Market Gives Back Wednesday's Gains and Then Some in the Dow

(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 experienced a very firm "about-face" in Thursday's session. We had seen the bears start to take over once again shortly after Wednesday's Fed announcement in which the lending rate remained unchanged. Even though the index futures attempted to recover from the immediate aftermath of the Fed decision, that recovery was unable to hold past the closing bell and the market again turned south. It continued to decline throughout premarket trade, forming a strong two-wave continuation pattern on the short side out of 7:30 am ET. This 15 minute selloff continued past the opening bell.

Nasdaq Composite ($COMPX)


Early morning economic data merely supported the position of the bears in Thursday's trade. Job cuts continued to befall numerous sectors of the market and this has resulted in a climb of the unemployment rate to 7.2% in December with the loss of 524,000 jobs. This brought the total for the year of 2008 to nearly 2.6 million. Although the losses were expected to be bad, the numbers themselves were ever worse. The unemployment rate is anticipated to rise to 9% within the first quarter of this year as the current announcements of job cuts start to come to fruition. The Labor Department reported that last week's jobless claims rose 159,000 to a seasonally adjusted 4.78 million. This is the highest level since the government began to track this data in 1967.

The early morning decline found an initial level of intraday support at about 10:00 am ET when the 5 minute 200 sma zone hit. This was also support from the previous morning's open. Although the market reacted well to this level and held it throughout most of the remainder of the morning, the correction proved to be primarily in terms of time and not price. The opening highs held as resistance and the market turned lower once again into noon.

Dow Jones Industrial Average ($DJI)


The Nasdaq struck support at the 12:00 ET correction period at its own 5 minute 200 sma and a retest of the morning lows, but both the S&P 500 and Dow Jones Industrial Average made slightly lower lows into the correction period. This created the potential for a 2B bottom, but the pace off the second low refused to gain enough attention. Instead the indices hugged the zone of that support and finally broke lower again only 45 minutes later. The took all three of the major indices sharply lower into the 13:00 ET correction period.

Once again the market attempted to hold support at the13:00 ET correction period. This was also the gap closure zone in the Dow. The strong downside pace, however, was again met with a more gradual reversal attempt. This time the indices made a better showing of trying to hold this support level. A smaller 2B formation into 14:00 held while a shallow Phoenix pattern held in the Nasdaq. The action was similar to that out of the morning though, whereby the pull higher off the support held for a longer period of time, but the price correction off the lows was relatively mild compared to the earlier downside. The 15 minute 20 sma held as resistance and the indices turned lower in the final 30-45 minutes of trade.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) gave back all of Wednesday's gains and closed lower on Thursday by 226.44 points, or 2.7%, at 8,149.01. 3M (MMM) (+2.04%), Merck & Co. (MRK), and Procter & Gamble (PG) were the only three index components to close in positive territory. The top losers included Bank of America (BAC) (-8.25%), J.P. Morgan & Chase (JPM) (-8,06%), Citigroup (C) (-7.14%), and General Motors (GM) (-7.02%).

The S&P 500 ($SPX) gained 28.95 points, or 3.3%, and closed at 845.14 on Thursday. The losses were led by financials, consumer discretionary, and industrials.

The Nasdaq Composite ($COMPX) gained 50.50 points, or 3.2%, and closed at 1,507.84.

The indices have a great deal of support on the 60 minute time frames heading into Friday. The gap closure from Wednesday is one of those levels, but the 200 period simple moving average on the 15 minute time frames and the congestion from Monday and Tuesday are also coming up. This zone should see a reaction. A "V" type of bottom into the support on the 60 minute will push the indices into a trading range that can easily hold throughout most of next week. This would create enough of a correction to allow the market to test the 100 day sma resistance. The market will need to maintain decent upside pace within a 60 minute range for this to hold, but right now it looks quite possible and is the main scenario I am following.

Market Tracks Higher Ahead of Fed

Market Tracks Higher Ahead of Fed

(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 had a strong showing on Wednesday as it awaited the afternoon FOMC announcement. The index futures had been trending higher at a steady pace since shortly after the closing bell. This broke the market free of its trading range, shifting the larger bias for Wednesday to support the typical upside action the morning of a Fed day. When the opening bell rang the market had recently run into resistance on a 15 minute time frame and was in the midst of a correction off that price level. The indices were gradually pulling lower and this pullback continued into the open until about 10:00-10:15 ET. At that point the uptrend resumed and the market easily took out the intraday highs.

Nasdaq Composite ($COMPX)


Between 11:00-11:15 ET the market again struck resistance. It is also typical for morning moves to stall at this time zone. The market again began a gradual correction, but the pace did not shift strongly as the indices pulled back. This left the larger bias still on the more bullish side into mid-day. The pullback was enough, however, to favor a longer mid-day base and two-wave continuation pattern into the afternoon on the upside as opposed to a mere bull flag on the 5 minute time frame. This took place coming out of the 13:00 ET correction period and took the S&P 500 and Dow Jones Industrial Average up into 20 and 50 day simple moving average resistance zones going into the afternoon Fed rates announcement.

Unsurprisingly, the Fed keep its key lending rates unchanged in the hope that lower rates will help boost the economy. It also stood behind its intention to keep rates low for quite awhile and promised to buy more mortgage securities and assets. Soon after the announcement was made the market began to pull back. The selloff continued after the indices congested along the 5 minute 20 sma support to form an Avalanche on that time frame, leading to a later afternoon low that corresponded to the final correction period of the day at 15:30 ET. The indices recovered into the close, but the downside resumed shortly thereafter and the market is poised to open lower into Thursday unless current congestion in the premarket can manage a strong break higher.

Dow Jones Industrial Average ($DJI)


The Dow Jones Industrial Average ($DJI) gained 200.72 points, or 2.5%, and closed at 8,375.45 on Wednesday. News of support from the Obama administration to help support the financial institutions was cited as the major catalyst for breaking the indices to the upside out of their two-week trading range. Bank of America (BAC) was up 13.7%, while Citigroup (C) gained 18.6%. J.P. Morgan & Chase (JPM) closed higher by 10.4% and Morgan Stanley (MS) added 17.8%. The entire sector was up over 10%.

S&P 500 ($SPX)


The S&P 500 ($SPX) gained 28.38 points, or 3.4%, and closed at 874.09 on Wednesday. This is where the greatest weight of the financial sector's gains was felt.

The Nasdaq Composite ($COMPX) gained 53.44 points, or 3.6%, and closed at 1,558.34.

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Wednesday's gains created the longest winning streak for the market since the start of the year. Keeping the larger picture in mind, however, we are likely to see a number of such runs on a daily time frame. The longer outlook though remains more congestive and in favor of a longer recovery period. As the market corrects off the monthly support zone these back and forth swings on the daily time frame are likely to play themselves out a number of times. If the market can deal with this current daily resistance without falling back too sharply, then the next major daily resistance will be the 100 day sma.

Light Trade Shows Market's Indecision Ahead of Fed

Light Trade Shows Market's Indecision Ahead of Fed

(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.)
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Good day! Volume was light in Tuesday's session. The market has been trading in a range for nearly two weeks without showing any strong bias for a breakdown direction and this indecision carried into Tuesday as well. As I mentioned yesterday, and the day before that for that matter, I didn't have a strong bias for any intraday action since the intraday momentum could easily shift the bias within the larger trading range. This left things a bit more up in the air for me as I focused more upon intraday movements and support and resistance levels as a guide. It is typical for volume to decline as congestion wears on and this was true this time around as well. Although the market wasn't terribly exciting in Tuesday's trade, the indices still had some very nice intraday moves on the smaller time frames and dealt with support and resistance levels quite well. This gave daytraders a number of really strong setups as long as they didn't fall in love with longer term holds.

Nasdaq Composite ($COMPX)


The session began Tuesday afternoon with the same follow-through we had seen on the reverse price action I talked about in the past two days. In other words, last week the market hugged the 15 minute 20 sma and broke lower. Since that action was flipped in Monday's session, the market instead held that resistance zone into the final hour of trade on Monday and then broke higher out of it heading into Tuesday morning.

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All was well to begin the day. The market was cheered by news in the home market that existing home sales rose 6.5% in December. About 45% of the sales, however, were considered to be "distressed" sales, which meant that they were either short sales or foreclosures. So, despite the increase in sales, the news was not exactly the most reassuring. It would not be unusual though to see panic among home owners create a flush in the housing market before we see any kind of modest recovery. I had been checking out charts of home sales prices over the weekend and did notice that we are seeing prices come into a support zone on the monthly time frame. The support hit hard, however, which means that unless prices round off at the support that the recovery will be slow and choppy. The market can more easily use that action to create a larger short setup and further downside over the next several years. On the plus side, since I'm already in a retirement community, by the time home prices recover here I am already set and I won't be the youngest one here anymore! *grin*

Dow Jones Industrial Average ($DJI)


After a strong start to the day things turned quickly. The market held the 9:45 ET correction period, based slightly, and then gave way to sharp downside into 10:00 ET with additional econ data. The selloff still held support levels well though. The market pulled back to the 5 minute 200 sma in the S&Ps and Dow and 15 minute 20 sma in the Nasdaq. A retest of this zone into the 10:45 ET correction period created a 2B and double bottom reversal which turned the market higher again into 11:00 ET. The earlier congestion at highs stalled the move, but a nice base into noon allowed a strong continuation pattern to form that took the market back to the upper end of the 30 minute range into 12:30 ET.

In the early afternoon this upside reversed itself. The market fell back into the earlier congestion, mirrored the base with a new congestion level from about 13:05-13:45 ET and then continued lower into 14:00 ET. Another 2B formed into 14:30 and the market again reversed course. Since the support and resistance levels were so clear-cut though, with strong 5 minute moves in between, it made it easier to time reversal patterns and the continuation moves throughout most of the day. The final rally even held the earlier highs almost perfectly before correcting into the final 30 minutes of trade. Afterhours action was quite precise, creating some strong moves higher into the early morning hours on the 5 minute charts.

It is currently about 4:00 am ET and the index futures just completed a third wave higher in afterhours trade. I closed out my long position a few minutes ago and am heading to bed, but we are looking to open higher into the morning. Since the uptrend has been in play since shortly after Tuesday's close, however, I would expect some corrective action ahead of the open, so there is a risk that it will still give back a portion of these gains. This is particularly a risk because the market is now back at resistance from the zone of the highs from the 18th.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) gained 58.70 points, or 0.7%, and closed at 8,174.73 on Tuesday. 25 of the Dow's 30 index components ended the session in positive territory. They were led by financials American Express (AXP) (+9.74%), Bank of America (BAC) (+8.33%), and Citigroup (C) (+6.61%). General Electric (GE) also had a good session and closed higher by 5.15%. Telecommunications were among the weakest performers. AT&T (T) fell 3.35%, while Verizon (VZ) shed 3.32%. Home Depot also had a tough session and closed lower by 2.68% despite outperforming much of the rest of the market the day before.

The S&P 500 ($SPX) gained 9.14 points, or 1.1%, and closed at 845.71 on Tuesday. Health care, financials, and information technology also led the gains in this index, while telecommunication services and consumer discretionary shares faltered. Crude oil also added some pressure for energy shares. It fell 9.1% on Tuesday and ended the session trading at $41.58 a barrel.

The Nasdaq Composite ($COMPX) gained 15.44 points, or 1.0%, and closed at 1,504.90.

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The main focus on Wednesday's session will be upon the afternoon Fed rate decision. In recent times this hasn't really led to huge reactions, but since the market has been congesting in such a narrow range for over week this might be enough to push it out of that immediate range. The intraday momentum is still favoring the bears, but a pullback on the 15 minute time frame early on in the session could allow it to create a two-wave buy setup on that time frame into the 15 minute 200 sma support. This would have to go against the norm, however, in that most Fed days show some strength in the morning before slowing into the afternoon to await the 2:15 ET announcement. This is one of the reasons I'm not quite convinced that the Fed will be enough to break the daily range and am just going to continue as I have the past several trading days and just play it by ear since the intraday shifts in momentum can take the market either way on the larger time frames still and it really won't take more than just a move on the 15 minute time frame to make that shift.

Let's take a moment to look at what typical Fed reaction is like. Following the news we will typically see three waves of reaction, which will usually play out first on a 1 minute time frame and then on a 5 minute. There will be an initial reactionary move, followed by a counter-move that can be stronger than the initial move, and then a third move back in the direction of the initial move. If you have any type of latency issues at any point with your charting or data, I highly recommend keeping only the bare bones open going into the announcement since it is quite common for the data influx following the news to cause a lot of traders to have difficultly obtaining correct quotes and can bog down your platform making it difficult to get the executions you may wish. The immediate aftermath of the Fed announcement should also be avoided by newer traders or those that need to work more on execution skills since the prices action is quite rapid.

Market Flips Intraday Sequence of the Past Three Days

Market Flips Intraday Sequence of the Past Three Days

(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.)
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Good day! In yesterday's column I spoke a great deal about how the price action in the market from Wednesday through Friday of last week played out and how the intraday trade action represented a repetition of strategies and patterns over the course of each of those three days. The basics included morning downside, a rally into mid-day, a mid-day congestion, and a continued rally into the afternoon, followed by another reversal off highs. How the prices unfolded is quite striking because with every pattern or set of patterns in the market you can flip the charts over and see those same sets of actions, or variations thereof, played out in reverse. This was exactly what we saw take place in Monday's session.

Nasdaq Composite ($COMPX)


The initial shift in the market took place when the indices failed to break the 15 minute 20 sma heading into Monday morning. Over the prior three days the market had come into this support level, based or congested along it, and then broke through. The rally into Monday's open broke the trend of the prior three days, but it also started the first move on what would become the mirrored sequence of price action for the day. While the indices had headed lower in the morning on the prior several days, the rally on Monday took the market higher until about 10:30 am ET. At this point the indices had formed a small momentum reversal into last week's highs and held the resistance into noon.

