一个笨蛋的股指交易记录-------地狱级炒手

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Thursday, February 12, 2009Markets Continue to Round Off at Support
(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 we were heading into Wednesday's session the index futures were basing at lows on the all-sessions time frames. This left the door open for a flush lower as a result of this and my focus on the shorter time frames remained on the bear side. The bulls gave us one opportunity for a 15 minute correction in the afternoon on Wednesday with the double bottom/2B formation intraday, but on the all-sessions charts there was still more room to continue to round off at the daily support which is shown in green on the charts below.

Nasdaq Composite ($COMPX)


The indices followed through on the all-sessions range break in the early morning hours on Thursday. A premarket base at the lower end of the range, particularly on the Dow and S&Ps, led to sharp drop lower shortly before the market opened. This break was not enough to bust the larger daily support and served to help round off the indices to a greater degree at the support zones. This was particularly true in the Nasdaq Composite which had broken Tuesday's lows on Wednesday. The result was that the third low into Thursday morning created a momentum reversal pattern in that index.

The market began to trigger the momentum reversal early on in Thursday's session. The indices had gapped lower, but held lows at 10:00 ET. The reversal was not very strong to begin with. The market recovered, but the pace was gradual in the Dow and S&Ps. The 5 minute 20 sma served as initial resistance, but the Nasdaq was stronger than the rest of the market and was able to pull higher. A small congestion took place with a 2 wave continuation into 11:30 ET. This took the form of a Phoenix in the Dow and S&Ps. The rally then continued into the early afternoon with a second wave of buying into 12:30 ET.

This action throughout the morning and mid-day served to create a larger two-wave reversal pattern for a reversal off highs, or continuation of the prior downtrend in the case of the weaker Dow and S&Ps. The 15 minute 20 sma served as resistance in the Dow and S&Ps, while the stronger Nasdaq returned to Wednesday's morning highs. The reversal of this morning trend began easily off these resistance levels. The Nasdaq created a mirrored course of action compared to the morning, while the weaker indices eventually hit new intraday lows.

This action was very similar to the prior afternoon but this time the Nasdaq was the one with the double bottom while the Dow and S&Ps created 2B reversals on the 15 minute time frames off the intraday lows. This trigger was stronger than the previous day because it was the second such pattern in a row. I will typically take a larger position due to the increased odds for success as well as the higher odds of a sharp reversal when two 2B patterns form in a row as opposed to just one. This second reversal triggered out of the 15:00 ET correction period and the indices rallied easily throughout the final hour of trade to close at intraday highs


Dow Jones Industrial Average ($DJI)


The action in Thursday's session was well in line with the expectations we had heading into the day that the market would attempt to hold the larger daily trend channel that has been in place since mid-January for at least several days. The risk I discussed in yesterday's column remains, whereby the rounding off at this channel support (in green) can make it more difficult for the channel to break stronger lower and can lead to more of a creeping move through the support instead of a strong flush.

The shorter term time frames are now still bullish as a result of the momentum reversal on the all sessions time frames over the past three days, but the larger daily is still bearish and will have resistance at the upper end of the channel once again. A strong rally back into that level, followed by upper level congestion could prevent the range from breaking lower, but we'll have to wait to see how the momentum plays out on this current buy setup that is underway on a 60 minute time frame before we can predict that more accurately. The conditions, however, are favorable.

A "V" type of bottom, as opposed to a momentum shift, would have been the most bearish within the trend channel of the past month to have made a strong break lower the most certain and favorable outcome. Without that, we have to continue to monitor the channel for a change in momentum large enough to break the range and not just to swing prices back and forth within it.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) fell 6.77 points, or 0.1%, to 7,932.76 on Thursday. Coca- Cola (KO) outshined the rest of the Dow with a gain of 7.56% after it beat earnings estimates, thanks in larger part to strong global growth. Pfizer Inc. (PFE) came in second with a gain of 1.88%, while Disney (DIS) gained 1.78%, and Kraft Foods Inc. (KFT) gained 1.43%. Bank of America (BAC) was the Dow's biggest loser, falling 3.29%, while General Motors (GM) lost 3.28%.

The S&P 500 ($SPX) rose 1.45 points, or 0.2%, and closed at 835.19.

The Nasdaq Composite ($COMPX) rose 11.21 points, or 0.7%, and closed at 1,541.71.

On the news front the focus will remain upon the $789 billion stimulus package that is still expected to pass this week. This plan, as well as additional news on mortgage relief, leaves a lot of questions yet unanswered. Valuations of troubled assets remains a concern within the context of the current "bail-out" package, while reports of another plan in the works that would subsidize mortgage payments is still in its infancy. Whether it evolves and in what form will be something that many will be keeping a close eye on. In the markets it does not matter what the news ends up being since the charts nearly always lead anyway, but it can certainly help to keep these proposals in mind. News releases of this kind can move the market quickly and it's best keep on your toes when trading in such an environment.

On Tuesday the largest portion of the selling with the strongest momentum took place within the first half of the day. The remainder of the day trended lower with a large degree of overlap from one bar to the next on the 15 minute time frame. The Nasdaq continued lower on Wednesday with slightly lower lows on the 30-60 minute time frames, but without the same magnitude of selling as see Tuesday morning. This slowdown makes it more difficult for larger support levels to break when they are tested. On the other hand, when a security falls more sharply into a support level and then hugs the support it can more easily break it. This is what we are seeing on the daily time frame when the market fell into support in mid-January.

This slowdown intraday does not mean that the support will not break on the daily time frame, but it can more often lead to less substantial breaks than the initial drop on the larger time frame. This was the move lower in the first half of January. The fact that volume did not drop off much after hitting lows in January and throughout the past month also can hinder a stronger breakdown. Congestion along the daily support from the lower channel for a few days would help facilitate a better break in the support.

We still have to keep in mind, however, that the larger weekly and monthly time frames remain at strong support levels. This will make even a strong break lower on the daily time frame extremely unlikely to break the lower end of the weekly range, although an equal move on a daily breakdown would mean a slightly lower low into last year's support in the S&P 500. This would still be considered within the zone of the weekly and monthly support.


posted by Toni Hansen @ 11:53 PM 0 Comments

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Market Digests Tuesday's Selloff
Market Digests Tuesday's Selloff

(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 swung in a wide range on Wednesday after selling off sharply the day before when the Senate passed its own version of an economic stimulus package. The House's version was passed last week. A compromise was struck Wednesday afternoon and is expected to win congressional approval.

Tuesday's "sell-the-news" decline offered an initial trigger on the two-wave continuation short setup on the daily time frame in the S&P 500 and Dow Jones Industrial Average that I spoke of on Monday evening. The two waves higher are shown on the daily charts in red. The next step in confirming this setup is a break in the lower channel, shown in dark green as support. This support level hit Tuesday afternoon in these two indices and on Wednesday afternoon in the stronger Nasdaq Composite. Since there was a pace shift into this support in all three of the indices, this task may not be as easy as it would appear on the daily charts.

Nasdaq Composite ($COMPX)


On Tuesday the largest portion of the selling with the strongest momentum took place within the first half of the day. The remainder of the day trended lower with a large degree of overlap from one bar to the next on the 15 minute time frame. The Nasdaq continued lower on Wednesday with slightly lower lows on the 30-60 minute time frames, but without the same magnitude of selling as see Tuesday morning. This slowdown makes it more difficult for larger support levels to break when they are tested. On the other hand, when a security falls more sharply into a support level and then hugs the support it can more easily break it. This is what we are seeing on the daily time frame when the market fell into support in mid-January.

This slowdown intraday does not mean that the support will not break on the daily time frame, but it can more often lead to less substantial breaks than the initial drop on the larger time frame. This was the move lower in the first half of January. The fact that volume did not drop off much after hitting lows in January and throughout the past month also can hinder a stronger breakdown. Congestion along the daily support from the lower channel for a few days would help facilitate a better break in the support.

We still have to keep in mind, however, that the larger weekly and monthly time frames remain at strong support levels. This will make even a strong break lower on the daily time frame extremely unlikely to break the lower end of the weekly range, although an equal move on a daily breakdown would mean a slightly lower low into last year's support in the S&P 500. This would still be considered within the zone of the weekly and monthly support.

Dow Jones Industrial Average ($DJI)


In the intraday trade on Wednesday the market spent a lot of time bouncing back and forth on the 5 minute time frame. The mid-day congestion from Tuesday served as the upper level resistance intraday. Around 13:00 ET the market began to head lower. The indices were hugging the 5 minute 20 sma zone after pivoting off highs around 11:30 ET. This congestion broke down into the afternoon, leading to one of the strongest moves of the day. The indices fell back into previous lows around 14:15 ET. The Nasdaq managed a slightly lower low on the 15 minute time frame. The overall action thus favored a 2B reversal in the market as a whole into the remainder of the day. A 2B is a type of double bottom that serves as a trap due to the slightly lower low made by the second low. This pattern was facilitated by the slowdown in the downside momentum the previous afternoon and the market was able to quickly return to the upper end of the intraday trading range by the time the 15:00 ET correction period rolled around. Of course the larger bias still favored a range, so the market held onto those highs and pulled back somewhat again into the close.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) rose 50.65 points, or 0.6%, and closed at 7,939.53. The financial sector was the hardest hit on Tuesday, falling 12%. This left the sector exhausted on the short term, allowing it to recover slightly in Wednesday's session. The sector rebounded by 3% with Citigroup (C) up 10.2%, Bank of America (BAC) up 9.4%, and J.P. Morgan & Chase (JPM) up 6%. These were the top three gainers in the Dow. Exxon Mobile (XOM) was the largest decliner, down 2.05%, followed by Disney (DIS), which slumped 1.39%.

The S&P 500 ($SPX) rose 6.58 points, or 0.8%, and closed at 833.74. Oil prices dropped sharply on Wednesday (-4.3%), causing oil-related securities and energy shares to be amongst the hardest hit throughout the session. Many, like XOM, trended lower throughout most of the day. Crude oil closed at $35.94 a barrel.

