Mini Lesson: Three Day Trends

Email from a reader:

Hello Toni,

A few years ago I wrote to you about the odds of making money after 3 up days in an intermediate down trend such as the environment we are now in. The same odds apply for 3 down days in intermediate up market. It basically north of 90% that 4th days will trade opposite or counter to last 3 days. I refered to Victor Sprandeo's book where has covered these statistics by going back over 80 years.......

This set up provided itself today after last 3 tradign days were up in an intermediate bear market. What a nice down day it was today!

Take care till next time..........

H.R.

Reply:

Very true! Excellent that you remembered this! I had no idea about the statistics, but I definitely appreciate you passing them along, I just know from my own observations that it was awfully close to 100%. My guess would be that since he quoted 90%, what is probably likely is that the intraday corrections were longer in the other 10%. The rule that I use is that it is near 100% based upon days where the move holds a 15 minute 20 period simple moving average zone. If it were to hold perhaps a 50 sma or a 30 min 20 sma, then these are where there will tend to be more exceptions. With the 15 minute 20 sma rule, the average move is 2-3 days holding the 15 minute 20 sma, followed by a break of that moving average without the market being able to maintain such a trend past that third day.

Keep in mind that I am looking at days based upon when a trend move starts, so if it starts at noon, then it would be three days from that time. The average tends to be just over 2 though, which, if it begins on the afternoon of one day can lead to a positive close that day, following through into a positive close the next day for a day and a half total, and then giving a third day of a higher close even though it's really just 2-2.5 days total when looked at on an hourly basis.

All my best,
Toni

Weekly Market Action Video

Hey gang,

To view this week's video, go to http://www.tonihansen.com/marketactionvideo/.

All my best,
Toni

Despite a Weak Start, Market Ends Week in Positive Territory

Important Announcement:

Good day! Just a reminder: The "Daily" Market Action Letter has become a weekly letter at this time. It will continue as such until after the Forex Expo in mid-September, after which it will resume on a daily basis. In the meantime, I will be resuming the Weekly Market Action Video, which will be updated each weekend by the open on Monday and posted at http://www.tonihansen.com/marketactionvideo/. I hope that you enjoy it!

All my best,
Toni


Despite a Weak Start, Market Ends Week in Positive Territory

(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)

This past played out very well with our expectations. As stated in last Monday's column, while the indices were looking higher into the open on Monday (which they accomplished with a gap to the upside), "the larger intraday time frames (were) favoring a reversal off highs once again rather early on in the week". Several of the factors contributing to this bias included the completion of three waves of upside on the 60 minute charts for the Dow Jones Industrial Average and S&P 500 EMini futures contracts and major price resistance on a daily time frame in the Nasdaq 100 EMini futures contract at early summer congestion levels.

The kicker for the reversal in the indices came from the formation of a 60-minute 2T reversal pattern on the Nasdaq Composite. An initial high was formed on 8/11 with a slightly higher high, relatively speaking, on 8/15. A smaller 2T was also formed within the second push into the highs from the 11th on a 15 minute time frame. The first high on the smaller 2T was on the 14th, while the second high on the 15th. The 2T on the smaller time frame assisted the change of pace necessary to procure a strong price correction. Initially the push into the second high on a 60 minute time frame was as rapid as the move into a second high on the 14th. The slightly higher high on the 15th rounded off the highs, leading to what is most commonly known as a head-and-shoulders pattern from the three-day period the 14th through the 15th on a 15 minute time frame. It then triggered a short when the afternoon congestion from the 15th broke lower on Monday morning.

Nasdaq Composite ($COMPX)


Once the selloff was under way, the indices continued lower until both the S&P 500 and Dow Jones Ind. Average found support on Tuesday in the form of an equal move on the 60 minute time frame. Last week I showed how well this concept works in terms of determining resistance, accurately predicting the highs on the 11th. It works equally as well for determining support.

To predict when a flag or breakout will mostly likely stall or reverse, take a look at the previous trend move in the same direction. In the above case, measure the move from the highs on the 11th to the lows of the 13th. Then take the high of the next move lower and project that forward. The highs from the 18th, when taken and extended lower to the same degree as the drop early the previous week show price support right in the zone of the lows which took place on Tuesday. This support was also the same as the 200 period simple moving average on the 60 minute ES (S&P 500 EMini) and the middle of the two-wave formation on the daily time frame in both the Dow and S&P futures.

The Nasdaq experienced a more mellow selloff than seen in the S&Ps and Dow. Without the extension, it was not as exhausted heading into the second half of the week. The three indices each fell into congestion throughout the day on Wednesday, but while this congestion held in the S&Ps and Dow into Thursday morning, the Nasdaq broke to a slightly lower low on the 60 minute time frame and the 20 day simple moving average on Thursday.

Dow Jones Industrial Average ($DJI)


After rounding off at lows, the market turned higher Thursday afternoon and into Friday. The pace increased on the upside Friday morning following a decent gap higher into the open. Contributing to the move was news that Lehman Brothers (LEH) may be a possible takeover candidate. This caused the stock to gap up into Monday's opening price zone on Friday morning.

The action in LEH over the past week was quite comparable to action displayed on both the Dow and S&P's 60 minute charts. The difference is that both of the indices ran Friday morning, while LEH achieved the same pattern objectives with the gap. In other words, all three had two waves of selloff from the highs of the 11th, followed by rounded lows between the 19th and 21st and the sharp move higher Thursday afternoon into Friday morning. The pattern alone was already a highly bullish one, but the news certainly didn't hurt its prospects!

