Focus Letter

Market Recovers From Tuesday's Selloff, Holding the Larger Daily Range

Good morning! The market made a strong comeback on Wednesday after rounding off at the lows on Tuesday following the sharp morning decline. The Dow Jones Ind. Ave. had fallen more than 100 points on Tuesday, but ended the day on Wednesday up 60.12 points at 11,053.53. The Nasdaq Composite Index closed at its strongest level since Feb. 1st at 2,314.64, while the S&P 500 Index gained 10.58 points to close at 1,291,24. The buying was widespread as advanced outpaced decliners by just under 23 to 9 on the New York Stock Exchange (NYSE) and 21 to 9 on the Nasdaq. Utilities were one of the only areas of weakness on the day.

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The economic data going into the day didn't have much impact. The futures were already at premarket highs going into the 8:30 ET personal income and spending data. While U.S. personal incomes saw the greatest increase since last July, rising 0.7%, the real consumer spending only saw a 0.4% increase in January, which is the weakest increase since October.

After basing at highs in the premarket, the index futures began to move up once more out of the open. This continued until the market ran into the prior afternoon highs and the release of the 10:00 ET economic reports. There was a little more reaction to these numbers than the 8:30 ET ones, but the reaction was short-lived. The ISM index rose to 56.7$ in February, which was larger than expected. Construction spending, however, increased only 0.2% in January, which was less than had been anticipated. The result was a rapid, but brief decline off intraday highs. Once the 5 and 15 minute 20 sma support hit, the bulls returned.

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The market continued higher throughout the remainder of the morning. The pace was steady until noon except for a small base at 11:00 ET when the NASDAQ was hitting its 5 minute 200 sma resistance. After breaking it, the indices all moves back into the price level of Tuesday's open. This was near the 15 minute 200 sma in the S&P 500 and Dow.

As on Monday, the market fell into a range following the morning rally. Volume declined and the market began to favor an upside breakout. The attempt was made with the 14:00 ET reversal period, a time zone that is typical for afternoon breakouts. On Monday the breakout was a false once since the base was not significant compared to the rally. The breakout was also early on Wednesday, but since it was the second attempt at such a pattern in as many days it did not just trap the new bulls as quickly. It did keep the excitement under wraps, however, with the market moving higher at a very restrained clip once the range broke in the S&P 500 and NASDAQ. This continued until the last reversal period of the day at 15:30 ET when the 5 minute 20 sma support finally broke.

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Overall the market is still just holding the range that began in the middle of last month. It has kept upside volume low, even when the intraday move is very sharp. There isn't enough bias in the day to string together move than a day of upside or selling in a row. A lot of the action intraday in the indices has been choppy, but steady. This has led to me focusing on stocks for daytrading instead of on the EMinis as much intraday. I do not see anything heading into Thursday to change this approach just yet.

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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