Ind. Ave. hit at the same point as the 5 minute 20 simple moving average and the indices fell into a congestion level along that support to create a 5 minute Avalanche pattern. Although prices had climbed somewhat off the support, the volume did not. That, combined with the momentum shift and overhead resistance on the larger time frames, was enough to drop the market lower once again out of the 10:15 ET reversal period.

This second wave of selling on the 5 minute time frame was able to sustain itself for nearly twice as long as the initial one. Equal move support hit on the 5 minute charts when the Nasdaq closed its morning gap at the 10:45 ET correction period, but then the selling continued after only a few minutes, lasting into the 11:00 ET correction period. This second wave of selling on the 5 minute time frame manifested itself as a much larger initial decline on the 15 minute time frame, taking the market into support from the prior two trading days at previous congestion levels and pivot zones, as well as the 15 minute 200 sma in the S&P 500 and Dow.

With the market once again at higher time frame support, it was able to form a larger correction off those prices. It was still rather early on in the 15 minute reversal off highs, however, so the result was an Avalanche pattern on that time frame. Two waves of upside over mid-day on light volume led to a breakdown into noon when the Philadelphia Fed. data came out, showing further weakness in the manufacturing in that region during February. This pointed once again to a bearish bias and the sellers held onto that notion throughout the remainder of Thursday's session. A couple of additional corrections took place off larger support, such as the 14:00 ET and 15:05 ET bounces, but lighter volume and sluggish pace kept the bears in command into the closing bell with a third wave of selling in play on the 15 minute time frame into 16:00 ET.

As we head into Friday, my outlook still remains bearish. The daily time frames are a little bit iffy, since there was some stronger upside about a week ago in the S&Ps and Dow and then congestion since the 13th. As long as this congestion on the 120-minute can break lower though, then we are looking at another week of selling rather easily. The next main support will hit at about 11,800 in the Dow and about 1290 in the S&Ps.

Market Recovers After Early Morning Slide

Good day! After pivoting strongly off highs last week, the downside momentum in the market has slowed. In the Nasdaq that selling held lows last Thursday, but the selling continued in both the Dow Jones Industrial Average and S&P 500 on Monday morning. While the Nasdaq had gapped higher, the typically resilient Dow struggled, in large part due to the disclosure of potential credit-related issues by American International Group Inc. (AIG) (-11.72%). Other financial shares also had a more difficult time. J.P. Morgan was the third weakest stock in the Dow, falling 1.07%. Citigroup Inc. (C) fell 0.85%, while American Express Co. (AXP) lost 0.78%.

Although the Nasdaq Comp. opened higher, its gains were eroded early on while the Dow and S&Ps slid lower throughout the first 45 minutes of the day. Support hit between 10:45 and 11:00 am ET when the S&P 500 hit Friday's lows for price support and the Nasdaq ran into its 5 minute 20 period simple moving average intraday after having closed its upside gap. After stalling at the support levels for a few moments, the bulls began to take over.

The Dow and S&Ps have been the most downtrodden the past several trading days, while the Nasdaq has held up quite well comparatively. Unfortunately, this also meant that it had greater daily upside extension, so as it climbed off the morning lows, prices overlapped to a greater degree than in the other two indices and the pace of the buying was slightly more gradual. Resistance hit on this initial intraday rally when the indices came into their opening highs. This price zone corresponded to the S&Ps 5 minute 200 sma intraday as well.

After a nice two-wave correction mid-day on Monday, the market continued higher. Lows held at the 12:00 ET correction period, right as the Dow and S&Ps hit their 5 minute 20 sma support and the Nasdaq came into the gap support once again. The upside move was a bit early, so the market fell back into 12:30 ET before breaking to new intraday highs. The buying was steady into the 13:00 ET correction period, with the Nasdaq once again moving at a more gradual pace as compared to the other two.

After rising into resistance at the Nasdaq's 15 minute 20 sma and the previous highs in the Dow and S&Ps, the market began to struggle. Although the market trended nicely up until this point in the day, both to the downside earlier and then on the upside reversal, the afternoon was much more difficult. The market chopped around throughout the final three hours of the day, making very little progress either way. Some rounded highs pulled the indices back into 14:30 ET, but price support from earlier in the day held well and the market closed in the middle of the afternoon's range. The Dow had gained 57.88 points (+0.5%), while the S&P 500 rose 7.84 points (+0.6%) and the Nasdaq Composite added 15.21 points (+0.7%.)

