Market Volatility Remains High in the Midst of Earnings Season

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

Good day! The market was quite a mess on Thursday. The smoothest trading of the day came in the morning. The indices had gapped up into the open after steadily recovering throughout afterhours trade following the late afternoon plummet into Wednesday's closing bell. Premarket news on the economic front helped return the index futures to the highs of the wee morning hours. They had hit highs around 3:00 am ET at Wednesday's upper resistance levels and were trading at the lower end of a trading range when the Commerce Department announced that, while the U.S. economy contracted the most it has since the end of 2001, the 0.3% decline in the real gross domestic product was 2/5 less than anticipated. In other news, the Labor Department stated that jobless claims remained steady last week, while the number of new claims had been expected to fall following the bounce two weeks ago.

Nasdaq Composite ($COMPX)


Due to the daily resistance and the pace of the upside move into that resistance this week, I did not have a strong directional bias heading into Thursday's session. The price resistance at the highs from several weeks ago meant that the market would have a more difficult time pushing forward, but the pace of the upside was stronger-than-average. This meant that it would also have a difficult time turning lower quickly and sustaining a rapid downside move. This left it in limbo and it did a decent job of playing out that uncertainty throughout a large portion of Thursday's session.

The early morning price resistance from Wednesday's highs, coupled with the size of the morning gap, made it easy for the market to take a bearish bias on the smaller time frames throughout the morning. The indices rolled over at the highs and broke down with the 10:15 ET correction period. A second wave of selling continued the move out of the 11:15 ET correction period, leading an attempt to close the morning gap.

Dow Jones Industrial Average ($DJI)


When the indices hit equal move support on the 5 minute time frame (shown in blue) the selling ended. The market began to climb higher into the afternoon, but the momentum was weak. The initial bounce off lows did not last more than a few minutes before the indices started to struggle. Even though they continued higher into the 15:00 ET correction period, eventually retaking the zone of the morning highs, the slow pace of the upside and the relatively light volume left the market wide open for rapid downside flushing action. This took place early on in the final hour of trade, bringing the indices back to mid-afternoon price support zones before recovering into the close. Although the market was able to return to the level of the day's highs, the larger daily resistance held and the afterhours action was fairly uneventful heading into midnight.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) closed at 9,180.69 on Thursday with a gain of 189.73 points, or 2.1%. 25 of the Dow's 30 components closed in positive territory. Among them were Intel Corp. (INTC) (+8.23%), Hewlett Packard Co. (HPQ) (+6.47%), and Disney (DIS) (+5.67%). General Motors (GM) dominated the losers by falling 10.21%, while Microsoft (MSFT) shed 1.61%.

The S&P 500 ($SPX) rose 24 points, or 2.6% on Thursday and closed at 954.09. Energy, utilities, and industrials were the leading sectors. Each of the S&P's 10 industry groups posted gains. The Nasdaq Composite ($COMPX) rose 41.31 points, or 2.5%, and closed at 1,698.52




By establishing a series of slightly higher highs on the 30 minute time frame over the past two days at strong daily price and moving average resistance (20 day sma), the market is at risk of downside flushing action, comparable to what took place in the final hour of trade on Thursday. If they can manage to break the upper end of the price channel from the past two days, however, then it is a clean shot into the highs of October 14th for the next larger time frame resistance level. At this point either scenario can play out, just depending upon the pace of the action on Friday in the indices.

Slower downside will make it easier for the upper end of the range to break, while a sharp drop lower in the morning can more easily lead to a larger break lower on a continuation. I am leaning, however, towards a greater chance that even an initially strong pullback into Friday can easily be followed by a second, more gradual one, which can then lead to a two-wave continuation buy pattern on a 15 minute time frame to push the market through that upper resistance of the past several days.

Market Rallies on Expectation of Rate Cut, but Plummets Ahead of the Close

Market Rallies on Expectation of Rate Cut, but Plummets Ahead of the Close

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

Good day! I am back from my voyage to the north and unfortunately brought both the cold and a cold back with me! The market itself was looking rather congested on Wednesday as well, finally succumbing to the pressure in the final minutes of trade. In the latter half of this past week we saw the indices break down out of a triangle formation on the daily time frame. This took it back into the previous lows we were expecting. The weaker Nasdaq managed a slightly lower low, but the formation held as anticipated and so far this week we have seen the reaction play out quite nicely.

Nasdaq Composite ($COMPX)


After rounding off at lows on a 60 minute time frame the indices surged higher Tuesday afternoon with a pre-Fed rally spurred on by the expectation of another half point interest rate cut. This led to a move into resistance at the 20 day simple moving average in the indices in morning trade on Wednesday, but the indices held up quite well into the afternoon. The trouble was that while prices continued to climb, the ascent was much more gradual than the Tuesday afternoon rally. This shifted the pace of the move on the larger time frames, creating a bearish bias into the 2:15 ET Fed announcement.

The indices created a 2T setup on a 5 minute time frame with a slightly higher high to form this specific type of double top. This trap pattern triggered a short into 14:00 ET which continued once the key lending rate cut was announced, bringing the overnight lending rate down from 1.5% to 1%, which is its lowest level since 2004. This was the typical "buy the rumor, sell the news" action and the breakdown brought both the S&Ps and Dow back into the morning's intraday lows. The Nasdaq was stronger for a change and its turn lower found support in the middle of the morning congestion, but above the lows of the session.

Dow Jones Industrial Average ($DJI)


At 14:30 ET, when the indices hit the larger 15 minute support levels, the market reversed. It rallied into 5 minute 20 sma resistance where it quickly became a question of whether the resistance would hold, creating another breakdown into the close, or whether a Phoenix would form instead. The latter proved to be the case when the indices hugged the resistance and finally broke higher into the final 45 minutes of trade.

Things were initially looking favorable for a close near the highs, but the market pulled back sharply off previous daily highs from two weeks ago and when they retested those highs 30 minutes later they did so at a more gradual pace. A 2T on the S&Ps and Dow and a double top on the Nasdaq completed the session, breaking sharply lower into the final 10 minutes of trade. This move wiped out all the gains made by the S&P 500 and Dow Jones Industrial Average and nearly all of the gains in the Nasdaq Composite as well.

S&P 500 ($SPX)


Wednesday's session ended lower by 74.16 points, or 0.8% in the Dow Jones Industrial Average ($DJI) and by 10.42 points, or 1.1%, in the S&P 500 ($SPX). The Dow closed at 8,990.96, while the S&Ps closed at 930.09. The Nasdaq Composite ($COMPX) gained 7.74 points, or 0.5%. It closed at 1,657.21. Crude oil futures rallied 7.6%, or $4.77, with the largest percentage gain since June to close at $67.50. This went along with a boost in energy-related securities, as well as consumer-discretionary and materials. Telecommunication services, utilities, and information technology led the decliners.

Heading into Thursday's trade, I am a bit ambivalent towards the bias. The resistance is strong enough that we may slide lower here along it for a few days, but the larger daily bias at this point suggests that we will see the lows hold for several weeks. Keep in mind that, given the pace of the selloff into the beginning of this month, the larger correction off support will likely not be as strong in terms of the pace of the price move off lows unless the market rounds off at lows. Even then, the upside pace at a more rapid clip will likely be much more limited than the downside was and fall into periods of correction and congestion more easily off resistance.

Key earnings announcements on Thursday include XOM and PTEN before the open and PWAV, QSFT, and WYNN following the close. See the earnings calendar below for more upcoming earnings announcements.

Economic Data for the Remainder of the Week

Thursday, October 30, 2008
8:30a.m. Initial Jobless Claims For Oct 25 Week: Expected: -3K. Previous: +15K.
8:30a.m. 3Q Advance GDP: Expected: -0.5%. Previous: +2.8%.
10:00a.m. DJ-BTMU Business Barometer For Oct 13: Previous: -0.3%.

Friday, October 31, 2008
8:30a.m. 3Q Employment Cost Index: Expected: +0.7%. Previous: +0.7%.
8:30a.m. Sep Personal Income: Expected: +0.1%. Previous: +0.5%.
8:30a.m. Sep Personal Spending: Expected: -0.3%. Previous: Unchanged.
9:45a.m. Oct Chicago PMI: Previous: 56.7.
10:00a.m. End-Oct Reuters/U Mich Sentiment Index: Expected: 57.5. Previous: 70.3.

Thursday's Earnings Announcements

Thursday, October 30, 2008
Before: ATG, ALU, ARE, ATK, ABC, ANPI (?), APA (?), AWI, ABG, AIZ, AZN, ATRO, AVP, BLL, ABX, BJS, BXC, BCO, BRKR (?), BW, CAM, CNQ (?), CRR, CBZ, CBS, CDI, CI, CBB, CMS (?), CL, CMC, CGX (?), CORS (?), CRY, CTCM, CVS, D, DDE, DVD, DRQ (?), DSPG, EK, ENDP, ENR, NPO, ENZN (?), EVR, EXPE, XOM, FSS, FAF, FTK, FTE, RAIL, FCN (?), IT, GEHL (?), GTIV, GLBL, GHL, HSC, HNR (?), HGRD, HTV, HGSI (?), HURN, ICON (?), IAR, IMCL (?), IPCC, ICE, IFF, IGT, IP, ITG, IRM, ISTA, SFI, JAH, LB, LEA, LXRX, TVL, LKQX, LZ, MHO, CLI, MRO, MRGE, MFA (?), MDS, MOG.A, MOT, MPS, LABL, MYL, BABY, NM (?), NWL, NTMD (?), NOVA, NRG, NMX (?), CHUX, ZEUS, OHI (?), OCR, ORCH, OSCI (?), OSIS, PMTI, PTEN, PCCC, PAG, POR, PDE, QCCO, QUIX, RVSN, FRZ (?), REDF (?), RBA, RDS.A, RRST, SCG, SGR, SINT (?), SBNY (?), SPIL (?), SIRI (?), SRT, STR, STRA, TSM (?), TE, PNX, TBL, GTS, TRW, ULBI, UIS, UNT (?), UTHR, VC, WMI, WWY, WYN
During: VIGN
After: PAR, ACTS, AATI, ACS, AKAM, ALNY (?), ACAP, AHS, ANEN, ANSV (?), AMCC, ARNA, AUTH, AVR, RATE, BARE (?), BGFV, BBND, BMC, BVN, CAB, CAP, CAMD, ELY, CALL (?), CPT, BEAT, CBEY, CEGE (?), CHRT (?), CEM, CHK, CIM (?), CQB, CSTR, FIX, CTV, SCOR, CNXT, CRAY (?), DEPO, DGII, DIVX, DLLR, DRC, DW, DNB, DRRX (?), BOOM, EHTH, ERTS, EEP, ERES, EXAR, ESRX, FMD (?), FBC, FDRY (?), FBN (?), GGP, GHDX (?), GPRO, GNW (?), GERN (?), GFIG, ROCK (?), HAIN (?), HYC, IDSY (?), IMMR, IBNK, IDCC, IN, KND, KLAC, LCRD, LOOP, MEE, MFE, MEDX (?), MTD (?), MCRS, MWY (?), MIL, MNST, MORN, NANO, NAPS (?), NATL, NFS (?), NAVR, NCI, NR, OII, ORH, ONNN, OPLK, OPNT, OTTR, OSG, PSEM (?), PMC, PHTN (?), PWAV, PGIC (?), PSB, PSYS, QSII (?), QSFT, RADS, RMTR, O, RSG, RTEC, SBAC, SGMS, SSW, SIGI, SQNM, SIMO, SSD, FIRE, PCU (?), SFN, SPRD (?), SXE, JAVA, SPN, SWN, TLEO (?), TEAM, TSRA, SWIM, THOR, CLUB, UDRL, USTR, UAM, UNM, VSEA, VISN, VLCM, WBMD, WIRE, WEN (?), WYNN, XL, ZIGO

Triangle Continues on Lighter Volume

Triangle Continues on Lighter Volume

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

Good day! The technology sector was hit hard on Tuesday following disappointing earnings from Texas Instruments (TXN). It also lowered its forecast for the current quarter and was hit with downgrades. The company closed lower by 6.3%. Sun Microsystems Inc. (JAVA) also took a tumble following earnings, losing 17.5% on the day. Apple Inc. (AAPL) also ended up posting losses ahead of earnings, closing lower by 7.0%. The tech-heavy Nasdaq Composite ($COMPX) ended up with a loss of 73.35 points, or 4.1% on Tuesday. It settled at 1,696.68.

The S&P 500 ($SPX) fell 30.35 points, or 3.1%, to close at 955.05. As the dollar continued to rally out of a daily channel, oil and precious metals fell. This weighed on the S&Ps, but the Dow Jones Industrial Average ($COMPX) managed to hold up relatively well compared to the other two indices. It fell, but to a lesser degree, down 2.5%, or 231.77 points. It closed at 9,033.66. Exxon Mobile (XOM) fell 4.6% on the day, while Chevron Corp. (CVX) lost 4%. Crude oil itself fell 4.5% to close at $70.89 a barrel. American Express (AXP) helped the Dow out a bit with a gain of 8.4% following its earnings announcement Monday afternoon in which it reported a smaller-than-expected third quarter decline.

