Focus Letter

Upside Momentum Slows into the Weekend

Good morning! It was another light day in the market on Thursday, but the we saw some better intraday action in the indices for daytraders. Volume on the day totaled 1.56 billion shares on the Big Board with 1.78 on the NASDAQ. The market initially headed lower out of the gate, giving us that morning weakness we had been looking for. This came in the form of an Avalanche (Reverse Cup with Handle) on the 15 minute charts when the 15 minute 20 sma gave way on a downside gap. This led to a strong wave of selling into the NASDAQ's 15 minute 200 sma support and prior 15 minute lows in the Dow Jones Ind. Ave. Hitting at 10:00 ET, it came right as the Help-Wanted Index for January came out.

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The jobless claims fell 20,000 to 278,000 last week. This placed it near the 6-year low of 276,750 that had been established earlier this month. The market began to slowly climb out of this release, picking up around 10:30 ET to take the NASDAQ back to Wednesday's closing range and the S&P 500's morning highs. The Dow hit resistance at the same time with its 5 minute 20 sma. While different resistance zones, all of them hit into the 10:45 ET reversal period and stalled the rally.

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The market attempted to break higher around 11:30 ET after basing steadily along the intraday highs with declining volume. Unfortunately, it didn't rest long enough as compared to the rally off lows, only putting in a 1:1 ratio on the time the base took to develop versus the prior rally. This allowed the NASDAQ to run into the prior day's highs and the S&P 500 to close its morning gap, but it wasn't enough to sustain a rally into noon. Instead the market had to pull back into the basing level and the 5 minute 20 sma before it was able to break more solidly out of 12:30 ET.

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The early afternoon pop allowed the weaker Dow to finally close its gap, taking the S&P 500 back to the zone of Wednesday highs and the NASDAQ into its 50 day sma once more. The pace on the rally was slightly less than the prior morning as a whole and the market began to turn over fairly quickly between 13:00-13:30 ET. This is a common reversal zone for the afternoon and held well on Thursday. The Dow held resistance first, but the other two indices soon turned over as well. They pulled back into support and based into the 14:00 ET reversal period. The break in the 5 minute 20 sma that held as support up to that point led to an Avalanche breakdown which took the form of a Head and Shoulders in the NASDAQ on the 5 minute charts.

The early afternoon decline found support at the 15 minute 20 sma. Here the indices created solid triangle patterns on declining volume. When the volume dropped to its weakest point on the afternoon at 15:30 ET, the last reversal period of the day, the triangle gave way and the market sold off solidly into the close. The NASDAQ made it back into morning lows with the strongest follow through on the decline, but the S&P 500 also hit support as it put in an equal move on the its 5 minute charts as compared to the decline into the triangle off mid-day highs.

The strength of Wednesday's decline held the market back by quite a bit on Thursday. We would have needed to have seen a slower decline in the morning to have allowed for a strong upside breakout on a 30-60 minute Cup with Handle. The pace on the upside is slowing to such a degree that the market is likely to have a tough time breaking higher on Friday. It looks like we will probably have another range bound type of day with a lot more pivot action from highs and lows on 5 and 15 minute charts again. The 100 day sma in the NASDAQ will serve as the strongest support.

UPCOMING MENTORING OPPORTUNITIES:

To further you own knowledge of market activity and technical analysis, you may be interested in participating in one of my upcoming online seminars. Held March 20-24, I will be utilizing the Hotcomm platform which will allow participants the same opportunities as they would attending a class on-site. For more information, click on the journal image at the right hand side of my site at http://www.tonihansen.com or email me directly at toni@tradingfrommainstreet.com. To register CLICK HERE.

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