While there is room for a 15 minute base or pullback on Tuesday, the intraday bias is still bullish. I am concerned, however, that this upside is going to be short-lived and that we will see selling once again into the end of the week or the beginning of next with another test of the daily lows.

Dow Posts 4th Straight Day of Lower Lows

Good day! From a technical standpoint, Friday was yet another correction day following the previous week's monumental gains. At the same time, however, the market had fallen, or corrected, into some initial support from January 28th in the S&P 500 and the Dow Jones Ind. Ave. The Nasdaq also hit support on Thursday from the 23rd. These support levels stalled the larger daily correction and on Thursday the market was pushed into a trading range on the 30 minute time frame.

Friday's session continued the 30 minute trading range. The market began to pull back a little about 5 minutes into the day, continuing into the 9:45 ET correction period, at which point the market broke higher, running to new intraday highs into 10:00 am ET. The 5 minute 200 period simple moving average intraday stalled this initial morning rally in the S&Ps and Dow, but while the momentum was a bit slower on this upside move than the prior one on the 5 minute time frame, it was not significantly so, and a third move higher intraday formed into 10:45 ET and continued into the 11:15 ET correction zone. This time the buying was a lot choppier and the market barely made new highs. The turning point came as the Nasdaq touched strong short-term price resistance at Thursday's highs.

The slowing upside momentum, assisted by declining volume, the 11:15 ET correction period and the price resistance from trading earlier in the week all led to the mid-day selloff which broke the intraday uptrend channel at about 11:45 ET. The 5 minute 20 sma support gave way after about 20 minutes of hugging the support level. This smaller base at support at the lower uptrend line was a little Avalanche pattern, which was part of a somewhat larger Head and Shoulders setup. When the support gave way, the momentum increased substantially. The market fell quickly into the morning lows in the S&Ps and Dow and the 5 minute 200 sma and morning congestion in the Nasdaq. The momentum slowed as these support levels hit, but the sellers pushed further into 12:30 ET and took the S&Ps and Dow to new intraday lows, while bringing the Nasdaq back into opening prices.

Although certainly a decent-sized move, the mid-day drop on Friday was not that great when compared to the average 15 minute moves lately. This left the market open for another hit in the afternoon. A two-wave correction off mid-day lows offered the perfect opportunity for the intraday bears to take another stab at a nice intraday position. Many continuation patterns form with these two-wave moves and the second high hitting at the 13:00 ET correction period was excellent timing on the part of the market, corresponding perfectly to the 5 minute 20 simple moving averages intraday as resistance. A second intraday selloff began at that time and continued into about 13:40 ET, which took the market back into price support from Thursday.

The market did have the potential to form a third wave of downside into the second half of the afternoon, but when it bounced off support it did so with a sharp pop higher just prior to 14:00 ET. The jump took the indices to the 5 minute 20 sma once again, at which point they fell into a sideways range with light volume to favor a Phoenix buy on the 5 minute time frame. This action alone does not mean that another selloff would be avoided. The Phoenix breakout could very well be a second upside move within a correction off lows, followed by another breakdown. This time, however, the move out of the Phoenix was strong enough that it managed to take the market back into the early afternoon congestion. When the second move higher did break, it was able to find support at the Phoenix's congestion and managed to reverse higher once more in the final hour of trading.

In the Dow Jones Industrial Average's ($DJI), 22 of its 30 components closed lower on Friday, led by the financials. American Express (AXP) lost 3.2%, while J.P. Morgan Chase (JPM) fell 2.9%. Merck & Co (MRK) also lost ground once again, falling 2.6%. Hewlett Packard Co. (HPQ) was the strongest stock in the Dow. It gained 3.4%, while Alcoa Inc. (AA) also posted gains and closed higher by 3%. The Dow as a whole lost 64.87 points, or -0.5%, to close at 12,182.1 with a weekly loss of 4.4%.



The S&P 500 ($SPX) also fell once more on Friday. It shed 5.62 points, or -0.4%, and closed at 1,331.29. The S&Ps ended the week lower by 4.6%. Some of the top losers included Micron Technology Inc. (MU) (-6%), Allergan Inc. (AGN) (-6%), and CIT Group (CIT) (-5.7%). Top gainers included Cognizant Technology Solutions (CTSH) (+16.7%), E Trade Financial Corp. (ETFC) (+7.3%), and Marathon Oil Corp. (MRO) (+6.7%).