The Nasdaq Composite ($COMPX) rose 5.77 points, or 0.4%, and closed at 1,530.50. Technology had been leading the recovery off mid-January's lows, but they had a difficult time on Wednesday. One of the major losers was Research In Motion (RIMM). RIMM fell 14.5% to $48.76 after it warned about Q4 earnings. The stock had started to turn off the upper end of the trend channel that had been in place since hitting lows in early December. The 10 day sma had served as support throughout the year-to-date, but this support level busted very quickly with a large downside gap. RIMM found support intraday at the 50 day sma.




Economic Reports and Events
Thursday, February 12, 2009
8:30 a.m. Initial Jobless Claims For Feb 7 Week: Expected: -11K. Previous: +35K.
8:30 a.m. Jan Retail Sales: Expected: -0.8%. Previous: -2.7%.
8:30 a.m. Jan Retail Sales, ex-autos: Expected: -0.4%. Previous: -3.1%.
10:00 a.m. Dec Business Inventories: Expected: -1.0%. Previous: -0.7%.
10:00 a.m. DJ-BTMU Business Barometer For Jan 30: Previous: +0.3%.
10:30 a.m. Feb 6 EIA Natural Gas Inventories


posted by Toni Hansen @ 2:52 AM 0 Comments

hefeiddd

Our nation, as well as many others around the globe have found themselves in a rather similar situation. Their children have gotten into trouble and now they must decide what to do. I can't help thinking about those sandwiches though (now manifested in the guise of bailout and stimulus packages) and remember how well that worked out... or rather how it didn't... The market's initial misgivings on such an approach resulted in nearly a 5% loss on the S&P 500 in Tuesday's session. I guess someone must have mentioned the sandwich debacle...

Nasdaq Composite ($COMPX)


From a technical standpoint the market was still in the "wait-and-see" state of mind going into Tuesday's opening bell. The indices did gap slightly lower, but quickly filled the gap. This gap, nevertheless, was enough to continue to shift the momentum at highs on the 15-60 minute time frames with the indices creating a rounded high. Such action makes it very easy for sellers to take over very quickly and less easy for the bulls to hold on. By 10:15 ET the market was already turning lower once again. The 5 minute 200 sma served as support in the Nasdaq and the market congested into 11:00 ET. At that point the bears were unleashed. The light volume base on the 5 minute time frame was enough to cinch a bearish bias, but the news closed the deal. A continuation pattern took place around 11:30 ET and then prices again slowed into noon. Low-level, mid-day congestion followed with an early break lower out of the 13:00 ET correction period.

Dow Jones Industrial Average ($DJI)


Without a longer mid-day base, the indices were stuck having to drift lower with a greater amount of chop in the final 2.5 hours of trade. Since this break lower on Tuesday triggered a two-wave continuation pattern on the daily S&P500 and the move was also the first day of a daily uptrend channel break, I shied away from attempting to play late day pivots off shorts since the odds favored a close at or very close to the day's lows. This favor held true with the indices posting substantial losses intraday.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) fell 381.99 points, or 4.6%, to 7,888.88 on Tuesday. The S&P 500 ($SPX) was harder hit. It lost 42.73 points, or 4.9%, and closed at 827.16. The financials were the worst performers, but the losses extended to all 10 of the S&P's industry groups. The Nasdaq Composite ($COMPX) lost 66.83 points, or 4.2%, and closed at 1,524.73.

Although the market pulled up somewhat finally in afterhours trade off short-term daily support, the larger 90 minute bias remains bearish. The congestion taking place into 4:00 am ET this morning also has a strong potential for a break lower. In order for the daily break to confirm, however, we still need to see the uptrend channel in place since mid-January break lower and not just the one from the start of February, which is what broke on Tuesday.

posted by Toni Hansen @ 1:50 AM 1 Comments
Tuesday, February 10, 2009Market Awaits Senate Vote
Market Awaits Senate Vote

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


Good day! The market swung back and forth throughout the session on Monday as traders and investors alike awaited news out of the Senate regarding a vote on the economic stimulus package. Originally a vote had been anticipated Monday evening, but now hopes are pinned on a finalized version on Tuesday. The House passed its own version last week and Obama is pushing to have legislation signed within a week.

Nasdaq Composite ($COMPX)


The air of "wait-and-see" was apparent out of Monday's open. The indices had continued their premarket ascent and opened relatively unchanged on the session Monday morning. They flushed lower for several minutes into 10:00 ET, but again took a turn soon after 10:30 ET. At this time the market rallied sharply higher. This took the Dow back into the target zone of the previous day's highs. As expected, this zone served as strong resistance, but the pace of the final intraday rally into that high meant that is was not easy for the market to pull back off the resistance as it was to hit it in the first place.

Dow Jones Industrial Average ($DJI)


After pivoting off highs, the market slowly retraced the morning rally. There was the need for a greater shift in pace, however, before the market could really begin a stronger price correction. The market began this pace shift when the indices climbed slowly back into the zone of the morning highs around 13:00 ET. A two-wave move lower followed, taking the indices into the 5 minute 200 sma on the all sessions time frames in the indices into 15:00 ET. This correction period and support level held well and the market bounced quickly back into the mid-day highs. With the upcoming legislation on the horizon, however, this move alone was not enough to allow the market to clear the intraday highs and the indices again pivoted lower into the close. With no consensus yet reached, the futures began to fall sharply around 19:00 ET. They continued to fall back to premarket lows and the 15 minute 200 sma on the all sessions time frame which served as strong support around 22:00 ET.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) closed virtually unchanged on Monday, down 9.72 points, or 0.1%, at 8,270.87. Despite this fact, 2/3 of the index components closed in the red. The decliners were led by Coca Cola Co. (KO), which fell 2.85%, Procter & Gamble Co. (PG), which fell 1.96%, and Home Depot (HD), which lost 1.87%. These were rather minor losses overall given the larger swings we have seen lately and it's the main reason the index overall changed little on the session. The gains in index leaders General Electric (GE) (+13.87%) and Bank of America (BAC) (+12.40) made up for a lot of the ground lost by other index components. It is believed that the government's stabilization legislation will provide much-needed assistance to these struggling companies. 3M (MMM) also did well and gained 3.28%.

The S&P 500 ($SPX) rose 1.29 points, or 0.2%, and closed at 869.89.

The Nasdaq Composite ($COMPX) lost 0.15 points, or 0.0%, and closed at 1,591.56. After creating a weekly momentum reversal pattern off the third test of lows in mid-January, Apple Inc. (AAPL) continued to perform well in Monday's session. It rose 2.8% to close at $102.51.

The U.S. Dollar Index closed at 85.050 on Monday. Gold closed at $892.80/ounce. Crude oil on the NYMEX ended the session at $39.56/barrel. The 30-year Treasury bond yield stands at 3.706%, while the 10-year Treasury note yield is at 3.027%.

Intraday bias heading into Tuesday is up in the air. The indices are at strong resistance on a 60 minute time frame, so further corrective action off the highs can create continued sideways chop or a pull prices lower out of the upper level congestion. The 60 minute Dow 2B is still in play though, and this leaves room for more upside within the week. The S&P is unfortunately not offering a comparable buy setup. Instead, it is at risk of a 2-wave continuation short on the 60 minute as a result of the slightly higher low and move back into prior highs on that same time frame. It's difficult to say at this point which one will win out since we need more of a chance in pace on the smaller time frames to trigger either of them and the Senate vote could easily be the catalyst.


posted by Toni Hansen @ 12:16 AM 0 Comments

hefeiddd

Monday, February 9, 2009Market Turns Higher on 90 Minute 2B
(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)


Good day! I'd like to extend a "Thank you" to everyone that has emailed me over this past week. Since my grandmother's passing last weekend, I spent most of the remainder of the past week in Iowa with family and am just now back and getting caught up, so if you emailed me in the interim or shortly before I left, I'll be spending the first part of the week getting caught up on correspondence. Thank you very much for your patience and understanding...

Nasdaq Composite ($COMPX)


Heading into last week we were looking at the potential for a 2B forming on the 90 minute charts of the indices. The Dow was already beginning to position itself for this formation going into Monday. Early on in the week the markets continued to slow their descent on that time frame and the Dow's 2B materialized. The rest of the market moved on better relative strength, but in conjunction with the Dow's trigger on the afternoon of the 3rd.

The market continued its 60 minute reversal early on the morning of the 5th after correcting somewhat the prior afternoon and into premarket trade. A solid base then followed throughout the afternoon of the 5th, throughout afterhours trade, and into Friday morning on the 6th. This left the market poised for a strong break higher once again Friday morning. The upper level congestion gave way immediately into Friday's open and was followed by one of the strongest rallies of the year to date.

Dow Jones Industrial Average ($DJI)


The upside on Friday continued throughout most of the session. By mid afternoon the indices were hitting equal move target levels on the breakouts as compared to Thursday's morning ascent. The ES (S&P 500) hit it exactly. The pace of the 15 minute rally on Friday, while quite strong compared to recent trade, was still weaker into that target than the beginning of the move and the overall move on Thursday. This made it more difficult to hold up afterhours like it had the previous day. The market spent the final 2.5 hours of trade on Friday in a range along highs which showed weakening into the close with the indices hugging the 15 minute 20 sma support intraday.

The momentum shift on the all sessions time frame led to a break lower in Sunday's trade in the index futures, favoring a gap lower into Monday's opening bell. The reversal did find support, however, at the 50% retracement level from Friday's ascent. As a result, the premarket action in the index futures has primarily been a gradual uptrend channel. As of 6 a.m. ET the channel's pace is slower than the prior descent, which will make the zone near Friday's highs serve as a strong intraday resistance level and will increase the risk that it can break more quickly to the downside on at least the shorter term time frames intraday.

S&P 500 ($SPX)


In Friday's session the Dow Jones Industrial Average ($DJI) closed higher by 217.52 points, or 2.7%, at 8,280.59. For the week overall the index closed higher by 3.5%. The S&P 500 ($SPX) rose 22.75 points, or 2.7%, and closed at 868.60. On the week overall this amounted to a gain of 5.2%. The Nasdaq Composite ($COMPX) gained 45.47 points, or 2.9%, and closed at 1,591.71. The Nasdaq had the strongest weekly gain, rising 7.8%.