Nasdaq Composite ($COMPX)


From an intraday standpoint, the market action on Tuesday was a lot smoother than it had been in the previous session, even though the intraday range was smaller in both the S&P 500 and Dow and comparable in the Nasdaq. On Monday the indices whipped back and forth within a channel as they made their way higher into the close, but in Tuesday's action the indices experiences more clear-cut price swings with a lot less overlap from one bar to the next on the 5 minute and 15 minute time frames. They also held the support and resistance levels more readily, making it easier to time reversal and continuation moves.

The session began on Tuesday with a downside gap into the open following a double top into Monday's close in the S&Ps and Dow. The gap took the market into the support zone of the 15 minute 20 period simple moving average, along with price support from the previous day. The indices held this support immediately, but fell into a range when the 9:45 ET correction period hit. They picked up again at 10:00 ET and the rally soon closed the morning gaps.


Dow Jones Industrial Average ($DJI)


When a gap closes, that previous day's closing price serves as resistance. This zone hit at about the same time as the 10:15 ET correction period. This retest of the gap also meant a retest of the previous day's highs and the double top on the 30 minute time frame. This resistance held solidly and selling began immediately. The 5 minute 20 sma and then the 15 minute 20 sma served as support, creating a nice two-wave Avalanche formation between about 11-11:45 ET. The sellers returned very quickly when the lows of the range gave way and this took the Nasdaq bac into the previous day's lows.

Support hit initially at 12:00 ET with the S&Ps and Dow at price support from the previous day, as well as the 5 minute 200 period simple moving average. The market's stabilized here and the pace began to shift. When the 13:00 ET correction period hit the indices rebounded sharply. The buying continued following a congestion move into 14:00, leading to another test of the highs in the S&Ps and Dow. The larger momentum, however, remained bearish and the volume on this late day rally was again on the light side. A small 2 minute double top helped turn the smaller time frame pace and the market fell back once again into the close with its strongest move of the day, leading to a close near the day's lows after only retesting the highs just an hour earlier in the S&Ps and Dow.

S&P 500 ($SPX)


Over this past week we have been following the development of this triangle on the daily time frame. So far it has held quite well, but I was hoping to see more upside on this latest swing off lows than we have seen so far in order to get a decent retest of the lows within a few days. If it continues lower into Wednesday then it can have a more difficult time breaking those prior lows and instead will more easily hold them and keep the market in a longer correction off the support from the month's lows to date. The action going into Tuesday have created a series of rounded highs on a 30 minute time frame and these suggest that this alternate scenario is now the most likely one. The indices futures were trading higher immediately afterhours on Tuesday following some better-than-expected news from Yahoo (YHOO) and Apple (AAPL), but the selling abated within a few hours.

Key earnings announcements on Wednesday include T, BA, COP, GENZ, MCD, and MRK before the open and AMZN, AMGN, AAPL, BIDU, and WM following the close.

NOTE: I will be in Chicago this weekend where I will be speaking at the Trader's Forum. As a result, I will not be putting out a Position Trader Newsletter this weekend and this Market Action Letter will be on hold from Thursday through Tuesday, but I'll be back again with a fresh look at the markets on Wednesday evening! I hope to see some of you there!

Market "Inches" Higher on Light Volume

Good day! The indices have experienced a rather severe case of whiplash so far this month. On Monday things appeared to be calming down. The triangle formation we have been monitoring over the past several days continued to hold and volume dropped off a great deal as compared to the prior several weeks. Action on Monday was also more modest. The market did not experience the strong 15 minute swings it has been so fond of lately, but this did not mean that things were "easy". The action, while taking place with more gradual trend moves, was extremely choppy. There were very few low risk and clear-cut pattern setups and those that did take place did not experience the strong follow through most traders such as myself would prefer. Instead there was a great deal of overlap from one bar to the next on both the 5 and 15 minute time frames throughout the session.

Monday began with a slight upside gap into the open. The indices continued to hold up for the first half an hour, but the pace in the Nasdaq intraday favored the bears and the index broke lower into the 10:15 ET correction period. The S&P 500 and Dow Jones Industrial Average followed shortly thereafter. Both broke down out of small 5 minute Avalanche patterns coming out of the 10:45 ET correction period after pulling up gradually following the initial 10:00 ET reversal.

Nasdaq Composite ($COMPX)


The weaker Nasdaq quickly broke to new lows on the day, continuing with a second wave of selling on the 15 minute time frame. The S&Ps and Dow held above Friday's close, but only barely. Volume was lighter on this descent than on Friday afternoon and this helped the market hold lows with the 11:15 ET correction period. They began a steady recovery into the early afternoon, making their way back to the earlier breakdown zone at 12:30 ET before forming a sharp bull flag into 13:00 ET. This is a typical correction period in the market and it held, helping the market again move higher into the morning highs.

These highs hit at the next major correction period at 14:00 ET and a second correction began within this new uptrend. The action was even more choppy than earlier in the day, but finally broke free of the mess into the final hour of trade. All three of the major indices picked up momentum, rallying sharply higher to close at the day's highs. The Dow had been up nearly 300 points already, but it added more than 100 in the final 30 minutes. By day's end, on the New York Stock Exchange the gainers outpaced the decliners by about 5 to 1, while the beat them out by nearly 3 to 1 on the Nasdaq.

Dow Jones Industrial Average ($DJI)


The session ended on Monday with the Dow Jones Industrial Average ($DJI) up 411.46 points, or 4.7%, at 9,265.43. All 30 of the Dow's index components closed in positive territory with Chevron Corp. (CVX) leading the upside with an 11.64% gain. Exxon Mobil (XOM) came in at a close second with a 10.21% gain. Crude oil itself was up $2.40 a barrel, or 3.3%, on the day and closed at $74.25 a barrel on the New York Mercantile Exchange.

The S&P 500 ($SPX) also posted strong gains, up 44.85 points, or 4.8%, to close at 985.40. Energy, utilities, and telecommunication services led the gainers in the S&Ps, but all 10 of its industry groups ended the session higher. National Oilwell Varco Inc. (NOV) was among the more notable standouts, closing higher by 23% on Monday.

The Nasdaq Composite ($COMPX) was once again the dog of the day. Even though it also posted what would typically be considered a stellar gain on the session, it fell short of the S&Ps and Dow in terms of the percentage move. The Nasdaq gained 58.74 points, or 3.4%, on Monday and closed at 1,758.1.

S&P 500 ($SPX)


Earnings announcements on Tuesday include Caterpillar (CAT), DuPoint (DD), Freeport McMoRan (FCX), 3M (MMM), Pfizer Inc. (PFE), Schering-Plough Corp. (SGP), and Yahoo Inc. (YHOO) are due to report. Amazon.com (AMZN), McDonald's (MCD), Boeing (BA), Merck & Co. (MRK), Altria Group. (MO), and Eli Lilly & Co. (LLY) are among those due out later in the week.

The triangle pattern on the daily time frame leaves a little room still to push higher into Tuesday, but I suspect we will see a reversal here once again mid-week as the indices correct from the most recent upside on the 30 minute time frame off the lows from the 16th. Larger market bias still leaves us open for another test of lows on a break out of the current triangle, particularly if that breakdown begins by Wednesday, but we still need to see it continue to develop. I am not expecting any substantial lower lows at the moment. If the market does manage that break this week, it would create the action necessary for a stronger bounce once again on the daily time frame by creating a bear trap type of formation. There is the suggestion that money is starting to pour back into the markets, but I remain cautious. In the long run things remain bleak

Continuation Rally Faltered as Weekend Approached

Continuation Rally Faltered as Weekend Approached

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

Good day! After more than a month of solid losses, the Dow Jones Industrial Average ($DJI) finally managed to post a weekly gain last week. On the week as a whole, the Dow gained 4.75%. It did not, however, manage to stay in the black on Friday. On this particular "quadruple witching" day, the Dow fell 127.04 points, or 1.4%, to end the session at 8,852.22. Caterpillar Inc. (CAT) led the decliners, off 7.20%, while Citigroup (C) following with a loss of 6.42%. On the positive end of the spectrum were Kraft Foods (KFT), which was up 4.07%, and Home Depot (HD), which gained 2.59%. Disney (DIS) came in third with a gain of 1.98%. For the year to date, the Dow is currently down 33.3%.

The S&P 500 ($SPX) also closed higher on the week, up 4.6% for the first week of gains in that index in three weeks. As in the case of the Dow, however, it still closed lower on Friday, down 5.88 points, or 0.6%, at 940. The S&P 500 is down 36% on the year.

The Nasdaq Composite ($COMPX) had the smallest weekly gain last week out of the three major indices, rising only 3.7%. It also posted losses on Friday, taking back a small chunk of its earlier upside by falling 6.42 points, or 0.4%, to close at 1,711. The Nasdaq Comp. is down 35.5% on the year. Google's (GOOG) positive earnings report failed to appease the bears, which took over ahead of the weekend.

Nasdaq Composite ($COMPX)


Despite posting losses across all three of the major indices on Friday, the session did not begin on a bad note. The indices were down a little bit into the open, but this was normal corrective action given that they closed at highs the day before right into large resistance, including the equal move resistance level from the Phoenix pattern (shown on the 15 minute time frames in green). The equal move I am referring to is the one measuring the mid-day rally and comparing it to the breakout from the afternoon on Thurday.

The indices continued to correct throughout the morning on Friday, although they trended somewhat higher during that correction. An initial pullback following the morning's gap closure took place from 10:00 to 10:45 am ET. The 10:45 ET period is a typical correction period for the markets and the two-wave pullback into that time zone led to a natural break higher to continue the trend intraday which began out of the open.

Dow Jones Industrial Average ($DJI)


Although the indices moved into slightly higher highs, since the overall pace of the action on Friday morning was slower than the prior two rallies on the 15 minute time frame, this slower action was comparable to a congestive correction. A third wave higher on the 15 minute time frame then began at the 12:00 ET correction period. This took the market well into the higher highs we had been expecting the heading into the session. Volume had been light as the indices pulled back around 11:15 ET. It didn't pick up much as the market headed higher. It remained light and the momentum also began slowly in the early afternoon, but the indices still made steady process higher for several hours.

A series of three smaller waves on a 2 minute time frame from 12:00 to nearly 14:00 ET helped exhaust this third wave on the larger 15 minute time frame. The market began to turn over as quickly as it ascended, forming a small 2 minute Avalanche soon after the reversal, leading to an increase in momentum as the market began to fall into the final two hours of trade.

S&P 500 ($SPX)


Volatility increased substantially over the next several hours as market participants moved to adjust positions due to the expiration of futures and options contracts, as well as the regular covering ahead of the weekend. The markets trended lower into the close, but the indices began to see a lot more whippy action with a greater degree of overlap from bar to bar on the intraday time frames. The difference between the late afternoon action can be seen quite clearly when compared to just several hours prior. The 5 minute 20 sma served as resistance throughout the descent.

Although lighter on the economic data front, earnings season is going to be picking up again this week. On Monday the big names to watch out for are American Express (AXP), Apple Inc. (AAPL), and Texas Instruments (TXN). Then on Tuesday Caterpillar (CAT), DuPoint (DD), Freeport McMoRan (FCX), 3M (MMM), Pfizer Inc. (PFE), Schering-Plough Corp. (SGP), and Yahoo Inc. (YHOO) are due to report. Amazon.com (AMZN), McDonald's (MCD), Boeing (BA), Merck & Co. (MRK), Altria Group. (MO), and Eli Lilly & Co. (LLY) are among those due out later in the week.

The triangle pattern on the daily time frame that we had speculated upon forming several days ago is now well under way. The prior lows held and this is pushing the indices into a narrowing sideways range. The market is not looking at this earnings season with much optimism and I think that unless we see some rather stellar and unexpected results (which is unlikely) that this triangle is going to conclude with a break lower. Typically with this wider wedge type of triangle like we are seeing so far, when it forms with less than twice the bars it took for the move lower into the triangle, will have a breakdown out of the triangle that will not sustain itself for as extreme of a move as the drop was heading into the triangle. This goes along with the larger monthly support in many securities, but does mean that a lower low within a week is highly probable.

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week


Monday, October 13, 2008
No major economic indicators scheduled.

Tuesday, October 14, 2008
5:00p.m. ABC/Wash Post Consumer Conf For Oct 11: Previous: -43.

Wednesday, October 15, 2008
7:45a.m. ICSC Chain Store Sales Index For Oct 11 Previous: +0.1%.
8:30a.m. Sep Producer Price Index: Expected: -0.3%. Previous: -0.9%.
8:30a.m. Sep PPI, Ex-Food & Energy: Expected: +0.2%. Previous: +0.2%.
8:30a.m. Sep Retail Sales: Expected: -0.7%. Previous: -0.3%.
8:30a.m. Sep Retail Sales, Ex-Autos: Expected: -0.3%. Previous: -0.7%.
8:30a.m. Oct NY Fed Manufacturing Index: Expected: -9.4. Previous: -7.41.
8:55a.m. Redbook Retail Sales Index For Oct 11: Previous: -1.4%.
10:00a.m. Aug Business Inventories: Expected: +0.3%. Previous: +1.1%.
2:00p.m. Federal Reserve Beige Book.