The Nasdaq Composite ($COMPX) posted gains on Friday. It rose 11.82 points, or +0.5%, and closed at 2,304.85. On the week as a whole, however, it still lost 4.5%. Tech stocks received a boost from a buyback plan annouced by Amazon.com (AMZN), which lifted that company's shares by 3.7%. Other top stocks were XM Satellite Radio (XMSR) (+8.4%), Expedia Inc. (EXPD) (+5.7%), and Research in Motion (RIMM) (+5.6%).



In other markets, crude oil prices sky-rocketed on Friday with March delivery up $3.66, or 4.2%. It closed at $91.77 a barrel on the New York Merchantile Exchange after being pushed lower in recent trade. This was the largest daily gain since October and the contract ended the week higher by 3.2%. This move was attributed not only to oversold conditions into support, but also news from the Organization of Petroleum Exporting Countries (OPEC). Some of the delegates are pushing to cut production in March to help hold up prices due to lower demand and U.S. economic influences.

On the data front on Friday, the Commerce Dept. reported that U.S. wholesale inventories were up 1.1% in December. This was the largest gain since August 2006. Sales dropped 0.7%, which was the largest decline in nearly a year, with inventory-to-sales ratios now standing at 1.09. This ratio had been at a record low of 1.07 in November. The Commerce Department will release the retail inventory data next Wednesday, finalizing estimates for business sales and inventories for December. Fed Chairman Ben Bernanke will follow on Thursday, Feb. 14th with his testimony on the economic outlook on Capital Hill in Washington.

In terms of price action this coming week, the market is slightly bullish on the 30 minute time frame, but this can easily just create a longer congestion zone on the 60 minute time frame before the market breaks lower for a better test of January lows in the S&Ps and Dow. This would create a two-wave correction off the highs of February 1st and if this second drop is slower than the first, then another daily pop in a couple of weeks is highly probable.

U.S. Stocks Continue to Slide

Good day! The market continued to give us that additional downside we've been looking for into the weekend in Wednesday's session. The day began on a bit of a positive note with the indices gapping slightly higher before retesting Tuesday's lows. After three waves of downside the prior day, however, the trend was still extended on the downside, so it made it relatively easy for those lows to hold and for the market to attempt to correct throughout the rest of the morning.

The immediate reversal off the morning lows around 10:00 am ET was rather valiant. The market popped quickly and the market then based into 10:30 to form a Phoenix pattern on the 5 minute time frame. Unlike Tuesday's failed attempt at the same price action, the Dow Jones Ind. Average and S&P 500 managed some decent follow-through on it this time around. The Nasdaq Composite, however, failed to really break the morning highs. The rally in the Dow and S&Ps did not hold though. Initial momentum quickly stalled and the market rounded off at the highs from the previous afternoon, creating a short setup around 11:30 ET.

The market slowly rolled over as the mid-day trading progressed. An Avalanche into noon confirmed the reversal and a channel along morning support into about 13:30 ET continued to push the market lower. When that afternoon base gave way, it took the market past the morning lows and the momentum increased sharply once those lows gave way. Another bear flag into the 5 minute 20 period simple moving average finished off the session, taking all three of the major indices to new intraday lows. For the third day in a row they closed at them.

The Dow Jones Industrial Average ($DJI) finished lower on Wednesday by 65.03 points, or -0.5%, at 12, 200.10. 22 of its 30 components lost ground. The most notable one to NOT do so was Walt Disney Co. (DIS). It reported earnings which beat expectations and closed higher by 4.8%. The auto manufacturers were the big losers on the day. General Motors Corp. (GM) lost 2.87% thanks to a downgrade by Bear Stearns. Ford Motor Co (F) also saw its rating fall and its share prices along with it. F lost 1.9% on Wednesday.



The S&P 500 ($SPX) fell 10.19 points, or -0.8%, and closed at 1,326.45. JDS Uniphase (JDSU) (+25.98%), and Polo Ralph Lauren (RL) (+9.97%) were the top gainers, but more noteworthy were the top losers. CME Group (CME) lost a whopping 103.55 points on Wednesday, or 17.59%. Harman Intl (HAR) came close in terms of percentage with a loss of 15.37%, but nowhere near it in terms of point loss. It shed 7.03 points.