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In the second half of last week the market pulled higher into noon, but this time it pulled lower. The 12:00 ET reversal period held almost perfectly after a third drop into it came on a 2 minute time frame. This also corresponded to the 15 minute 20 period simple moving average, which had served as resistance last week, but had now become support.

As before, the market congested over mid-day. In this case the indices hugged the 15 minute 20 sma into the early afternoon. The break from the range was a bit earlier than last week, beginning out of the 13:00 ET correction period, but the lows did not break until the market came out of the 13:30 ET correction period, just as was the case with the start of the afternoon moves last week.

Dow Jones Industrial Average ($DJI)


As on Wednesday and Thursday, the breakout from the mid-day range saw momentum increase in the direction of that break as compared to the morning move. This created a sharp decline into Monday afternoon. The market found support at 14:15 ET when the indices struck the 15 minute 200 sma levels.

On both Thursday and Friday the rallies experienced price reversals at about this same point in time. The 15 minute 20 sma had served as support in both cases. This gave me a target on the afternoon rally on Monday at that same 15 minute 20 sma zone. The support zone would also be the middle of the mid-day congestion level, just as that same level had acted as support in the previous sessions. The resistance zone began to hit at about 15:00 ET with that correction period, but the indices went for a stronger test of the middle of the congestion before holding it more securely into the final 30 minutes of trade.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) gained just over 38 points, or 0.5%, and closed at 8,116.03 on Monday. The Dow's top performer was Home Depot (HD), which rallied 4.65%. It was followed by General Electric (GE), which climbed 3.24%. As you can see, the winners were not extreme, although nearly 3/4 of the Dow finished in positive territory. Home Depot found itself rallying after the company announced 7,000 layoffs. This was just one of many top companies to report such news on Monday, adding to the job losses that have become more and more common over the past several months as companies attempt to position themselves into 2009.

On Monday alone the economy saw about 50,000 jobs lost in the nation's major corporations. Many expect that by the end of the month we will have seen a total jobs loss of 500,000. Although HD saw its share price rise following the news, other companies within the Dow were not as lucky. Pfizer (PFE) experienced the greatest decline of 10.3% when it announced 19,000+ layoffs in conjunction with its purchase of Wyeth (WYE). Following on its heels was Caterpillar (CAT), which fell 8.38% on the announcement of a 20,000 first quarter cut in employees.

The S&P 500 ($SPX) gained nearly 5 points, or 0.6%, and closed at 836.57 on Monday. Oil prices continued to rise into the morning. This offered us additional follow through on the double bottom formations we have been following since last week. Since the rally continued so quickly into the open, however, it did not have a lot of time to correct from Friday's afternoon ascent and ran into trouble as the morning wore on. The oil sector formed rounded highs and pulled back into the early afternoon. Despite strong morning gains, crude oil closed lower by $0.74 a barrel on Monday at $45.73.

The Nasdaq Composite ($COMPX) gained 12 points, or 0.8%, and closed at 1,489.46.

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Earnings to keep an eye on for the remainder of the week include Dupont (DD) and Verizon (VZ) on Tuesday; Boeing (BA), Pfizer (PFE), and AT&T (T) on Wednesday; 3M (MMM) on Thursday; and Chevron (CVX), Exxon Mobil (XOM), and Procter & Gamble (PG) on Friday. Also keep in mind that Wednesday brings with it another FOMC interest rate decision. This is just one of the many economic and policy reports due out this week, so be sure to check out the economic calendar below to avoid being caught off guard! Once again I do not have a strong bias heading into the session on Tuesday. Instead I'll be focusing upon intraday price action as a guide. Even though I've been trading on the upside afterhours (currently it is 2:30 am ET), it would not take a lot to shift that move again intraday or even before the open since the market has been gradually pacing itself higher, but at slower momentum than the rally into Monday morning. Corrective moves to such ascents will often be quite swift!

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, January 26, 2009
10:00 a.m. Dec Existing Home Sales: Previous: -8.6%.
10:00 a.m. Jan Conference Board Leading Indicators: Previous: -0.4%.
10:30 a.m. Jan Dallas Fed Mfg Production Index: Previous: -21.

Tuesday, January 27, 2009
7:45 a.m. ICSC Chain Store Sales Index For Jan 24: Previous: +1.1%.
8:55 a.m. Redbook Retail Sales Index For Jan 24: Previous: -2.5%.
9:00 a.m. Nov S&P/Case Shiller Home Price Index: Previous: -19.1%.
10:00 a.m. Jan Richmond Fed Mfg Survey: Previous: -55.
10:00 a.m. Jan Conference Board Consumer Confidence: Previous: 38.0.
4:30 p.m. API Oil Industry Report
5:00 p.m. ABC/Wash Post Consumer Conf For Jan 24: Previous: -53.

Wednesday, January 28, 2009
7:00 a.m. MBA Mortgage Application Refinance Index For Jan 23: Previous: -12.4%.
10:30 a.m. US Energy Dept Oil Inventories
2:15 p.m. FOMC Interest Rate Decision

Thursday, January 29, 2009
8:30 a.m. Initial Jobless Claims For Jan 24 Week: Previous: +62K.
8:30 a.m. Dec Durable Goods Orders: Previous: -1.0%.
10:00 a.m. DJ-BTMU Business Barometer For Jan 16: Previous: +1.9%.
10:00 a.m. Dec New Home Sales: Previous: -2.9%.
10:30 a.m. EIA Natl Gas Inventories

Friday, January 30, 2009
8:30 a.m. 4Q Advance GDP: Previous: -0.5%.
8:30 a.m. 4Q Employment Cost Index: Previous: +0.7%.
9:45 a.m. Jan Chicago PMI: Previous: 34.1.
10:00 a.m. End-Jan Reuters/U Mich Sentiment Index: Previous: 60.1.


Key Earnings Announcements This Week:

Monday, January 26, 2009
Before: ALDN (?), ACV, AIT, BOH, CAT, COV, DHR, ETN, FCF, FCX, HAL, HTLF, KMB, MCD, MOG.A, NS, ONB, PVTB, DGX, SEE, TSN, WFT, GWW
During: -
After: ALB, ALGT, AXP, AMGN, BGCP, BKI, CNW, CR, ELS, GGG, JEC, JDAS, KRC, MCK, NFLX, OLN, PTV, PRXL, PLXT, QLGC, RLI, SLG, STLD, TXN, VMW, VLTR, ZION, ZRAN

Tuesday, January 27, 2009
Before: ALS, ASH, AVY, BMS, BMY, CP, CRS, GIB, CHKP, CCUR, CVG, CBE, DAL, DD, EMC, ENR, FCFS, FMER, FPL, GKSR, HSY, KCI, LXK, MHP, NNDS (?), NUR, NVR (?), NYB, BTU, PBG (?), PTEC, PRSP, RYN, SI, STJ, STE, TLAB, TIN, TRV, TUES, X, VLO, VZ, WDR, WAT
During: -
After: ALTR, AMLN, BBOX, CHRW, CLMS, ELY, CALD, CTX (?), CNB, CSGS, DV, ETFC, ELX, GILD, HTCH, ISSI, JBHT (?), KEYN, MRTN, MRCY, MOLX, NAL, NSC, OPWV, PMTC, PLT, RFMD, RKT, SBCF, TSFG, SFG, STSA, STM, SYK, JAVA, TSS, TRMK, VPRT, WBSN, YHOO

Wednesday, January 28, 2009
Before: AMG, AAI, ARLP, APU, T, BHI, BDX, BA, CETV (?), COP, GLW (?), CFR, DOV, BEN, GD (?), HES, HUB.B, KNSY, LAZ (?), LCRY, LM, MPX, MKC, MWV, NYT, NVS, PFE, PM (?), PJC (?), PX, RGS, ROH (?), RES, SAP (?), SO, SWK, SY, TDW, TEL, UGI, USG, WLP, WFC, WTNY, WRLD
During: BOKF, EGN, SUSQ
After: ADPT, AFFX, ARG, ALGN, ALL, AMP, AVCT, BXP, BSX, CBT (?), CAI, CAVM, CLS, CRUS, CTXS, CNS, CPWR (?), CVD, CTS, DST, DNB, EXTR, FIC, FLEX, FORM, FBN (?), GMCT, HBI, HMX (?), HOKU, ISIL, KEX, KFN (?), KNX, LRCX, LSTR, LSI, MTW, MLNX, MTH, MEOH (?), MUR, NTY, OTEX, OI, PLXS, PSSI, QCOM, RHI, RYL, SIGI, SHOR, SSCC (?), STLY (?), SBUX, SNS (?), SRDX, SYMC, TER, TTEK, TGLD, TSCO, VIRL, WDC

Thursday, January 29, 2009
Before: FLWS, MMM, ALK, ATK, MO, AMB, AEP, BUD (?), ACAT, ABFS, AF (?), AZN, ALV, AN, BLL, BDK, BPHX (?), BC, CSAR, CSH, CELG, CHTT, CXG, CL, CNX (?), CEG (?), CAL, D, DDE (?), DVD (?), EK, LLY, EQT, ETH, SSP (?), FCS, F, FO, GNTX, HSC, HP, ITW, IPSU (?), IP, ISCA, IVC, ITG, JBLU, KEI (?), KMT, LLL, LB (?), LANC, LDR (?), LEA, ERIC, MEG, MPW, MWIV (?), NWL, NWA, NCX, OXY, ODFL, OHI (?), OXPS, OSK, OSIS, PCCC (?), PAS (?), PCZ, PII, PFS, QUIX, RTN, RCL, RDS.A, RRST, SEIC, SII, SNE, HOT, SRI (?), TROW (?), TXT, TKR, UTEK, UMPQ, UA, USAP, LCC, USAK, WCC, WYE, XEL, YRCW, ZMH
During: MNTG
After: PAR, ABAX, ARAY, ACXM, ACS, AMZN, ACF, ANEN, AMCC, ARBA, AVID, ACLS (?), BRCM, BCR, CA, CAMD, BEAT (?), CHRT, CHRD, CB, COLM, CNXT, CVTI (?), CYBS (?), CYT, DDUP, DRIV, DNEX, DLB (?), DLLR, EMN, EFII, ESIO, ENTU, EXAR, FND (?), FBC, HLIT, HPC (?), HUBG, IKAN (?), INFN, INFA, ININ, IDTI, JNPR, KLAC, LCRD, LSCC, MXIM, MNT (?), MRCL, MCHP, MIPS, NATI, OMCL, OPLK, PKI, PXLW (?), PMCS, QTM, RMBS, RMTR, RLRN, SMTL, SWIR (?), SXE, STAR, SPWRA, TK (?), TGI, VAR, VSEA, WMS, ZIGO

Friday, January 30, 2009
Before: ACO, AXL, AME, ACI, CVX, XOM, GCI, HHS, HON, IDXX, IVZ, KLIC, FSTR, MBFI, MV, LABL, NARA, OSTK (?), PCAR, PG, SAIA, SPG, WL
During: -
After: EEP, GKK (?)


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.

Market Plays Out a Variation of the Same Theme

Market Plays Out a Variation of the Same Theme

(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! In Friday's session the market played around with the same intraday trading action as seen in the previous two sessions with only the timing of the moves and momentum of the moves varied. The basic theme included an early morning decline, a late morning rally, mid-day congestion, and a mid-afternoon rally. The action diverged at this point with Friday falling more in line with Thursday's action than Wednesday's with a turn lower off the afternoon highs, support at the 15 minute 20 sma and holding of that support into the close.

This type of repetition in the market is quite common. It is what makes technical analysis such a useful tool for increasing the odds of correctly predicting a future price move in an index or security. Variations within a pattern typically have to do with things such as the pace or momentum of the waves of action within the formation, trend placement, volume, and the larger support and resistance levels.

Nasdaq Composite ($COMPX)


Heading into Friday morning we were expecting continued downside as a result of the larger momentum shift on the 60 minutes charts in which the indices had fallen into support about a week earlier and then began to slow at that level. Slightly lower lows started to round off the market at the support and increased the odds that the indices would continue to attempt to congest along the support and hold it into the weekend.

The indices made an initial low into the support zone mid-day on the 15th. A second low was formed into the close on the 19th and morning of the 21st. This spaced the two lows about 2.5-3 days apart. I was hoping to see a third low on Friday in order to see a greater recovery off the support in terms of price this coming week. For this to have formed, the low ideally would have taken place in the afternoon, creating an equal amount of time from the 2nd and 3rd lows as compared to the 1st and 2nd. The indices did attempt to create a third low. They did this, however, with a sharp gap lower into Friday morning. This was on the early side for a momentum reversal and still leaves the door open for weakness into next week.

Dow Jones Industrial Average ($DJI)


Although the momentum reversal pattern we have been watching is having a bit of trouble forming, it is still quite interesting to examine the intraday action on Friday and its comparison to the previous two days. I laid out the sequence of events at the start of this column, but let's look at the moves in a bit more detail. On each of the past three days the market has experienced downside in the morning. On Wednesday the market had gapped higher and then turned lower, whereas on Thursday the market opened and continued lower throughout the morning after congestion at the opening bell. This congestion on Thursday morning is comparable to the bounce into Thursday's close in the final hour of trade and led to a second wave of selling into noon on Thursday and into the open with a gap lower on Friday. I drew these moves in blue on the Nasdaq.

On each of the three days the market then reversed higher into noon/early afternoon, congested along the 15 minute 20 sma, and then broke higher between 13:00-13:30 ET. This is shown in purple on the Nasdaq chart. On Friday the afternoon ascent was much more gradual and choppy than in the prior two days. This shift in momentum for a weaker third move is quite common when it is the third repetition of the same variation of price action. This afternoon rally still held the same resistance levels as the prior two days, however, since it had a shorter price distance to move before hitting that zone. In the Nasdaq this meant the prior highs, but it was upper channel resistance and the 15 minute 200 sma in the S&Ps and Dow. On all three days the correction then led to initial support at the 15 minute 20 sma. This level held well on Friday in the last hour of trade.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) fell 45.24 points, or 0.6%, on Friday. It ended the day at 8,077.56. The Dow closed lower on the week by 2.5%. General Electric (GE) held down the Dow on Friday, falling 10.8%. GE met fourth-quarter earnings expectations, but CEO Jeffrey Immelt expects 2009 to be "extremely difficult." Earnings fell 44% to 37 cents a share last quarter with revenue of $46.2 billion. $1.38 billion was in tax benefits. Other news to watch will be in Pfizer. This Dow Jones Ind. Ave. component is in talks to acquire competing drug maker Wyeth (WYE).

