Commentary by Toni Hansen, Dec. 5.
Market Turns Lower Once Again on the 60 Minute
(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)
Good day! The market was sloppy throughout much of the session on Thursday as the indices geared up for that 60-minute pullback I talked about in yesterday's column. The session began with a gap lower into the opening bell. After the indices pulled back gradually from the closing highs on Wednesday they ran coming out of the 3:00 AM ET correction period to form a double top into 5:30 AM ET. They rolled over off these highs as well, taking back the early morning gains and hitting new premarket lows ahead of the opening bell.
After 8:00 AM ET the momentum of the premarket selling slowed. The index futures then began to round off at lows, creating a momentum reversal type of pattern into 9:00 AM ET. Thus, by the time the opening bell rang, this reversal pattern had already triggered. The market used this change in momentum to continue to move strongly higher out of the opening bell. The rally allowed the indices to easily close their morning gaps, but the earlier premarket highs still served as strong resistance. The market fell back into 10:15 ET and then tried the highs again. By this time the market was beginning to show another shift in momentum. This time it was off the highs. The 5 minute 20 sma served as support throughout the morning, but by constantly testing that support level the market displayed underlying weakness. Highs held intraday at the 11:00 ET correction period and the bears began to creep in.
Nasdaq Composite ($COMPX)
Although the pullback off the second high at 11:00 ET provided the first trigger for the larger 60-minute correction lower that we were looking for, the break in the morning's uptrend channel provided the first confirmation. The upside momentum was still on the strong side, but it continued to shift mid-day. Light volume on a mid-afternoon buy setup at 13:30 ET showed that the bulls were not participating very well any longer. Even though the S&Ps and Dow spiked higher, without the volume confirming the move, it continued to support our bias for a larger 60-minute correction off highs. It took nearly the entire day for the momentum to finally pick up on the downside, but a small 2 minute 2T reversal pattern just prior to 15:00 ET helped provide a key for timing another setup in that direction. Once the selling was under way it continued very strongly back into Wednesday's afternoon lows.
Dow Jones Industrial Average ($DJI)
A small momentum reversal on a 2 minute time frame into 15:30 ET helped the indices pop higher into the close off the 15 minute support. The market will likely continue this correction off 15 minute lows into Friday morning, but the larger 60 minute corrective bias off the week's highs remains in tact. Slower upside or congestive action will help create a continuation pattern on the downside on that larger 60 minute time frame. The 15 minute 20 sma will serve as initial resistance intraday. If the market continues strongly into this level in the morning then the second wave lower in a 60 minute two-wave pattern can be more of a choppy base and continue holding the 20 day sma.
On the other hand, a slower pull higher or base closer to Thursday's lows will allow the market to break the lows from Monday very easily. It is currently 10:00 PM ET and so far the pace is strong on the upside off premarket lows, but that can still shift prior to the open.
So far the market is doing a splendid job of holding our bias from earlier in the week for greater overlap from one day to the next without any strong daily trend this week. I am expecting that to continue into the weekend. In order for the market to be able to sustain any upside break of the 20 day sma we need to see it put in another low on the 60 minute time frame. So far we only have one low on Monday. Any early attempt to break without that second low will be a great setup for another sharp daily drop back into and even through the prior daily lows, particularly in the Nasdaq, before a larger daily reversal off the support can finally take hold. On the other hand, as long as we get that second low within this congestion it will more easily favor a daily Phoenix with a daily buy trigger when the upper channel of the daily congestion breaks. Ideally volume will decline in this scenario as the congestion continues.
S&P 500 ($SPX)
The Dow Jones Industrial Average ($DJI) closed lower by 215.45 points, or 2.5% on Thursday to give back a large portion of the previous day's gains. It ended the session at 8,376.24. 35 of the Dow's 30 index components ended the session in negative territory. General Motors (GM) fronted the losses, down 16.1%, while they, along with Ford and Chrysler, continued to plead for federal aid. Alcoa Inc. (AA) came in second among the decliners, falling 13.24%, while Intel (INTC) came in third with a loss of 6.52%. J.P. Morgan & Chase (JPM) rose 2.74% to front the gainers. McDonald's (MCD) rose 2.17%, while Home Depot (HD) rose 2.02%, WalMart (WMT) gained 1.34%, and DuPont inched higher by 0.34%.
The S&P 500 ($SPX) fell 25.52 points, or 2.9% on Thursday and closed at 845.22. 9 of the 10 S&P industry groups posted losses. Energy and information technology led the downside. Consumer discretionary was the only index group to post gains. The Nasdaq Composite ($COMPX) lost 46.82 points, or 3.1%, and ended the session on Thursday at 1,445.56.
Crude oil futures fell to three year lows this week, trading under $50 a barrel. It closed at $43.67 on the New York Mercantile Exchange. It is currently hitting strong monthly support, but the pace of the selling off the year's highs will keep it from being able to sustain any strong daily bounce off lows.
Toni Hansen is a Market Analyst and Trader with www.tradingfrommainstreet.com.
She can be reached at Toni@tradingfrommainstreet.com.
Disclaimer: Trading in securities may not be suitable for all individuals. Consult your broker or other professional to determine your suitability. This is not an offer to buy or sell securities. The advice given above is of a general nature and should not be taken as a recommendation to buy or sell the referenced security.
Note: Tőzsdeklub 2006 Kft is authorized to syndicate my Daily Market Action Letter on the Tozsdeklub.com site. Toni Hansen
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