The Nasdaq Composite ($COMPX) closed lower by 30.82 points on Wednesday at 2,278.75. Celgene Corp (CELG) (+3.18%), Paccar Inc. (PCAR) (+2.87%), and Tellabs Inc. (TLAB) (+2.81%) led the gainers, while Marvell Technology Group (MRVL) (-10.20), IAC Interactivecorp (IACI) (-6.97), and Apple (AAPL) (-5.69%) led the losers.



Although we are likely to start to see less of these downside trend days into the weekend, the market bias is still favoring the bears. I am expecting continued selling with only intraday corrections on a 15 minute time frame, such as that which took place on Wednesday morning. I would like to see a slightly lower low on the Nasdaq and retest of the previous daily lows zone in the Dow and S&Ps before I am willing to commit to anything overnight on the upside at this point. I think these levels are quite possible over the next several days.

Notice: Due to family visiting, I will not be posting a column tomorrow evening, however, it will resume for Monday's trading. So, have a wonderful session and enjoy your weekend!

U.S. Stocks Get Hit Hard in Tuesday's Trade

Good day! The market had a really tough day on Tuesday after selling pressure increased in afterhours trading Monday evening and Tuesday morning. This pushed all potential for a range along the daily resistance levels right out the window and set the day up for continued downside. Typically the extreme gaps in the indices attempt to close, but since this time the gap was also off a major daily resistance level and marked a break in the uptrend of the past two weeks it created one of the exceptions to the rule. While I've talked a lot about this in the past, we haven't seen it happen for quite some time. The result was that even though the market was opening into support, the risk was higher that bulls attempting to buy the gap would have a rough time.

The market did try to hold the lows initially. The market pulled up slightly beginning at about 9:45 am ET, but a more gradual pullback following the 10:00 ET ISM data failed to break strongly higher through the 5 minute 20 period simple moving average. Instead the resistance held well and the choppy selling of the previous session continued.

The Institute for Supply Management (ISM) stated that its nonmanufacturing index fell to 41.9% in January off 54.4% in December. It had been expected to slip to 53%. When if move to under 50% it indicates economic contraction. This was the largest drop in the index's history and was the first time the index had hit that level since October 2001.

Despite the data, the market was so oversold at the open that the effect was not immediate. When coupled by the Richmond Federal Reserve President Jeffrey Lacker's pronouncement that the economy may be heading to a recession, however, the bears had no problem taking the lead. It's not that this is news by any means, since it's been on everyone's lips for weeks, but he is the first Fed official to actually lend his voice to it.

The market moved lower throughout the entire day on Tuesday. It was divided into three main waves on the 15 minute time frame, but the moves were again on the more choppy side. The trend corrected twice within the downtrend. The first was at 11:15 ET and then again out of the 14:00 ET correction period. By the end of the day all of the major indices were at new lows on the week closed at those lows.

The Dow Jones Industrial Average ($DJI) fell 370.03 points, or 2.9%, on Tuesday. It closed at 12,263. Every single one of its 30 components posted losses. The index experienced its largest percentage decline since this time last year and was the largest point loss since last August. The worst performers were J.P. Morgan Chase (JPM) (-7.4%), Citigroup Inc. (CIT), American Intl Group. (AIG) (-4.5%), and American Express (AXP) (-4.1%).



The S&P 500 ($SPX) fell even further than the Dow. It lost 44.18 points, which was a 3.2% decline. It closed at 1,336. Whirlpool Corp. (WHR) was the biggest S&P winner with a gain of 10.31%. Computer Sciences Corp. (CSC) (+6.03), and Avon Prods Inc (AVP) (+5%) also moved higher. NYSE Euronext (NYX) was the largest losers, down 14.14%. Principal Financial Group Inc. (PFG) (-11.22%) and Mgic Invt Corp (MTG) (-10.08%) were other top losers.