Although earnings season is still well under way, a lot of the focus this week will be in the direction of the government's economic stimulus package. The Senate debated the topic over the weekend and is expected to resume on Monday with a vote on the package early Monday evening. The House passed its version of the bill last week. The indices have decent daily resistance here, at least for the short-term. The risk is still present that we may see another flush lower on the daily charts before the market can resume its gradual upside correction off last year's lows. In the Dow this can still amount to another slightly lower low on the 90 minute chart. Thew larger monthly bias continues to favor this zone of support on that time frame holding for several years, but with a lot of overlap in price levels from one month to the next.


posted by Toni Hansen @ 3:32 AM 0 Comments

hefeiddd

Monday, February 2, 2009Market Remains Weak into the Weekend
Market Remains Weak into the Weekend

(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! A short note to start off with this morning: I received word early Sunday morning that my maternal grandmother passed away, so I'm heading to rural Iowa this week to attend the funeral. As a result, I'll be gone for the remainder of the week with limited internet access. I will, however, be online for my webinar on Tuesday, so please stop by. You can join it free by registering at http://www.ise.com under education and then webinars. I'll be resuming my Market Action Letter again this coming weekend since I'll be home once again on Friday. Thank you to everyone that has already sent me kind emails and warm sympathies! I really appreciate them!

Nasdaq Composite ($COMPX)


The market looked very favorable for a stronger run heading into last week, but it was beaten down severely following the Fed rate announcement on Wednesday. By the time the market closed on Friday it had given up its gains from the first half of the week. A large portion of those losses occurred on Friday. The indices opened slightly higher into the bell, but the 15 minute 20 period simple moving averages and 5 minute 200 smas were hitting at that time and these resistance levels held very well. The indices quickly turned lower and continued steadily into 10:30 ET. The pace then slowed on the larger time frames with the creation of a longer correction off support and continuation lower into 11:30 ET.

The market action mid-day was not very strongly biased to begin with. The short term pace into the 11:30 ET lows was still sharp, even though the slightly lower low began to shift it on a larger scale. With such shifts, however, a third low is quite common. This means two slightly lower lows. Since the 5 minute 20 sma zone was the initial resistance on the 10:30 bounce, it was logical to suspect this to act as resistance a second time around. If the market was planning on hitting that third low then it would have used that resistance zone to kick off the move.

The resistance itself hit at the same time as the 12:00 ET correction period, however, there was no increase at all in volume when the market attempted to hold that resistance level and turn lower. This created a very awkward Phoenix type of pattern out of noon since the market technically still hugged along the 5 minute 20 sma even though the downside with the congestion was sharper than the upside. The way the Phoenix formed would have made it difficult to have a great deal of confidence in it since there was only one low within the move off the 5 minute 20 sma at noon. This meant that a slightly higher high soon thereafter could have easily been just part of a larger continuation pattern on the downside. Even though it looks like it could have been a buy trigger, the risk would have been higher than average.

Dow Jones Industrial Average ($DJI)


A lower risk buy setup formed when the first move of the afternoon hit resistance around 12:15 ET and based into 13:00 ET. The market based on a 5 minute time frame before breaking higher at the correction period. There was still a risk though because the base itself once again only had one easily identifiable low. Despite this drawback, the market formed a third wave higher on a 5 minute time frame. This took the market into the upper downtrend channel line and 15 minute 20 sma resistance. This level held very well and combined with the shorter term trend exhaustion and light mid-day volume to form a strong reversal into the final 2.5 hours.

When the market turned lower, it found support from the morning lows in the S&Ps and Dow and attempted to form a 15 minute 2B. The sharper downside pace held the bias and instead the market only crept higher. This led to the development of a 15 minute, intraday 2-wave continuation short setup into the final 90 minutes of trade. The 15:30 ET correction period held, but the market continued lower in afterhours trade going into Monday morning.

S&P 500 ($SPX)


Decliners outpaced advancers by about 3 to 1 on the NYSE, while they beat out gainers by approximately 9 to 4 on the Nasdaq on Friday.

The Dow Jones Industrial Average ($DJI) closed lower on Friday by 148.15 points, or 1.8%, at 8,000.86. For the month of January the Dow shed 8.8%. This made it the worst January on record for the Dow. The second worst was an 8.6% decline in 1970. In Friday's session on Boeing Co. (BA) (+3.93), J.P. Morgan & Chase (JPM) (+0.31%), and American Express (AXP) (+0.12%) posted gains. Losses were led by Citigroup (C) (-8.97%), Alcoa (AA) (-7.70%), and Procter & Gamble (PG) (-6.39%). PG's losses came on news that it missed its quarterly profit expectation and that the company lowered its targets for the fiscal year.

hefeiddd

Market Tracks Lower into the Weekend
(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! Once the market turned off the 50 day simple moving averages on the S&P 500 and Dow Jones Industrial Average on Thursday morning it started to cause a lot of concern for the recent bulls. The indices had gapped higher and sold off into the early afternoon, but when they hit support and had a shot at rebounding they held close to the day's lows. As I mentioned in my last column, this left the bias in favor of continuing the corrective activity into Friday's session as well. It took a bit longer to build, however, than appeared likely heading into Thursday's close.

The S&P 500 displayed the greatest weakness out of Friday's opening bell. It had no difficulty breaking Thursday's lows to trigger the continuation of the larger correction. The Dow and Nasdaq Composite, on the other hand, were not quite as willing to give up. The Dow continued to trade solidly within the previous afternoon's range until Friday afternoon. The Nasdaq was much stronger. It pulled higher out of the open on strength in the technology sector. EXPE, APOL, ATVI, and GILD were just a few of the morning gainers in the Nasdaq-100 that contributed to the Nasdaq's strength.

Dow Jones Industrial Average ($DJI)


Eventually, even the Nasdaq succumbed to the larger selling pressure. The index pivoted around 10:00 am ET and fell sharply into its 5 minute 20 period simple moving average. At this point it hugged the support into the 11:00 ET correction period before breaking lower out of an Avalanche™ short setup. This breakdown took it squarely into its 5 minute 200 sma and 15 min 20 sma. Both of these also held extremely well for support and the index congested along those levels.

The Nasdaq was the cleanest index in morning trade. It held support and resistance levels well with less overlap and slop than the S&Ps and Dow, but they also managed to shape up into the afternoon. All three of the indices congested from 11:30 ET into 12:30 ET. This congestion had two waves of upside within it which favored a breakdown into the afternoon. It was aided by the fact that this congestion experienced a decline in volume as it formed. This showed that the buying did not have a lot of solid backing within the congestion itself even when prices were moving higher.

The 2-wave short setup triggered out of the 12:30 ET correction period and provided the strongest move of the session up to that point. The selling was fast and steady into the 13:00 ET correction period. This correction period hit with equal move support on the 5 minute charts as compared to the earlier selloff as well as price support from the 15 minute time frames several days earlier. By this point, however, the market had triggered a larger 30 minute breakdown, and the support only stalled the selloff. The indices showed a better reaction to the 14:00 ET correction period, but the 15 minute 20 sma held as strong resistance and the indices fell back once again into the close.

S&P 500 ($SPX)


The breakdown on the 30 minute time frame showed the more widespread concern that the markets may be starting another leg down on the daily time frame. Given the action on Friday, this is a valid concern. In order to sustain a larger move into new highs for the month, the market has needed a longer correction on an intraday time frame such as the 60-minute one. As we saw on the way down, it is common to see a longer correction and then continuation. There was one 4-day congestion at the end of February for example. What we didn't want to see, however, was selling momentum building upon itself, as it did on Friday afternoon. Unfortunately, this leaves the bias more on the bearish side into next week.

In order for the market to be able to hit the larger resistance levels at the 100 day sma in the Dow and S&Ps this month we will need to see a fairly strong move higher off 60 minute support to create a "V" type of bottom that can lead to a trading range on the 60 minute time frame. The support for the lows of such a range should be no lower than the 60 minute 200 sma in the S&Ps. It would then have to very quickly return to the zone of Wednesday and Thursday's highs. This is going to be quite difficult to accomplish. Due to Friday's price action, the market is more likely to base or congest and then break lower once again on the 30 minute charts and play out a lower level range on the weekly time frame. If it does so, then we can very easily see new lows in the market by summer.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) posted a loss of 122.42 points, or 1.6%, and closed at 7,278.38 on Friday. Despite the strength earlier in the week, the index closed higher by only 0.7% by week's end, although it was still the first consecutive weekly gain since the first week of May last year. Only 6 of the Dow's 30 index components posted gains on Friday. General Motors (GM) was the leader with a gain of 10.80%, followed distantly by Johnson & Johnson (JNJ) with a gain of 3.22%. The financials led the decliners. Bank of America (BAC) posted a loss of 10.68%, followed by a 7.21% loss in J.P. Morgan & Chase (JPM)

The S&P 500 ($SPX) fell 15.5 points, or 2%, and closed at 768.54. Utilities, consumer staples, and health care led the gainers on Friday, while the financials, energy, and industrials led the decliners. The S&P 500 closed higher on the week by 1.5%.

The Nasdaq Composite ($COMPX) fell 26.21 points, or 1.8%, and closed at 1,457.27. While it closed lower by 1.8% on the day, it posted a 1.8% gain for the week.


posted by Toni Hansen @ 4:46 PM 0 Comments

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Thursday, March 19, 2009Market Pulls Back After Strong Gains
(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)


Good day! After well over a week of solid gains and only minor corrections, the market decided to take a little bit of a break in Thursday's session. The index futures had been trading higher in the premarket and had returned to post-Fed levels soon before the opening bell. The S&P 500 and Dow Jones Industrial Average futures pushed to levels slightly above Wednesday's highs. This created a 2T reversal pattern by forming a type of bull trap that is a variation of a double top.

Dow Jones Industrial Average ($DJI)


The market turned around very quickly into Thursday's open. The selling pace was a lot more substantial than the climb into the highs. The trap, as well as the change in pace, set the mood for the morning with a strong bearish bias and the indices returned quickly to support at congestion from the wee hours of the morning.