Thursday, October 16, 2008
8:30a.m. Initial Jobless Claims For Oct 11 Week: Expected: -13K. Previous: -20K.
8:30a.m. Aug Consumer Price Index: Expected: -0.1%. Previous: -0.1%.
8:30a.m. Aug CPI, Ex-Food & Energy: Expected: +0.2%. Previous: +0.2%.
9:00a.m. Aug Treasury International Capital Flows: Previous: $36.6B.
9:15a.m. Sep Industrial Production: Expected: -0.9%. Previous: +1.1%.
9:15a.m. Sep Capacity Utilization: Expected: 78.0%. Previous: 78.7%.
10:00a.m. DJ-BTMU Business Barometer For Oct 4: Previous: -0.2%.
10:00a.m. Sep Philadelphia Fed Business Index: Expected: -4. Previous: 3.8.
1:00p.m. Oct NAHB Housing Market Index: Previous: 16.

Friday, October 17, 2008
8:30a.m. Sep Housing Starts: Expected: -1.1%. Previous: -6.2%.
10:00a.m. Mid-Oct Reuters/U Mich Sentiment Index: Expected: 65. Previous: 73.1.


Key Earnings Announcements This Week:
Monday, October 20, 2008
Before: ETN, HAL, HAS, MAT, MMR (?), EDU, NVS, PETS, BPOP, UB, WFT
During: -
After: ACMR (?), AXP, ARTC (?), BRO, CAVM, EFX, ELS, RE, FWRD, HXL (?), IEX, JDAS, LNCR, LOGI, NBR, NFLX, PKG, SLG (?), TXN, VLTR

Tuesday, October 21, 2008
Before: MMM, SHLM, AKS, AME, AXE, ARB, ASTE, ALV, AVY, BIIB, BLK, EAT, BEAT (?), CSL, CAT, CE, COH, DD, FITB, FCFS, FRX, GNTX, ICLR, IIVI (?), IMN, JAKK, JEF, KELYA, KEY, LXK, LMT, MTB, MAN, MNI, MICC, MNRO, MSM, NCC, OMC, OXPS, PCAR, PNR, PFE, PCP, DGX, RF, SGP, SWK, SY, TLAB, UAUA, USB, WAT, WBS, WU
During: -
After: RNT (?), ADPT, ALGT, AVCT, BSX, BRCM, CHRW, CLMS (?), CAMD (?), CNI, CLZR, CRI, CEC, CLDN, CENX, CERN, CHE, CREE, CSGS, CYMI, DFG (?), ETFC, EW, FSII, FULT, HBHC, HTLD (?), IBKC, ILMN, INFN, IFSIA, IVGN, LFL (?), MANH, NSC, PTV, PNRA, PNFP, PTP, PPDI, QLGC, SEAB, SIAL, SSTI (?), SUPX (?), TCO, TUP, VASC, VMW, VOCS (?), WCN, WIT, XL, YHOO, XHNE

Wednesday, October 22, 2008
Before: AMG, APD, ATI, ABI, ABFS, ARW, T, ATMI, BHI, BA, CACH (?), CNH, CXG (?), COP, CFR, DOV, EMC, FCL, FCX (?), GD, GENZ, GSK, KMB, KCI, NITE, LII, LECO, MCD (?), MRK, MKSI, NFX, NTRS, NOC, NWA, NWPX, PAS, PFCB, PM, RYN, RAI, RIMG, ROH, R, SLGN, TCB, SNAK, MDCO, TRV, VTNC, WAB, WB, WLP, WYE
During: EGN
After: AEA (?), AEIS, ACL, ADS, ALL (?), AMZN, AGP, AMGN, ANAD, AAPL (?), ARNA (?), ASIA (?), AXYS, BIDU, BCR, CDNS, CMG, CRUS, CTSX, CNS (?), CNB, EXBD, CVD, CVA, CYBI (?), EGP, ESIO, WIRE (?), EQIX, FFIV, FNF, FADV (?), FR (?), GDI, GGG, GKK (?), GSIC, HIFN, HUBG, ICO (?), ISIL, IRBT, KNX (?), LRCX, LHO, LSI, MTSN, MRCY, MEOH, MOH, MCRI, NARA, NE, NTRI (?), NVEC, OMTR, OSIP, PRE, PNSN, PLT (?), PSSI, PHM, QTM, QDEL, RRC, RJET (?), RHI, RUSHA, RYL, SBCF, STX, SCSS, SKX (?), SLM, SSCC, SFG, TER, TEX (?), TNB (?), TLGD, TMK, TSCO, TQNT, WM (?), WSH

Thursday, October 23, 2008
Before: FLWS, AAI, ALK, ALEX (?), ALXN, MO, ACAT (?), AUO, AN (?), AVT, BKUNA (?), BDC, BHE, BDK, BMY, BC, BG, CCMP, CELG, CPS (?), CBR, CCE, CNMD, CNX (?), CBE, DAI, DLX, DO, DHX, DRAD, DDE (?), DVD (?), DOW, DEP (?), ELON (?), ECL, ELN, LLY, EME, ECA, ESV, EPD, EQT, ETH, FCF, FLIR, F (?), BEN, GMT, GR, GHL (?), HBI (?), HHS, HRH (?), HUB.B (?), IMCL (?), RX, IDC, IVC, ESI, JNS, JBLU, JCI, JRNM, KMT, KNSY, FSTR, LLL, LH, LM (?), LVLT, LTM (?), LYTS, MBI (?), MLNX, MDP (?), MDS (?), NOV, NNDS, NYT, NIHD, NCX, NS, ODFL, ORI, PCCC (?), PCZ, PTEC (?), POT, PCH, PDS, PLD, RHD, RSH, RTN, FRZ, RGC, RTIX (?), SAY (?), POOL, SNA, SO, SPAR, HOT, STFC, STI, SYNT (?), SYPR (?), AMTD, TECH (?), TDY, TNC, TRA, TMO, TRAD, UNP, USAP, UPS, LCC (?), VDSI, WCC, WMAR, WRLD, XEL, XRX, ZMH
During: -
After: ABAX (?), ACMR (?), AFFX, AFL, ARG, AMX (?), , ACLI (?), AMSG, ARBA, AVID, BEZ, BJRU, BKHM, EPAY, BPL (?), BUCY, ELDR, BLG (?), BNI, CSH (?), CTHR (?), CAKE, CB, CYN, COBZ, COHU, COLM, RIO (?), CPWR, CYBS, DAC (?), DDUP, DECK, DV, DST, DDR, EMN, EFII, ELX, ENTU, FII, FMD (?), FLEX, FDRY (?), GNW (?), GSIG (?), HNSH, HPC (?), HRLY (?), HITT, HOKU, IKAN (?), IM, INDU, IDTI, IBKR, IWOV, XXIA, JNPR, LDSH (?), LSCC, LDIS, LPNT (?), WFR, MMDI, MCHP (?), MSFT, MTX, MHK (?), MPWR, MRH, NTGR, NTCT, NMSS, OLN, OMCL, PKI, PXLW (?), POWI, PWER, PGI, RMBS, RCRC (?), RGA (?), EVBD, ROP, SCSC, CKH (?), SIMG, STMP, FNB, SRCL, SYNA, SNV, TNL, TRMB, TGI, TMWD (?), UNTD (?), VAR, WOOF, WEN (?), WDC, YRCW

Friday, October 24, 2008
Before: ACPW, CACH, SUR, CMCO, CCUR, CPO, DSL (?), EMCI, EXC, FSS (?), FO, IDXX, IR, ERIC, MBFI (?), LABL (?), OSTK (?), SAIA, TROW, TKR, UST, VVI, FSTR, LLL, LH (?),
During: GCI, GRC (?)
After: PCU (?),

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

Orderly Reversal Leads Market to Close at Highs

Orderly Reversal Leads Market to Close at Highs

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

Good day! The Dow Jones Industrial Average ($DJI) traded in more than an 800 point range yet again on Thursday, but managed a positive close of 401.35 points, or 4.7%, at 8,979.26. 28 of the Dow's 30 components posted gains on the day, although most of them did not have as much luck throughout the morning. Exxon Mobil Corp. (XOM) led the upside, closing higher by 11.4%. The S&P 500 ($SPX) also closed in positive territory on Thursday, up 38.59 points, or 4.3% at 946.43. The Nasdaq Composite ($COMPX) gained 89.38 points, or 5.5%. It closed at 1,717,71.

Nasdaq Composite ($COMPX)


The markets were pummeled overseas going into Thursday's trade. Japan's Nikkei 225 Index dropped a whopping 11.4%, while Hong Kong's Hang Seng Index fell 4.8%. The index futures had also sold off somewhat in afterhours trade until about 2:00 am ET. At this point the index futures hit a very slightly lower low. This created a reversal pattern called a 2B. The reprieve from the selloff was assisted by 8:30 am ET data showing that overall U.S. consumer prices were relatively unchanged in September. Food prices rose by 0.6%, while energy prices declined. The core consumer price index, which excludes food and energy, rose 0.1%. Meanwhile, initial jobless claims fell last week to 461,000, which is down 16,000 from the previous week. The four-week average for claims, however, hit 7-year highs at 3.63 million.

At 9:15 am ET the Federal Reserve stated that U.S. industrial production fell 2.8% in September. This was the largest decline since 1974. The data was weaker than the expected 1.5% decline. Hurricanes, which impacted crude oil and gas operations in the Gulf of Mexico, were cited as a major contributor to this decline. Consumer durable goods output was down 1.4% with production down 0.7% with production of appliances, furniture, and carpeting alone down 3.3%. Mining output fell 7.8%. Automotive products rose 1.7%, but this was little consolation following an 11% decline the previous month.

Dow Jones Industrial Average ($DJI)


The production data turned the indices off premarket highs, but they still managed to open slightly higher on the session and even pulled higher for the first 20-25 minutes before running into resistance at the 5 minute 20 period simple moving averages in the major indices. When this level hit, the selling resumed in full force and continued until an equal move had been hit as compared to the last 5 minute drop into Wednesday's close.

From about 10:15 ET to 11:15 ET the momentum began to shift. The indices formed a series of lower lows. Three lows, with two lower lows, to be exact. This took place on a 5 minute time frame and created a momentum reversal buy setup into mid-day. The pattern triggered out of the 11:15 ET correction period and the indices moved steadily higher at a pace similar to the morning decline overall, which made the morning highs strong price resistance. This also corresponded to mid-afternoon lows from Wednesday and the 15 minute 20 period simple moving average zone.

The resistance in the market hit around 12:15 ET, which is a bit unusual for a correction period, but the market held it nevertheless and the indices pulled back into the early afternoon. The pace of the pullback was much more gradual than the overall rally and volume declined throughout. The indices could not shake the 15 minute 20 sma and hugged into into the mid-afternoon. A two-wave setup formed on the 5 and 15 minute time frames and the afternoon buying continued in form of a gorgeous 15 minute Phoenix pattern. A Phoenix is the name I use for a specific style of reversal setup that corrects from a larger downtrend. It typically plays out by hugging the 20 sma on whichever time frame it happens to develop on. The indices triggered Thursday's Phoenix around 14:30 ET. A target is an equal move level compared to the initial rally off lows. This placed it at about the prior afternoon's highs and the 15 minute 200 sma zone. This allowed the indices to continue higher into the closing bell even thought hey struggled a bit with the 5 minute 200 sma in the process.

S&P 500 ($SPX)


The indices received continued support in afterhours trade thanks in part to earnings from Google (GOOG) and bullish guidance in IBM (IBM). GOOG was up about 10% afterhours, while IBM was up a more modest 2.4%. I would like to see another wave of congestion comparable to the one mid-day on Thursday in order for the indices to put in another swing similar to the one into the close, but overall the bias is currently bullish on an intraday time frame. The daily charts now have higher risk of a triangle like I mentioned yesterday. The indices on a weekly and monthly time frame are at support and the exhaustion move into the start of the month on the downside continues to favor a longer term correction, albeit more gradual than the drop, going into next year.

Note: I will be out of the office on Friday, so I will not be in the chatroom, etc. The kids have Friday off from school and it's my daughter's birthday this week, so we will be taking a bit of a road trip! :) See you Monday!

Indices Tumble Yet Again

Indices Tumble Yet Again

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

Good day! On Wednesday the Dow Jones Industrial Average ($DJI) fell another 733 points, or 7.9%, and closed at 8,578. This was the Dow's second-largest point loss on record. The largest was the 778 point drop from September 29th. 29 of the Dow's 30 components closed lower on Wednesday, taking back 86% of Monday's gains. Only Coca-Cola (KO) closed in positive territory, up 1.1%. Exxon Mobile (XOM) was the top decliner on the Dow, falling 13.95%, while American Express (AXP) came in second with a loss of 13.41%. C, AA, CVX, CAT, DD, and BAC also closed lower by more than 10%.

The S&P 500 ($SPX) shed 90 points on the session, or 0.5%, and closed at 908. This was its second-largest point drop also. On September 29th it closed lower by 107 points. So far it has taken back over 90% of Monday's record gains.

The Nasdaq Composite ($COMPX) experienced its largest percentage drop in over 10 years on Wednesday, falling 151 points, or 8.5%, to close at 1,628. The Commerce Department reported early on in the session that retail sales fell 1.2% in September. This was nearly two times worst than expected. This had a particularly poor affect on retailers such as eBay (EBAY), which fell 13.6%, and Amazon.com (AMZN), which fell 12.8%. All of the Nasdaq-100's components, heavily laden with tech companies, closed lower.