The Nasdaq Composite ($COMPX) was also hit hard on Tuesday. It lost 73.28 points, or 3.1%. It closed at 2,309. Only 4 stocks in the Nasdaq 100 closed in positive territory: Wynn Resorts (WYNN) (+7.09%), Google (GOOG) (+2.29%), Ryanair Holdings (RYAAY) (+0.43%), and Intuitive Surgical Inc (ISRG) (+0.12%). Top losers were Garmin Ltd (GRMN) (-8.44%), Logitech Intl (LOGI), (-8.10%), Hii Holdings (NIHD) (-7.49%), and Infosys Tech (INFY). Unfortunately for the bulls, most of these look to continue lower this week.



Even though the market ended the day rather extended, due to the channel break of the upside from the past two weeks we are facing more downside into the weekend. The previous lows on the daily charts will be support and if the momentum can slow a bit then stall just before the absolute lows then we are looking at a triangle range likely to form on the daily time frame. If the momentum is strong, however, then slightly lower lows would create a trap to allow for a bounce back to the 20 day sma again with a third move lower possilbe into the end of February/early March. I expect volume to be lighter on the descents than it last a few weeks ago.

Market Chops Around Following Last Week's Gains

Good day! The market headed lower on Monday as the new trading week kicked off. After strong gains in last week's trade, the market had begun to correct on Friday with some choppy action in a larger range. The indices had managed to climb back to morning highs prior to the close, but that level, which hit on slower momentum than it had earlier in the session, merely served as strong resistance and led to a double top intraday on the 15 minute time frame. This pattern began to follow through immediately out of Monday's opening bell.

A gradual decline with a great deal of overlap in price on the 5 and 15 minute set the tone for the day. Volume was on the light side throughout the session and although the market trended lower well into the afternoon, the bias was not a strong one and each of the downside moves was short-lived with a lot of price retracement in between to indicate a great deal of indecision. The volume reflected this indecision as well since the light volume meant a lack of commitment by either the bulls or the bears.

After breaking through it early on, the 15 minute 20 period simple moving average in the indices held as resistance throughout the day on Monday. It had broken it earlier in all-sessions trading after highs around 6:45 am ET, so even the morning's intraday trading was under that resistance when taking premarket futures trading into account. The market initially hit support from midday to early afternoon levels from Friday around 10:30 am ET, but continued through those prices into noon on slow but steady selling.

A second support level hit around 13:30 ET. This was approximately an equal move on the 15 minute Nasdaq as compared to the initial descent on the day and it was stronger price support from Friday as well. Once again, however, it failed to attract any strong buying and at 14:00 ET the market again rolled over, but the selling did not increase until the last move into the closing bell. The momentum did increase at that time, but it didn't help daytraders by that point and the primary session closed without much fanfare.

The Dow Jones Industrial Average ($DJI) closed at 12,635 on Monday with a loss of 109.03 points, or -0.8%. General Motors (GM) (-4.87%) and JP Morgan Chase & Co (JPM) (-4.21%) were the largest losers. Only 7 of the Dow's 30 components closed in positive territory, although most did so just barely. Drug makers helped to offset the losses with Merck & Co Inc (MRK) up 3.2%. Pfizer (PFE) and Johnson and Johnson (JNJ) posted smaller gains, but gains nevertheless, of 0.2% each.



The S&P 500 ($SPX) fell 14.60 points, or -1%, on Monday. It ended the session at 1,380. The strongest gainers were Cummins Inc. (CMI) (+6.48%), Dynegy Inc. (DYN) (+5.89%), and Nabors Industries Ltd (NBR) (+5.69%). On the other end of the scale were losses in Ambac Financial Group (ABK) (-13.71%), Washington Mutual (WM) (-12.19%), and CIT Group (CIT) (-9.88%). 30 of the indices components fell more than 5%, while only three gained more than that. As you can see, banks felt quite a bit of pressure. Merrill Lynch downgraded both Wells Fargo & Co (WFC) and Wachovia Corp. (WB). WFC ended up losing 6.7%, while WB fell 8.2%. American Express Co. (AXP) also felt the slap of a downgrade by UBS and lost 3.9% on the day.



