Momentum Reversal Leads to Weak Open Wednesday Morning
(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! As the indices closed out the session on Tuesday the market was favoring a morning reversal on the short side on the 60 minute time frame similar to the two that I discussed intraday on a 5 minute time frame in yesterday's column. This left the market with a bearish bias that began to follow though around midnight when the trading range from Tuesday, and hence the lower trend channel for the week, gave way. The selling continued in premarket trade with the index futures hitting the first target level for this pattern (the low made as the momentum shifts) into the opening bell. This level served as support out of the open, but the larger bias remained bearish due to the trigger for the short we had been watching for on a 30 and 60 minute time frames. As a result, even though the 15 minute highs broke slightly, it was not a trigger for a gap closure ad it often is in the past.
The market was hit with the latest round of bad news ahead of Wednesday's opening bell. This helped fuel the premarket downside from 8:15 am ET into the bell. The ADP employment index was not well-received. It showed a 693,000 job loss in the private sector for the month of December. This was much worse than had been expected and it's looking like it will mean a quarterly jobs loss not seen since 1945. Nonfarm payroll data is due out on Friday and is expected to have declined by 500,000 for the month of December.
Nasdaq Composite ($COMPX)
The market experienced a temporary reprieve from the selling in the first 30 minutes of the day. The index futures pulled higher into premarket price resistance from 8:50ish, but held this resistance level quite well and turned lower once again into the 10:15 ET correction period. The breakdown into 10:15 ET was a third wave lower on a 5 minute time frame on the all-sessions charts and exhausted the morning selling. The indices held the correction period almost perfectly and pulled slowly higher throughout the remainder of the morning.
The larger bearish bias and the overall strength of the morning's selloff kept buyers in check. The indices formed three small waves of upside coming off the morning lows into noon, but the overall pace remained modest. When the 12:00 ET correction period hit the indices were again testing premarket price resistance as well as some price resistance from Monday's lows. Noon is another strong correction period and it held well, corresponding with the resistance and the smaller 2 minute trend exhaustion.
Dow Jones Industrial Average ($DJI)
The bias remained bearish into the afternoon, but the market didn't form a decent low level base for a continuation pattern off the morning lows. Instead the market crept lower with three more small moves on a 2 minute time frame, followed by a bit of a bounce into the 5 minute 20 sma for a somewhat longer correction to the selling. The day's range then broke more quickly to the downside coming out of the 13:30 ET correction period.
By 14:00 ET the indices were hitting new lows on the day and quickly approaching the first target that I had given yesterday for the decline. This target level was the 20 day simple moving average. By that time the pace of the selling had slowed, but the decline continued and prices were encroaching upon that daily support by 14:30 ET. At this minor correction period the Dow futures tested 15 minute 200 sma support. Even though this created a pause, the sellers would not be deterred and pushed through it into 15:00 ET. The stronger daily support hit at about 15:05 ET at the same time as the S&P futures hit their 15 minute 200 sma support. This larger target zone held in the final 55 minutes of trade, although upside action remained light and the market still posted large losses for the day.
S&P 500 ($SPX)
The Dow Jones Industrial Average ($DJI) closed lower by 245.40 points, or 2.7%, on Wednesday at 8,769.70. Only 3 of the Dow's 30 index components closed in positive territory. The gainers were General Motors (GM) (+4.82%), Verizon (VZ) (+1.27%), and Coca Cola (KO) (+0.49%). Alcoa Inc. (AA) posted the largest loss, down 10.15% after it announced jobs cuts and plant closing late Tuesday. Du Pont (DD) was the second largest decliner. It fell 7.2%. Others with losses over 5% included Intel (INTC), Microsoft (MSFT), and J.P. Morgan & Chase (JPM).
The S&P 500 ($SPX) fell 28.05 points, or 3.0%, and closed at 906.65. Health care, telecommunication services and consumer staples held up the best as the market turned to the downside. The Nasdaq Composite ($COMPX) closed lower by 53.32 points, or 3.2%, to end the session at 1,599.06. It was weighed down by an earnings warning from Intel (INTC).
My daily bias at this point remains bearish, but on a 60 minute time frame the indices are at decent short-term support heading into Thursday's session. This could lead to some intraday correction action to hold Wednesday's lows for a few days. It would be difficult at this point, however, for the market to recover enough to break this week's highs for anything more than a trap within the next week. The price zone from December 29th is the next support level for the 60 minute momentum reversal pattern.