In other negative news, the Labor Department reported on Wednesday morning that U.S. producer prices fell for a second month in row, while the core producer prices, which exclude food and energy prices, rose. Federal Reserve Chairman Ben Bernanke did not help things out either. During Wednesday's session he vocalized the concerns many Americans have been feeling for weeks now: that a broader market recovery will take quite a bit of time and the affects will not be substantial from the get-go.

Crude oil prices continued to recoil as usage declines. It fell under $75 a barrel for the first time in over a year, closing at $74.54. It has fallen nearly 50% off the year's highs. Gasoline prices have also come down quite a bit, averaging $3.125 a gallon, nearly 25% off the $4.114 highs from July.

Nasdaq Composite ($COMPX)


After opening at highs on Tuesday, the market has continued to have trouble finding a reason to hold onto the recent gains. As expected, the lows from Friday were not really the larger term lows, however, the reversal this week came more quickly than I had expected with help from the economic data. Originally I had been looking for the market to trend higher throughout the week, followed by a retest of lows next week. It would have helped if the indices had spiked more quickly on Monday afternoon out of the congestion, as opposed to picking up the pace into the close. The move still had a chance into Tuesday's close if the market had fallen a third time on the 15 minute charts at a slower pace than the afternoon decline since the afternoon decline was more gradual than the morning one. As you can see though, this did not happen. Instead the market sold off into Wednesday's open and the session began with a modest gap lower.

Dow Jones Industrial Average ($DJI)


The action through the morning on Wednesday was very sloppy. Even though the market trended lower, the Nasdaq Composite was the only one with a decent setup to continue the trend. It based at lows from about 9:45 ET and then broke down out of the 10:45 ET correction period. Each of the three major indices crept lower with slightly lower lows into mid-day. Often this will result in a reversal, but the momentum shift on the smaller time frames failed to form and each of the waves of upside remained more gradual than on the downside on the 5 minute charts. This left the market with a bearish bias into the afternoon.

The downside confirmed at about 13:15 when the mid-day lows broke. At this point the indices were also busting through initial price support on a 15 minute chart, shown in green on each of the three indices. The pace of the selloff was steady until about 14:00 ET. At this point the downside slowed, creating a momentum shift on a smaller time frame and allowing the market to bounce halfway through the afternoon. The 15 minute 20 sma and mid-day lows served as resistance, however, and the selling picked up once again into the close. By this point each of the three major indices had closed Monday's morning gap.

S&P 500 ($SPX)


The market formed a 2B reversal pattern in afterhours trade following staggering losses in Asia. A slightly lower low took place just prior to 2:00 am ET and the index futures were able to bounce off this type of double bottom into the early morning hours on Thursday. Resistance is currently hitting at the 5:00 ET correction period and the price zone of the 14:15 ET lows from Wednesday.

The pattern I had been looking for this week is no longer valid. By failing to hold the lows longer, we are no longer likely to see a double bottom and then a longer congestion type of bounce or correction on a daily to weekly time frame in the market. The door is open now for either a series of slightly lower lows, which can still result in a larger correction a few weeks down the line, or a triangle on the daily time frame and another break lower before the market holds. Even though we are at major support on the weekly time frames, as I've mentioned several times over the past couple of weeks, this is a zone on a larger time frame and thus has plenty of room to wiggle and still hold.

Market Fails to Hold Extended Gains After Opening at Resistance

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

Good day! On Tuesday the Dow Jones Industrial Average ($DJI) was up by about 400 points into the open, but by the closing bell it had fallen 76.62 points, or 0.8%, and closed at 9,310.99. At its lows, it had been down nearly 300 points. 21 of the Dow's 30 index components closed in negative territory. Shares in the financials did their best to hold up the Dow and keep it from slipping even further. Bank of America (BAC) closed higher by 15.6%, while Citigroup, Inc. (C) gained 18.2% on news that they would be among the major financial institutions receiving capital from the government. American Express (AXP) came in a distant third for the Dow's top gainers, up 3.26% at the close. Leading the decliners were Coca-Cola (KO) (-7.47%), Intel Corp. (INTC) (-6.24%), and Alcoa (AA) (-6.01%).

The S&P 500 ($SPX) also closed in slightly negative territory after a strong upside gap. It declined 5.34 points on the session, or 0.5%, and closed at 998.01, back under the 1,000 mark once again. Information-technology and consumer-discretionary were the two sectors fronting the day's losses, while financials led the gainers. The Select Sector SPDR-Financial (XLF), which is the exchange-traded fund tracking the financials, was up 6.5% on the day. On the New York Stock Exchange advancers still managed to beat out decliners by 17 to 14.

The Nasdaq Composite ($COMPX) suffered the most in Tuesday's session. It fell into negative territory almost immediately following the opening bell and closed lower by 65.24 points, or 3.5% by the end of the day at 1,779.01. On the Nasdaq, decliners outweighed advancers by 3 to 2.

Crude oil prices failed to react strong to the daily support and again slipped lower on Tuesday by 3.2% to close at $78.63 a barrel. Meanwhile the dollar continued to base along the year's highs. The U.S. Dollar Index closed at 81.665 on Tuesday with the euro in dollars settling at $1.3622. Gold fell $3 an ounce to $839.50. Losses in the commodities also extended to copper and silver.

Nasdaq Composite ($COMPX)


From a technical standpoint the action on Tuesday was quite normal given the rally which had been in play since Friday afternoon. Even though the indices were in an uptrend throughout Monday's session the essence of the move was a congestion move throughout most of the day, only followed by a real continuation of the trend into the closing bell. This can be seen on a 15 or 30 minute time frame by the narrower trading and lighter volume throughout the morning and mid-day. When the trend began to continue into the close, volume picked up. This put the continuation move into full gear and it keep the index futures moving higher in afterhours trade, leading to a strong upside gap into Tuesday's opening bell.

Dow Jones Industrial Average ($DJI)


When the opening bell rang, the market was at strong price resistance in the form of an equal move target zone on a 15 minute time frame. I have shown this in blue in the charts for today's column. Larger-than-average gaps in the indices themselves have a tendency to close, but those that also open at strong price resistance in the case of an upside gap have an even better chance of doing so. The break in the morning's 15 minute lows confirmed the move and made it most likely that a downtrend would take place into at least 10:45 am ET.

The 10:45 ET correction period held the S&Ps and Dow lows perfectly in the morning, pushing the indices into a trading range with a slight upside correction over noon. The Nasdaq was weaker throughout the day and held the 11:15 ET correction period for morning lows with a 2B instead of the earlier low. This double bottom with a slightly lower low allowed prices to correct somewhat, but the market was at the 15 minute 20 period simple moving average at this time and could not manage to shake that support level. It hugged it even as prices climbed.

S&P 500 ($SPX)


The market tried to break the correction into 12:00 ET, but this was too early to sustain a move large enough to break the 15 minute 20 sma support and a second wave to the upside formed into 13:00 ET on the 5 minute time frame. This time the pace of the buying was more gradual and volume was even lighter. On a 5 minute time frame the prices overlapped as the indices inched higher. They triggered a short setup into the 13:00 ET correction period. At this point I ideally wanted to see another base into about 13:30 before the range broke completely to offer another short trigger, but instead the momentum slowly picked un like we had seen on the afternoon of the 9th and this pulled the indices to new intraday lows.

The selling continued in the market until another equal move hit, this time on the downside on a 5 minute time frame. This target zone hit just before the 15:00 ET correction period. This was also the same price level as the congestion break from the previous afternoon, adding another reason to favor this zone holding into the final hour of trade. The 15 minute 20 sma, which had been support mid-day, now served as resistance, holding about 15 minutes prior to the closing bell.

Despite the current extension, I am favoring further upside as the week wears on. I am still expecting, however, that we will then see another strong move lower in about a week that will retest the zone of the previous lows, so I am not looking at this as being a "real" bottom yet and would urge caution on entering longer term positions at this point.

Mastering Momentum Gaps - XL

Tuesday's trading session was saturated with "runaway" gaps, but it only had a handful of strong setups to accompany them. I stopped by my chatroom earlier today and gave XL (XL Cap. Ltd.) as my core position for the day at $10.75 at 11:15 am ET. This position had a $0.25 stop and rallied $2.50 on the breakout for a 10:1 reward to risk ratio!!! (Ok, I only took $2 out of it, but that's still 8:1!) If you would like to learn why I focused on XL over the other gaps on Tuesday, join me on November 8th and find out for yourself how to search out the best of the best!



For more information, go to http://www.tonihansen.com

Market Continues to Rack up New Records

Good day! Following record losses last week, the market was determined to set some records on the upside on Monday. The correction off lows which began late in the day on Friday continued into the opening bell on Monday. Throughout this past week I have been talking about this week as the one to look towards for an upside correction from the selling and so far that bias has held true. The Dow Jones Industrial Average alone managed it largest intraday point gain on record in Monday's session.

On the news front, the U.S. Treasury officials laid out details of the plan to help bail out the financial sector, which was viewed favorably by the market. Overseas the resounding messages was that the central and national banks would lend funding to distressed financial companies. Leaders of 15 euro-zone nations agreed on Sunday to a plan resembling a rescue plan laid out last week by Great Britain that would allow the injection of capital into flailing banks and guarantee interbank loans. It would also let the governments of these countries purchase stock in distressed firms.

Nasdaq Composite ($COMPX)


The indices opened higher on Monday morning, a day when most financial institutions were closed in the states for Columbus Day. The gap extended the rally from Friday afternoon, but the indices had time to congest in afterhours and premarket trade, forming two-wave buy setups on the all-sessions time frames into Monday's open. The indices continued their correction into the opening bell, but finally triggered a continuation of the 15 minute trend coming out of the 10:15 ET correction period.

The pace was not as extreme as seen with Friday's rally, but the market crept steadily higher, taking the vast majority of individual stocks with it into the early afternoon. After three waves of upside intraday the market began to struggle. The third high came just prior to the 13:00 ET correction period and the market formed a two-wave pullback off this high into the middle of the afternoon. This type of daily action, however, makes it likely that a trend day will take place. Take a quick look at the daily chart of the Nasdaq Composite and you will see the momentum shift pattern we had been following last week break the channel to trigger not only intraday on Friday, but on the daily time frame with Monday's gap as well. This made it probable that the market would close at or right near the day's highs despite any intraday attempts to reverse.

In the afternoon, the indices held their 15 minute 20 period simple moving average support levels, which we saw act as resistance on the way down, hold very well. Buying resumed around 14:30 ET and held steady over the next hour. It accelerated dramatically, however, into the closing bell to confirm the largest daily bias.

Dow Jones Industrial Average ($DJI)


On Monday the Dow Jones Industrial Average ($DJI) finally broke its 8 day losing streak with the largest gain on record. Intraday it nearly doubled its largest intraday move of 504.45 from September 20th by rallying 975 points and closing with a gain of 936.42 points, or 11.1%. It closed at 9,387.61. Although its largest percentage gain, surprisingly it was still only the Dow's 5th largest daily percentage gain. General Motors (GM) led the Dow's advance, up 33.1% on talks on potential mergers between America's auto giants. Oil found support with the equal move on the daily time frame as compared to early September's decline and this helped boost shares in the likes of Exxon Mobil Corp. (XOM) (+17.2%) and Chevron Corp. (CVX) (+20.9%). Crude oil rose $3.49 a barrel, or 4.5%, to end the day at $81.19 a barrel on the New York Mercantile Exchange. General Electric (GE) was the only Dow component to not play along and it closed lower by 2.33%.

S&P 500 ($SPX)


The S&P 500 ($SPX) also rallied over 11% on Monday, closing higher in the triple digits at 1,003.32, up 104.14 points, or 11.6%. This was the S&P's greatest single-day gain on record and the fifth-largest percentage gain. Energy and telecommunications led the gains, but all 10 of the industry groups closed in positive territory. The Nasdaq Composite ($COMPX) had the largest percentage gain on the session, up 194.74 points, or 11.8%. It closed at 1,844.25. This was its 10th-largest point gain and third-biggest percentage gain.

Volume was down from last week, coming in at just over 1.8 billion shares exchanged on the New York Stock Exchange with advancers outpacing decliners by approximately 19 to 1. On the Nasdaq the advancers beat out the decliners by 6 to 1 with volume of just under 1.2 billion shares traded.

Despite Monday's exceptional gains, I would not bet on a broader market trend break just yet. Moves such as Monday's do not often lead to larger market reversals right away. I do think that we can continue to see buying over the next week or so, even pushing through the 20 sma now, but the odds favor another strong move lower still this month before any larger market correction off the current monthly support levels can occur. The market was up a great deal in afterhours trade, thus extending Monday's trend even further, so expect the pace of any continued upside this week to diminish. This will allow the sellers to move in quickly off daily resistance levels, so watch for slowing pace on a 60 minute time frame for a heads-up.

The Phoenix - Chart Pattern Discussion

Toni,

I've been reading your column on Hardrightedge.com for some time and am especially interested in your analysis of the 15 min charts.

One of the patterns that I am most interested in is the "Phoenix" pattern with an open candlestick crossing of the 15 min 20 ema. This is the pattern that I look for most often in my daily trading.