A second wave of selling took place after the market pulled up into the 10:45 ET correction period. This move higher was slower than the drop and formed with two-wave of buying on lighter volume than the decline. This was the perfect setup for a continuation move. The breakdown was not as rapid as the morning's decline, but it was steady. The selling continued into almost noon. At this point the indices found support once again on a 15 minute time frame from the previous session. Pivot highs and lows on the 15 minute time frame held well. This zone of support was also the equal move support zone, whereby the early morning descent was mirrored in this late morning continuation.

S&P 500 ($SPX)


The market turned higher once again on gradual volume into the early afternoon. At this point the indices were now exhausted on the 15 minute time frame and fell into a congestion move on this larger time frame. At first the congestion was quite orderly and remained bearish. When the 13:00 ET correction period hit, however, the upside pace increased. This began to limit the odds for a strong late-day breakdown. It created the potential for further upside as well, but it hinged upon the reaction to the 14:00 ET correction period that hit at price resistance from the mid-morning congestion.

When the 14:00 ET correction period hit the market took a sharp turn lower. It was unable to sustain that move, however, and ran into support after the pace slowed into 15:00 ET. This reversal made the markets very high risk into the final hours of trade. The 15:00 ET correction period held well, but the indices reacted very little in terms of price. Instead, the level just served as a support zone and the indices fell into an even more narrow range in the final hour of trade.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) fell back 85.78 points, or 1.1%, to close at 7,400.80 on Thursday. This gave the index only its second losing day out of 8. The selloff affected all but 8 of the Dow's index components. Alcoa (AA) rallied 16.79% on an upgrade by J.P. Morgan & Chase from neutral to overweight. JPM also raised its price target from $8 to $12. General Motors (GM) followed with a gain of 8.71%. Citigroup (C) did a reverse-face and fell 15.58%. It was followed by Bank of America (BAC), which fell 9.65%. J.P. Morgan & Chase (JPM) fell 7.97%.

The S&P 500 ($SPX) fell 10.31 points, or 1.3%, and closed at 784.94. The financials led the decline. Prudential Financial (PRU) was the hardest hit in the S&P 500. It fell 25.2% after Moody's severely cut its debt rating. Commodity stocks, however, did quite well on Thursday. The dollar has fallen sharply over the past two days on the heels of the Fed data Wednesday and crude oil futures jumped 7.2% to $51.61 a barrel.

The Nasdaq Composite ($COMPX) fell 7.74 points, or 0.5%, and closed at 1,483.48. Oracle (ORCL) was the largest gainer in the Nasdaq-100. It rose 9.73%. It was followed by Steel Dynamics (STLD), which rose 8.06%. Focus Media (FMCN) was the largest loser on the Nasdaq-100. It fell 6.43%.

The corrective bias remains in place heading into Friday. This means that the odds are high that the indices will continue to correct off Thursday's highs. At present that correction favors a pull lower into Friday morning, but the daily charts are not favoring a strong pullback at this point, so I am not strongly bearish. The zone from late-January to early-February remains the stronger resistance point and this current move off highs is likely just one of the 30-60 minute corrections I wrote of yesterday. The larger term bias is still in favor of a range on the weekly time frames.


posted by Toni Hansen @ 11:04 PM 0 Comments

Wednesday, March 18, 2009Market Reacts Positively to Fed's Unexpected Announcement
Good day! The market faired extremely well on Wednesday... Much better than I had anticipated! The morning and early afternoon action was exactly in line with the larger bias. The indices opened lower, continued to pull back into about 10:30 ET and then resumed the previous day's uptrend coming out of a 15 minute bull flag. This kept it in line with the possibility for a 2T setup on the 60-minute time frame. A Phoenix™ followed as the indices hugged 5 minute 20 sma resistance into noon before breaking higher once again. The 5 minute 20 sma then served as support throughout the early afternoon and into the Fed announcement.

Dow Jones Industrial Average ($DJI)


The Federal Reserve announced that it did not plan on changing its key interest rates and would maintain a range of 0-0.25%. This was what had been expected. Given the gradual momentum ahead of the announcement, the market was still setting up a larger reversal for the afternoon and was just waiting on the news before it decided to act. What caught it off guard, however, was the move the Fed decided to make to purchase as additional $750 billion of agency-backed securities and another $100 billion of agency debt, as well as up to $300 billion of longer-term Treasury securities in an effort to "promote economic recovery and to preserve price stability."

This news blew the market's technical bias out of the water. The indices held the 5 minute 20 sma once again heading into the 14:15 ET news and when it hit the indices took off flying. They immediately busted through the highs of the day, which created a strong bias for daytraders to buy the first pullbacks.

S&P 500 ($SPX)


The indices followed through with the typical Fed-day strategy I've discussed many times in the past whereby an initial reaction is followed by a counter-reaction and then continuation in the original direction. This tends to form first on a 1 minute time frame and then on the 5 minute time frame. The one minute time frame action only shows up on the 5 minute charts as the tail of the immediate reactionary bars, but the second set formed clearly with the second move pushing higher into the 15:00 ET correction period. This made the continuation pattern easy to catch even if the initial setup was too fast.

This second high was made at a slower pace than the first and created a 2T reversal on that 5 minute time frame, leading to a pullback out of the 15:00 ET correction period into the final one of the day at 15:30. The market held support into the last correction period and pulled up into the close and immediately afterhours, although it held the intraday highs throughout the remainder of the evening.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) rallied another 90.88 points, or 1.2%, and closed at 7,486.58. All but 7 of the Dow's 30 index components closed in positive territory. The gainers were led by a 21.71% rally in Citigroup (C) and a 22.33% rally in Bank of America (BAC). American Express (AXP) gained 9.06%, while J.P. Morgan & Chase (JPM) rose 7.84%. The top losers were Kraft (KFT) (-4.38%) and Hewlett-Packard (HPQ) (-2.55%). Wednesday's session was the Dow's 6th day of gains in the past seven. Such a move is extremely rare. The Dow is still down 14.7% on the year though.

The S&P 500 (SPX) gained 16.23 points, or 2.1%, and closed at 794.35. This leaves the S&Ps down 12.1% for the year-to-date.Crude oil closed lower by just over $1/barrel at $48.14.

The Nasdaq Composite ($COMPX) rose 29.11 points, or 2.0%, and closed at 1,491.22. The Nasdaq is down 5.4% year-to-date.

Even though we should expect corrections intraday on a 30-60 minute time frame, the increased pace of this rally leave the larger targets at the late-January to early-February zone that I've been speaking of the past two weeks. This is about the 8k level for the Dow.


posted by Toni Hansen @ 8:38 PM 0 Comments

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Tuesday, March 17, 2009Market Manages Yet Another Strong Showing
Even though Tuesday was a strong trend day in the markets, it was a rather sloppy one. The morning was particularly choppy, but the indices had begun the day at strong support and since the pace on Monday had created an inverted "V" top it meant higher potential for a longer range into today as opposed to immediate continuation action on the downside. Nevertheless, the indices have been plugging away on the upside for over a week now and it was obvious in Tuesday's session that many were feeling a bit jumpy. A lot of the morning trade was choppy, but the markets did finally manage to break higher into the early afternoon with a little more certainty.

Dow Jones Industrial Average ($DJI)


The debate throughout the afternoon was whether or not the market would attempt to form a reversal pattern off the intraday highs. The pace shifted mid-day for a short trigger around 13:45 ET, but instead of hitting and holding support at 14:00 ET to allow for the creation of an Avalanche™ on the 5 minute time frame, the market bounced into the 5 minute 20 sma and then put in a slightly lower low into the 15 minute 20 sma support at 14:30 ET. An Avalanche became less likely at this points since ideally a more rapid pullback should have been followed by congestion. Instead, the 15 minute 20 sma proved too strong for support and the slightly lower low created a 2B buy setup into the afternoon. Momentum increased steadily into 15:00 ET and then continued into the closing bell for a close at the day's highs.

The economic data on Tuesday was decent. The Commerce Department posted a 22% increase in housing starts in February, which is the largest month-to-month gain in 19 years. A large portion of these gains were for apartment complexes. Construction for single-family homes rose 1.1%. Housing starts are still down over nearly 50% compared to the same month last year.

In other news, the Labor Department released the latest Producer Price Index, which rose 0.1% in February. It had been expected to rise 0.3-0.4%. The core PPI, which excludes food and energy prices, rose 0.2%, while economist had been expecting an increase of 0.4%.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) rallied 178.73 points, or 2.5%, and closed at 7,395.70. All but three of the Dow's 30 index components posted gains. The losers were Alcoa (AA) with a loss of 8.66%, General Motors (GM) fell 1.98%, while Johnson & Johnson (JNJ) fell 0.02%. The top gainers were J.P. Morgan & Chase (JPM) with a gain of 8.88%, followed by Citigroup (C) with a gain of 7.73%, and Home Depot (HD) with a gain of 6.65%. The Dow is up almost 13% since lows earlier this month.

The S&P 500 (SPX) gained 24.23 points, or 3.2%, and closed at 778.12. All 10 of the S&P's industry sectors closed in positive territory on Tuesday. Financials and consumer discretionary shares led the rally. The S&P 500 is up 15% off the lows made just over a week ago. Energy shares were strong thanks to gains in oil. Crude oil came close to testing $50/barrel, falling just short of that mile marker in the afternoon before pulling back to close at $49.16/barrel, up 3.8% in New York.

The Nasdaq Composite ($COMPX) rose 58.09 points, or 4.1%, and closed at 1,462.11. The Nasdaq is up 15.3% off the month's lows. After suffering from relatively weakness the past several days, the index was boosted by a 4% gain in Microsoft (MSFT), a 4.4% gain Apple (AAPL), and a 4.9% gain in Dell (DELL).