The Nasdaq Composite ($COMPX) was the hardest hit yet again. It dropped 30.51 points, or 1.3%, to close at 2,382. In the Nasdaq 100 the largest gainers were Patterson Uti Energy Inc. (PTEN) (+6.58%), Yahoo (YHOO) (+3.35%), and Cadence Design System Inc. (CDNS) (+3.02%). Top losers were Ryanair Holdings (RYAAY) (-8.28%), UAL Corp (UAUA) (-6.22%), and Ross Stores Inc (ROST) (-5.79). 5 of the 100 closed with losses greater than 5%, whereas only one, PTEN, posted gains greater than 5%. Although not in the Nasdaq 100, Google (GOOG) had an impact on the Nasdaq as a whole with a loss of 20.47 points, or 4%.



Heading into Tuesday's session, my focus has not changed much for the week. The market is currently dealing with the first daily resistance we'd looked at a few weeks ago, but how it reacts to this level is going to determine the odds from there. If the market drops sharply off this resistance, then a triangle on a daily-weekly time frame becomes likely, whereas congestion here would create a Phoenix on the daily time frame.

Small Caps Demonstrating Signs of a Recovery

Good day! The market followed through well on Friday with expectations favoring a trading range. The indices did continue the prior day's gains initially into the morning, but back and forth action left them unable to break the early morning highs.

The indices had gapped higher initially to kick off the trading day following premarket data. An hour ahead of the open the Labor Department released the January nonfarm payroll data. Employers cut back on hiring last month for the first time since August 2003 with an estimated loss of 17,000. Economists had been anticipating an approximate increase of 85,000 jobs, so the loss came as quite a surprise. Manufacturing, factory, construction and financial-sector employment all suffered the greatest, while the health care sector added positions. At the same time, the nation's unemployment rate fell, but it hit estimates at 4.9%, down from 5%. In related news, the average hourly wage for January increased 4 cents (+0.2%) to $17.75.



Following the open the market stalled into the 9:45 ET correction period, at which point it shot higher, holding the trend channel from Thursday to break to new highs. A third wave on the 2 minute time frame followed around 10:00 am ET. At that point the Michigan Sentiment data, December's construction spending, and January's ISM Manufacturing Business Index all came out. Consumer sentiment dropped in late January, with Michigan's index falling to 78.4 from 80.5 in mid-month, but it was still higher than the previous month. Meanwhile, U.S. construction spending fell 1.1% in December. Lastly, the ISM Index rose to 50.7% last month from 48.4%. While a reading over 50% indicates expansion, the index is expected to slide again, however, before it finds support.

Although the initial response to the 10:00 data was positive, the afterglow did not last. By the time the 10:15 ET correction period hit the market was already turning over. The three waves of buying on the 2 minute charts exhausted that trend and once the selling hit, it hit hard. Within about 30 minutes of trading the Nasdaq had broken morning lows and was coming into Thursday's mid-day highs, while at the same time the S&P 500 and Dow Jones Ind. Ave. managed to close their morning gap zones and coming into 15 minute 20 simple moving average support. All of these support levels hit at the same time as the 10:45 ET correction period, giving the market strong support into the second half of the morning and into mid-day trading.



The strong momentum of the morning's descent made it difficult for the market to move strongly to the upside, but the indices still managed to retrace a large part of the move. The Dow and S&Ps both took back about half their losses, while the Nasdaq moved into the 38% fibonacci level into noon. This is another major correction period and when it hit the momentum continued to slow, this time on the downside. The market fell back into the same support at the 15 min 20 sma in the Dow and S&Ps, slipping into the 13:00 ET correction period on light volume.



The light volume indicated a lack of conviction on the selling and left the bias on the bullish side as the afternoon continued. It wasn't a strong bias though, and the larger trend extension from Thursday and into the morning kept the late day rally from picking up too quickly. It was still enough though to eventually bring the indices back up to close near the day's highs. This amounted to a 92.83 point (0.7%) gain in the Dow, a 16.87 point (1.2%) gain in the S&P 500, and a 23.50 point (1%) gain in the Nasdaq Composite. For the week as a whole, the Dow rose 4.4%, the S&Ps rose 4.9%, and the Nasdaq gained 3.7%.

Economic data for this coming week is rather light, but a number of speeches from the Fed and a continuation of this last quarter's earnings will continue to provide news to fuel the market. The indices have started hitting the earlier January price congestion and resistance levels, and better tests of this zone are expected this week. One thing I found interesting this weekend while scanning was that while a lot of the big caps and mid-caps are still looking rough, a number of small cap stocks have really started to show strength and have begun to turn back around with favor for continued upside on the weekly and monthly time frames.