The S&P 500 ($SPX) gained 4.45 points, 0.5%, and closed at 831.95. For the week overall the S&Ps were down 2.1%. Oil performed well on Friday. The daily double bottom that I pointed out Wednesday evening triggered and followed through very well, closing higher by $2.80 a barrel at $46.47. For those that do not trade futures, USO and OIL both also represent the overall oil sector. I tend to follow OIL the most closely, and a very slightly lower low in that security created a 2B reversal pattern by forming a trap at the second low. Schlumberger (SLB) was one of the best performers in the oil sector on Friday. It rallied 10.3% following earnings. Gold also had a strong session on Friday and gained $35.30 to settle at $895.80.

The Nasdaq Composite ($COMPX) gained 11.80 points, or 0.8%, and closed at 1,477.29. The Nasdaq ended the shortened holiday week of trade lower by 3.4%. Google (GOOG) had a great day on Friday. Despite the announcement on Thursday after the close that for the first time ever it experienced a quarterly profit decline, it still surpassed analyst expectations and closed higher by 5.9%.

http://www.swingtrader.net

Earnings season really kicks into full gear this week. Some of the top names to keep an eye on are American Express (AXP), Caterpillar (CAT), and McDonald's (MCD) on Monday; Dupont (DD) and Verizon (VZ) on Tuesday; Boeing (BA), Pfizer (PFE), and AT&T (T) on Wednesday; 3M (MMM) on Thursday; and Chevron (CVX), Exxon Mobil (XOM), and Procter & Gamble (PG) on Friday. This season's earnings for the S&P 500 is now expected to come in at about 28% lower than the same time period last year. This is nearly twice as bad as analysts had projected just two weeks ago.

As earnings season escalates, a lot of the focus will also be upon President Obama's economic stimulus package. Top members of the House and Senate met on Friday to discuss its direction and it is expected that we will start to see this fleshed out a lot more over the next several weeks.

The big question of course, is just what does all of this really mean for the market? Is there any hope of recovery? If so, when and by how much? A lot of my non-trader friends keep wondering if this is a great place to buy back in or not for longer term holds, while others keep asking me if they can ever expect to see their accounts start to recover to any significant degree or if they should just cut their losses now.

The fact remains, however, that last year's decline in the market was very extreme. You can take a good cue from a lot of individual stocks over the years that have experienced such rapid downside momentum. There will almost never be a strong recovery off the support that compares to the momentum into it when that move is essentially a free fall that has built upon itself on the way down.

The only real way to sustain a strong reversal is if there is some rounding off a lows with a series of slightly lower lows following the sharpest downside momentum. The scale of the decline in the market would mean that this would have to take place on a monthly time frame. If you pull up this chart in any of the three major indices, however, you can see that we are still just coming off a first test of support on that time frame. Even if the market were to attempt to pull sharply higher and sustain that move off this low (which is not at all likely without rounded lows) there is simply no way that we will break the prior highs without a longer yearly correction. Even getting back to that high in the first place would take a number of years.

The reversal off the 2007 highs is not the same as the one back in 2000. The reversal off that high took the form of an upside down "V" in the S&P 500. This helped it form another "V" off the lows in 2002. This time, however, the descent was much sharper. The S&P's action in the past year is closer to what the Nasdaq had experienced in 2000-2001. If you pull up a chart of the Nasdaq from back then you can see that it hit an initial support level in the first half of 2001, but it took two more lows where the index lost at least another 1/3 of its price before finally turning higher again in late 2002. Even at that point the rally into 2007 highs in the Nasdaq only amounted to a recovery of about a third of the losses that had taken place from 2000-2001. It doesn't paint a very good picture for the bulls.

While it remains true that we are at strong monthly support here, the momentum has not shifted enough at all into this support to allow me to feel confident in establishing a lot of longer time frame positions. The nature of the free fall is why we have seen a range since October and if the market does not attempt to round off at this support with lower lows then the attempt to hold the exact price low and recover is going to be met with a lot of back and forth action within a slower overall trend channel on the upside. There may be period of strong upside on a daily time frame, but compared to the monthly charts, the larger trend channel would not appear so at all.

This is certainly not the type of answer most people want to hear, because it also means greater uncertainty on the short time frames until we start to see more of how the market reacts to this monthly support. This is why I've been focusing more upon 60 minute time frames recently, but action on the 60 minute heading into this week is not very telling since we did not form a strong momentum reversal to add higher odds for a bounce into this week and yet we also do have a slightly lower low mid-week from this past week that makes it higher risk for short setups unless it bases out a bit longer. I don't like going into a session without a decent daily bias, but this is going to be the case heading into Monday since my pros and cons lists for either direction are pretty even on the shorter 30 minute time frame for Monday's session.

Online Viewing: Utilizing Fibonacci Levels in the FX Markets

QUESTION: "Is there a place I can watch your session from Thursday "Utilizing Fibonacci Levels in the FX Markets" online? I was not able to make it to the session. Thanks!"

ANSWER: Hello ---,

They do archive the sessions. You can locate them at http://www.tradersworld.com/conference/index.htm. You can also find another free variation at http://www.ise.com/archives. Additionally, I have done several articles on Fibonacci which can be found at http://www.tonihansen.com.

All my best,
Toni

Trading ETFs

QUESTION: "I was wondering if you could tell me the advantages of trading individual stocks in front of known events (earnings, stock splits) versus leverage ETFs (I have used FAS, FAZ, ERX and ERY). Couldn't you make just as much money trading a couple of favorite ETFs over and over instead of having to do all the stock research of upcoming events on individual stocks? Thank you."

ANSWER:

"Hi ---!

You ask a good question... I think there are a lot of misconceptions when it comes to trading ETFs. They have been pushed as the new and better way to trade and put forth as offering traders the potential to spread out there risk over a sector as opposed to betting on the whims of a particular company. The idea is also that wilder moves which take place in individual stocks can be smoothed in an ETF. Additionally, people do tend to think that trading individual stocks is going to entail a great deal of research in order to locate solid setups.

The advantages are really quite exaggerated, however. It is true that it can be easier to scan through the sector ETFs to locate broader trends in the market, but with the number of ETFs available these days you might even be better off scanning through the top indices where many of the securities are more liquid than most ETFs. Another thing to keep in mind is that it is often the stronger moves in individual stocks that actually make them so appealing. I dislike getting into a position only to have it slowly crawl one way or the next. By locating sectors I like and then focusing upon the strongest and weakest stocks in those sectors I can often outperform the overall sector and actually end up in securities that move more smoothly with less overlap from one bar to the next than the sector as a whole may offer.

More directly related to your question, however, is in terms of scanning and locating the best positions. This is where it can depend upon the style of trading you are focusing upon. Intraday you will have a much easier time scanning for strong individual stocks than ETFs because most trading platforms offer decent gap and relative strength and weakness scans. I can come up with a core list of stocks to focus upon throughout the session in only a few minutes of morning scanning.

Finding decent swingtrade scans can be a bit more difficult, since it is not merely looking at scans such as 3-5 day pullbacks in an uptrend. This is where scanning the sectors can work better and then either trade the ETF or check out the individual stocks within the sector to locate those which have even better relative strength or weakness than the overall sector. This doesn't have to take up too much time. I rarely ever do any in depth research on stocks other than just watching out for earnings... and that can catch my eye since it can indicate a higher chance for a strong move the day before or after earnings to give the security greater-than-average intraday momentum moves.

I hope this helps add a bit of clarification!

All my best,
Toni"

Larger Market Outlook

I had a question asked by many recently... That is regarding the type of recovery the market can expect to form off this low.... Here is one of my reponses, but the jist is the same in each of the emails I answered... In other words: expect a longer correction off the supoprt and even the potential for further downside over the coming decade....

"Hello -----,

This is definitely the question of the day!!! When the market fell into
support back October the only thing that was certain was that the market
would not be able to sustain any rapid recovery. This is simply because the
momentum on the selloff was substantially stronger than average. It is not
uncommon to see rapid reactions to support follwoing such a drop, but
holding onto those gains is a whole other story. If you look at the monthly
charts, the market has barely had any reaction to this support zone. It may
round off at the support or it may fall into a much longer base followed by
continued downside. I am really not expecting much strength for a number of
years. I think that traders and investors are going to have to do a lot more
searching to locate strength for longer term holds since most of the upside
moves are likely to only last for a couple of weeks before falling back. We
are likely to also see a lot more overlap from month to month in prices than
we have been used to over the course of the past decade. I would suggest, as
a weekend or evening exercise, to scan over charts from the past where you
have seen sharp retracements off highs and check out how those securities
reacted to support levels when they finally slowed. Even in the cases where
there is more of a "V" type of bottom the rally almost never breaks the
prior high without a longer time correction along that high. The freefall,
however, takes out the potential for a "V" bottom. It would take a series of
slightly lower lows on the monthly time frame in order to get that pace
turned around better to allow for any stronger bounce.

I hope this helps!
All my best,
Toni"

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, January 19, 2009
No major economic indicators scheduled.

Tuesday, January 20, 2009
7:45 a.m. ICSC Chain Store Sales Index For Jan 17
8:55 a.m. Redbook Retail Sales Index For Jan 17
5:00 p.m. ABC/Wash Post Consumer Conf For Jan 17

Wednesday, January 21, 2009
1:00 p.m. Jan NAHB Housing Index

Thursday, January 22, 2009
8:30 a.m. Initial Jobless Claims For Jan 17 Week
8:30 a.m. Dec Housing Starts: Previous: -18.9%.
10:00 a.m. DJ-BTMU Business Barometer For Jan 9

Friday, January 23, 2009
No major economic indicators scheduled.



http://www.tradingfrommainstreet.com/images/banners/MBT468x60a.jpg


Key Earnings Announcements This Week:

Monday, January 19, 2008
Before: -
During: -
After: -

Tuesday, January 20, 2008
Before: BAC, CBSH, FAST (?), FRX, IIVI (?), JEF (?), JNJ, LEE, EDU, PH, PETS, RF, STT, SU, AMTD
During: -
After: CREE, CSX, FULT, HBHC (?), HOKU (?), IBKC, IBM, PKG, PNFP (?), RJF, SPSN (?), SUPX, WIT, WGOV

Wednesday, January 21, 2008
Before: ABT, ADTN, APD, ATI, ABK (?), AMR, BNI, COH, CFR (?), DAL (?), FCX (?), HCBK, IGTE, LAB, NTRS, PM (?), PJC (?), BPOP, PCP, PGR (?), ROK (?), SMTS, UAUA, UTX, UBB
During: EGN (?)
After: ACTS, DOX, AMP (?), AMCC (?), AVCT (?), CLDN, CHIC, CTXS, CNH, CNS (?), FFIV, HXL (?), ISIL (?), KMP, LRCX (?), MTSC, NE, NVEC, PLCM, SANM, STX, SLM (?), SPTN (?), SRDX (?)

Thursday, January 22, 2008
Before: FLWS (?), AOS, AMFI, ABC, ABI (?), ACAT (?), AUO, AVT, AVX (?), BK, BAX, BBT, BDX (?), BLK (?), EAT (?), CCMP, CRA (?), CIT, C, CMCO, CMA, CY, DLX, DDE (?), DVD (?), EXC, FITB, FCF, F (?), BEN, GMT, HSY (?), HUB.B (?), HBAN, IMN, IGT, ISCA (?), ESI, JNS, KEI (?), KELYA (?), KMT (?), KEY, NITE, KLIC (?), LMT, LYTS, MTB, MMR (?), MDP, VIVO (?), MV (?), MNRO, MOG.A (?), NCC (?), NOK, NOC (?), ORI, PTEC (?), POT, RYN (?), COL (?), SHW, LUV, SPWRA (?), STI, TSM, TCB, TDY (?), TEN (?), UNP, UB (?), UNH, LCC (?), UST (?), WRLD (?), ZOLL (?)
During: HTLD (?)
After: AMD, AAPL (?), EPAY (?), CNI, COF, CYN, COBZ, ED (?), CNXT (?), CVTI (?), CBST, DGII, EBAY (?), ESIO (?), ELX (?), EZPW, FII, GOOG, IBKR, ISRG, JJSF (?), KNX (?), WFR, MSCC (?), MSFT, NTCT, OPWV (?), PKI (?), QTM (?), SCSC (?), SBCF (?), SYNA, SNV, TNL, TPX (?), TER (?), TGI (?), VARI (?), WERN (?), WDC (?)

Friday, January 23, 2008
Before: GE, HOG, MBFI (?), SLB, WBS, XRX
During: -
After: -


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.

Larger 60 Minute Momentum Continues to Slow

Larger 60 Minute Momentum Continues to Slow

(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! When I wrote yesterday's column the indices were hitting strong resistance in afterhours trade as the day turned over. This price level corresponded to the 15 minute 200 period simple moving averages in the S&P 500 and Dow Jones Industrial Average. This resistance zone hit after the indices had already been rallying throughout the afternoon to form an upside move comparable to the rally on the afternoon of the 15th. This resistance and price extension left the indices favoring a correction into Thursday morning whereby the resistance zone would hold intraday. This correction began at about midnight on the index futures and continued sharply lower into Thursday's opening bell.

Nasdaq Composite ($COMPX)


When the market opened on Thursday the indices were testing strong 15 minute support at the 15 minute 20 period simple moving average. This stalled the selling, but the larger 15 minute bias remained negative. With the 5 minute 20 sma overhead serving as resistance the indices became wedged between the support and resistance. This wedge finally broke lower into 10:30 ET. The 5 minute 20 sma continued to serve as resistance throughout the morning.