Can you give me some insight or guidance on your exit criteria - initial, trailing and profit objective - for a "Phoenix" pattern?

Thanks,
William

Answer:
Hello William! Thank you so much for taking the time to email me! Let me first begin by taking the basic description of the pattern from my Market Timing Guide (http:/www.swingtrader.net). It is as follows:

The basic description is as follows:

Description: The Phoenix is a pattern named by Toni Hansen which is the opposite of the Avalanche. It is typically considered to be a reversal pattern off lows, although it can also occur within a trading range just prior to a breakout. It is the first continuation pattern on the upside following the lows of a downtrend, or the first continuation pattern within a trading range leading to its breakout. Two specific types of Phoenixes are more commonly known as a Reverse Head & Shoulders pattern and a Cup-with-Handle. The entry trigger on an Phoenix, however, is not the same as on a Reverse Head & Shoulders pattern. See “head and shoulders” to view an example of a Phoenix entry within a reverse head and shoulders pattern.

Criteria:
1. Downtrend or sideways trend
2. Stronger than average decline.
3. Pullback that is comparable to or stronger than previous decline, typically into the 20 period simple moving average resistance, although the 10 and 50 sma are not uncommon.
4. Hugs the moving average resistance on decreasing volume.
5. Moving averages start to converge (10 and 20 sma if it's been hugging the 20 sma.)

Entry: Switch to smaller time frame and enter on a breakout from resistance or going into support. A break in the trend line from the highs of the congestion along the support level can also be used, particularly if the waves of buying and selling within that congestion are more difficult to discern.

Stop: Under the last pivot low within the trading range, or drop down to smaller time frame and look for a smaller base at highs in the larger base and place a stop under the lows of that smaller base.

Target: Next major simple moving average resistance. A Phoenix along the 20 sma would have a target of the 40 or 50 sma. Also watch for an equal move compared to the rally into the Phoenix range off the pivot lows. This works best if the pace of the breakout from the Phoenix is the same as the pace of the rally into the Phoenix base.

One template can be located at http://www.tradingfrommainstreet.com/images/chartpatterns/20030827phoenix.gif
Example: http://www.tradingfrommainstreet.com/images/chartpatterns/20030827phoenixBMET.gif
Example: http://www.tradingfrommainstreet.com/images/chartpatterns/20030827phoenixEMLX.gif

The Phoenix, as you know, is the name I coined for the first continuation breakout on a new trend. For instance, a Phoenix buy is a continuation buy pattern coming out of a larger downtrend or sideways trend. The link showing one such example is at http://www.tradingfrommainstreet.com/techanalysis2.html#17. One tip for timing a target is to take the initial move off lows into the base and measure than out for the breakout to give you an accurate target. Also watch for the 20 sma on a 30 and 60 min chart as upside resistance. When it comes to trailing stop, do not adjust them too quickly. Start with keeping the trailing stop under pivot lows and then as it nears target objectives you can use tighter forms, such as channel breaks.

I hope this helps!

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

Hey gang!

I would like to invite you to join a new discussion on our Trading From Main Street message board on Facebook regarding a pattern I call The Phoenix. To participate in this discussion, go to http://www.facebook.com/group.php?gid=28336238628

Another Record Day on Wall Street

Another Record Day on Wall Street

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

Good day! Just when we think things can't get worse... they do! Ok, so we haven't been looking for a correction until this week on a daily time frame, but on Friday morning it was looking dubious to many as to whether or not this selling pressure would ever abate! Each of the setups I'd been monitoring as potential beginning of a reversal pattern to come had failed to hold their form. Even the Nasdaq struggled with its lower trend channel line connecting the lows of the 6th to the afternoon on the 8th. This support had hit in overnight trade in the futures Thursday evening and held extremely well into early trade on Friday. It failed to bounce strongly off the support, however, and fell into more of a congestion, just leading to another bear flag heading into the afternoon on Friday with another test of the support level at about 14:00 ET.

The first three lows (the final one being afterhours on Thursday) were evenly spaced on the all-sessions 15 minute chart and this tends to be a great opportunity to buy. The market held this support and bounced higher into the open and beyond. While it was still a nice move, recovering about 50% of Thursday's losses, it simply could not bust that 1300 level again on the NQ. This zone marked the morning gap closure in all three of the major indices and that gap level also meant strong price resistance. The 10:15 ET correction period did not quite hold as well on Friday as it often does. Instead the gap level had hit around 10:08 am ET and this level held. Nevertheless, the selling did not really pick up until after 10:15. When it hit you could almost hear the air raid sirens going off with the failure of yet another attempted move higher.

Nasdaq Composite ($COMPX)


Although the market turned around again fairly quickly, the pace of the selling slowed as the morning wore on. The indices experienced a lot of overlap from one bar to the next on the 5 and 15 minute time frames and this slowing pace into the 12:00 ET correction period allowed the market to attempt to push higher mid-day. Volume was light, even on the upper break of the downtrend channel, meaning that the break failed to confirm itself. The upside pace also failed to pick up and the lower channel from the correction gave way to another wave of selling out of the 13:00 ET correction period. This led to new lows on the day in the Nasdaq and another retest of the lower trend channel line.

Once again the channel held and the indices again reacted swiftly with a move off the support level. The reaction took the market higher out of 14:00 ET, but the indices struggled with numerous levels of resistance on the intraday time frames, particularly the 15 minute 20 period simple moving average and prior congestion on the 5 minute time frame. The market pulled back off this resistance, but lost volume on the pullback, indicating a lack of willing sellers. When the 15:00 ET correction period hit the market suddenly took off. A sharp increase in volume confirmed the move.

Dow Jones Industrial Average ($DJI)


The support was one reason that allowed such a rally to take place. Another was the simple fact that it was the last hour of trade following a strongly trending week to the downside. It is quite common for such moves to take place in the direction opposite of the prevailing trend when the market does have a strong trend throughout the week, although of course the magnitude of this past week's action was far from typical. Within only about 30-35 minutes the indices were back into positive territory for the day. The S&Ps and Dow held their 5 minute 200 sma resistance level perfectly and the markets pulled back into the close, leaving only the Nasdaq in positive territory.

S&P 500 ($SPX)


On Friday the Dow Jones Industrial Average ($DJI) closed lower for the eighth day in a row, falling 128.00 points, or 1.5%, and closing at 8,067.85. This was after it had been down nearly 700 points once again early in the day. It also led to another record, establishing an intraday range of over 1,000 points for the first time ever. Additionally, the Dow fell under 8,000 on Friday for the first time since April 2003. Adding to the record books was the total loss for the Dow on the week. It closed 1,900 points lower than the previous week, down 18.2% for the largest weekly drop in its history.

The S&P 500 ($SPX) lost 10.70 points, or 1.2%, and closed at 846.83. All 10 industry groups settled lower with energy, utilities, and health care fronting the losses. The S&P 500 matched the Dow's percentage losses for the week, down 18.2%. This was its largest percentage drop since 1933. The Nasdaq Composite ($COMPX) actually managed to close in positive territory, up 4.39 points, or 0.3%. It closed at 1,557.93. For the week as a whole it fell 15.2%.

Crude oil prices also continued to slide last week, falling 17% for the week overall. They closed at $86.59 a barrel on the New York Mercantile Exchange on Friday. The Organization of the Petroleum Exporting Countries (OPEC) announced on Thursday that it will be holding an emergency meeting on November 18th in Vienna. On Friday the International Energy Agency cut its estimates for global oil demand by 240,000 barrels per day to 86.2 million and cuts its 2009 forecast as well.

After Friday's close, the Group of Seven (G7) finance ministers and central bank governors met in Washington, D.C. They pledged to work together to curb the damage done to the financial sector and work together to stabilize the global markets. Following the meeting, Treasury Secretary Paulson held a press conference, discussing some of the aspects of the recently passed rescue plan, part of which will be to draw in private capital to work alongside the government's funding.

I am still leaning towards an upside correction from the past two weeks of downside this week and possibly into next. Given the current action, however, it is the Nasdaq which stands to benefit the most from a correction in terms of price. The S&P 500 and Dow risk another retest the lows over the next couple of days as they react to this current level of support. On a daily time frame I expect the 20 day sma zone to serve as resistance, with the market then able to pull lower once again within a week to a week and a half.

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, October 13, 2008
No major economic indicators scheduled.

Tuesday, October 14, 2008
5:00p.m. ABC/Wash Post Consumer Conf For Oct 11: Previous: -43.

Wednesday, October 15, 2008
7:45a.m. ICSC Chain Store Sales Index For Oct 11 Previous: +0.1%.
8:30a.m. Sep Producer Price Index: Expected: -0.3%. Previous: -0.9%.
8:30a.m. Sep PPI, Ex-Food & Energy: Expected: +0.2%. Previous: +0.2%.
8:30a.m. Sep Retail Sales: Expected: -0.7%. Previous: -0.3%.
8:30a.m. Sep Retail Sales, Ex-Autos: Expected: -0.3%. Previous: -0.7%.
8:30a.m. Oct NY Fed Manufacturing Index: Expected: -9.4. Previous: -7.41.
8:55a.m. Redbook Retail Sales Index For Oct 11: Previous: -1.4%.
10:00a.m. Aug Business Inventories: Expected: +0.3%. Previous: +1.1%.
2:00p.m. Federal Reserve Beige Book.

Thursday, October 16, 2008
8:30a.m. Initial Jobless Claims For Oct 11 Week: Expected: -13K. Previous: -20K.
8:30a.m. Aug Consumer Price Index: Expected: -0.1%. Previous: -0.1%.
8:30a.m. Aug CPI, Ex-Food & Energy: Expected: +0.2%. Previous: +0.2%.
9:00a.m. Aug Treasury International Capital Flows: Previous: $36.6B.
9:15a.m. Sep Industrial Production: Expected: -0.9%. Previous: +1.1%.
9:15a.m. Sep Capacity Utilization: Expected: 78.0%. Previous: 78.7%.
10:00a.m. DJ-BTMU Business Barometer For Oct 4: Previous: -0.2%.
10:00a.m. Sep Philadelphia Fed Business Index: Expected: -4. Previous: 3.8.
1:00p.m. Oct NAHB Housing Market Index: Previous: 16.

Friday, October 17, 2008
8:30a.m. Sep Housing Starts: Expected: -1.1%. Previous: -6.2%.
10:00a.m. Mid-Oct Reuters/U Mich Sentiment Index: Expected: 65. Previous: 73.1.

Key Earnings Announcements This Week:

Monday, October 13, 2008
Before: FAST
During: -
After: ELS (?), JBHT (?)

Tuesday, October 14, 2008
Before: ADTN, DPZ, GAP, IBNK (?), JNJ, PEP, PII, STLY, SVU, GWW
During: HCSG (?)
After: ALTR, CHB (?), CSX, DNA, INTC, LLTC (?), PHHM (?), PNFP (?), RLI, STX (?), USNA

Wednesday, October 15, 2008
Before: ABT, ASML (?), BLK (?), SCHW (?), KO, CBSH, DAL, DRH, JPM, NITE (?), LCRY, LUFK, MI, PJC, STJ, WFC
During: AMR (?),
After: AMLN (?), ATR, BMI, CCK, DTLK, EBAY, EXFO, KMP, LSTR, NVLS, NVEC (?), PLCM, SOV (?), SPSN, SPTN, STLD, TBI, UFPI, WDFC, XLNX

Thursday, October 16, 2008
Before: AOS, ALDN, AMB, AMFI, APH, BK, BAX, BBT, BGG, BBW, CIT, C, CAL, CY, DHR, FCS, HOG, HSY, HNI, HBAN, ITW, IIIN, KNSY (?), KNL, MEG, MTOX, MER, MTG (?), NOK, NUE, ORB (?), PH, PNC, PPG, RS, SHW, SON, LUV, SPWRA, TXT, UTEK, UMPQ, UTX, USAK (?), WSO (?), WERN, WTNY, WGO
During: SLM (?),
After: AMD, AMX (?), ARNA (?), CAMD (?), COF, CPSS (?), CBST, CYT, ESLR, GILD, GOOG, HWAY, IBM, ICUI, INFA, ISRG, IONA (?), LHO (?), LCRD (?), LEG, MHK (?), OMCL (?), PMCS, RLRN, RUSHA (?), SNDK (?), SONC, SYK, TPX (?), TER (?), TMA (?), WIT (?), ZION

Friday, October 17, 2008
Before: ACO, ACI (?), CMA, DSL (?), FHN, GPC, HON, LAB (?), MBFI (?), NVR (?), OSTK (?), PRSP, SLB, SXT, VFC, WL

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

Mastering Momentum Gaps

RARE MENTORING EVENT

http://www.tonihansen.com/gapwebinarorder.html

Join Toni on November 8th, from 11:00 ET- 3:00 ET for the exceptional opportunity to learn from her LIVE from the comfort of your own home or office! Toni's hectic life as a full-time trader, author, and single mother seldom affords her a chance these days to provide intensive LIVE online training. Now is your chance to partake in the same quality of education previously offered solely to her individual mentoring clients. You will come away from this intensive 4-hour online seminar with strategies you can immediately integrate into your trading system and begin to apply the very next trading day!