Good day! As the indices closed out the session on Tuesday the market was favoring a morning reversal on the short side on the 60 minute time frame similar to the two that I discussed intraday on a 5 minute time frame in yesterday's column. This left the market with a bearish bias that began to follow though around midnight when the trading range from Tuesday, and hence the lower trend channel for the week, gave way. The selling continued in premarket trade with the index futures hitting the first target level for this pattern (the low made as the momentum shifts) into the opening bell. This level served as support out of the open, but the larger bias remained bearish due to the trigger for the short we had been watching for on a 30 and 60 minute time frames. As a result, even though the 15 minute highs broke slightly, it was not a trigger for a gap closure ad it often is in the past.
The market was hit with the latest round of bad news ahead of Wednesday's opening bell. This helped fuel the premarket downside from 8:15 am ET into the bell. The ADP employment index was not well-received. It showed a 693,000 job loss in the private sector for the month of December. This was much worse than had been expected and it's looking like it will mean a quarterly jobs loss not seen since 1945. Nonfarm payroll data is due out on Friday and is expected to have declined by 500,000 for the month of December.
Nasdaq Composite ($COMPX)
The market experienced a temporary reprieve from the selling in the first 30 minutes of the day. The index futures pulled higher into premarket price resistance from 8:50ish, but held this resistance level quite well and turned lower once again into the 10:15 ET correction period. The breakdown into 10:15 ET was a third wave lower on a 5 minute time frame on the all-sessions charts and exhausted the morning selling. The indices held the correction period almost perfectly and pulled slowly higher throughout the remainder of the morning.
The larger bearish bias and the overall strength of the morning's selloff kept buyers in check. The indices formed three small waves of upside coming off the morning lows into noon, but the overall pace remained modest. When the 12:00 ET correction period hit the indices were again testing premarket price resistance as well as some price resistance from Monday's lows. Noon is another strong correction period and it held well, corresponding with the resistance and the smaller 2 minute trend exhaustion.
Dow Jones Industrial Average ($DJI)
The bias remained bearish into the afternoon, but the market didn't form a decent low level base for a continuation pattern off the morning lows. Instead the market crept lower with three more small moves on a 2 minute time frame, followed by a bit of a bounce into the 5 minute 20 sma for a somewhat longer correction to the selling. The day's range then broke more quickly to the downside coming out of the 13:30 ET correction period.
By 14:00 ET the indices were hitting new lows on the day and quickly approaching the first target that I had given yesterday for the decline. This target level was the 20 day simple moving average. By that time the pace of the selling had slowed, but the decline continued and prices were encroaching upon that daily support by 14:30 ET. At this minor correction period the Dow futures tested 15 minute 200 sma support. Even though this created a pause, the sellers would not be deterred and pushed through it into 15:00 ET. The stronger daily support hit at about 15:05 ET at the same time as the S&P futures hit their 15 minute 200 sma support. This larger target zone held in the final 55 minutes of trade, although upside action remained light and the market still posted large losses for the day.
S&P 500 ($SPX)
The Dow Jones Industrial Average ($DJI) closed lower by 245.40 points, or 2.7%, on Wednesday at 8,769.70. Only 3 of the Dow's 30 index components closed in positive territory. The gainers were General Motors (GM) (+4.82%), Verizon (VZ) (+1.27%), and Coca Cola (KO) (+0.49%). Alcoa Inc. (AA) posted the largest loss, down 10.15% after it announced jobs cuts and plant closing late Tuesday. Du Pont (DD) was the second largest decliner. It fell 7.2%. Others with losses over 5% included Intel (INTC), Microsoft (MSFT), and J.P. Morgan & Chase (JPM).
The S&P 500 ($SPX) fell 28.05 points, or 3.0%, and closed at 906.65. Health care, telecommunication services and consumer staples held up the best as the market turned to the downside. The Nasdaq Composite ($COMPX) closed lower by 53.32 points, or 3.2%, to end the session at 1,599.06. It was weighed down by an earnings warning from Intel (INTC).
My daily bias at this point remains bearish, but on a 60 minute time frame the indices are at decent short-term support heading into Thursday's session. This could lead to some intraday correction action to hold Wednesday's lows for a few days. It would be difficult at this point, however, for the market to recover enough to break this week's highs for anything more than a trap within the next week. The price zone from December 29th is the next support level for the 60 minute momentum reversal pattern.
I will be relaunching my very popular 5 Technical Signals CD course in early 2009. At this time I will also be increasing the price of this course, so be sure to act now if you wish to purchase it at the current price of $279. Those who have already purchased the course, or who do so by the end of the month, will be receive my latest Market Timing Guide, which contains twice the examples of the original, ahead of the relaunch!
To learn more, please visit http://www.swingtrader.net.
posted by Toni Hansen @ 9:58 PM
0 Comments:
Post a Comment
<< Home