The 10:30 ET breakdown created a second wave of selling on a 15 minute time frame on Thursday and the move continued into the 12:00 ET correction period. This is a common time for the market to correct from a morning trend move and the correction period also hit at strong price support from the mid-day congestion in the previous session.

Dow Jones Industrial Average ($DJI)


The intraday action on Thursday was not that different from Wednesday's throughout most of the session. On Wednesday the market had also traded within congestion out of the open before falling lower. When it turned off the morning lows it barely paused at the 5 minute 20 sma. Instead the indices crept higher at a steady pace through the 5 minute 20 sma resistance before falling into a trading range in the early afternoon. The congestion on Thursday was more compact than the prior day. The upside had also been a bit stronger into it so that the 5 minute 20 sma served as support.

On both Wednesday and Thursday the indices broke higher out of their early afternoon congestion, but the pace of the breakout was much stronger on Thursday than in Wednesday's session. While on Wednesday the indices built momentum to the upside in the afternoon, the stronger initial momentum on Thursday's breakout led to earlier exhaustion of the move than in the prior session. This exhaustion took place at the 15 minute 200 sma in the S&Ps and Dow, as well as the gap closure zone in the index futures. The pace of the buying slowed into this resistance and this helped the market turn lower around 14:20 ET.

This late day reversal did not take place at a typical correction period, but the end of the reversal did. The market had three waves of selling back into the early afternoon congestion. This congestion zone hit at the same time as the 5 minute 200 sma and 15 minute 20 sma support in the indices and the 15:00 ET correction period. The pace of the selloff slowed at that point and the market congested for about half an hour before pulling higher into the final 30 minutes of trade.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) closed lower on Thursday by 105.30 points, or 1.3%. It ended the day at 8,122.8. 24 of the Dow’s 30 index components posted losses. The financials have experienced a great deal of volatility lately and the strong gains from Wednesday’s session were once again quickly reclaimed. Citigroup (C) led the losses on the Dow, falling 15.3%. Bank of America (BAC) fell 14.5%.

The S&P 500 ($SPX) fell 12.74 points, 1.5%, and closed at 827.50. Financials also faced the steepest losses in the S&P, but energy and information technology shares also felt the pressure. On the other end of the spectrum were telecommunication services, health care, and consumer staples.

The Nasdaq Composite ($COMPX) fell 41.58 points, or 2.8%, and closed at 1,465.49. Apple (AAPL) gapped up sharply following its earnings the afternoon before and continued to hold up in a range along highs throughout the session to close with a gain of 6.7%. Microsoft (MSFT), however, was not as lucky. It had been trading in a range along the daily lows for several months, but when it reported declining earnings and announced 5,000 layoffs the bottom dropped out. MSFT did not even attempt to give an outlook for the remainder of 2009 and this news was met with grievous concern. By noon MSFT was trading at 11 year lows. It ended the session at $17.11 a share, down 11.7%. EBay Inc. (EBAY) also experienced a great deal of disappointment when it reported an earnings decline for the first time ever following Wednesday’s close. The result was a loss of 12.1% on Thursday.

In yesterday's column the main pattern we were looking to form at this point in the market on a shorter 30-60 minute time frame was a third test of the month's lows. The sharp turn lower off the afternoon higher on Thursday and the continuation into the early morning hours on Friday makes this still quite possible. If the indices only create a slightly lower low on the 60 minute time frame then we should see the market's turn higher again into early next week. Even with a turn higher on this shorter time frame, however, as I discussed last year, the overall correction off the monthly support will not likely be a rapid recovery. We also shouldn't see as many of the extreme range days from this point forward. A turn higher into early next week will have to deal with the 20 day sma in the S&Ps and Dow and congestion from the 7th-9th in the Nasdaq.

To Hold, or Not to Hold?

To Hold, or Not to Hold?

(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! Tuesday's session brought with it the worst inauguration day performance in the Dow's history. The action was quite disappointing for many. Even I had expected that Obama's swearing-in would receive a warmer welcome despite the weak technical bias the market was displaying heading into Tuesday morning. When this failed to materialize, the market's had opened themselves up to the possibility of another decline comparable to that of last November.

As I mentioned in yesterday's column, the November corrections between the continuation moves lasted for only about two days within the larger descent. This was the case heading into Tuesday as well. In order to have continued with that same bias, however, the market would have had to have opened relatively unchanged or down slightly on Wednesday, such as which took place in November. On Wednesday this was not at all the case. In fact, the market gapped rather strongly on the upside.

Nasdaq Composite ($COMPX)


The market attempted to resume the bearish bias after congesting along price resistance from congestion the day before and then breaking lower, but the breakdown move that kicked off into 10:30 am ET had trouble getting past the support level from the gap closure in the S&P 500 and Dow Jones Industrial Average. This gap level support hit at the same time as the 11:00 ET correction period. The market formed a "V" bottom by pulling up through the 5 minute 20 sma to create a larger trading range on the 15 minute time frames into noon.

Although the S&Ps and Dow retested the prior lows on a 15 minute time frame, the Nasdaq did not experience as large of a retracement back into those lows on Wednesday morning. At that point it became a waiting game. The slightly lower highs in the indices on the 15 minute time frames was now followed by an even low in the S&Ps and Dow and slightly higher low in the Nasdaq. This created the beginning of a symmetrical triangle.

There is the widespread belief that symmetrical triangles will most often result in a break of the triangle in the direction of the larger trend heading into this. This is not the case. The best judge of a triangle's directional break is to connect the highs and connect lows of the triangle's channel and pay attention to which of those two channel lines is hugged as the channel narrows. The odds are highest that the channel will break on the side where the prices are hugging the channel line.

In order for the market to have favored more of a breakdown on Wednesday afternoon, the indices should have fallen back to the lower end of the channel in the early afternoon, preferably at a more rapid pace than the ascent off the 11:00 ET lows. Instead the market fell into a trading range on Wednesday that hugged the 15 minute 20 sma zone, which also meant the upper end of the triangle's channel. Since volume was the lightest during this time it also placed the focus upon the higher odds of an upside breakout.

Dow Jones Industrial Average ($DJI)


The base along the upper channel in the indices had the added benefit of hugging that channel while forming two waves of pullback within that smaller congestion in the early afternoon. This meant that the indices were not only displaying a bullish intraday bias for the afternoon on the triangle on the 15 minute time frame, but that it was also forming a continuation pattern on a 5 minute time frame from the rally off the 11:00 ET lows. This pattern triggered at 13:30 ET and soon broke through the upper 15 minute channel to confirm that setup as well. The follow-through, however, was very similar to the afternoon selloff on Tuesday, making it more difficult to time setups in the final hours of trade. The mirrored action even included a pullback into the end of the day and a final continuation into the last 30 minutes. On Tuesday it was a burst of selling ahead of the close. On Wednesday it was a stronger continuation of the buying going into the closing bell.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) recovered by 279.01 points, or 3.5%, on Wednesday to once again close above 8k at 8,228.10. Despite extreme losses on Tuesday, financial shares recovered remarkably well and snapped back very quickly in Wednesday's trade. Bank of America (BAC) was up 30.98% intraday and then continued to rally afterhours. J.P. Morgan & Chase (JPM) had a similar experience. It was up 25.1% intraday and continued to add to those gains following the closing bell.

The S&P 500 ($SPX) climbed 35.02 points, or 4.44%, Wednesday. It closed at 840.24. Energy stocks were some of the top gainers on Wednesday. Earlier this week oil prices had dropped to a slightly lower low on the daily time frame than compared to the levels hit at the end of December. The pace had actually slowed into the prior low before flushing under it in Tuesday's trade. This created a type of double bottom, or 2B, reversal pattern in which a bear trap is formed as a result of the slightly lower low. It leaves oil bullish on the daily time frame into the weekend and into next week. The main daily resistance will be the 50 day moving average, which is currently just below January's highs. The closing prices of the 9th and highs of the 13th will serve as closer, smaller time frame resistance that can stall the daily move on intraday time frames.

The Nasdaq Composite ($COMPX) rallied 66.21 points, or 4.6%, and closed at 1,507.07. After strong losses attributed in part to CEO Steve Jobs's medical leave, Apple Inc. (AAPL) closed higher by 5.9% in anticipation of strong earnings. The bias was confirmed following the bell when AAPL reported its best quarterly revenue and earnings in the company's history. Revenues rose 5.8% year/year with earnings coming in at $1.78 a share. This was $0.39 above expectations. The slightly lower low on the daily and weekly time frame on Tuesday also created a bear trap pattern. This was the second time AAPL had formed a 2B since late last year on the larger time frames. Even though the third low was a few days later than would be ideal for a monthly momentum reversal pattern and a slightly lower low would also have been more ideal, APPL is still forming a variation of this pattern. If the security can continue to rally strongly off this low into next week, then we can easily see the stock trading back up into $100 over the next several months.

The fact that the market recovered so well on Wednesday after only barely breaking last week's lows meant that the pattern I described in oil and in AAPL on the larger daily and weekly time frames had also formed on the smaller 60 minute index charts with last week's lows serving as the initial low and Tuesday's lows creating the action leading to a bear trap with the slightly lower low.

The index futures came into resistance around midnight going into Thursday morning and since the upside has a rather comparable pace than the previous descent it makes it likely that the indices will see a larger 15 minute reaction to that level. If the market turns quickly off the resistance then a third test of the lows could follow, leading to a momentum reversal buy on the 60 minute time frame. If the reaction is weaker and the indices hug the resistance, then a reverse head and shoulders pattern could possibly form, but while this might seem like a more bullish pattern than one formed by a third test of lows, it would actually increase the odds that a longer congestion on the 60 minute time frame would develop and the market would again break lower. In essence, it can more easily create the continuation pattern I had discussed several days ago. The lower low this week, however, makes that longer base and breakdown less likely.

Webinar: Utilizing Fibonacci Levels in the FX Markets

Hey gang,

I apologize for the short notice on this one, but my fun technology meltdown this past week meant that I did not receive this information until just a few hours ago. I had been invited awhile back to participate in Traders World's online expo, but had not received any confirmation info until last night. It turns out that they scheduled me to give a webinar at noon today! Yikes! I do want to apologize for those of you that may not be able to make it due to the short notice. As many of you are aware, I lost my main computer about a week ago and have been spending most of this past week trying to get everything working on Vista... (Sry MSFT, but I really do not like Vista... or maybe it just does not like me!) Nevertheless, I still wanted to give you the chance to drop by tomorrow since it's completely free to the public! They also provide recordings of the events presented. The info for this webinar is as follows:

Thursday Jan 22 12:00am EST
Topic: Utilizing Fibonacci Levels in the FX Markets

Description: "A great deal has been written about Fibonacci series and its applications in the marketplace in recent years, many of which have been exceedingly complex. In this session veteran trader Toni Hansen will share with you how to easily utilize Fibonacci levels in the currency markets when trading forex and currency-based ETFs. Even traders with the most basic of technical analysis skills shall come away with a core skill set that can be immediately applied to improve market timing, and in the process, the most sought-after goal of consistent profitability."

You can register at http://www.tradersworld.co m/conference/index.htm to attend this webinar as well as many others over the course of the next two days!

"See" you there!
Toni Hansen

Worst Inauguration Day in the History of the Dow

Worst Inauguration Day in the History of the Dow

(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! Tuesday's inauguration of President Barack Obama was the wild card for the day and the market could hardly have been less excited. In fact, it ended up being the worst-performing inauguration day in the the history of the Dow, which was created in 1896. On Friday the indices experienced a slower upside move throughout the afternoon than it had experienced the previous day. This left the intraday bias still on the side of the bears despite the initial attempt to rally off Thursday's lows. I went into the weekend with the outlook that perhaps the inauguration itself would gain enough interest to temporarily sustain some upside into Tuesday, but the larger bias prevailed as the market seemed resigned to the realization that the turnover of power in Washington would not be enough to remedy the economic woes of Bush's term.

Nasdaq Composite ($COMPX)


The index futures gave traders a bit of a heads-up on what to expect heading into Tuesday's session. They traded for part of the day on Monday and kicked off that session with a break lower out of Friday afternoon's intraday uptrend channel. The break was a strong one and was followed by a base along 15 minute 20 sma support throughout the second half of the session. The base itself created an Avalanche short setup which then triggered swiftly into Tuesday's opening bell and led to sharp losses right away into the new trading day.

The Tuesday morning decline found initial support at about 10:00 am ET from Friday's intraday lows. This stalled the selloff as the indices pulled slowly higher into about 10:30 ET. The volume was much lighter on this bounce than seen within the previous decline, however, and signified a lack of dedicated buyers within the advance. As 5 minute moving average resistance levels hit the selling resumed into 11:30 am ET.

Dow Jones Industrial Average ($DJI)


The market attempted once again to correct off lows mid-day. The slower decline into the second low created the potential for a double bottom on both the S&P 500 and Dow Jones Industrial Average and a 2B formation on the Nasdaq Composite. The attempt only sustained itself for about 15 minutes before falling back into low level congestion. The 15 minute 20 sma served as resistance and the market began a volatile descent that lasted into the closing bell.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) fell 332.13 points, or 4.0% on Tuesday and closed at 7,949.09. This is the first time the index has closed under the 8k level since Nov. 20th. The financials fronted the losses with Bank of American (BAC) down 29% and Citigroup (C) down 20% on the day.

The S&P 500 ($SPX) fell even further than the Dow. It lost 44.9 points, which amounted to a staggering decline of 5.3%. It closed at 805.22. Among the largest losers in the financials were State Street Corp. (STT), which fell 59.4%, and PNC Financial Services Group (PNC), which dropped 41.4%.

Hit even harder yet was the Nasdaq Composite ($COMPX). It plummeted 88.47 points, or 5.8%, and closed at 1,440.86. Apple Inc. (AAPL) fell another 5% ahead of Wednesday's afterhours earnings. APPL is now trading under the lows of 2007.