Opening gaps occur when a stock or index opens at a higher or lower price than it settled at the previous day. Momentum gaps are gaps whose nature favors the creation of substantial continuation or reversal patterns following the open, leading to rapid profit potential with minimal risk in a short period of time. The methods Toni will focus upon in this live virtual seminar exploit these gaps in both the indices, as well as individual stocks.


Topics covered in Toni's 4-hour training seminar:

- A complete understanding of the different classifications of gaps and which of those have the highest probability for strong momentum moves out of the open, as well as which have the greatest odds of a trend day, and which ones you should avoid entirely.

- Market timing techniques designed to get you into and out of the market at the most opportune moments and a system you can use to build confidence and eliminate hesitation.
In depth discussion of the building blocks upon which predictable price patterns are developed.
Extensive training on how to read core price action, WITHOUT having to rely upon any indicators.

- Risk management techniques that allow you to conservatively receive at least three times your risk per trade. It is quite common for Toni's strategies to yield rewards upwards of 10 times the initial risk on gap setups.


Each attendee will also receive:

- Weekly video samples of Toni's gaps plays for 30 days. In these videos Toni will show you examples of different gap formations and the setups that unfolded as a result of the gaps. You will learn first-hand the strategies employed for identifying the gap as a high probability targets of interest, as well as the methods for entering and exiting the positions that resulted from them. In this unique service, Toni will also give you examples of setups which failed and explain the cons behind some of the most common mistakes traders make when selecting gaps. This $500 service when offered on a private consulting basis is yours free!

- Free access to Toni's Online Trading room where you can interact with Toni, as well as a number of other veteran traders who focus on methods similar to her own, live throughout the trading day.

- Special discounts on future workshops and courses.

LEARN MORE ABOUT THIS OPPORTUNITY AT

http://www.tonihansen.com/gapwebinarorder.html

Market Collapse Continues

Market Collapse Continues

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

Good day! The market gapped higher on Thursday morning following that afterhours reversal I commented on in yesterday's column. The afterhours activity took the ES (S&P 500) and YM (Dow) back into the middle of the previous day's range, which served as resistance, while the NQ (Nasdaq) returned to the price level from the prior afternoon's Avalanche congestion. These resistance levels held in premarket trade going into the 4:00 am ET correction period and the market pulled back into 8:00 am ET before bouncing again into the resistance zone coming out of the opening bell.

Ahead of the open, the Labor Department announced that initial jobless claims fell by 20,000 to 478,000 last week. Continuing claims rose to 3.65 million, which is the highest levels since June 2003, while the four-week moving average hit 5-year highs of 3.56 million. This data, however, had little impact on premarket trade.

Nasdaq Composite ($COMPX)


The market very quickly found itself again faced with selling pressure shortly after the opening bell on Thursday. The 9:45 ET correction period held at the resistance from premarket highs and the indices turned lower. The selling remained steady into the 11:00 ET correction period with both the S&Ps and Dow hitting the new lows on the 60 minute time frame that we were watching for. This created a 2B pattern, which is a form of a double bottom whereby the second low is slightly lower than the first, and the market started to correct.

The overall momentum on the upside was not any stronger than the downside action. This made it difficult for the move to sustain itself. I had hoped to see it push more quickly into 15 minute 20 period sma resistance and then back up into the zone of Wednesday's afternoon correction before heading lower in order to get the most decent rounded lows on a 60 minute time frame for a larger correction next week. The market, however, had other plans! The Nasdaq's closer 15 minute 20 sma held instead and the market stalled at some price and moving average resistance at 11:45 ET, falling into a range on the 15 minute time frame .

Dow Jones Industrial Average ($DJI)


The remainder of the mid-day action was quite choppy. The market continued its trend of moving in duo waves, pulling back twice off highs into nearly 13:00 ET on a 5 minute time frame with each of those waves consisting of two waves of downside. This came after two waves higher out of the 2B. After 13:00 ET the market became more erratic. The indices were now fully entangled in a low-level base on the 15 minute time frame, but it was obvious that the larger time frame extension on the downside was making market participants not very eager to push prices lower right away. The 60-minute tome frames were still favoring the morning lows holding, so this made me rather hesitant as well to place bets on the short side going into the afternoon despite the base.

When the two-wave short pattern triggered, it was a rather hesitant start. Both the S&P and Dow cautiously kept trying to break the lower end of the channel, but it wasn't until the lows of the day finally gave way into 15:00 ET that a larger confirmation took place. This negated the larger 60 minute pattern that had been attempting to form with rounded lows on the S&Ps and Dow using the two lows over the past two days as the start of the pattern (with a third low still possible into Friday), and instead took it up to the next time frame, making Monday's lows the first major low with Wednesday's open as the second and a new afternoon low on Thursday as the third in the Nasdaq. The S&Ps and Dow no longer have this potential. I have drawn the pattern I had been initially watching for on the S&P chart and the current beginning of that attempt on the Nasdaq. The market is continuing to fall apart here into 23:00 ET as I write this column, but the lower channel is still holding in the NQ on a 60 minute time frame.

S&P 500 ($SPX)


On Thursday the Dow Jones Industrial Average ($DJI) closed lower for the seventh day in a row, losing another 675.97 points, or 7.3%, closing at 8,579.19. All of the Dow's 30 components closed in negative territory. Thursday's close was the third largest point drop on record, closing under 9,000 for the first time in over 5 years. The S&P 500 ($SPX) lost 75.02 points, or 7.6%, and closed at 909.92. All 10 industry groups settled lower with financials fronting the losses on the first day the temporary short ban on hundreds of financials had been lifted. The Nasdaq Composite ($COMPX) fell 95.21 points, or 5.5%. It closed at 1,645.12. Declining stocks surpassed gainers by 10 to 1 on the New York Stock Exchange and 5 to 1 on the Nasdaq.

Crude oil slipped lower to $86.59 a barrel, breaking the support from earlier in the week with the next support being an equal move off the late September highs as compared to the drop off late August highs into mid-September lows. Even though the euro also hit support on Monday, it is also at risk of retesting those lows now going into next week. It slipped from $1.3684 to $1.3617 on Thursday.

Indices Fight for Gains Following Rate Cuts on a Global Scale

Indices Fight for Gains Following Rate Cuts on a Global Scale

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

Good day! The indices opened lower on Wednesday morning following the announcement heard around the world of lending rate cuts here and abroad. Not only did the Federal Reserve slash its overnight lending rate to 1.5% from 2% (as had been speculated a great deal recently), but the European Central Bank, the Bank of England, the Swiss National Bank, the Swedish Riksbank, and the Bank of Canada all cut their rates half a percent as well. Initially the action was welcomed and the market rallied into the open after opening lower, but that rally quickly ran into resistance a mere 30 minutes later.

Although the early morning rally appeared quite swift from an intraday perspective, when one steps back to look at a 60 minute time frame it is obvious that the downside momentum still has the upper hand. The indices reacted very little to the news at 10:00 ET that pending home sales were on the rise, up 7.4% from July to August. The indices were testing their 15 minute 20 period simple moving averages at this time, but instead of hitting the resistance and pulling back, they began to form rounded highs on a 1-2 minute time frame. This sort of action is not as conducive to the market being able to hug the resistance and then break it. Rather, it tends to lead to longer corrections in price instead, allowing the market to pick up some downside momentum instead of congest.

Nasdaq Composite ($COMPX)


The market rollover was confirmed by a small Avalanche on the 1 minute time frame into the 10:15 ET correction period. The selling then continued at a steady pace into the 10:45 ET correction period. The move was merely a slightly smaller time frame version of the late-day rally from the 6th, followed my the turn-over and pullback on the 7th on a 15 minute time frame. The two-wave pullback off highs on a 2 minute time frame allowed the indices to hold the 10:45 ET correction, leading to a minor bounce into the 5 minute 20 sma on the S&Ps and Dow and the 15 minute 20 sma on the Nasdaq into 11:30 ET. The selling then resumed, albeit more gradually, into the early afternoon.

From 11:30 to 12:30 ET each wave of downside was met by only slightly lower lows on both the S&Ps and Dow. This weakening of downside momentum helped develop a two-wave pullback on the 15 minute time frame that favored a more rapid recovery into the early afternoon. It began on a hesitant note, but confirmed with the breakage of the 5 minute 20 sma out of the 13:00 ET correction period.

Dow Jones Industrial Average ($DJI)


The indecision in the market on Wednesday can best be noted by the fact that each of the trend moves throughout the session came in waves of two. This type of trend is best known as a corrective trend. By moving both higher and lower in waves of two, the indices showed that each move was merely correcting to the previous one without a stronger bias. The afternoon rally also came in the form of two waves, which can be best seen on a 5 minute time frame. Earlier 15 minute highs and the 5 minute 200 sma zone halted the trend, but even upon reversing the market once again continued its progression in duos. The 5 minute 20 sma was initial support and the market bounced twice off the support zone on a smaller time frame before continuing with a second move off the 5 minute highs going into the closing bell. This, of course, led to support immediately afterhours as earlier intraday lows and congestion and by 17:00 the index futures were again on the rise, very slowly climbing into midnight.

S&P 500 ($SPX)


The bias for the market remains more bearish on a 60 minute time frame, but I do not think it will be by much. Remember, we do have an exhaustion move in on the indices on a weekly time frame, placing the market at strong support levels for that time frame and the daily charts also suggest we stall here for the time being. So, even though I am looking for a somewhat lower low on a 60 minute time frame still this week, I continue to favor a greater correction off this support next week. Once again, larger overall upside will be difficult to sustain on a weekly time frame as it did in July. The market simply cannot recover the losses of the past 5 weeks over the course of the next 5.


After bouncing back and forth within a range of more than 400 points on Wednesday, the Dow Jones Industrial Average ($DJI) closed lower for the sixth day in a row, losing another 189.01 points, or 2.0%, closing at 9,258.10. 24 of the Dow's 30 components closed in negative territory with Alcoa (AA) down 12%. The S&P 500 ($SPX) lost 11.29 points, or 1.1%, and closed at 984.94. All 10 industry groups settled lower, telecommunication services and financials led the selling. The Nasdaq Composite ($COMPX) fell 14.55 points, or 0.8 %. It closed at 1,740.33.

Meanwhile, both crude oil and the euro continue to hold their daily support zone, although crude oil futures were down Wednesday on reports of larger-than-expected increases in domestic supplies. Crude oil settled at $88.95 a barrel. Gasoline supplies also rose. The euro closed slightly higher in New York at $1.3684.

Market Remains Skittish as Earnings Season Arrives

Market Remains Skittish as Earnings Season Arrives

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

Good day! Monday's session brought with it the largest intraday swing we have seen to date in the Dow Jones Industrial Average. After hitting lows at a whopping 800 points off the prior day's close, the market market recovered by more than 400 points to close lower by 370. The extent of the late day rally, which took place in the course of a mere 75 minutes, created an exhaustion move on the upside into the closing bell. The rally took the form of two waves on the upside on a two minute time frame and the second wave extended into Tuesday morning until it hit equal move resistance. This equal move is based upon a comparison to the first wave higher on a 2 minute time frame, following by a second move in the final 15 minutes of the session on Monday into highs at the 9:45 ET correction period on Tuesday.

Even though the indices reacted swiftly off the morning's highs initially, the larger pace of the rally made it quite difficult for the market to sustain such a rapid reversal. The 5 minute 20 period simple moving average hit a mere 15-20 minutes later and served as the first level of support for the indices intraday. The volume in the market began to wane as the indices hugged this support. By doing so, it created a continuation pattern for the reversal pattern that I call an Avalanche. It is the first continuation move following a larger trend reversal. The congestion along the support continued until the 10:45 ET correction period. At that point it broke, triggering the Avalanche short setup. This setup took the market into new intraday lows within half an hour.

Nasdaq Composite ($COMPX)


The pace of the initial downside continuation was not very strong. It hit support with the 15 minute 20 sma around 11:30 ET, but its failure to react strongly to the moving average kept the bias in favor of the bears as the afternoon approached. After a second mild correction within the newly established intraday downtrend, the selling resumed into the afternoon. The momentum began to increase as well on the downside once the 15 minute 20 sma gave way. The 5 minute 20 sma, which had served as support for the Avalanche, was now resistance for the intraday downtrend. A second bear flag around 13:15 ET brought with it the strongest downside of the afternoon thus far, accelerating the move back into the level where the prior day's downtrend channel broken and the afternoon rally began.

The indices found support on the breakdown not only in the form of the price level from the previous day, but also the 14:00 ET correction period, which brought with it the release of the FOMC minutes. These minutes revealed that the Federal Reserve had considered rate cuts at its mid-September meeting and it appears likely that another interest-rate cut is in store this month. The next FOMC meeting takes place at the end of the month.

Dow Jones Industrial Average ($DJI)


The market managed a decent 5 minute recovery out of the 14:00 ET correction period, however, the 5 minute 20 sma and congestion from the previous 5 minute breakdown served as resistance. Instead of hitting these resistance levels and holding, which could have led to a base along the resistance and another attempt to move higher for a stronger test of the 15 minute 20 sma, the indices established a slightly higher high on a 2 minute time frame. This created a rounded high on the 5 minute charts and the result favored a new low on the session. This took place shortly after 15:00 ET, taking the indices back into Monday's lows, but the reaction to that support was a correction more through time than price. The market hugged the support and then broke through it into the final 30 minutes of trading, resulting in yet another close in the territory of the day's lows.