Nasdaq Composite ($COMPX)


The guiding force on Wednesday will be the anticipated rates information from the Federal Open Market Committee, which wraps up a 2-day meeting and will be posting their outcome on Wednesday afternoon. It is expected that the central bank will keep its interest rates close to zero. The markets have the potential for a 2T on a 60 minute time frame in the S&P 500 and Dow whereby a slightly higher high on those time frames serves as a trap and is followed by a downward correction. Given the larger time frames, however, I suspect this to most likely be similar to the 15 minute of the Nasdaq the morning of the 16th where it just pulled back into support from the zone of the earlier low before pulling up again. 60 minutes corrections within this type of daily move are typical, but I'm still aiming for the congestion earlier this year, which is about 8,000 in the Dow, for the strongest resistance.

Given that Wednesday is a Fed day, use greater caution. Volume should be on the light side until the announcement since the market has been trending upwards over the past two weeks. Mid-day will be particularly light. When the news hits it can create a great deal of added volatility and it can be difficult to get fills at desired prices. You may also experience delays in your data. The waves of reaction still tend to offer really nice setups and risk diminishes about 15 minutes past the announcement.


posted by Toni Hansen @ 8:13 PM 0 Comments

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Monday, March 16, 2009Dow Narrowly Misses Posting Gains for the 5th Session in a Row
(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.)

The market had one of those "close, but no cigar" moments on Monday when it flirted with the build throughout most of the session and then dumped them ahead of the close. The session began in positive territory on Monday after the index futures broke sharply higher around 3:00 am ET thanks to strength overseas. Even this upside open was not perfect, however, since the opening prices themselves were well off the premarket highs. After the initial surge, the indices had rounded off at highs between 4:00-8:30 am ET and had triggered a short ahead of the open. This led to continued downside out of the bell and resulted in a very rapid closure of the morning gap in the Nasdaq Composite and near-closure in the Dow Jones Industrial Average and S&P 500.

The markets experienced a very high level of divergence on Monday with the S&Ps and Dow showing considerable strength throughout the morning and early afternoon while the Nasdaq faltered. Both the S&Ps and Dow pulled back gently into 5 minute 20 sma support out of the open and held it very well at the 10:15 ET correction period. They returned strongly to the morning highs, based again into the 5 minute 20 sma, and then broke to new highs on the day. The Nasdaq, on the other hand, had closed its gaps with a few minutes of the open and broke its 15 minute lows and 5 minute 20 sma very early in the session.

The break of these support levels left the index free to fall back to Friday's lows with the next major moving average support at the 5 minute 200 sma. These levels also hit with the 10:15 ET correction period, but instead of the 5 minute 20 sma acting as support, it was resistance for the Nasdaq and resulted in a return to the morning lows into the 11:00 ET correction period at the same time as the other indices were pulling back to the 5 minute 20 sma support once again.

Dow Jones Industrial Average ($DJI)


When the S&Ps and Dow moved to new highs, the Nasdaq returned to Friday's closing prices. This served as resistance in the overall market and another correction off highs took place into noon. Support hit with the 12:00 ET correction period and held, but the market based out into 12:30 ET on light volume before once again pushing to the upside.

The light volume was a positive trait for the early afternoon breakout, but the inability of the indices to confirm the breakout on strong volume spoke of larger trend exhaustion on the daily time frame. The Nasdaq hit intraday highs and its 5 minute equal move target level into the 13:00 ET correction period. By this point it was also beginning to shift pace into those highs with an initially strong rally slowing into a stronger test of the targeted resistance. This triggered a reversal into the final three hours of trade. The stronger S&Ps and Dow followed with a comparable pattern that triggered in those indices shortly before 14:00 ET and confirmed when the larger uptrend channel on the 15 minute time frame gave way on the downside.

S&P 500 ($SPX)


The market had been on the lookout for a reversal since Monday morning with wordplay everywhere labeling this a "bear market rally." Once the selling hit, it did not take much for it to gain momentum. This is what I warned about on Thursday and had originally been looking for as a possibility Friday morning. The additional push Friday afternoon and into Monday, however, provided even greater exhaustion and had taken the Nasdaq into a strong test of its 50 day sma resistance.

At this point the markets are favoring a longer correction at this resistance zone for ate least a couple of days. It is still too early, however, to say that this is the end of this current daily trend. The 10 and 20 day simple moving averages are now support and slower overall corrections into those levels can still allow the markets to push higher into the late-January to early February price levels that we've been keeping an eye out on. Pushing through those levels, should they hit on this daily rally, will be extremely unlikely without a weekly correction off those highs. This will mean that a push into that zone should offer some strong short setups on a daily time frame for swingtrades, whereas the risk for such an attempt here is greater that this could just be a pause in what ends up being a two-wave push to the upside on the daily time frame and serve as more of a pause than a pullback to the lows.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) ended the session lower on Monday by a mere 7.01 points to close at 7,216.97. 16 of the Dow's 30 index components closed in positive territory. A sharp upside gain of 30.90% in Citigroup (C) led the Dow, followed by a 7.29% gain in Bank of America (BAC). C had been up as much as 44% intraday. On the loosing end were General Motors (GM) with a loss of 7.35%, American Express (AXP) with a loss of 3.28%, and Merck (MRK) with a loss of 3.18%. AXP fell behind when it announced that delinquencies among its cardholders was greater than 8% this past month.

The S&P 500 (SPX) fell 2.66 points to 753.89 on Monday. 210 of the S&P 500 stocks closed positive. Crude oil futures rose from $46.25 a barrel in NY on Friday to close at $47.35 on Monday. After meeting over the weekend, the Organization of Petroleum Exporting Countries left its production output unchanged. They had cut production three times since September.

The Nasdaq Composite ($COMPX) fell 27.48 points, or 1.9%, on Monday and closed at 1,404.02. This index was weighed down heavily by the tech sector. Only 13 stocks in the Nasdaq-100, which tracks the Nasdaq's largest stocks, were positive.

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Saturday, March 14, 2009Market Catches Its Breath, Ending Week With Strong Gains
(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.)

The market posted its fourth consecutive day of gains on Friday. The last time this occurred was December 2007. It was also the best week of gains since last November.

The Dow Jones Industrial Average ($DJI) gained another 53.92 points, or 0.8%, and closed at 7,223.98 on Friday. Speculation over health insurer Humana (HUM) as a takeover candidate helped the health care sector lead the market. Merck (MRK) was the Dow's second-best performer for the day with a gain of 12.7%, while Pfizer (PFE) followed in fourth place with a 3.7% gain. The Dow's weekly gains amounted to 9%, although the Dow is still down 17.7% on the year to date.

The S&P 500 ($SPX) closed higher by 5.81 points, or 0.8%, at 756.55 on Friday. Although the index is still down 16.2% year to date, it ended the week higher by 10.7%. Among the strongest sectors this past week were the financials. The Select Sector SPDR-Financial (XLF), which is the exchange traded fund that tracks the sector, rose 35% on the week. Energy shares were weak on Friday ahead of the weekend's Organization of Petroleum Exporting Countries (OPEC). Crude oil futures fell to $46.25 a barrel after ending the session higher by over 11% on Thursday at $47.03. It is up 1.6% from last week's close and is up 3.7% YTD.

The Nasdaq Composite ($COMPX) rose 5.40 points, or 0.4%, and closed at 1,431.50 on Friday. Technology shares had a lot of the difficulty intraday. Adobe (ADBE) fell 3.9%, while Research In Motion (RIMM) lost 3.1%. Microsoft (MSFT) dropped 2.1%, while Apple (AAPL) closed lower by 0.4%. Despite these components, the Nasdaq Composite still gained 10.6% for the week. For the year to date it remains down 9.2%.

Dow Jones Industrial Average ($DJI)


The economic data was fairly light on Friday morning and didn't have much of an impact on the morning's price action. Ahead of the open the Commerce Department reported that the U.S. trade deficit narrowed by 9.7% in January to $36 billion. This was lower than expected and is the narrowest gap since October 2002. At 10:00 ET the University of Michigan's report on consumer sentiment rose in March to 56.6 from 56.3 in February. It was expected to come in at 55.

After creeping higher throughout most of the session on Thursday, the market was quite extended into Friday's open. Nevertheless, the indices still held up well to begin with. Both the S&P 500 and Dow gapped slightly higher. Even though all three of the major indices pulled back out of the open, the 9:45 ET correction period held and the market managed to push to slightly higher intraday highs. These highs hit squarely at the middle of the congestion resistance I posted in yesterday's column in the S&Ps and Dow and they held perfectly.

S&P 500 ($SPX)


The initial reaction off the early morning highs was a very rapid one. The indices fell sharply into the zone of the first 15 minute lows, which then served as support. The market then bounced back to the prior breakdown zone with the 10:45 ET correction period before resuming the selling throughout the remainder of the morning. The pace of that selling could not come close to the initial drop from highs, however, and the indices began to creep lower with a lot of overlap on the 5 minute time frames before first attempting to pull higher into noon. A 2B formed on the 5 minute charts into 12:45 ET that helped shift the pace of the selling somewhat and allowed the market to roll over off lows into the afternoon. This turnaround was aided by strong support on the 15 minute time frames in the form of the 38.2% Fibonacci retracement level of the previous 15 minute rally in every one of the three major indices.

Nasdaq Composite ($COMPX)


Buying picked up well once the 5 minute 2B triggered intraday. Heading into the session I had originally expected the market to have a difficult time posting gains four a fourth day. Since this had not happened in well over a year, that expectation was well-warranted. The reason is that creeping upside action throughout an entire previous day will tend to break that trend sharply the next day. Such days, however, do tend to be marked by a lot more 5 minute setups which can make timing trades the next day a lot easier. This is what progressed on Friday. The morning swings were strong intraday off the support and resistance levels, accompanied by the correction periods.

The first main afternoon resistance to hit was at 13:30 ET when the indices came into the middle of the morning triangle and trading range action on a 5 minute time frame. This held, but a stronger correction tried to form out of 14:00 ET when the indices had created a slightly higher high for a 2T reversal. The 5 minute 20 sma was support for the correction off highs and it held very well. Instead of hugging the support level in order to favor continued downside, the markets pulled to another slightly higher out around 14:45 ET. This high came directly into the upper channel resistance on the uptrend in the afternoon in the indices on Thursday. Another pivot began, but once again the 5 minute 20 sma held. This action continued into the close with a final pullback in the last 30 minutes of trade.