The current daily charts remain bearish at this time. The correction off last week's lows was relatively brief given the drop which preceded it, but the action bears a striking similarity to November's decline. At that time the corrections between each leg of selling were also relatively brief. I think that the market stands a very strong chance of now retesting those lows and actually trading past them as well. The larger monthly support zone remains in play, so we may see a formation such as a slightly lower low on that time frame followed by a larger correction attempt once again within a couple of weeks, but the Nasdaq and Dow both seem set upon a better test of the lows made back in 2002.

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, January 19, 2009
No major economic indicators scheduled.

Tuesday, January 20, 2009
7:45 a.m. ICSC Chain Store Sales Index For Jan 17
8:55 a.m. Redbook Retail Sales Index For Jan 17
5:00 p.m. ABC/Wash Post Consumer Conf For Jan 17

Wednesday, January 21, 2009
1:00 p.m. Jan NAHB Housing Index

Thursday, January 22, 2009
8:30 a.m. Initial Jobless Claims For Jan 17 Week
8:30 a.m. Dec Housing Starts: Previous: -18.9%.
10:00 a.m. DJ-BTMU Business Barometer For Jan 9

Friday, January 23, 2009
No major economic indicators scheduled.


Key Earnings Announcements This Week:

Monday, January 19, 2008
Before: -
During: -
After: -

Tuesday, January 20, 2008
Before: BAC, CBSH, FAST (?), FRX, IIVI (?), JEF (?), JNJ, LEE, EDU, PH, PETS, RF, STT, SU, AMTD
During: -
After: CREE, CSX, FULT, HBHC (?), HOKU (?), IBKC, IBM, PKG, PNFP (?), RJF, SPSN (?), SUPX, WIT, WGOV

Wednesday, January 21, 2008
Before: ABT, ADTN, APD, ATI, ABK (?), AMR, BNI, COH, CFR (?), DAL (?), FCX (?), HCBK, IGTE, LAB, NTRS, PM (?), PJC (?), BPOP, PCP, PGR (?), ROK (?), SMTS, UAUA, UTX, UBB
During: EGN (?)
After: ACTS, DOX, AMP (?), AMCC (?), AVCT (?), CLDN, CHIC, CTXS, CNH, CNS (?), FFIV, HXL (?), ISIL (?), KMP, LRCX (?), MTSC, NE, NVEC, PLCM, SANM, STX, SLM (?), SPTN (?), SRDX (?)

Thursday, January 22, 2008
Before: FLWS (?), AOS, AMFI, ABC, ABI (?), ACAT (?), AUO, AVT, AVX (?), BK, BAX, BBT, BDX (?), BLK (?), EAT (?), CCMP, CRA (?), CIT, C, CMCO, CMA, CY, DLX, DDE (?), DVD (?), EXC, FITB, FCF, F (?), BEN, GMT, HSY (?), HUB.B (?), HBAN, IMN, IGT, ISCA (?), ESI, JNS, KEI (?), KELYA (?), KMT (?), KEY, NITE, KLIC (?), LMT, LYTS, MTB, MMR (?), MDP, VIVO (?), MV (?), MNRO, MOG.A (?), NCC (?), NOK, NOC (?), ORI, PTEC (?), POT, RYN (?), COL (?), SHW, LUV, SPWRA (?), STI, TSM, TCB, TDY (?), TEN (?), UNP, UB (?), UNH, LCC (?), UST (?), WRLD (?), ZOLL (?)
During: HTLD (?)
After: AMD, AAPL (?), EPAY (?), CNI, COF, CYN, COBZ, ED (?), CNXT (?), CVTI (?), CBST, DGII, EBAY (?), ESIO (?), ELX (?), EZPW, FII, GOOG, IBKR, ISRG, JJSF (?), KNX (?), WFR, MSCC (?), MSFT, NTCT, OPWV (?), PKI (?), QTM (?), SCSC (?), SBCF (?), SYNA, SNV, TNL, TPX (?), TER (?), TGI (?), VARI (?), WERN (?), WDC (?)

Friday, January 23, 2008
Before: GE, HOG, MBFI (?), SLB, WBS, XRX
During: -
After: -

Market Ends the Week with Sloppy Expiration Day Trade

Market Ends the Week with Sloppy Expiration Day Trade

Good day! Friday was yet another expiration day for the market and it was met with very choppy intraday trade. The session began on a positive note, following through on the prior afternoon’s reversal off lows. This reversal finally broke the losing streak in the market that had been in play for over a week. The open on Friday took the Nasdaq right into strong price resistance with the 38.2% Fibonacci retracement, as well as price resistance from several weeks prior. Early economic data on Friday, however, added a lot of pressure on the bulls.

The December Consumer Price Index fell 0.7% last month. The 8.3% drop in energy prices was the main contributor to the CPI’s decline. For 2008 as a whole consumer prices rose only a hair, up 0.1% for the smallest increase in more than half a century. The core CPI, which excludes food and energy, remained unchanged.

In other news early on in the session the University of Michigan/Reuters consumer sentiment survey showed a reading of 61.9 into this month. This was up slightly from December’s reading of 60.1. The change was not enough to reflect any major shift.

Earnings season has also factored into Friday’s trade. So far it has gotten off to a grim start this quarter. The latest came from Bank of America (BAC), which will be receiving billions in government aid. The company announced its first quarterly loss in 17 years on Friday and fell 13.8% to $7.18, pulling the rest of the financial sector down with it in the wake of additional news from Citigroup (C), which reported a slew of layoffs after it announced worse-than-expected earnings of -$1.72 a share. Citigroup also reported that it will be dividing the company into two separate firms in an effort to weed out its worst-performing entities.

Nasdaq Composite ($COMPX)


A lot of the focus this coming week will be on the news. Earnings season will be kicking into full gear and for the most part the results are expected to continue to be quite dismal. Although the indices held onto support following the three-wave selloff on the 60 minute charts into Thursday, the action in Friday’s trade is less-than-enthusiastic. The slightly higher highs made into the opening bell on the gap higher created a trap pattern called a 2T on the 15 minute time frame right smack into Wednesday’s opening highs in the S&Ps and Dow and Tuesday’s gap closure in the Nasdaq. These resistance levels held perfectly and the market struggled to hold onto gains made in afterhours and premarket trade in the indices.

In the past I have never really considered expiration day to be a big deal when it came to finding strong intraday setups. It seems that over the past year, however, this has begun to change. From the time I first started trading, other traders always complained about how difficult expiration days were, but I still managed to find many strong setups with very little difference in my perception from any other trading day. More recently, however, the intraday action has become more erratic. One glance at the 5 minute time frame on Friday shows an excellent example of this recent shift to even greater uncertainty. Nearly all of the 5 minute candlestick bars have strong overlap in price from one bar to the next throughout the session and the session also lacked clear-cut technical patterns.

Although the indices broke lower out of a morning pullback and base, it would have been very difficult to have timed a decent entry trigger for the bearish action. Instead you had to rely primarily on the larger 15 minute bearish bias as a result of the larger time frame resistance and price pattern. You also needed to be more lenient in terms of stop placement, since trading action such as Friday’s has a greater chance of flushing you out of a position using traditional stops, particularly if you attempt reversal patterns as opposed to going with the primary 5 minute trend.

S&P 500 ($SPX)


The market did once one brief period of strong follow-through without a great deal of chop. This move took place into the second half of the morning and into the very beginning of the afternoon with the morning congestion finally gave way. There was no clear breakdown setup, however, and the momentum merely built upon itself as the morning wore on. The selloff pushed the boundaries of the previous support level from Thursday’s late-day lows, but the support zone itself still held. This also corresponded to the 5 minute 200 simple moving average zone in the Nasdaq.

The market turned quickly off the early afternoon lows at about 12:20 ET. Notice that this did not correspond to any typical correction period. The 5 minute 20 sma served as the first major resistance. The momentum coming up off the lows was not stronger-than-average, which increased the risk that we might have seen another test of the lows out of the 13:00 ET correction period. Nevertheless, on Friday the zone managed to hold and the market formed a very sloppy and higher risk Phoenix setup by hugging the 5 minute 20 sma and then breaking higher out of 13:30 ET. Throughout the remainder of the day the 5 minute 20 sma would serve as support, but the market mainly chopped higher along the support with each of the waves higher within the afternoon channel only lasting a matter of minutes before returning to that support. This continued into the closing bell, although the market was once again testing 15 minute resistance levels in the final 45 minutes of trade.

Unfortunately I had missed out on the morning trade on Friday and only ended up trading in the final two hours. Given the lack of my favorite strategies, I consider myself extremely lucky to have scraped by with a pittance of a gain and have to admit that I probably should have stayed away in the afternoon as well! On action such as we saw in the final three hours of trade I will often find myself struggling to even breakeven and generally try to avoid it completely! For many years it was this type of action that typically led to my largest intraday losses.

Dow Jones Industrial Average ($DJI)


The Dow Jones Industrial Average ($DJI) posted modest gains on Friday and closed higher by 68.73 points, or 0.8%, at 8,281.22. For the week as a whole, however, the index lost 3.7%. Given the results of BAC and C, it should come as no surprise that the financials accounted for a substantial portion of the losses this past week. Between last Friday’s closing bell and this week’s bell, Citigroup has fallen 48.2%, while Bank of America has lost 44.7%, and J.P. Morgan & Chase is down 27.6%.

The S&P 500 ($SPX) gained 6.38 points, or 0.8%, on Friday and closed at 850.12. Crude oil futures bounced back a bit to close higher by $1.10 a barrel at $36.50. This helped boost energy shares and began what I suspect will be another recovery on the daily time frame into next week. The S&P 500 overall lost 4.7% last week for the largest weekly decline among the three major indices

The Nasdaq Composite ($COMPX) gained 17.49 points, or 1.2%, on Friday and closed at 1,529.33. Apple (AAPL) continued to slide lower on more in depth news that CEO Steve Jobs may be preparing for a liver transplant resulting from damage while undergoing cancer treatment back in 2004. AAPL closed lower by 1.3% on Friday at $82.33 a share.

Despite the end-of-the-week turnaround, the markets are still not looking predominantly bullish on the 30-60 minute time frames. After the sharp rally Thursday afternoon, the rally into Friday afternoon was a lot slower. The previous highs zone served as resistance ahead of the close. A slower pullback off the current resistance will best allow the market to move higher and sustain such a move over the next week, while a continuation of the upside right away out of the open on Tuesday will increase the risk of another sharp intraday drop into Wednesday. Keep in mind a few things. First of all, Monday is a market holiday in the U.S., while secondly, Tuesday is inauguration day. These will add to the mix of earnings and economic data to influence the momentum of the moves intraday this week.

Dow Finally Breaks Losing Streak

Dow Finally Breaks Losing Streak

Good day! The market was finally able to break its losing streak on Thursday, but the day didn’t start out on a bright note. The market had kicked off a third wave of selling on the 60 minute time frame the day before and remained weak into the close on Wednesday as the indices formed a shorter base along the intraday lows where the Nasdaq had ran into price support from December 29th’s lows. This left the bearish bias still firmly in place into the closing bell. In order for the indices to reverse strongly off such a support level when they hit on larger-than-average momentum there must be some shift in that momentum at the support. Otherwise any bounce off the support may be rapid, but short-lived so that the larger correction off the support ends up being more gradual.

Heading into Thursday morning the market had yet to develop any such shift in momentum. In fact, the news which came out in Apple (AAPL) following the close on Thursday led to a sharp break lower out of the intraday trading range in afterhours trade. Soon after the closing bell Apple’s CEO Steve Jobs announced that he would be taking a leave of absence to address health concerns, which increased speculation that the cancer he had been afflicted with several years earlier may have returned.

The AAPL news helped lead to a continuation of the third wave of downside on the 60 minute all–session charts. Typically when the indices or any security experiences three waves of downside whereby the correction times between each of the three waves of downside are comparable then there will not be a fourth wave of comparable magnitude as those three until a larger correction takes place. This might be a correction in time, price, or both. The news from Apple was the wild card that I mentioned in yesterday’s column as one concern that we would see the market weighed down again heading into the session. It meant that the market didn’t have enough time to correct for as long as it had between the wave of selling which began on the 6th and is the reason the continuation into Thursday is considered a continuation of the third wave as opposed to a fourth wave.

Nasdaq Composite ($COMPX)


The index futures experienced a continuation of that afterhours breakdown when the markets opened overseas. Another rapid drop took place into 3:00 am ET. From 4:00 ET onward, however, the Nasdaq futures began to correct and pull higher off the lows. Ahead of the open the market was also faced with the latest economic data. It reacted fairly well at 8:30 am ET, but then turned around once again prior to the bell. First time jobless claims rose by 54,000 to 524,000 last week. The four-week average of new claims fell 8,000, but remains 55% higher than the same period last year. Meanwhile, the Producer Price Index for December fell 1.9%. This was the fifth straight month of losses, but was in line with expectations. Energy prices weighed it down the most with a sharp drop of 9.3% last month. The core PPI, which excludes food and energy prices, rose 0.2%.

Following the opening bell the market continued immediately lower. It paused briefly for about 15 minutes into 10:00 ET, but then resumed into 10:30 ET. At about 10:30 ET the market began to correct off the lows. It failed to gather enough strength for a rapid recovery, however, due to the pace of the earlier selling. Although the indices climbed steadily into the 5 minute 20 period simple moving average, there was a lot of overlap in price action to make it there and the indices failed to clear that price zone in the S&Ps and Dow. The Nasdaq faired a bit better, but all three of the indices turned lower once again into the end of the morning and early afternoon due to the choppy action within the recovery attempt.

S&P 500 ($SPX)


By 12:30 ET the S&Ps and Dow were testing morning lows, albeit at a much more gradual pace than the morning decline. This shift in the selling pace was exactly what the market had been waiting for over the past week. The slightly lower lows made in both of these indices on a 15 minute time frame, along with the light volume and gradual pace of the selling combined to form a powerful reversal pattern into the afternoon. It is a type of double bottom and bear trap pattern called a 2B. The pace of the reversal built upon itself, gaining in magnitude as the afternoon wore on. By mid-afternoon all three of the major indices were hitting new highs on the day, led by the Nasdaq.