The Dow Jones Industrial Average ($DJI) closed lower for the fifth day in a row on Tuesday, dropping another staggering 508.39 points, or 5.1%, closing under 10k for the second day in a row and the second time in 4 years at 9,447.11. Once again, each of the Dow's 30 components closed in negative territory. The losses were fronted by Bank of America (BAC), which fell 26.2% after announcing a 68% drop in profit and slashing its dividend. Citibank (C) also weighed heavily on the Dow, falling 12.98 points while it continues to battle Wells Fargo (WFC) over acquiring Wachovia (WB). The S&P 500 ($SPX) hit 5-yr lows by dropping 60.66 points, or 5.7%, and closed under 1k, at 996.23. All 10 industry groups settled lower, but the financials and consumer discretionary led the downside. The Nasdaq Composite ($COMPX) dropped 108.08 points, or 5.8 %. It closed at 1,754.88. Google (GOOG) made headlines just over a week ago by closing under $400 a share. On Tuesday it went a step further by closing under $350 a share, falling more than 50% off its highs just one year earlier.

S&P 500 ($SPX)


Crude oil futures on Tuesday held the weekly price support and bounced $2.25 a barrel to close at $90.06 on Tuesday. The euro closed slightly higher in New York at $1.3604 after hitting a 13-month low against the dollar on Monday. As I mentioned yesterday, both oil and the euro were poised to correct off lows this week. It is a relatively mild correction so far, which does create potential for a more rounded low at this support zone, but I would urge caution again new shorts on a daily time frame at this juncture. We are likely to see trading in both of these become more volatile over the next several months with greater back and forth action on a daily time frame and lesser directional trend moves.




Tuesday brought with it the official start of earning season with the release of Alcoa's (AA) earnings following the closing bell. AA reported earnings of $268 million, or 33 cents a share. This is down $555 million from a year earlier when it amounted to 63 cents a share. Analysts had expected 54 cents a share.

Earnings overall are not expected to wow investors this quarter. Dismal results are already built into the market to a large extent. I think a lot of investors at this point are prepared for the worst, and I am not convinced that many are even hoping for the best! Results which are in line or merely less dismal than expected will likely provide such securities with at least a short-term boost of morale, but don't loose focus of the larger picture. Simply because something may look good on a smaller time frame, does not mean it necessarily does on the larger ones, so don't neglect to step back and take a look at weekly and monthly time frames when planning on holding shares of anything overnight since most of the larger time frames have a bearish bias. This does not mean they won't offer buy triggers, but rather that many may have too substantial of a downside pace to sustain upside moves easily on the one hand, while on the other they will also have to deal with a great number of resistance levels based upon prior price action. It's always wise to know what these may be before committing!

So far this week my bias has not changed. I am still expecting lower lows this week and a correction off the larger weekly support next week. We are in the a larger weekly exhaustion move, but the momentum of the selling will make strong upside price recoveries very difficult to sustain.

Dusting Off My Old Dow 10K Hat... AWW CHOO!

Dusting Off My Old Dow 10K Hat... AWW CHOO!

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

Good day! Well... I suppose that depends on your perspective! As I mentioned in Friday evening's edition, heading into the new week the market's bias was favoring further downside. That downside, however, was a bit more than many had bargained for! The indices once again experienced a larger-than-average gap lower after they continued to slide lower in off-hours trade.

I have spoken a great deal about how to approach such gaps recently, because the market has had more than its fair share of them over the past month. When tracking an opening gap for a bias, the initial step is to measure the highs and lows of the first fifteen minutes of the session. The direction those first 15 minute highs or lows breaks is the direction the market will then favor trending throughout the remainder of the morning. Often the market will give you a heads-up, like it did on Monday when it moved more slowly off the opening lows within a larger all-session base or bear flag that first began to form Sunday evening.

Nasdaq Composite ($COMPX)


After triggering the breakdown, the indices continued rapidly lower into the 10:15 ET correction period. Volume spiked and the correction period held. Given the momentum of the downside move, the market had a difficult time sustaining the reversal off the lows, even though in terms of the price action the indices managed a decent recovery. The downside had not yet established an equal move on a 15 minute all session chart, however, and it left plenty of room for the market to continue intraday. It is difficult to judge this added potential based purely on the charts from intraday price action, but consider that the indices were basing at lows into the open on Monday and take the move off Friday's highs into the gap zone. Then project this middle zone lower to offer the equal or measured move target.

The market's 10:15 ET bounce ran into the 5 minute 20 period simple moving average resistance at about the same time as the 11:15 ET correction period hit. The market slid down this resistance level and then fell into a base into the afternoon. It stepped lower out of that base at about 12:30 ET, but failed to confirm until a second breakdown just prior to the 14:00 ET correction period. This is a typical time in the market for strong moves to take place and the market quickly broke to new lows. The selloff continued until both the S&Ps and Dow hit 5 minute equal move support around 14:45 ET. This also was the equal move level on a 15 minute time frame for the all sessions charts when compared to that afternoon breakdown and continued afterhours selling on Friday. This placed the indices squarely into strong, higher time frame support ahead of the final hour of trade on Monday afternoon.

Dow Jones Industrial Average ($DJI)


By about 14:45 ET the Dow was down 800.06 points with the largest intraday point drop on record, mimicking the losses from just one week prior. Within the final 75 minute of trade, the Dow Jones Industrial Average ($DJI) managed to make back more than half the session's losses. The Dow closed lower on Monday by 369.88 points, or 3.6%, at 9,955. This was the first time the Dow had closed under 10k since October 2004. Bank of America (BAC) closed with the largest losses, down 6.55%, while Alcoa Inc. (AA) lose 5.87%, and General Motors (GM) lost 5.78%. Merck (MRK), Microsoft (MSFT), Citibank (C), and McDonalds (MCD) also all closed with losses over 5%. None of the Dow's 30 components managed to make any gains. The S&P 500 ($SPX) fell 42.34 points, or 3.8%, and closed at 1,056.89. The Nasdaq Composite ($COMPX) dropped 84.43 points, or 4.3 %. It closed at 1,862.96.

S&P 500 ($SPX)


Earlier overseas, the Pan-European Stoxx 600 Index fell 7.6%, for the largest one-day decline on record. Although the President signed in the $700 billion rescue plan passed by the House of Representative on Friday, European leaders failed to reach a consensus on how to cope with the financial crisis it finds itself facing.

Also making headlines on Monday, crude oil futures continued lower by $6.5% to $88.81 a barrel. It is now nearly 40% off its July highs. The national retail price of gasoline also finally continued lower once again from highs of $4.114 a gallon this summer to an average of $3.504 on Monday. As oil prices slid lower, the euro hit a 13-month low against the dollar. The euro to US dollar is at 1.355 currently (11:45 pm ET).

As I mentioned in yesterday's column, the markets are currently in the midst of an exhaustion on on the weekly time frame. We are already experiencing the extension of that move so far this week. The indices had already fallen into the congestion from 2004, which was serving as our larger target. The S&Ps pushed further, but both the Nasdaq and Dow are testing that larger monthly support. I expect the market to experience a larger correction off this zone of support, but since the time frame is quite large, there is a lot of wiggle room in the meantime. It will be very difficult for us to see any strong recovery in terms of price. Upside move will tend to be brief when accompanied with momentum. An example would be the recovery a few weeks ago in both oil prices and the euro. Each was subsequently met with another wave of selling back into the larger support. I think we are in for a bounce in both this week along with the overall market, but we are also wide open for another test of lows later this month or even into early November int he overall market, depending upon how the upcoming correction begins to form.

Position Trader: Universal Electronics, Inc. (UEIC)

Universal Electronics, Inc. (UEIC) provides pre-programmed universal wireless control products and audio-video accessories for home entertainment systems. UEIC had been in a strong uptrend throughout 2007, but suffered a sharp reversal off the highs at the end of the year and took back all of 2007's gains within just a couple of months. Since then the stock has been congesting at the lower end of the year's range and recently experienced its second swing higher on a weekly time frame. Stocks tend to break out of trading ranges following a second or third swing off the lows of the range, so the greatest opportunity is when one catches these moves as they are just beginning to turn lower. Since this is the second swing, there is still the potential for a third, but as long as the upper channel holds then the setup remains valid.

A target on this particular pattern is an equal move as compared to the initial drop off highs, which in this case is the move lower at the beginning of year, which could easily take the stock back into $7/share territory over the course of a year if the pace on the breakdown were to remain comparable to the previous descent. However, when prices start to get this low, the odds are higher than the pace on a breakdown will actually be more gradual than the initial reversal, so paying attention to previous lows and congestion levels is a better way to gauge potential. This makes the $17 and $13 a share levels strong support.

Stocks with similar setups include AMZN and XRAY.

http://www.tradingfrommainstreet.com/Newsletters/positiontradeletter/archives/20081006.html

Market Higher Following Thursday's Closing Momentum Buy Setup, but Fails to Hold Gains Following the Vote

Market Higher Following Thursday's Closing Momentum Buy Setup, but Fails to Hold Gains Following the Vote

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

Good day! After a weak session on Thursday, the session closed with a buy setup in place. The three afternoon lows in the Nasdaq Composite, made by breaking each of the prior lows only briefly, created what I have dubbed as simply a "momentum reversal" pattern. The combined pace of the channel made by the afternoon descent was a lot more gradual than the morning's drop. As I mentioned in yesterday's column, this pattern triggered right after the closing bell into afterhours trade in the index futures. When I had completed the column, the Nasdaq futures were hitting the first target level, which was where the momentum began to shift that afternoon. There was still plenty of room to move into the second target at Thursday's opening prices, but it was uncertain as to whether it would continue into that target in afterhours trade or wait until after the open.

In the end, the market did not continue right away. Instead the index futures fell into a trading range, congesting along the resistance from the initial price target. By holding onto this resistance, it left the indices bullish into the morning's economic data. At 8:30 am ET the Labor Department released September's employment numbers. The report revealed the largest job loss in over five years. Nonfarm payrolls fell 159,000 in September, following a 73,000 drop in August. Year-to-date, the economy has lost 760,000 jobs, a stark contrast to last year when it created 1.1 million new positions. The bleak report had the opposite affect it would typically have. Investors were cheered by the impression that it would put pressure on the House of Representative to pass legislation for a financial bail-out plan, which was coming up for a vote later in the afternoon, as well as increase pressure on the Federal Reserve to cut interest rates at the October 29th meeting.

Nasdaq Composite ($COMPX)


The morning experienced its first correction with a pullback off the 9:15 ET correction period highs into support at the 10:15 ET correction period. The buying then resumed and the indices broke to new intraday highs around 10:30 am ET. At 10:00, the Institute for Supply Management released its nonmanufacturing index, which fell slightly to 50.2 in September, down 0.4 from August, but better than expected. Readings over 50 indicate expansion. This news had little impact on price action for the day.

Following the break to new intraday highs, the indices continued to climb until the 11:15 ET correction period. The Nasdaq formed a small momentum reversal short on a 1-2 minute time frame and the market rolled over into noon as buyers began to take profits ahead of the afternoon's House vote. This mid-day correction also corresponded to the second target on the momentum reversal pattern that had been in play since the previous day's close.

Dow Jones Industrial Average ($DJI)


The volume in the market began to wane as lunch-time rolled around. This is typical every day, but speculation regarding the timing for the House vote also played a role. The indices pulled lower into 12:30 ET with three waves of downside off highs on a 2 minute chart. Earlier congestion from the morning's breakout served as support and the futures climbed steadily into the early afternoon when a vote began to appear imminent. The move higher hit strong resistance into 13:00 ET on a 15 minute time frame. At first there was some confusion as to whether the vote being broadcast on CNBC was on the Senate's amendment, which was reported initially and shown on C-Span, or if it was in fact the vote on the rescue bill. Once it was established that the vote was indeed for the passage of the bill and the numbers showed its likely passage the market began to sell the news.

The legislation was approved by a margin of 263 in favor to 171 against. The follow through from the vote's passage, however, was not unlike Monday's reaction to the failure of the House to pass it on the first go-around. On further consideration, many began to question whether or not this was the best course of action after all, and, if so, whether or not it would be enough, especially since the details of the plan are not yet apparent.

The initial aftermath of the House vote led to a closure of both the gap in the Nasdaq, as well as the Dow futures. The market took back all the gains it had made over the prior 21 hours in only about half an hour. This gap closure served as strong price support, leading to a correction back to the 5 minute 20 period simple moving average, but the breakdown was sharp enough to prevent it from being able to establish a complete recovery. Volume slowed as the correction off lows progressed and when the 5 minute 20 sma zone hit another wave of downside took over. All three of the indices broke to new intraday lows while the S&P 500 futures closed its gap as well.

As on Thursday afternoon, a third wave followed. It was more gradual than the first two, but also began off the 5 minute 20 sma and again took the market to new lows. This created a more extreme version of the same price action as the previous afternoon with all three indices closing at their lows. Since the pace of the selloff overall was more extreme than Thursday's, however, it will have a more difficult time mounting a strong price recovery on Monday. Although the weekly time frames now have an exhaustion move underway on the downside, I am favoring lower lows next week, focusing primarily on daytrades, with a recovery the following week. Due to the momentum on the weekly time frame, the market will have a difficult time establishing and holding any strong recovery in price. Instead, choppy, slower upside action off support levels should be expected.