The 60 minute charts at this time suggest that the markets may still try to push higher again into Monday, however, the resistance from the zone of the 17th remains strong and we will likely see a larger correction then form that lasts at least several days off the highs. As a result, any additional upside should be slower than the last and risk a stronger afternoon reversal. The market has had quite a run in it this past week and although it tried to catch its breath on Friday, it still needs more of a resting period in order to sustain another strong upside move should it even decide to attempt such a feat. The odds are still decent for another pullback into the previous lows since we have a "V" type of bottom, which is suggestive of the formation of a longer trading range. The scale of the range will depend upon whether it holds the highs heading into the week, or just bases and continues into the 100 day simple moving average resistance levels I pointed out last week and the zone of the gap closure from the 17th in the Nasdaq.


posted by Toni Hansen @ 4:40 PM 0 Comments

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Thursday, March 12, 2009Market Up 10% in 3 Days Bolstered by News
Market Up 10% in 3 Days Bolstered by News

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

Good day! The indices closed higher once again for the third day in the row on Thursday in one of the largest market rallies we've seen in recent months. The indices overall are up about 10% off Monday's close with the Nasdaq Composite ($COMPX) now trading above its 20 day simple moving average and the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) testing their own 20 day smas. A lot of Thursday's rally can be attributed to numerous news releases that were generally welcomed by the markets.

The Dow Jones Industrial Average ($DJI) closed higher by 239.66 points, or 3.5%, for the day at 7,170.06, once again making it over the 7k mark. Microsoft (MSFT) was the only one of the Dow's 30 index components to not post a gain. It fell 0.58% to close at $17.01. Bank of America (BAC) was the Dow's largest gainer with a close higher by 18.66%. CEO Ken Lewis stated that the company is unlikely to need further government assistance. J.P. Morgan & Chase (JPM) came in third place, up 13.73%. American Express (AXP) rose 10.23%. Many of the gains in banking stocks were attributed to hope that mark-to-marketing accounting practices will be revised, which was on everyone's tongue today. General Motors (GM) came in second with a gain of 17.2% after it announced that it would be able to get buy without the $2 billion loan it had previous stated it needed by the end of the month. It still needs funding, but just not as quickly as expected. General Electric (GE) rose 12.72% despite a ratings cut from Standard & Poor. Pfizer (PFE) was bolstered by the successful test of its cancer drug Sutent. It posted a gain of 9.62%, with Merck (MRK) just behind it with a gain of 9.53%.

The S&P 500 ($SPX) closed higher by 29.38 points, or 4.1%, at 750.74. All 10 industry sectors in the index posted gains with 476 of the S&P's 500 stocks in positive territory by the closing bell. Crude oil futures also soared, up 11.1% to close at $47.03 in New York for a YTD gain of 5.45%, while gold rose $13.30 to $924 an ounce and is up 4.49% YTD. In other commodities, copper is currently up 15.21% YTD, followed by silver with a YTD gain of 13.32%.

The Nasdaq Composite ($COMPX) closed higher on Thursday by 54.46 points, or 4.0%, and closed at 1,426.10. Only 4 stocks in the Nasdaq-100 posted losses. The most substantial was Steel Dynamic (STLD), which fell 15.20% after it changed its profit forecast of 5-10 cents a share for the first quarter to an expected loss of 40-45 cents a share.

Dow Jones Industrial Average ($DJI)


On the economic front on Thursday, initial claims for unemployment benefits for this past week rose by 9,000 to 654,000. The moving average of new claims now stands at 650,000, which is the highest level since October 1982. In other news, retail sales in February were slightly better than expected. They fell 0.1% for the month and rose 0.5% when excluding auto sales. The Commerce Department was expected to post a decline of 0.5% and 0.1% ex-auto. January retail sales were also revised higher to a 1.8% increase. Year-over-year sales are down 8.6%.


S&P 500 ($SPX)


The market formed a trend day to the upside intraday on Thursday, but it began weakly. After a rather flat open, the indices continue lower on the reversal that had begun off Wednesday's afternoon highs. This led to a test of the previous day's lows, which served as support, just as they had in premarket trade. This support zone hit going into the 9:45 ET correction period. Once the market turned higher, it was able to quickly retrace the losses and return to Wednesday's highs.

The zone from Wednesday's highs served as resistance, but the market reacted very little. The indices fell into congestion along the day's highs with the 5 minute 20 sma as support. A two-wave pullback on the 2-5 minute time frames led to continued upside into noon on an earlier-than-ideal breakout. Since the market had only rested approximately as long as it had rallied off the morning lows, this made it difficult to gain the same momentum as that initial ascent. This set the tone for the remainder of the session for a creeping trend day that moved higher with slightly higher highs throughout the session with the 20 sma on the 5 minute charts acting as support for the trend.

A couple of two-wave continuation patterns offered some slightly lower risk entries at about 14:00 and 15:30 for those that missed the initial triggers, but trends like this can be difficult since they offer very little opportunity for strong momentum moves and those looking for larger gains have to hang on during strong percentage corrections that can take back a huge chunk of gains before they continue. They also risk rapid flushes on the downside if the indices hug the 5 minute 20 sma too long. This type of trend day, however, does have a higher likelihood to close at or near the day's highs (or lows in the case of a downtrend, which was the case the last time I discussed this price action), and this held true on Thursday as well.

Nasdaq Composite ($COMPX)


Over the past four days the market has recovered losses that it took twice that long to make. This is a good sign for those hoping to see the lows hold for a larger continuation of this correction off lows on a daily time frame. It is not, however, strong enough to confirm a lasting low on a weekly time frame. The market didn't pull lower on Thursday to help slow the larger selling pace, so now we have more of a "V" type of low. This tends to signal a trading range in the making, which we can easily see form on the weekly time frames now that will mmake it extremely difficult to break the last weekly high.

For the market to have a decent shot at continuing to hold the lows over the next month we will need to see this rally continue with only mild 30-60 minute corrections until it hits the congestion zone I spoke of yesterday in the late January to early February price zone. This is approximately the 100 day simple moving average in the S&P 500 and Dow. This would then create the potential for a Phoenix™ along that resistance zone, which would also be about the 20 week sma. The pace would ideally have to continue to accelerate off this week's lows into that level, otherwise we can still fall back rather easily into this month's lows. Unfortunately for the bulls, I think that this later possibility is quite high. A rally in late-March with a slightly lower low in the Nasdaq beforehand would have been more ideal for a larger hold of support on the weekly charts.


posted by Toni Hansen @ 8:49 PM 0 Comments

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Wednesday, March 11, 2009Market Inches Into Daily Resistance
(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)


Good day! For the first time in over a month, the Dow Jones Industrial Average ($DJI) managed to post gains for two days in a row. That victory, however, was very narrow. The Dow's gain amounted to a mere 3.91 points and the index still closed under 7k at 6,930.40. Slightly over half of the Dow's 30 index components posted gains. They were led by a 6.21% gain in Citigroup (C), followed by a 5.81% gain in the recently upgraded Hewlett Packard (HPQ), and a 4.62% gain in J.P. Morgan & Chase (JPM). On the losing side were Alcoa (AA) with a 5.88% decline, General Electric (GE) with a loss of 4.28%, and McDonald's (MCD) with a 2.98% drop. Crude oil futures were hit quite hard and fell 7.4% to $42.33. Exxon Mobil's (XOM) losses took away nearly 15 points from the Dow, while losses in Chevron (CVX) amounted to nearly a 5 point subtraction from the Dow.

The S&P 500 ($SPX) also barely managed to squeak by in positive territory on Wednesday. It closed higher by 1.76 points at 721.36. Among top gainers were information technology and consumer discretionary shares, while energy and health-care fronted the losses. The Nasdaq Composite ($COMPX) had the strongest daily gains of 13.36 points, or 1%, and closed at 1,371.64. Volume was decent, particularly out of the open, with 1.7 billion shares exchanging hands on the New York Stock Exchange and 2.2 billion on the Nasdaq.

Dow Jones Industrial Average ($DJI)


Early Wednesday morning the Mortgage Bankers Association reported that mortgage applications were up 11.3% this past week as the average interest rate for a 30-year fixed rate mortgage fell to 4.96%. Home buying applications stand at a seasonally adjusted 7.1%, while refinancing applications are up 13.3%. The news didn't have much impact on the market, however, which opened higher as the index futures continued to round off at highs on the all-sessions time frames.

After exhausting itself on Tuesday morning, the market had continued to creep higher, but as we expected it was unable to sustain moves comparable to those that took place heading into Tuesday. The result was a series of slightly higher highs on a 15 minute time frame. The market had opened higher on Wednesday as a result of one of these pushes and soon resumed that bias following a rapid closure of the gap immediately out of the opening bell.

S&P 500 ($SPX)


The market continued to push to new highs into about 10:00 ET. The S&Ps and Dow both held this price level, but the stronger Nasdaq pushed to another slightly higher high around 10:30 ET before starting to show greater exhaustion intraday.

An Avalanche™ pattern within a 5 minute head and shoulders formation triggered in the Nasdaq with the 11:15 ET correction period and congestion along the 5 minute 20 sma in the S&Ps and Dow also formed short setups in those indices. Steady selling on lighter volume followed, as did another bear flag into noon on the 5 minute charts. The pace was slower this time around in the Nasdaq though, and the 13:00 ET correction period held for another bounce into the second half of the afternoon.

The 14:00 ET correction period also held well for the highs of this bounce and led to a flush lower for a slightly lower low back into Tuesday's congestion zone before the markets crept back to the upper end of the range. One last flush wiped out a good chunk of this gain into the closing bell though and the selling continued afterhours with the index futures returning to the zone of the intraday lows by midnight.

Nasdaq Composite ($COMPX)


A lot of speculation exists right now that the current rally is merely another example of a bear market rally as opposed to a lasting-low. There certainly needs to be more confirmation of this pace change on a 120 minute time frame, however, this does look like a larger daily bounce in the making. One to two slightly lower lows on a 120-minute chart would help with the change of pace even more by creating traps at the lows. This would facilitate a more rapid correction off the current daily and weekly support zone. We are now into March, which is a typical corrective month for the markets, so I am looking for such opportunities for shorter term rallies to form. It may still take until the end of the month, however, for a larger weekly low to hold.