Typically the 5 minute 200 sma will cause such an ascent to stall or at least pause but the market displayed very little reaction to this level on Thursday and pushed higher into 15 minute resistance levels from Wednesday instead. These included prior highs on the S&Ps and Dow and the opening price level from Wednesday on the Nasdaq. These levels hit around 14:45 ET and the market turned lower into the final hour of trade. Even though the S&Ps and Dow found themselves once again in negative territory, they recovered enough in the final 15 minutes to manage to post a gain.

Dow Jones Industrial Average ($DJI)


The Dow Jones Industrial Average ($DJI) closed higher by 12.35 points, or 0.2%, on Thursday and ended the day at 8,212.49. After falling briefly below 8,000 earlier in the morning, 18 of the Dow’s 30 index components closed in positive territory. Both Citigroup (C) and Bank of America (BAC) fell more than 20% intraday with Citigroup finally settling with a loss of 15.4% while Bank of America finished the session lower by 18.4%. Citigroup announced earnings on Friday, while Bank of America posts its own earnings next Tuesday. After falling nearly 30% intraday, Bank of America again made headlines late Thursday on news that they are close to a deal to receive an additional $20 billion in federal aid, bringing its total to an astounding $45 billion. The details of the deal are expected to accompany Tuesday’s earnings announcement.

The S&P 500 ($SPX) gained a mere 1.12 points, or 0.1%, and closed at 843.74. Crude oil futures found themselves trading at nearly $33.00 a barrel on Thursday, but managed to rebound to $35.23 by the close of trade. Nevertheless, this still amounted to a loss of 5.5%. We should see prices recover to some extent into next week given the current level of support and the increased volume into this low.

The Nasdaq Composite ($COMPX) gained 22.20 points, or 1.5%, and closed at 1,511.84. Apple (AAPL) experienced a loss of 2.3% on the day on Thursday, ending the session at $83.38 as it came off premarket lows following Steve Jobs’ news.

Even though the 15 minute pace change helped the market move higher on Thursday afternoon, in order to sustain such a move on the larger 60 minute time frame we are going to ideally need a more gradual pullback on that time frame as well. The pace of the downside was not as extreme as the selloffs in the fall and early winter, however, it was still strong enough that it will make a lasting recovery more difficult without any slower rolling over or rounded lows on that 60 minute. A Phoenix on that time frame would certainly help, but can take about two days to form an ideal base. The market will then have to deal with resistance from the prior areas of congestion throughout any recovery attempt. The next such level is the congestion from the afternoon of the 12th into the 13th. In order to stave off yet another strong move lower we need to see a rapid upside continuation to break through the larger 10, 20, and 50 day simple moving averages which have all converged overhead. This would give it room to move into the 100 day sma levels which are shown in blue on the daily time frames.

Market Adds to Losses with a Third Push on the 60 Minute

The market found itself pretty beat up again on Wednesday. The index futures had turned over at midnight and faced steady selling into Wednesday’s opening bell. The strength of the selloff pushed past the attempt by the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) to trigger a break higher out of the “boot” it had begun to form over the prior two days at support from previous 60 minute congestion from Dec. 29th.

Instead, the bias we were seeing on the Nasdaq Composite ($COMPX) heading into Wednesday morning confirmed when the trading range on the 60 minute time frame broke lower. This created the third push I mentioned yesterday and it was not long before the index, which had shown more overall strength earlier in the month, also tested its price support from December 29th. The S&Ps had started the session with a gap lower into that same low, so in that index this same level served as resistance.

Nasdaq Composite ($COMPX)


Wednesday’s gap was an extreme one for the indices. Since it triggered a larger 60 minute breakdown it was a good candidate to focus upon for gap plays in the direction of the gap. The indices based for about 10 minutes out of the opening bell and then offered the first trigger for a continuation move. When the 9:45 ET correction period hit the indices fell into another trading range, this time on a 5 minute time frame. This new base into 10:00 am ET offered our traditional gap setup by breaking the lows from the zone of the 15 minute lows heading into 10:15 am ET. The selling continued into the 10:45 ET correction period, followed by a 2B into the 11:15 ET correction period. This is when the Nasdaq ran into its prior 60 minute lows. The support held throughout the remainder of the day within another trading range along the lows.

S&P 500 ($SPX)


Shares in the financials and energy sector led Wednesday’s selloff. Citigroup (C) fell to $1.37 a share for a percentage loss of more than 23% as it continued to pursue sales of a number of its businesses to reduce its size by about 1/3. Other notable losers included Huntington Bancshares Inc. (HBAC), which fell 16.2%, and CIT Group Inc. (CIT), which lost 14.8%. Declining energy shares included Consol Energy Inc. (CNX), which fell 10.5%, National Oilwell Varco Inc. (NOV), which lost 9.2%, and Peabody Energy Corp. (BTU), which fell 9.1%. Crude oil prices fell by 50 cents on Wednesday and closed at $37.38 a barrel. Oil supplies rose 1.2 million barrels last week, but this was less than expected. Gasoline and distillate inventories, however, soared.

Adding fuel to Wednesday’s decline was very poor retail data. Early on in the day the government announced that retail sales for December fell nearly twice as much as had been anticipated. They were down 2.7% on the month, amounting to a 9.8% decline on the year. Excluding auto, sales were down 3.1% compared to November. The decline is the worst the economy has seen in 16 years.

Dow Jones Industrial Average ($DJI)


The Dow Jones Industrial Average ($DJI) closed lower by 248 points, or 2.9%, on Wednesday and ended the day at 8,200. The S&P 500 ($SPX) fell 29 points, or 3.4%, and closed at 843. The Nasdaq Composite ($COMPX) dropped 57 points, or 3.7%, and closed at 1,490. This was the worst single day decline since December 1st.

Shares of Apple (AAPL) will likely weigh down the Nasdaq again on Thursday following the late afternoon announcement by CEO Steve Jobs that he would be taking a leave of absence to address health concerns. The stock was down 10% immediately following the announcement and trade was halted. It resumed just before 6 pm ET at about $80/share. The index futures fell sharply with the news, but continued to hold the 60 minute range.

Since we have now seen three waves of downside on the 60 minute time frame it will be difficult for the market to put in a comparable fourth move without first putting in a longer correction off support. This does not, however, mean that we cannot see lower lows before that occurs, only that such an attempt would not mimic the prior decline. In this case that would consist of the move lower in the past two days. The overall pace of the recent decline will make it difficult for the market to recovery quickly without first creating rounded lows made by slower moves into new lows. It seems more likely, however, that the market will fall into a longer daily range and then put in a second wave of selling off the January highs on the daily time frame.

Market Selloff Slows

Market Selloff Slows After Two-Waves of Correction

The market ended the day relatively unchanged on Tuesday after the pace of the most recent selloff slowed into strong price support from December 29th at the price level where the previous 60-minute correction off highs again turned higher into the New Year. On the same time frame the indices have now experienced two waves of downside since pivoting off the highs a week earlier. The trading range and congestion from the 8th and 9th divided the two waves and support from the second wave began to hit on Monday. Tuesday’s action has essentially been a rounded off into this support level.

Nasdaq Composite ($COMPX)


The indices currently have two lows formed on a 15 minute time frame into this support. This is starting to create a “boot” on the larger intraday time frames. There is room for a third low on Wednesday. Both the &P 500 and Dow Jones Industrial Average formed slightly lower lows and a third low can turn the market sharply higher again intraday. The Nasdaq Composite, on the other hand, had two comparable lows and has not quite tested the same level of support as the other two indices. This creates the risk that it will form a third wave of selling on the 60 minute time frame (not to be confused with the potential for a third wave on the 15 minute within the “boot” on the S&Ps and Dow.) Overall, however, the market should have a bit of an easier time moving to the upside once again on the short term into the second half of the week.

The larger time frame bearish bias will not yet be negated by such a correction off lows, since the indices could then easily form a two-wave continuation short over the next week or two. We are just going to have to wait to see how this reaction to support plays out. It should be noted, however, that the volume has been stronger on the downside over this past week than seen in the previous upside move and this adds favor for continued downside following a correction off the current support zone.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) closed lower by 25.41points, or 0.3%, on Tuesday and ended the day at 8,448.56. 16 of the Dow’s 30 components lost ground. The losses were led by Bank of America (BAC), which fell 6.8%. Another big loser was General Electric Co. (GE), which fell 5.6% when Barclay’s expressed a negative earning sentiment. Meanwhile, Alcoa Inc. (AA) shed 5.1% when it kicked off earnings season with the grim news of a $1.2 billion loss in the fourth quarter. J.P. Morgan & Chase pushed up its earnings announcement to Thursday and rose 5.6% on Tuesday.

The S&P 500 ($SPX) rose 1.53 points on Thursday, or 0.2%, and closed at 871.79. Energy and financials helped the overall S&P 500 inch into positive territory. For the first time in over a week crude oil posted a positive day. It had turned lower after gapping up on the 6th and had a particularly brutal session on the 7th. The gain of 19 cents was merely a scratch, however, and crude for February delivery closed at $37.78 a barrel on the New York Mercantile Exchange.

The Nasdaq Composite ($COMPX) rose 7.67 points, or 0.5%, and closed at 1,546.46.

Dow Jones Industrial Average ($DJI)

Market Continues to Get Pummeled

Market Continues to Get Pummeled

The market failed to gain a foothold on Monday following it's reversal from highs nearly a week earlier. On Friday the market reacted poorly to the jobs data and that concern carried over into the new week. The market also had a technical turnaround last week. When the market, or any security, forms a series of three highs with comparable recovery, or correction, times between each of the highs, and then has a longer correction prior to a fourth high, then larger corrections off the highs are typical.

The market began to gain downside momentum into Friday's open, but then fell into a trading range throughout most of the remainder of the session, finally breaking free from the range into the closing bell. This triggered a 15 minute breakdown setup into the close and this carried through into Monday morning. The indices opened relatively unchanged, but the selling continued steadily throughout the morning.

Nasdaq Composite ($COMPX)


Support finally hit and held for more than a 5 minute time frame correction as the market reacted to the 12:00 ET correction period. Noon is a common time for mid-day pivots and corrections and the indices held it well. The indices pulled slowly higher into the 5 minute 20 sma resistance, but then fell into a trading range once again until mid-afternoon. Another very strong correction period is 14:00 ET. When it hit on Monday, the light volume base that had been forming up until that point gave way coming off 15 minute 20 period simple moving average resistance. Although it was not a rapid overall as the earlier 15 minute moves on the downside, it was steady.

The market did find support going into the final hour of trade, however, and the S&P 500 and Dow Jones Ind. Ave. both formed 5 minute momentum reversal patterns into the closing bell, while the Nasdaq held support more strongly and continued higher following a solid base along the 5 minute 20 sma. After two wave higher, however, the index futures again turned lower into Tuesday's opening bell.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) closed lower by another 1525 points, or 1.5% on Monday at 8,474. Citigroup (C) was particularly hard hit. It lost a staggering 17.3% and is supposedly near reaching a deal with Morgan Stanley to combine its brokerage business with MS. Alcoa Inc. (AA) also weighed the Dow down. It fell 6.9% following a downgrade after announcing production cuts and layoffs last week. The S&P 500 ($SPX) fell 20.09 points, or 2.3%, to close at 870. Financals fronted the losses, but all 10 of the S&P's industry sectors were hit with losses. The Nasdaq Composite ($COMPX), fell 33 points, or 2.1%, and closed at 1,539.

Dow Jones Industrial Average ($DJI)


Now the market is again coming into another test of last month's holiday lows. This is strong price support, but since the pace of the selloff from the 9th is comparable to the downside off the highs on the 6th there is still an opening for a third push lower on a 15-30 minute tome frame before the market manages to correct again off the daily lows. Even then the daily momentum on the downside will make it more difficult for the indices to break through the 10, 20 and 50 day simple moving averages which are currently converging overhead in the indices. Short upside bursts will likely be punctuated with longer periods of congestion.

Market Ends the Week on a Sour Note

The market was hit hard again on Friday following the latest in a slew of disappointing economic data that has been overwhelming that market over the past year. An hour ahead of the open on Friday the latest non-farm payroll data and unemployment rate data was released. The index futures were trading relatively unchanged from the prior day's close heading into this data, and once it came out the initial reaction was a sharp pop higher. Apparently this was before the significance of the news came full force.

The Labor Department reported that the U.S. economy lost 524,000 jobs in December. This wraps up the worst year for job losses since World War II. In the past quarter the economy has lost 1.5 million jobs, bringing the year-end total to a loss of almost 2.6 million in 2008. Meanwhile, the unemployment rate hit a 16-year high of 7.2%, bringing the total to approximately 11.1 million. This amounts to a 2.3% increase for the year of 2008 and an increase of 3.6 million unemployed, while another 3.4 million went from full-time work to part-time.

This latest data is putting additional pressure on the government to come up with some sort of stimulus package. If history has taught us anything, however, it is that in situations such as this, recoveries take a great deal more time that everyone hopes for. The general public has lost confidence, seeing their home equity and retirement funds evaporating before their eyes. Instead of spending more, those who can will tend to resort to saving and paying down debts as opposed to investing, thus prolonging economic recovery. Somehow, those in Washington are going to need to find a way to deal with this protectionist tendency if they hope to avoid the mistakes of the past.

Nasdaq Composite ($COMPX)


This seemed to be a fear that manifested itself rather quickly into the opening bell on Friday. The indices dropped sharply with share prices falling like lemmings off a cliff in action that eerily resembled that of late September and into the middle of October on the daily time frame. On the daily charts the sharp drop was followed by a new test of lows and a slightly lower low into the end of the month of October. This was also the case intraday on Friday when the market slid back into lows for a new slightly lower low into 10:35 am ET. This type of double bottom with a slightly lower low is called a 2B and it is quite common following extremely sharper than average downside moves.

