Focus Letter

Market Looks Weaker In Days Ahead

Good morning! We are starting to see a stronger correctional bias in the market following last month's highs in the S&P 500 and Dow Jones Ind. Ave. and this month's Nasdaq Comp. highs. The Nasdaq is continuing to serve as the index with the most relative weakness overall, falling 17.74 points on Thursday to end the day at 2,254. The Dow has been the strongest, although it lost 33.46 points, while the S&P 500 has been in between, albeit closer to the Dow, losing 6.24 points yesterday.

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While there is much speculation as to the cause of this pullback, whether it be concerns over continued interest rate increases or Friday's jobs data, on a technical level, this is fairly typical activity. The divergence between the S&P 500 and Dow on one hand and the Nasdaq on the other is a bit large, but the time frame for this correction is still normal. The Nasdaq created a low level base on the 100 day simple moving average throughout February. Given the slower upside within the range, this third test of the moving average had a much better chance for breaking. I do think it might pull back up into the congestion before it can put in stronger downside, since it was a bit early on the daily charts given the drop from January highs, but there isn't anything at present to really propel it higher.

At the same time, the Dow is forming the opposite pattern on the daily. It also is rather early given the extent of the buying from January lows for it to attempt to break strongly higher. The 100 day and 20 week sma will be better support.

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Intraday the market had a very strong downtrend day on Thursday. It reminded me of one of my favorite playground pursuits: the teeter-totter. Truth be told, however, I much prefer the school yard version. It is making follow through on equities a great deal more difficult intraday and is not a market that favors the gap type of strategies I typically employ for daytrading. It had made me a great deal less active since time constraints have not given me the opportunity to follow the futures as closely for trading this week. Thursday was a pretty decent day for intraday setups on the futures, however.

Recently there have been only a couple of setups on the 5 minute charts at best, but the strong trend day this time around actually managed to form some nice bases and flags for downside continuation patterns as opposed to just moving steadily in one direction or the other. When that happens, it's more difficult to get involved if you miss the pivot, since you are basically jumping on a moving train and hoping it doesn't stop before you get stopped.

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Most of the stronger setups I am seeing heading into Friday are as short patterns. A lot are oil and energy-related. Some to watch are CHK, MOT, XTO and PCAR. On the long side I will be keeping an eye on FD, EMR, CHT, and CIT. I do not plan on being overly aggressive on anything that I cannot combine with an intraday setup.

Note: The current month for the EMinis is June (/ESM6, /YMM6, /NWM6). For clearer charting I am still showing the March contracts since the action is comparable.

UPCOMING MENTORING OPPORTUNITIES:

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