The market is currently at strong short-term daily resistance in the Nasdaq Composite. Not only did it test the 20 day simple moving average zone at highs on Wednesday, but it also hit the 38% fibonacci retracement zone on the daily time frame. If the market is going to pull back again to test the lows, I would expect it to do so coming off this resistance. When a larger correction off lows confirms, the 100 day simple moving averages in the major indices and the congestion levels from late January to mid-February will serve as the strongest immediate resistance overhead.


posted by Toni Hansen @ 9:48 PM 0 Comments

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Market Scores Largest Gain Since Mid-November
Market Scores Largest Gain Since Mid-November

(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 the strongest session of the year on Tuesday. In yesterday's column I talked about comparable market conditions in Friday and Monday's intraday action. The same pattern that had led to an afternoon rally on Friday had been forming into the closing bell on Monday, particularly in the Nasdaq Composite. This triggered a buy setup before the evening was over.

The pace within the pattern itself, however, made it more likely that we would "see momentum build" coming off the lows as opposed to the strong immediate rally on Friday. This had begun somewhat when I sent out yesterday's column, but that building of momentum was not very apparent until after the first correction and continuation in the new 5 minute uptrend. This confirmed into 5:00 am ET and the momentum continued to build with shallow corrections prior to Tuesday's opening bell. When that bell rang the indices were already gapping strongly higher and the market triggered a sharp upside breakout within only a few minutes of the start of the intraday session. This led to the sharpest momentum move since first reversing off Monday's lows.

Dow Jones Industrial Average ($DJI)


When the 10:15 ET correction period hit the market was testing strong intraday resistance from previous highs on the Nasdaq Composite on the 15 minute time frame and the equal move targets on this same time frame in the S&P 500 and Dow Jones Industrial Average. This was also the 200 simple moving average on the all sessions 60 minute chart of the ES (S&P futures). The pace of the upside move itself negated the likelihood of a sharp correction off these highs, but it did make it very likely that new highs on the day would not be able to break previous highs by the same momentum as the original intraday rally. As I posted intraday heading into the 10:45 correction period: If the market attempted to push higher that a series of slightly higher highs would form instead.

The 5 minute 20 period simple moving average held as support throughout the morning trade in the indices. The market jumped out of the 11:15 ET correction period and again into the one at noon, but as expected, these moves were relatively small compared to the initial upside. They still offered strong technical setups for scalpers, however, and took the market to new intraday highs.

The rest of the day was not as clean as the morning trade. The 15 minute 20 sma served as support, but since the market had rally so far already before basing into it the indices didn't react strongly. The indices had congested throughout most of the afternoon and the slightly higher highs made within that congested created traps that concerned would-be buyers. Even though the market closed near the highs of the day, this level was only barely higher than the ones taking place into noon.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) ended the session higher by 379 points, or 5.8%, at 6,926 on Tuesday. Every Dow component posted gains. Citigroup (C) was the best-performer in the Dow, up 38.1% to $1.45 a share after announcing a profitable year so far. Compared to years gone by, however, this relief rally is still rather minor. The other Dow financial companies also posted double digit gains. Bank of America (BAC) gained 27.73%, while J.P. Morgan & Chase (JPM) rose 22.64%. Retailers and pharmaceuticals were among the weakest of the gainers.

The S&P 500 ($SPX) rallied 43 points, or 6.4%, and closed at 720 on Tuesday, while the Nasdaq Composite ($COMPX) was the strongest of the three indices on Tuesday, rallying 90 points , or 7.1%, to close at 1,358.

Nasdaq Composite ($COMPX)


The market is now trading at strong resistance afterhours from the zone of the highs from March 4th. This has a good chance of holding buyers in line on Wednesday. The pace shift along the highs in the afternoon is opening the door for an intraday correction off highs, but the larger 60 minutes charts are still attempting to hold a low and it will be difficult for the market to break those lows over the next couple of days due to the extreme pace and range of Tuesday's rally. This will mean greater potential for swings on 5 minute time frames, but will continue to keep risk higher for multi-day holds, particularly on the downside at this time.


posted by Toni Hansen @ 1:08 AM 0 Comments

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Monday, March 9, 2009Market Forms Another 3-Wave Intraday Selloff
(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)


Good day! The Dow Jones Industrial Average ($DJI) ended the session lower by points, or 1.2%, at 6,547 on Monday. Despite the losses, nearly half of the Dow's 30 index components posted gains. They were led by Bank of America (BAC), which rose 19.4% to $3.75 a share, and General Motors (GM), which climbed 15.9% to $1.68 a share. McDonald's (MCD) reported a 1.4% increase in sales for February for stores open at least one year and posted a slight gain of 0.4% on Monday, but the daily chart for this stock looks ready for a stronger correction off the lows. Volume has increased and it's at very strong price support. Merck (MRK) fronted the Dow's losses on the heels of news that it agreed to buy Schering-Plough (SGP) for $41.1 billion in cash and stock. SGP shares jumped on the news, but MRK opened near $20/share. Even though it nearly managed to close the opening gap, it still ended the session lower by 7.7%. Hewlett Packard (HPQ) was the second largest decliner, dropping 5.09%.

Dow Jones Industrial Average ($DJI)


The S&P 500 ($SPX) fell 7 points and closed at 677 on Monday. The three weakest industry sectors in the S&P 500 were technology, telecoms, and health-care. Crude oil futures rose 3.4% to $47.07 a barrel. At highs they tested the 50 day simple moving average zone, which served as resistance early in the morning. The Organization of Petroleum Exporting Countries is expected to cut production yet again at their March 15th meeting. Energy shares rose in conjunction with the oil rally.

The Nasdaq Composite ($COMPX) lost 25 points on Monday. It closed at 1,269. Although about half of the Dow posted gains, only 15 of the Nasdaq-100s index components ended the session higher on Monday. Foster Wheeler (FWLT) posted a second day of gains, rising 4.8% to lead the Nasdaq-100. Meanwhile, technology stocks posted some of the day's largest losses. Google (GOOG) fell 5.7% to close at $290.89, while Apple (AAPL) shares lost 2.6% and the stock closed at $83.11. The Nasdaq closed at levels not seen since October 2002 and is quickly approaching the 2002 lows of 1108.49.

S&P 500 ($SPX)


The market on Monday bore a lot of similarities to Friday's price action, but lacked the strong momentum reversal action that took place heading into the weekend. On Friday the indices formed three waves of selling on the 5-15 minute time frames with the largest decline taking place on the first wave of selling. Monday repeated this formation, but the strength of the first selloff was not as strong as Friday's. Only the Nasdaq Composite showed the most noticeable difference between the first and second waves of downside on Monday.

As on Friday, each off the first two selloffs came in two legs, while the corrections in between each move lower also came in two waves. Instead of gapping higher on Monday as in Friday's session, however, the indices opened lower following the reversal off highs in index futures trading on Sunday. They then pulled quickly higher out of the open to close the morning gap. This rally continued into the previous highs for a retest and subsequent reversal. The rally was comparable to the run that had taken pace in the premarket on Friday.

Nasdaq Composite ($COMPX)


So what does this action tell us about the market at this point? Well, for one thing, it created favor for another move higher in afterhours trade Monday evening and continues to favor upside into Tuesday. Since the momentum did not shift as great as on Friday, however, it makes it difficult to get an extreme reversal to start with and instead we are seeing that upside momentum build after more rounded lows. The problem will be trying to sustain that move. Since the intraday momentum shift at lows was not as strong as Friday's, it can be more difficult for it to hold up until we see a better momentum shift on the larger time frames, such as on a 60 minute to 120 minute chart. At present, even though the 15 minute move have been rather predictable, these larger time frames can still go either way early this week as the Nasdaq teases the 2002 lows, so be more cautious on multi-day setups over the next couple of days.

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Selling Continues as Panic Pushes Prices Even Lower


(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! Economic data and news this past week kept the market weighed down into the weekend. A number of companies continued to slash dividends and on Friday Wells Fargo (WFC) became one of the latest to do so. This was just another drop in an overall dismal bucket. On Thursday the Mortgage Bankers Association announced that nearly 12% of U.S. residents who carry a mortgage (approximately 5.4 million) fell behind on it by at least one month or are already in foreclosure. The U.S. House passed a bill that same day to help provide some relief, but it is up for strong debate in the Senate. This was followed on Friday by the latest unemployment data. While in line with expectations, it still showed a loss of 650,000 jobs this past month. Revisions for the prior two months were also raised and December's losses amounted to the largest since 1949. This brought the overall unemployment rate to the highest level in 25 years.

The Dow Jones Industrial Average ($DJI) ended the session up 33 points at 6,627 on Friday. Despite the gain, the Dow had to make a large comeback from intraday lows and it still fell 6% for the week overall for its fourth straight week of losses. Citigroup (C) traded below $1 as the news of the government's interests in the company continued to raise concerns by investors and drive down the stock's value. General Motors (GM) hit 75 year lows in yet another Dow component melt-down. On Friday it fell 22% and ended the session on Friday at $1.45. General Electric (GE), which led the Dow's gainers on Friday, still lost 17% last week.

The S&P 500 ($SPX) rose 1 point and closed at 683 on Friday. The losses in the S&P 500 for the week came to 7%. This was also the fourth straight week of selling for this index. The Nasdaq Composite ($COMPX) lost 6 points on Friday. It closed at 1,294 at its lowest level since 2003.

Dow Jones Industrial Average ($DJI)


Friday's session began with some initial strength out of the open. The indices had trended lower throughout Thursday's session, with the pace the strongest on the downside in the S&Ps and Dow, while the Nasdaq formed more of a range in afternoon trade. After opening slightly higher on Friday morning the markets tried to continued to push to the upside. That momentum, however, was very short-lived. The 5 minute 200 period simple moving average served as resistance in the S&Ps and Dow, as did the opening congestion zone from Thursday morning. The weaker Nasdaq held resistance at the upper end of the 15 minute trading channel. Highs made within about the first 15 minutes of the session held and the indices quickly began to reverse course once again.