At this point, however, the indices diverged on their daily pattern compared to intraday. While the indices slid to yet lower lows in November, the market held the second low intraday at 10:35 am ET and fell into a trading range. This trading range continued throughout most of the remainder of the day. The market did attempt to push higher out of the 14:00 ET correction period in the afternoon after hugging the 15 minute 20 period simple moving averages intraday, but the attempt lacked volume confirmation and the market merely stepped higher before turning over once again into the final hour of trade.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) closed lower by 143 points, or 1.6% on Friday at 8,599. The S&P 500 ($SPX) posted an even greater loss of 19 points, or 2.1%, to close at 890. The Nasdaq Composite ($COMPX), which had been the area of greatest strength for the year thus far, posted the largest losses on Friday. It fell 45 points, or 2.8%, and closed at 1,572. For the week as a whole the Dow dropped 4.8%, while the S&Ps fell 4.5%, and the Nasdaq lost 3.7%.

Dow Jones Industrial Average ($DJI)


Despite the slight difference with the lower low in November, the current daily action in the indices could very easily be comparable to the action coming out of noon on Friday and could easily lead to similar follow-though over the next several months. This would mean another wave of downside on the daily time frame, followed by a modest reversal or correction off this year's lows going into summer. This leaves the door wide open for another sharp breakdown similar to what we saw into the close and afterhours on Friday showing up on the larger weekly time frames.

The pace of the moves within this daily correction will help serve as a guide from this point, but I'm sticking to shorter term investments and daytrading. I see a lot of people trying to move back into many of the former powerhouse names in the S&Ps and Dow and this concerns me. Whenever a security falls at a substantially sharper-than-average pace, it is extremely unusual to see any rapid and lasting recovery. Even when there are sharp upside moves, they are brief and followed by longer periods of congestion and it will be next to impossible for the market to recover last year's losses at anywhere even remotely close to the same rate at which it lost them.

Economic Reports and Earnings Events for Jan. 12-16, 2009

Economic Reports and Events This Week

Monday, January 12, 2008
2:00 p.m. Dec Federal Budget Balance: Previous: -$164.4B.

Tuesday, January 13, 2008
7:45 a.m. ICSC Chain Store Sales Index For Jan 10
8:30 a.m. Nov Budget Balance: Previous: -$57.19B.
8:55 a.m. Redbook Retail Sales Index For Jan 10
5:00 p.m. ABC/Wash Post Consumer Conf For Jan 10

Wednesday, January 14, 2008
8:30 a.m. Dec Retail Sales: Previous: -1.8%.
8:30 a.m. Dec Retail Sales, ex-autos: Previous: -1.6%.
8:30 a.m. Dec Import Prices: Previous: -6.7%.
10:00 a.m. Nov Business Inventories: Previous: -0.6%.
10:35 a.m. Crude Inventories
2:00 p.m. Federal Reserve Beige Book

Thursday, January 15, 2008
8:30 a.m. Initial Jobless Claims For Jan 10 Week
8:30 a.m. Dec Producer Price Index: Previous: -2.2%.
8:30 a.m. Dec Producer Price Index,ex-food & energy: Previous: +0.1%.
8:30 a.m. Jan Empire State Fed Manufacturing Survey: Previous: -25.76.
9:00 a.m. Nov Tsy International Capital: Previous: -$13.3B.
10:00 a.m. Jan Philadelphia Fed Business Index: Previous: -32.9.
10:00 a.m. DJ-BTMU Business Barometer For Jan 2

Friday, January 16, 2008
8:30 a.m. Dec Consumer Price Index: Previous: -1.7%.
8:30 a.m. Dec Consumer Price Index, ex-food energy: Previous: +0.1%.
9:15 a.m. Dec Industrial Production: Previous: -0.6%.
9:15 a.m. Dec Capacity Utiliztion: Previous: 75.4%.
10:00 a.m. Mid-Jan Reuters/U Mich Sentiment Index: Previous: 59.1.


Key Earnings Announcements This Week:

Monday, January 12, 2008
Before: SCHW, MTB (?)
During: -
After: ADTN (?), AA

Tuesday, January 13, 2008
Before: CBSH (?), INFY, IIIN, STT (?)
During: -
After: EXFO, LLTC (?)

Wednesday, January 14, 2008
Before: NITE (?), LCRY (?)
During: -
After: CLC, GKK (?), XLNX

Thursday, January 15, 2008
Before: APH, ASML, AF (?), BLK (?), BGG (?), CRAI, MI, MER (?)
During: -
After: DNA, INTC, LCRD (?), ZZ, SHFL, SWKS (?), TK (?)

Friday, January 16, 2008
Before: ACO (?),FHN, JCI, LAB (?),PPG, SNE
During: -
After: -

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.

Market Corrects to Selloff, Holding 20 Day SMA

(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! Thursday was a difficult day for the overall market, even though there were some pockets of strength, particularly in shares traded on the NASDAQ. The morning began on the weak side with all three of the major indices trading lower out of the open. This selling continued into the 10:15 ET correction period. At that point the Nasdaq hit its own 15 minute 200 period simple moving average. This level had stalled selling the day before. It held quite well on the stronger Nasdaq and the market quickly reversed off the morning lows.

Nasdaq Composite ($COMPX)


The upside remained strong into 11:00 ET. The three indices ran into 15 minute 20 sma resistance at this point and slowed, rolling over once again into mid-day. Although the indices remained weak mid-day, they congested along the 15 minute 20 sma. This left them with the potential to push strongly higher if that resistance level managed to break. At first, into the 14:00 ET correction period, it looked as though the resistance level would hold. Buying into it was slower than the previous downside and the correction period hit at the same point as the 5 minute 20 sma in S&Ps and Dow and price resistance in the Nasdaq. Shortly after 14:00, however, the index futures popped sharply higher and busted through the 15 minute resistance.

The S&Ps and Dow continued to have trouble establishing a strong intraday trend throughout the remainder of the day. Even though they both moved higher, there was a lot of overlap in prices on the 15 minute time frame. The Nasdaq had a smoother rally and held the 5 minute 20 sma into the close.

Dow Jones Industrial Average ($DJI)


The Dow Jones Industrial Average ($DJI) closed lower by 27.24 points, or 0.3%, on Thursday at 8,742.46. Approximately half of the Dow's 30 index components closed in positive territory, while the other half closed in the red. Wal-Mart (WMT) had the most difficult time, falling 7.5% after posting larger-than-expected December sales and cuts in this fourth-quarter forecast. Meanwhile, both the S&P 500 ($SPX) and Nasdaq Composite ($COMPX) posted gains. The S&P's gains were modest. It closed higher by 3.08 points or 0.3%, while the Nasdaq gained 17.95 points, or 1.1%.

S&P 500 ($SPX)


Since the indices have formed comparable upside and downside paced moved since last week's lows, the bias for Friday is more up in the air now. The market rounded off at the intraday support on Thursday instead of forming an initial low at the support that then held. This can allow the indices to try to more easily move back into previous highs, particularly in the Nasdaq, but the most likely action will be a continuation of the back and forth chop action into the weekend as the general support zone is hugged into Monday, which would then allow the market to again attempt to move lower into the new week. This is merely the smaller time frame bias, however, and how it plays out will provide a better indication for the larger daily bias. A rapid drop into the 60 minute 200 sma, for instance, would most likely be followed by congestion along that level for up to a week and a secondary move lower into the end of the month.

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.

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Market Continues to Creep Higher on Light Volume

Market Continues to Creep Higher on Light 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 and Happy New Year! Once again the market continued to creep higher in Tuesday's session, but it lacked the stamina to maintain the momentum of last week's advance. After three strong moves higher on a 15 minute time frame into last Friday's close, the indices were exhausted. They began to manifest that exhaustion with the slowdown in Monday's session. Even though several of the main indices made slightly higher highs, they failed to break previous highs by the same degree as the previous upside moves from last week. The indices sold off on Monday afternoon, but the pace of that selloff was still not strong enough to shift the larger momentum for a greater price correction. Instead the market continued to correct from last week's strength with a slower and more choppy advance. This has been creating the start of the rounding off that I discussed in yesterday's column and led to nice intraday swings to favor the daytraders as we expected.

Nasdaq Composite ($COMPX)


Tuesday's session began with a gap modest gap higher into the opening bell. The upside continued into 10:00 ET, just as Monday's gap action also continued for the first 30 minutes of the day. The indices turned sharply when the 10:00 ET economic data hit. By 10:30 ET the gaps had closed in the S&P 500 and Dow Jones, leaving the Nasdaq as the only one still in position territory. It hit support at this same time at its 5 minute 20 sma and the moving average and gap zone held briefly before selling resumed out of the 10:45 ET correction period. This led to a closure of the morning gap in the Nasdaq as well and took the Dow into its 5 minute 200 sma support zone intraday, which served to turn the market higher mid-day.

The 10:00 market reversal corresponded to the release of the November pending home sales data, the ISM non-manufacturing index, and November factory orders. Overall the data was rather pessimistic, which helped fuel the selloff. The pending home sales data showed that sales contracts on previously-owned homes fell 4% in November, according to the National Associate of Realtors. Meanwhile, the Commerce Department announced that U.S. factory orders fell a record 5.3% the same month. The ISM index rose to 40.6% in December after hitting a record low of 37.3% the month before. This number was better than the 37% economists had been anticipating.

Dow Jones Industrial Average ($DJI)


Although the volume had picked up in the morning's selloff as compared to the comparable time period in recent days, it dropped off again over noon and remained light compared to recent months. The indices moved fairly quickly higher into nearly noon where they hit price resistance from the 10:45 ET zone. The buying continued into the 13:00 ET correction period, but the pace of that buying slowed a great deal in the S&Ps and Dow. The Nasdaq, however, remained strong and continued higher into the zone of the morning highs. That level served as resistance, along with opening prices on the Dow, and the 13:00 ET correction period kicked off another pull lower.

S&P 500 ($SPX)


Albeit on the strong side, this initial afternoon selloff was short-lived. The 5 minute 20 sma again served as support in the Dow and the Nasdaq found support at its opening prices. The indices then congested along this support zone into the 14:00 FOMC minutes. Even though the Federal Open Market Committee expressed a grim economic outlook, the market shot higher following the release of the minutes from December.

After rallying for about 15 minutes following the FOMC release, the pace slowed and shifted. This action was comparable to what we had seen mid-day, as well as on the 15 minute time frame beginning on December 29th when the indices moved rapidly higher into the new year. Once again, this momentum shift created a reversal pattern, just as it had intraday, and the indices sold off into the 15:00 ET correction period. The reversal also corresponded to price resistance from the zone of the early morning highs. Earlier intraday price support, as well as the 5 minute 200 sma in the S&Ps and Dow stalled the move shortly before the closing bell, allowing the indices to hold onto meager gains for the session.

The Dow Jones Industrial Average ($DJI) posted a gain of 62.21 points, or 0.7%, on Monday and closed at 9,015. 19 of the Dow's 30 index components closed in positive territory. The gainers were led by Hewlett Packard Co. (HPQ) (+8.20%), General Motors (GM) (+6.20%), American Express (AXP) (+5.61%), Citigroup (C) (+5.37%), and Du Pont (DD) (+5.01%). The losers included McDonald's Corp. (MCD) (-2.23%), Pfizer Inc. (PFE) (-1.98%), Merck & Co. Inc. (MRK) (-1.83%), and Exxon Mobil Corp. (XOM).

The S&P 500 ($SPX) gained 7.25 points, or 0.8%, on Tuesday and closed at 934.70. Materials stocks were among the strongest for the day. The Select Sector SPDR-Materials (XLB) closed higher by 2.2%. Crude oil futures for February delivery briefing this the $50 a barrel level for an intraday high of $50.47 before settling at $48.58, down $0.23 a barrel. Retail gas prices were up on the day, averaging $1.688 a gallon after hitting a low of $1.616 a gallon on December 31st.

The Nasdaq Composite ($COMPX) continued to lead the indices, thanks to advances in the technology sector on Tuesday, and closed higher by 24.35 points, or 1.5%, to end the session at 1,652.38.

Since the momentum is continuing to shift on the 15 minute time frame, similar to the intraday momentum shifts into 13:00 and 15:00 ET on Tuesday on a 5 minute time frame, I am continuing to favor a stronger break lower once the lower channel from the past two days gives way. This should take the indices very quickly back to their 20 day simple moving averages. Due to the relatively light volume throughout this entire rally since Christmas, it would also be rather easy for the market to retest that holiday price zone.

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Light Volume Holds into the New Year

(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 and welcome to the New Year! Volume was light once again on Monday despite many folks returning from their holidays. There are several potential reasons for this. The first is that many market participants may be taking it slow as they get back into the swing of things. There is a great technical reason, however, that makes more sense. After three strong waves of upside intraday on a 15 minute time frame since December 29th the market was exhausted. Such exhaustion at highs is often characterized by lighter than average volume. In this case it was about 20% less than the same period last year.

Heading into Monday's session we were looking for a correction off highs intraday to allow the market to take a bit of a break from its recent stint to the upside. This began right away into the open. The index futures had sold off quickly when they opened for trade on Sunday and then held a level of congestion into Monday's opening bell. At 9:30 am ET the futures were hitting resistance on a 5 minute time frame from earlier premarket action and this helped turn them lower again into the bell.

Nasdaq Composite ($COMPX)


The early morning selling continued until nearly 10:00 am ET, pushing past the typically 9:45 ET correction period. The Dow Jones Industrial Average displayed the greatest weakness into the open and this standing held throughout the day. While the futures hit new lows on the day following the open, the S&P 500 and Nasdaq 100 futures found support at previous 5 minute lows. The market pivoted off this support, which was also into the same 15 minute moving average support as had held in each of the prior two 15 minute corrections from the prior week.

