Focus Letter

May 16, 2006

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Daily Editorial:

Market Selling Slows Into Daily and Weekly Support

Good morning! The market got off to a sloppy start on Monday. After two days of strong downside action, it tends to become more difficult to sustain such a move. Nearly every single time, the market will only hold an intraday downtrend where the 15 minute 20 sma serves as resistance for 2.5-3 days before it then breaks that moving average resistance to put in a larger correction.

Monday started off with a modest downside gap into the open. This took the S&P 500 into 100 day simple moving average

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support and the 20 week sma support. Both have been very significant support levels this year and since this was the first test of them off last week's highs they assisted in halting the early morning selling. The market reacted swiftly, pulling higher into the 9:45 ET reversal period with a closure of the gap.

http://tradingfrommainstreet.com/images/FocusLetter/20060516nas.gif

Choppy trading continued with a move up into the 15 minute 20 sma resistance on all three indices as the morning progressed. The Nasdaq, having hit that level within the first 15 minute of the day, simply fell into a triangle trading range, while the S&P 500 and Dow Jones Industrial Average formed ascending pennant formations. These began to turn over with a 2T on the S&P 500, made by a slightly higher high trapping eager bulls. The upside pace waned, continuing to turn over into noon with more gradual upside within the range followed by rapid descents.

http://tradingfrommainstreet.com/images/FocusLetter/20060516sp.gif

The result of the mid-day change in pace was another strong decline into the early afternoon coming out of the 13:00 ET reversal period. The follow through was immediate in plunging the indices back into morning lows. A small continuation pattern took them into the 14:00 ET reversal period. At this point the market had now passed that critical 2.5 day period whereby a break in the 15 minute 20 sma became likely. The indices again rounded off, this time at lows, creating a small double bottom on the 2 minute charts that took the market once more into the 15 minute 20 sma resistance. A steep phoenix pattern along the 5 minute 20 sma that formed into 15:00 ET then propelled the indices over their 15 minute 20 sma level and lead to a steady climb back into morning highs for the remainder of the day.

http://tradingfrommainstreet.com/images/FocusLetter/20060516dow.gif

I am expecting the market to continue to correct off this daily support going into the early half of this week. It will be difficult for indices to make it back to new highs though any time soon. A more gradual correction as compared to the selling of late last week is most likely. We should start to see some better intraday setups though again as opposed to the more choppy action that had been in place with the decline going into mid-day Monday.

Economic Reports and Events:

May 16: Building Permits, Core PPI, Housing Starts, and PPI for April (8:30 am), Capacity Utilization and Industrial Production for April (9:15 am)

May 17: Core CPI and CPI for April (8:30 am), Crude Inventories 5/12 (10:30 am)

May 18: Initial Claims 5/13 (8:30 am), Leading Indicators for April (10:00 am), Philadelphia Fed for May (12:00 pm)

May 19: -

Earnings Announcements of Interest:

Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stock's earnings date before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing

May 16: ANF (A), AEOS (B), AMAT (?), CPWR (A), DE (B), HPQ (?), HD (B), JTXX (A), NTES (A), PLAB (A), REDF (B), SKS (8:00 am), APLA (B), WMT (B)

May 17: ACXM (?), BEAS (?), FL (?). GYMB (?), HOTT (?), INTU (A), MW (A), PETM (A), ROST (B), CRM (?), SNDA (A), SNPS (A), V (?), ZLC (B)

May 18: AAP (B), ARO (A), ALKS (?), ADSK (A), BKS (B), BRCD (B), CTRN (A), CPWM (A), CLE (B), DELL (A), FMCN (A), GPS (?), LTD (?), MRVL (A), NWY (B), JWN (?), SHLD (B), STP (B), PLCE (?)

May 19: ASEI (B), ANN (B)

May 22: CPB (?), FLO (?), LOW (?), TECD (?), PAY (?), WTSLA (A)

May 23: CSC (A), LNUX (A), MDT (A), PVH (A), TOL (?), ZL (A)

May 24: AZO (B), CWTR (A), DLTR (B), JLG (A), MIK (?), NTAP (A), PSS (B), SPI (?), TIVO (A), WSM (B)

May 25: BLI (?), CHS (A), CMOS (?), JOYG (B), PDCO (B), PDC (B), PLMD (B), SAFM (B)

May 26: CBRL (B)

Note: All economic numbers and earnings reports are in lines with those compiled by Yahoo Finance. Occasionally changes will occur that are made after the posting of this column.

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