S&P 500 ($SPX)


Despite a gain of over 300 points when the House began to vote on the financial rescue bill, the Dow Jones Industrial Average ($DJI) closed lower on Friday by 157.47 points, or 1.5%, at 10,325.38. This amounted to a weekly decline of 7.4%. The Dow is now down 22.2% for the year and has fallen 27.1% since its highs on Oct. 9, 2007.

21 of the Dow's 30 index components lost ground on Friday. The leader was Citigroup (C), which had faired well earlier in the week after sharing that it intended to merge with Wachovia (WB). Surprised the news that Wachovia (WB) decided to join with Wells Fargo & Co. (WFC) instead, Citigroup was slammed by an 18.4% loss. J.P. Morgan (JPM) was the second biggest loser in the Dow, closing lower by 7.92%, while Bank of America (BAC) lost 5.20%. There were no particular standouts on the upside in the Dow. Most of them that had been up earlier in the session gave back the majority of their gains by the closing bell. Nevertheless, Merck & Co. (MRK) still held onto 2.19% of its gain, while Walmart (WMT) closed higher by 1.5%, and Pfizer Inc. (PFE) added 1.12%.

Taking a look at the other indices, the S&P 500 ($SPX) fell 15.05 points, or 1.3%, and closed at 1,099.23. The consumer discretionary and information technology sectors fronted the losses. 368 of the S&P's 500 closed lower. For the week overall the S&P 500 was down 9.4%. It has fallen 25.1% for the year thus far and is 29.8% off its October 2007 highs.

The Nasdaq Composite ($COMPX) also shed 1.5%, or 29.33 points. It closed at 1,947.39 for a loss on the week of 10.8%. 82 of the Nasdaq-100 stocks closed lower on Friday. The Nasdaq Composite is now 26.6% lower on the year and has dropped 31.9% since its Oct. 31, 2007 highs. This was the worst week for the market in more than 6 years.

Among the commodities, crude oil futures continued slightly lower by $0.09 to $93.88 a barrel on the New York Mercantile Exchange, while gold futures ended lower by $11.1, or 1.3%, at $833.2 an ounce. Last month both oil and gold futures ran into strong monthly price support from a level of congestion into the end of last year. They reacted to this support by bouncing sharply higher mid-September, but prices turned just as sharply and both are back to testing the monthly support zone once again. Given the current price action, it would be very easy for both of these to fall into a longer periods of congestion here on the weekly time frame, holding the support zone once again throughout October.

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, October 6, 2008
No major economic indicators scheduled.

Tuesday, October 7, 2008
7:45a.m. ICSC Chain Store Sales Index For Oct 4: Previous: -0.2%.
8:55a.m. Redbook Retail Sales Index For Oct 4: Previous: -1.3%.
2:00p.m. Sep 16 FOMC Minutes
5:00p.m. Aug Consumer Credit: Previous: +$4.6B.

Wednesday, October 8, 2008
10:00a.m. Aug Pending Home Sales: Previous: -3.2%.
10:35a.m. Crude Inventories
5:00p.m. ABC/Wash Post Consumer Conf For Oct 4: Previous: 41.

Thursday, October 9, 2008
8:30a.m. Initial Jobless Claims For Oct 4 Week: Previous: +1K.
10:00a.m. Aug Wholesale Trade: Previous: +1.4%.
10:00a.m. DJ-BTMU Business Barometer For Sep 27: Previous: -3.0%.

Friday, October 10, 2008
8:30a.m. Aug Trade Balance: Previous: -$62.2B.
8:30a.m. Sep Import Prices: Previous: -0.3%.

Key Earnings Announcements This Week:

Monday, October 6, 2008
During: THO (?)

Tuesday, October 7, 2008
Before: AYI, CYCL, SWY
After: AA, PRXI, YUM

Wednesday, October 8, 2008
Before: ACGY, COST, HELE, LNN, MERX (?), MON, PGR (?)
After: NUHC, RT

Thursday, October 9, 2008
Before: CMN (?), ISCA, RPM
During: SLM (?)
After: ERJ (?), HRLY (?), INFY, LRCX (?), RBN

Friday, October 10, 2008
Before: EMMS, GE, HST

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

Dismal Economic Data Weighs on an Already Struggling Market

Dismal Economic Data Weighs on an Already Struggling Market

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

Good day! After a day of unrest the markets took another tumble on Thursday. The index futures were already trading lower into the open following Wednesday evening's approval by the Senate of a new economic rescue plan by 74 to 25. The vote did little to appease the market which must now await a decision by the House of Representatives on Friday.

Thursday began with the prior week's initial jobless claims data. According to the Labor Department, the number of first-time filings for unemployment benefits climbed to 497,000 last week, up 1,000 to their highest level in 7 years. The September jobs data is due out on Friday and economists are anticipating a loss of 105,000 jobs last month, adding to the 605,000 on the year-to-date.

The market broke its first 15 minute lows quite easily on Thursday, continuing lower when the Commerce Department reported that factory orders for August dropped 4%, which is the largest monthly decline we have seen in two years. They had been expected to fall 3%, which would still have been a rather large slump. Transportation orders alone fell a whopping 9.1%. Excluding this decline, factor orders were down 3.3%, which is the largest downside move since September 2001.

Nasdaq Composite ($COMPX)


Adding to losses is the encroaching earnings season. Companies are beginning to post warnings ahead of the coming data. Marriott International (MAR) (-5.3%) offered a bit of a preview when it returned to the year's lows following earnings of 27 cents a share, down 28% and a warning of further downside in the fourth quarter. The news weighed down others in the sector anticipating similar declines.

As the euro fell and dollar climbed to the year's highs, companies that had been benefiting from global growth came under pressure on Thursday as well. Alcoa (AA) (-8.9%) and Caterpillar Inc. (CAT) (-8.3%) helped lead the downside in the Dow Jones Industrial Average. General Electric (GE) (-9.6%) also continued lower following its daily breakdown the previous session. It plans on launching a secondary stock offering to raise $12 billion in cash, alongside a separate deal with Berkshire (BRKA) to buy $3 billion in preferred stocks.

Oil prices and the oil sector as a whole also experienced sharp downside, taking back nearly all of the gains from the second half of last month to continue the longer weekly correction to the larger term support at a slower pace. Crude oil closed lower by $4.56 a barrel, or 5.6%, at $93.97 on Thursday. It is down 36% off July's highs.

Dow Jones Industrial Average ($DJI)


After the immediate aftermath of the 10:00 ET data, the indices slowed their decline, but failed to show any strong reversal potential. The Nasdaq Composite displayed some promise out of the 11:15 ET zone lows by creating a momentum reversal pattern on a 5 minute time strong off Monday's lows, but the pace failed to increase on the break higher into noon and the first target level from the 10:30ish price zone held. The market hit this mid-day resistance at the same time as the 12:00 ET correction period and rolled over once again into the afternoon.

The market dropped to lows again out of 13:00 ET and slightly lower lows on a 15 minute time frame created potential for a 2B setup on the 15 minute charts. The 15 minute 20 sma loomed overhead, however, and the attempt again failed to amount to more than a scalp-sized move as the indices fell into another period of congestion along the day's lows.

The indices continued to step lower with choppy trading into the closing bell. The series of three lows in the afternoon on the Nasdaq formed a buy setup into the close which took the index futures higher following the bell, but it ended the session at the lows of the day.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) closed lower on Thursday by 348.22 points, or 3.2%, at 10,482. The S&P 500 ($SPX) fell 46.78 points, or 4.0%, and closed at 1,114. The energy sector dropped 10%, followed by materials, which were down 7.2%. Industrials fell 6.3%. The Nasdaq Composite ($COMPX) was the worst performer amongst the three major indices, falling 92.68 points, or 4.5%. It closed at 1,976.



I was a bit disappointed that the market pushed so well back into the lows of the week. I had hoped for a more substantial base or level of congestion on a daily time frame to allow for another stronger break lower at the end of this next week. This does still remain possible that such a pattern will form, but it would be best to see the lows of the week so far hold.

The House of Representatives plans on voting again on Friday for Treasury Secretary Paulson's financial bailout plan, so expect risk levels to remain elevated throughout the session. The bias for price action on a 30-60 minute time frame right now is inconclusive because there are about as many pros as there are cons in either direction into the open. The closing pattern was bullish, but there is still a lot of time before the opening bell for that setup to hit and hold target levels and to leave the market poised for another turn. It is currently 1:00 am ET and the NQ has already hit its initial target.

NOTE: The Securities and Exchange Commission extended the ban on short-selling late Wednesday until both the House of Representatives and the Senate approve a rescue package. The ban had ben set to expire on the 2nd, but will now continue until the third day following legislative approval.

Market Uncertainty is Apparent

Good day! Trade action on Wednesday can best be described as "sloppy." After falling 778 points on Monday for its worst-ever point decline, the Dow Jones Industrial Average ($DJI), along with the other major indices, pushed higher in a steady, but choppy uptrend on Tuesday. The failure by the House of Representatives to pass a bill designed to stabilize the economy was disappointing to many, magnifying the losses on Monday, but the momentum higher on Tuesday was not enough to create a larger reversal off the lows. The odds, in fact, favored a break of the 5 minute 20 period simple moving average into the morning. The market simply cannot sustain a rally that holds the 5 minute 20 sma throughout the session like it did on Tuesday without breaking it first thing the next morning. It didn't even wait that long on the all-sessions charts. By the time the opening bell rang on Wednesday morning prices in the indices were already under this prior support level, which became resistance as a result.

The channel break in the market created the start of an intermediate time frame downtrend that lasted into the 11:00 ET correction period on Wednesday morning. The drop out of the open continued lower following the 10:00 ET economic data. The indices had congested for approximately 20 minute ahead of the data, but then fell sharply lower when the Institute for Supply Management's manufacturing index fell at a pace that was much faster than anticipated for September. This signaled that the U.S. economy has truly fallen into recession territory with the ISM index down to 43.5%, off a reading of 49.9% in August. The number had been expected to fall to 49.6%, but instead it was the largest monthly decline since 1984.

In other morning news, the Mortgage Bankers Association announced that mortgage applications for the past week had plunged 23%. Year-over-year applications are down 28.4%, while the average mortgage range for a 30-year fixed mortgage stepped down to 6.07% from 6.08% the previous week.

Nasdaq Composite ($COMPX)


Price support from the middle of the triangle on Monday afternoon hit at the same time as the 11:00 ET correction period on Wednesday morning. This was also the third wave of selling on a 5 minute time frame, indicating trend extension on that time frame. These three attributes contributed to lows holding in the market at that time. To assist with a mid-day reversal, the pace of the downside into 11:00 ET was substantially slower than the drop at 10:00 am ET. This shift in momentum, particularly in the S&P 500 and Dow Jones Industrial Average, allowed the indices to pop strong higher into the early afternoon.

Dow Jones Industrial Average ($DJI)


Two waves of buying took place mid-day on Wednesday. The 5 minute 20 sma served as initial resistance in the weaker Nasdaq, while the 5 minute 200 sma stalled the Dow and morning highs stalled the S&Ps. This 5 minute resistance held briefly into the afternoon, but the second wave of buying took hold shortly after 12:00. This rally continued into larger resistance on a 15 minute time frame from Monday morning's price congestion.

From this point onward, the day was quite a mess. The resistance held and the indices pulled back, but they fell into a range not unlike that which took place on Monday afternoon. The action was not nearly as smooth, however, and overlap on a 5 and 15 minute time frame was quite extreme, making trading on Wednesday afternoon quite difficult if one wished to keep stop levels narrow. A few scalp moves took place, but the risk to reward was not very favorable overall compared to similar setups on a "normal" trading day.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) closed lower on Wednesday by 19.59 points, or 0.2%, at 10,831.07. Leading the downside was International Business Machines (IBM), which fell 5.84%. Alcoa Inc. (AA) was a close second, down 5.8%. Meanwhile, Caterpillar Inc. (CAT) dropped 4..45%. Making headlines with the announcement that it would sell $12 billion in common stock in a secondary offering and $3 billion in preferred shares to Warren Buffet's Berkshire Hathaway (BRK), General Electric (GE) fell 3.9%. Citibank (C) led the gainers, up 12.14%, while Bank of America (BAC) gained 8.94%, and J.P. Morgan Chase (JPM) rose 6.27%. The S&P 500 ($SPX) fell 3.68 points, or 0.3%, and closed at 1,161.06. Energy, industrials, materials, and technology all lost ground on the day. The Nasdaq Composite ($COMPX) outpaced the rest of the market on the downside by quite a lot, falling 22.48 points, or 1.1%. It closed at 2,069.40.


I think that we will find that the market is going to remain on "wait-and-see" mode until the proposed $700 billion bail-out bill comes before the House of Representatives again on Friday. The bill passed in the Senate Wednesday night by 74 to 25 and the indices futures were trading quite a bit lower into midnight. As I mentioned in yesterday's column, the technical action in the indices has the door wide open for another move lower on a daily time frame, which could very easily correspond to Friday's vote. The time frame between the last two lows was 7 trading days. Friday would fall right at that same time zone for another break lower. The 20 day simple moving average will act as resistance and is heading lower as the week progresses.