The indices fell steadily throughout most of the morning. At the 11:00 ET correction period, however, the Nasdaq Composite found price support after striking an equal move on the morning's decline as compared to the one from the previous morning. There was also 5 minute equal move support in all three of the indices at that point intraday and the market was able to hold that level into the afternoon. Even though this was a substantial 15 minute support level, the pace of the morning's descent helped hold off a strong reversal. The market actually tried to break lower too early in the afternoon given the previous corrective activity on Thursday afternoon and this slowed the pace of the second drop to take place intraday on Friday from about 12:15 ET to 13:45 ET.

S&P 500 ($SPX)


This afternoon selloff also came in two waves and it attempted to break higher out of the trend channel with the 14:00 ET correction period. It failed to break the 5 minute 20 sma in the S&Ps and Dow and the 15 minute 20 sma in the Nasdaq, but pace shifts like this often take three waves of selling before they break the downtrend channel. Since the larger 15 minute correction off lows was still shorter than the prior afternoon (as seen best on the Nasdaq), it also left room for another attempt to push lower. The market did so soon after 14:00 ET coming off the moving average resistance levels. This time, however, the pace was even more gradual into a third low intraday and this created a larger momentum reversal pattern on the 15 minute time frames. This translated as a strong favor for an afternoon reversal.

The 15:00 ET correction period held and the reversal pattern pick up momentum when the upper channel broke coming out of the final intraday correction period of the session at 15:30 ET. The rally continued into afterhours trade and returned the index futures to their 15 minute 20 sma resistance on the all-sessions time frames, which include pre- and post-market data. This was also the zone of the early morning highs. Even though the futures continued to push higher into Sunday evening, the pace slowed into these larger resistance levels and began to pull back off them once again into 20:00 ET on Sunday.

Nasdaq Composite ($COMPX)


Volume was strong on Friday, particularly into the close as the market rallied. The momentum reversal hit its main target when it came back into the zone of the Friday morning highs, so I'm going into Monday without a strong intraday bias. I can see several scenarios potentially playing out intraday. The most likely as I write this column at midnight heading into Monday morning is that it holds the overall range from Friday throughout most of the session Monday.

I am not convinced we hold here yet as the lows on the daily time frames, but do feel we are close to a daily low, which means that new shorts, particularly as swingtrades or longer, will be higher risk. When shorting right now I will be sticking to the smaller intraday time frames of about 5 minutes or less and just use the larger 15 minute levels as guidance. If the markets can creep a little lower with a choppier downtrend channel on a 60 minute chart, then the odds for a sharp bounce out of the downtrend channel increase. Even a sharp correction, however, will have difficultly breaking the daily resistance overhead without first slowing at them. This will be particularly true of the 100 day sma that stalled the move in mid-February in the Nasdaq.

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Monday, March 2, 2009Selling Pace Escalates as Funds Pour into the Nation's Top Institutions
(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.)


The Dow Jones Industrial Average ($DJI) ended lower by 299.64 points, or 4.2%, at 6,763.29 on Monday to close at a level not seen since April 1997. Not a single one of the Dow's 30 index components closed positive. Citigroup (C), which is still reeling from news late last week of the government's conversion of its preferred shares into common stock and an increase in its interest in the company to 36%, fell another 20% to $1.20 a share. Alcoa Inc. (AA) came in second place on the loser list with a decline of 11.88%, followed by a 10.69% loss on General Electric (GE) and a 10.67% drop in General Motors (GM).

The S&P 500 ($SPX) fell 34.27 points, or 4.7%, and closed at 700.82. The losses on the S&P 500 covered all 10 of the index's industry groups, but was fronted by declines in energy, materials, and industrials. Out of these 10, all of them have also fallen so far on the year, but the losses in telecommunications, which came to -2.84%, are less than the rest of the pack. Monday's close in the S&P 500 hit levels not touched since October, 2007. Only 8 of the S&P 500 stocks posted gains.

Despite seeing a bit of a reprieve from the selling after turning off lows mid-February, crude oil futures also turned off the daily resistance that first hit this past Thursday. After stalling as 20 day simple moving averages and price resistance from late January to early February, prices turned lower on Monday with a decline of 10.3% to end the session on the New York Mercantile Exchange at $40.15 a barrel.

Dow Jones Industrial Average ($DJI)


The Nasdaq Composite ($COMPX) lost 54.99 points, or 4.0%. It closed at 1,322.85. This is the Nasdaq Composite's lowest close since March, 2003. The 2002 low on the Nasdaq Composite is 1108.49. Only one Nasdaq-100 stock closed in positive territory on Monday: Warner Chilcotte (WCRX). This was little solace, however, since the company it still trading at the level of multi-year lows.

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One of the top news stories for the weekend for the markets came in American International Group (AIG). The Treasury Department and Federal Reserve agreed to another injection of $30 billion, on top of the $150 billion it has already received, to prevent the insurance giant's collapse. The company lost $61.7 billion in the fourth quarter, or $22.95 a share, in what is expected to turn out to be the largest quarterly loss in corporate history. AIG was expected to post a loss of approximately $60 billion.

S&P 500 ($SPX)


So what did all of this translate into from a technical standpoint intraday on Monday? Well, the action was rather bleak. The gap lower into the open confirmed the pace rollover that had begun mid-day on Friday and made a point of showing market participants that the breakdown Friday afternoon was just the beginning of a larger 30-60 minute channel break and continuation pattern. This placed equal move support, which is a typical target on a range or channel break, at a point that would amount to that 300 point loss on the Dow and similar losses in the S&Ps and Nasdaq whereby the selling on Monday could easily mimic the move off Thursday's highs into Friday's opening lows. I will show you an even larger example of this on a yearly time frame below.

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The main problem with Monday's action for intraday players was the volatility. The intraday range was large, but as prices moved lower there was a great deal of overlap in price from one bar to the next. This added chop makes market timing more difficult for shorter term players and can often lead to them getting chopped up themselves intraday. It also increases questions of confidence on entry and exit timing, which can lead to more mistakes and it tends to be those that have taken a position early on in the session and just ride it lower throughout the day that tend to fair the best.

We are now into March, which, as I stated over the past week, is a much more common time zone for a larger weekly correction or move off support or resistance levels to occur than in February and had added risk to attempting to play support in February for larger time frame corrections. Since the Nasdaq is now coming into better support on a monthly time frame, I do feel that we will start to see better corrections start to hold before the end of the month off lows. Current price action in afterhours trade already is showing an attempt to bounce back from Monday's downward flush.

Nasdaq Composite ($COMPX)


I do want to step back and look at the much larger picture here for a couple of minutes and give you a little bit of food for thought. The index that I'm going to focus upon in the Dow Jones Industrial Average. The following chart is a monthly chart going back to 1900. Heading into 2000 I posted a piece in this column about how the Dow was approaching a typical target zone that I use for price projections. This helped time the original slow-down and turning point going into 2000. Well, using exact equal or measured move price points, what we can see in this chart is that in 2007 the Dow hit that target price even more exactly than just the zone I pointed out about 9 years ago. Amazingly, the price target using this strategy, which is based upon both price moves and pace or momentum, came within just a few points of an exact target despite the fact that this spans about 80 years.



At the 2007 International Traders Expo I gave an interview discussing the beginning of a larger market correction, but at the time I left room for the potential of a third highs to form on this yearly chart to created a momentum reversal pattern and had not initially anticipated as deep of a correction as we ended up with. This third high is still possible, using a triangle formation instead of a parallelogram at these highs, but the odds are less likely given the penetration of the 2002 low zone in the Dow and S&Ps.

Right now the more likely scenario is for longer time frame corrections through a trading range and long period of congestion. I would expect this to last at least as long as the 1960s-1980s trading range. Since the prices began to correct near the turn of the century, this would amount to about another 10 years before a third push higher similar to the one off the lows of the 1930s or beginning in the second half of the 1980s could take place. This is what I view as the "best case scenario" for the next half a century, since a push higher over the next 8-10 years would create that third high on the yearly time frames that would then favor an even larger multi-decade correction.

I had quite a debate with a friend of mine this evening who is in another area of finance and places a great deal of value in the fundamentals of a company and the valuation of a company itself, as well as the entire financial system regarding what would be more of a worst-case scenario before the Dow could recover. I proposed an extreme view whereby the potential exists of a larger multi-decade topping pattern forming with a two-wave rally (beginning in the 1930s), followed by a longer correction, and then a two-wave breakout. We see this a lot intraday in the markets and intraday. If this were to actually play out, it could lead to a correction in the Dow that could last up to 160 years. I know, 160 years... It seems quite extreme! If you were looking at this chart on an intraday time frame, however, that rally from the lows in the 1930s into this decade's highs could amount to 90 minutes, in which case a 3 hour congestion would certainly not seem at all unreasonable. The same strategies that play out intraday and the same techniques translate on all time frames, however, so just keep that in mind! Looking at a similar strategy in the S&P 500 it would mean a correction into about 2040-2050!

As my friend argued, there are a great deal of factors involved such as stocks being added and removed from the indices, as well as government actions, regulation, etc. that can potentially help the markets recover. I pointed out that many nations have arisen and fallen in lesser time, so there is certainly no surety that the Dow will survive, but this didn't go over with him very well. Let's assume, therefore, that it does. My stance in this particular hypothetical scenario is that we are actually charting human behavior and their response to differing stimuli and it doesn't matter what the underlying securities actually are. I explained that what we are seeing is a massive shift in confidence that will impact not only how individuals invest in their future, but also how other institutions invest that will be played out in the charts. In such a case, it would not be unreasonable to assume that it is going to change how the current generation of wage earners approach the markets. Do I think we will see a 160 year correction in the Dow and a 40-50 year correction in the S&P 500? Well, perhaps not, but it was fun to debate the possibilities. Even if this did end up the case, multi-year trends like we have seen since 2000 would still be fairly common within the much larger yearly range, so this alone would not really spell long-term disaster for those active in the markets.

posted by Toni Hansen @ 7:56 PM 0 Comments

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Toni Hansen

• 性别: 女
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