A major difference in Monday's correction was that, despite the similar support levels, the support hit much more quickly and it was also the third pullback into it. This means that the market will have difficulty sustaining a move comparable to each of the past three waves higher and sets the stage for bull traps and reversal setups. The market actually rallied quickly quickly off the 15 minute support into 10:00 am ET. The rally continued sharply into the 10:45 ET correction period. At this point the indices also ran into price resistance from prior highs in the S&Ps and Nasdaq, while the weaker Dow hit price resistance from the closure of the morning gap. These resistance levels, combined with the correction period itself, put the brakes on the morning rally.

Dow Jones Industrial Average ($DJI)


The market held up fairly well mid-day with both the S&Ps and Nasdaq hugging the zone of the day's highs with slower pullback action within the congestion and more rapid upside. This is typically very bullish, but the trend placement was a strong con against an afternoon breakout. The upside pace slowed coming out of the 13:00 ET correction period. This was the end of a second pullback off the highs within the congestion and is a typical buy trigger. While it worked great for a daytrade, it didn't offer the same magnitude of gain as a similar pattern would yield when placed differently within a larger trend. The result was a stair stepping move into new highs on the day.

When the 14:00 ET correction period hit, both the S&Ps and Nasdaq were trading at new intraday highs, just barely breaking higher out of the mid-day trading range. The Dow, on the other hand, was testing the day's highs for strong price resistance. 14:00 ET is another strong afternoon correction period and the market used it quite well. The indices pivoted sharply off highs and the S&Ps and Nasdaq were soon back to the lower end of the mid-day range, while the Dow was testing morning lows by about 14:45 ET. The market continued lower after a minor bounce off the price support, but held the lows at the 15:30 ET correction period, which corresponded to the opening price zone in the stronger Nasdaq. This late day bounce helped cut the losses on the session, but the market still closed in negative territory with the Dow confirming an end to last week's uptrend.

S&P 500 ($SPX)


The S&Ps also showed confirmation of the correction by breaking the uptrend channel. While both the S&Ps and Nasdaq have shown corrections to the trend, however, they technically still have higher highs and higher lows, albeit minor ones on the 15 minute time frames. The uptrend remains extended on an intraday time frame, but other than more scalp-like setups, we have not yet seen a strong reversal pattern form to show a greater price correction. The S&Ps do have a 30 minute 2T reversal pattern (a type of double top) that triggered out of 14:00 ET, but the slower break lower off the highs compared to the morning drop is not as ideal for a strong continuation lower at this point. I suspect that shorter term daytrades will remain the best option on Tuesday, using the 15 minute charts for timing while the market tries to round off here more at highs before showing a greater correction in price off this daily resistance zone.





The Dow Jones Industrial Average ($DJI) posted a loss of 81.80 points, or 0.9%,on Monday and closed at 8,952.89. 22 of the Dow's 30 index components closed in negative territory. Despite incredibly dismal data from the auto industry showing December sales results, General Motors (GM) was one of the few to post gains on Monday. It climbed 1.6% to $3.71 after stating more than a 32% decline in sales in December alone. Many had expected worse. Ford (F) sales were down 32% in December, but in line with expectations, while Toyota Motor (TM) posted a decline of 37% and Honda Motor (HMC) showed a sales drop of 35%.

The S&P 500 ($SPX) fell 4.35 points, or 0.5%, on and closed at 927.45. Crude oil prices continued to climb after hitting yearly lows about a week ago. They closed at $48.81 a barrel for February delivery and are up 38% off the Dec. 24th low of $35.35.

The Nasdaq Composite ($COMPX) closed lower on Monday by 4.18 points, or 0.3%, to end the session at 1,628.03. Apple Inc. (AAPL) found its share prices receive a boost when Steve Jobs stated that he is undergoing treatment for a hormone imbalance which has resulted in his recent weight loss. Concern had begun to spread that it may have instead been caused by a return of the cancer he had been afflicted with back in 2004.

Light Volume Rally Brings in the New Year

(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 and welcome to the New Year! I hope that your holidays went well! I've been a bit under the weather myself... flu turned into walking pneumonia... ugh! So, of you've emailed me over the holidays, please give me a few extra days to get back to you since I'm heading back to the doctor in the morning and am going to be resting up for the most part this week. As a result, I will only be in my home office a few hours each day.

Even though it seems like more than half the people I know have been sick recently, the market has actually done pretty well since Christmas. When we were heading into holiday trading the indices had just failed an attempt at another slightly higher high on the daily time frame on December 17th. This weakened the odds for a strong momentum reversal like we had been looking for, although it didn't completely rule it out. Had the indices broken the highs from earlier in the month by just a bit, then the three waves of daily buying would have formed a corrective pattern that could have possibly even led to a third low on the weekly time frame. By forming equal highs, however, it opened the door for a sideways range and upside breakout.

Nasdaq Composite ($COMPX)


At first the outcome seemed a bit uncertain. The indices broke the uptrend channel by pulling back into the zone of the lows from the 12th, confirming the sideways range. At that point the indices would have had to have based for about a week and a half to build up enough of a base to break lower. Instead, the base at this previous low only lasted about as long as it took the market to pull back off the previous high. Instead of holding the range the market broke higher out of the smaller range on the 30th. This confirmed the two-wave sideways base on the daily time frame to trigger a larger buy setup on the 60 minute to daily charts.

Dow Jones Industrial Average ($DJI)


Typically a breakout such as this is accompanied by larger volume. The holidays and the fact that flu season has been particularly evil this past month could account for part of that lighter volume, but it does still create doubt that the buying will hold. Sometimes a security will form three waves of buying, put in a longer correction that between each of those waves up, then put in a fourth wave before leading to a strong reversal to break the uptrend. Unless we see some continuation of the strength into early this week, then this pattern could easily play out.

Right now the market has three waves of buying on the 15 minute time frame as well. This trend is stronger than the daily one, but it hit equal move and price resistance into Friday's close. This leaves it favoring a break of this uptrend channel on Monday. For the daily move to hold I would want to see it correct no more than about a third of the rally from late last week.

S&P 500 ($SPX)


Last week the market finally ended a month-long losing streak. On Friday, the Dow Jones Industrial Average ($DJI) gained 258.3 points, or 2.9%,and closed at 9,034.69. It was up 6.1% for the week as a whole and all of the Dow's 30 index components closed in positive territory. The S&P 500 ($SPX) rose 28.55 points, or 3.2%, on Friday and closed at 931.80. Crude oil prices jumped and finally seem to be showing a reaction to weekly and monthly support. They closed at $46.34 a barrel for February delivery. The Nasdaq Composite ($COMPX) gained 55.18 points, or 3.5%, to close at 1,632.21.





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.

Q&A trading hurdle

QUESTION:

(excerpt from email): "I was wondering if you have any advice for my situation- over the past year, I've worked hard on what we went through last year and I'm at the stage where I can find, and actually trade, the momentum reversal (a very specific version of it) which leaves me regularly calling tops and bottoms within a few ticks (sometimes 1 or 2 cents in stocks above $50) the probability of it "working" is extremely high, it's rare that it doesn't return at least the risk, however I just can't get it to work for me. I scale out in such a fashion that I'm basically losing money slowly over time even though I'm regularly taking fantastic entries on trades that fairly frequently go on to return my risk many times over (as much as 16R in the last couple of weeks).

So I find myself feeling really frustrated. Still have most of my money as I haven't done anything stupid (lol) but I'm not sure where to go from here."

Answer:

"Here is what I would suggest: When you get into a trade, or even beforehand when possible (ideally), write down what your targets are. Then when you place the trade put orders on the books with bracket orders for trades at those price points. Do this in sort of "do or die" mode for several days and review your results. When you fail to stick to your plan and make changes despite trying to do "do or die" then compare those results to what you had written as your targets. This will help you build confidence in holding to those levels and over time should get you through that block. Keep me posted! All my best, Toni"

Q&A Narrowing your focus

Question: dear toni, i've always had trouble managing a trade that i'm in. i seem to get lost in so many options ( 5 min bar bar bar, pivots, etc. do you have any guidance on this??? by the way i love your cds. (http://www.swingtrader.net) they seem to make more sense to me than all the Pristine stuff i've used.
thanks! -dave

Answer: Hey Dave,

Thank you for the compliment!

It sounds like a typical dilemna... The only way to really sort of clear the clutter so to speak is to develop a specialty. In other words, pick just one time frame to start from and only trade setups that form on that time frame. Then you can use the larger time frame for confirmation of trend placement and the major support and resistance levels and you can use the next time frame smaller to help with timing. Next also pick just one or two setups to specialize in. So, you are only looking for these setups on one time frame. True, you may not find as many trades, but you will start to hone your skills much more quickly and produce better longer term results. One you feel comfortable you can then branch out from there. The trick is to not be flipping back and forth so much and to really start to narrow your focus.

All my best,
Toni

Email Q&A on 3 wave moves in current market

Question:

Toni,

I've finished your CD course recently (http://www.swingtrader.net ). I plan on going over it again over the weekend. First, I must say that it is very well organized and contains a lot of material.

My first takeaway is that there is a lot to be aware of and to factor into a trade....I have found several things that I can use on my current trading to help me. The waves of buying and selling are the most intriguing at this point because I hadn't really focused on that before. With that said, I am trying to apply that analysis to what is happening right now....please help me out.

On the S&P 500 daily chart, I have drawn in 4 waves of buying starting with the wave off the Nov 20th low and currently being in the 4th wave now starting with the bottom on the 29th. With the 4 waves of buying have been 3 waves of correction.

It appears to me that the pace is slower on this 4th wave than the previous 3, however there has been a break above the 50 day moving average with this 4th wave up albeit on lower volume than the previous 3 waves.

In addition, we have just had a rally that on my 15 min chart shows 3 waves of buying.....the 60 min chart really only shows 2 distinctive waves of buying.

With all that said, my read based on what I understood from the course is that with the S&P 500 daily chart being in the 4th wave of buying with lower pace and with the shorter time frame showing 3 waves of buying that the upside is limited and in fact, this might be a good place to actually look for a short term reversal that might retrace at least 38% of the last 3 day's gains.
Am I interpreting this correctly or is this breakout more appropriately interpreted as the beginning of a new leg up?

Any help would be greatly appreciated.
Bill

Answer:
Hey Bill,

On the daily time frame you would want to count the waves beginning at the Nov. lows and into mid-Dec. highs as three daily wabes. Notice that the correction time between each of these waves is comparable. This creates the first set of three. Since the correction time between the third leg up and this "4th" wave is longer, we are now looking at separate action. The 3-waves theory holds that when the corrections between each leg up are comparable that the uptrend will them correction longer following that third leg or else a fourth attempt will be stunted compared to the prior three. We now have that longer correction so this could in fact be a new set beginning on the daily time frame where we have the three intraday moves now. It is not unusual, however, to have three waves, a longer correction, a fourth wave, and then a larger reversal, so this is still a risk at this point. It is really going to depend upon how the market corrects now from the three waves up intraday.

And yes, I do agree that they are three, but the correction off #2 was really sloppy... sloped up a little bit but was still mainly congestion into Friday morning when the third wave began. So, at this point we are looking for a stronger break of that 15 minute 20 period simple moving average now heading into the new week. My guess is that based upon how steady the upside has been that it can very easily be a faster decline and sharper decline when it turns with better intraday swings than we saw throughout the past week.

All my best,
Toni


http://www.swingtrader.net

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, January 5, 2008
7:00 a.m. ICSC Chain Store Sales Index For Jan 3: Previous: -0.5%.
10:00 a.m. Nov Construction Spending: Expected: -1.2%. Previous: -1.2%.

Tuesday, January 6, 2008
8:55 a.m. Redbook Retail Sales Index For Jan 3: Previous: -0.5%.
10:00 a.m. Dec Non-Manufacturing Index: Expected: 37. Previous: 37.3.
10:00 a.m. Nov Pending Home Sales: Expected: 0.4%. Previous: -0.7%.
10:00 a.m. Nov Factory Orders: Expected: -2.2%. Previous: -5.1%.
2:00 p.m. Dec FOMC Minutes
5:00 p.m. ABC/Wash Post Consumer Conf For Jan 3: Previous: -49.

Wednesday, January 7, 2008
7:00 a.m. MBA Mortgage Application Survey: Previous: 1245.4.
8:15 a.m. Jan ADP Employment Survey: Previous: -250K.
10:30 a.m. US Energy Dept Oil Inventories
10:35 a.m. Crude Inventories

Thursday, January 8, 2008
8:30 a.m. Initial Jobless Claims For Jan 3 Week: Expected: +63K. Previous: -94K.
10:00 a.m. DJ-BTMU Business Barometer For Dec 26: Previous: 1.4%.
3:00 p.m. Nov Consumer Credit: Expected: $2.1B. Previous: -$3.5B.

Friday, January 9, 2008
8:30 a.m. Dec Non-Farm Payrolls: Expected: -500K. Previous: -533K.
8:30 a.m. Dec Unemployment Rate: Expected: 7.0%. Previous: 6.7%.
10:00 a.m. Nov Wholesale Trade: Expected: -0.7%. Previous: -1.1%.


Key Earnings Announcements This Week:

Monday, January 5, 2008
Before: PNY
During: -
After: MOS

Tuesday, January 6, 2008
Before: AYI, CYCL (?), NEOG
During: -
After: ANGO, FINL, GPN, LNDC, PRXI, RECN, SHFL (?), SMSC, XRTX

Wednesday, January 7, 2008
Before: STZ, FDO, MON, SGR (?), SVU, UNF
During: -
After: BBBY, CBK, BLUD, MERX, RT, SONC, WDFC (?),

Thursday, January 8, 2008
Before: GAP, GBX (?), HELE, MTRX, MSM, RPM, SCHN, TXI
During: -
After: MDRX, APOL, DMAN, HWAY, IHS, LWSN, NUHC, RBN, SNX, TK (?),

Friday, January 9, 2008
Before: AZZ, EMMS, KBH
During: -
After: SHLM

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.