Focus Letter

Market Remains Choppy

Good morning!

Ok... First things first.... Don't forget to change all your clocks! I know, I know... none of you have ever forgotten to move your clocks forward an hour with the time change... (ok.. maybe those of you that don't have to will not have!), but I did miss the open one year because of it! Whoops....

Next, let's take a look at the recent market action as we head into the new week. We aren't really seeing much change over the last couple of weeks overall. There is still a great deal of divergence between the major indices. Now it's the Nasdaq fairing better than the Dow and S&Ps, but that bias has been flipping back and forth a great deal.

On Friday the Dow Jones Industrial Average ($INDU) fell 41.38 to end the quarter up 3.7% at 11,109.32. The S&P 500 ($SPX) posted similar quarterly gains, but lost 5.42 points on Friday to close at 1,294.83. The Nasdaq Composite lost 1.03 points on Friday to close at 2,339.79. This was a 6.1% gains for the quarter, making it the strongest of the three even though it gained the most in January and has been struggling since then while the S&P 500 and Dow both crept higher throughout the last three months.

http://tradingfrommainstreet.com/images/FocusLetter/20060403nas.gif

The day began on Friday with a slight upside gap, but saw a continuation of recent profit-taking throughout the session. An early morning range broke lower between 10:20 and 11:00 ET with the Nasdaq being the first to close its gap. At 11:30 ET the Nasdaq managed a 5 minute 2B by barely breaking prior lows at a slower pace into the 5 minute 200 sma support. The S&P 500 and Dow also began to correct off lows at that time, but saw the least retracement to the day's highs. Resistance held over noon with the Dow's 5 minute 200 sma, the Nasdaq's 5 minute 20 sma and the S&P 500's 15 minute 200 sma resistance.

http://tradingfrommainstreet.com/images/FocusLetter/20060403sp.gif

The mid-day congestion gave way after hugging the lower end of that small 2 minute trend channel out of 13:00 ET on light volume. The move was very decisive, making new lows on the day in all three indices. The move stalled after hitting an equal move intraday as compared to the morning move off highs and upon hitting larger 15 minute support from prior lows on that time frame from Thursday. These came with a slight increase in volume to indicate short-term exhaustion just before 14:00 ET.

http://tradingfrommainstreet.com/images/FocusLetter/20060403dow.gif

For the remainder of the day the market tried for one more bear flag type of breakdown. After correcting a similar length of time as the mid-day range, the indices attempted to break lower into the last half hour of the day. There simply was not enough time to follow through well, however, and the stronger up off lows as compared to the mid-day one would have still made as strong of a follow through move unlikely despite the closing bell.

Overall the market is still looking higher on the larger time frames, but I am not finding a lot of setups on the daily and weekly charts that I have a lot of confidence in. I have been watching TRE, UVN, and WFT as longs and CHKP and WGL as a short. The longs have potential to break higher, however, and then pullback in for a few months before continuing, so I will be watching for intraday setups in them where I can hold a tighter stop and take off some gains more quickly in order to hold the rest longer term with more room.

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