The morning rally on Friday in the indices had a difficult time pushing through resistance and held upper levels early on. Since the pace of the buying was so strong, however, it made it difficult for the indices to roll over. Instead it created congestion once again, leading to light volume into the weekend. In addition to the price resistance from the previous week, the Nasdaq hit resistance at its 60 minute 50 sma and its mid-week highs. Although the larger time frames are pointing higher this week, the resistance from Friday stands a good chance of holding into Monday morning. The 20 sma on a 60 minute time frame will be support. A pullback into this level can then lead to a second wave higher on a 60 minute time frame mid-week.

Based on current pace action, there is not a strong bias on a 120 minute time frame for a larger move on the daily charts at this time. The Nasdaq is forming a cup-with-handle, however, the handle is likely only be about halfway complete, which would cause a lot of chop over the next two weeks. The "cup" of this pattern would be the move from June with lows rounded into July and a break higher into August, followed by the "handle" creation since August 11th. The Dow and S&Ps will likely continue to congest along the 50 day sma while the Nasdaq's handle develops.

As long as prices hold up at these zones, then the indices can easily break rapidly higher in September to take them to the next daily and weekly resistance levels from May (shown on the charts in dark red). The lighter volume throughout August is a bonus. While part of this can be attributed to the fact that August is a typical holiday season, particularly in Europe, it is also indicative of a lack of strong bearish sentiment throughout the correction (congestion).

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) ended lower last week by 0.3% at 11,628.06. This was after the 197 point recovery on Friday (+1.7% on the day). The financials led the gainers with Citigroup (C) up 3.8%, J.P. Morgan Chase (JPM) up 3.9%, Bank of America (BAC) up 4%, American Express (AXP) up 4.7%, and Lehman (LEH) up 5%.

The financials also drove the S&P 500 ($SPX) on Friday for a 1.1% gain on Friday to close the week down by 0.5% at 1,292. Financials climbed 2.9% Friday, while consumer discretionary rose 2.4% on the day. The energy sector ended in the red, down 2.4% after chopping around throughout the week.

The Nasdaq Composite ($COMPX) rose 34 points on Friday, or 1.4%. Due to the heavy losses experienced earlier in the week, however, the index closed at 2,414 on Friday, down 1.5% on the week.

Federal Reserve Chairman Ben Bernanke provided a boost on Friday to assist the technical bias in the market by making comments that indicate the Fed is expecting U.S. inflation to remain in check this year. This has fueled speculation that the Fed will not raise interest rates in the near future.

Over the past week or two the dollar, the euro, and crude oil have all held the levels I pointed out in last week's market action video. Both the euro and crude oil held support, while the dollar held resistance. Warren Buffet told CNBC on Friday that he felt U.S. stocks are now more attractive and is no longer betting against the dollar.

Closely tied to action in the dollar, support hit in oil at last March's highs and May's lows at about $110 a barrel, while the dollar to the euro rallied into the congestion level from November of last year to February of this at about $0.68. Oil was particularly interesting this past week due to the extreme rally on Thursday for a $5.62/barrel gain to $121.18 followed by a $5.69/barrel, or 4.4% loss to $114.59/barrel on Friday. This was the largest dollar decline since January, 2001. In related news, the retail price of gasoline now stands at an average of $3.692 a gallon, although I saw it as low as $3.56 this weekend (Sarasota, FL). I am expecting both oil and the euro to slide further over the next week to two weeks, but that they will show a greater reaction off support into the fall.

Mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) were again grabbing headlines last week. Both broke to new lows after stabilizing momentarily in late July and early August. They had created two-wave triangle patterns on a daily time frame during that period and triggered a selloff setup on August 8th. Then they stalled and congested into Monday, but broke sharply lower again into Monday's open and continued to selloff into Thursday. FNM closed on Friday at $5.00 a share, while FRE closed at $2.81 a share. Consider for a moment that FNM closed on Aug. 22, 2007 at $69.38 a share, while FRE closed at $64.89 just one year earlier.

Last week was a light one for economic data. On Tuesday the Labor Department reported a 1.2% increase in the Producer Price Index. This index measures wholesale prices and was higher than anticipated. Over the past year producer prices are up 9.8%. The core PPI, rose 0.7% in July, which was also higher than expected. Over the past year core prices are up 3.5%.

On Thursday the Conference Board's report on leading U.S. economic indicators showed a 0.7% decline in July. A decline of 0.2% had been anticipated. The data for the week suggests the remainder of the year will continue at a slow pace economically.

Meanwhile, initial jobless claims fell by 13,000 last week to 432,000. The 4-week average for claims rose to 3.3 million. Last year they measured 2.55 million.

This next week will be much more active. Data to keep an eye on in this coming week includes the Case-Shiller home prices index on Monday, home sales data on Monday and Tuesday, the monthly consumer confidence index and the FOMC minutes on Tuesday, durable-goods orders on Wednesday, the revised estimates for second-quarter GDP on Thursday, and personal income growth and spending on Friday. The Chicago PMI and Michigan Sentiment data also comes out on Friday.

In other news, a major announcement from the Obama campaign front has finally been revealed. On Saturday Senator Barack Obama announced his choice of a running mate: fellow Senator Joe Biden of Delaware. The effect of this choice on native soil, if any, will be felt soon enough when the index futures open for trade on Sunday. The choice will help Obama firm up some of the perceived weakness he suffers in regard to foreign policy experience, which is an area in which his rival, John McCain, has used his experience with as a strong reason by which he should appeal as a national leader.


For further market commentary and technical exploration, check out this week's Market Action Video at http://www.tonihansen.com/marketactionvideo/. The latest market action video is updated prior to Monday's open.

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, August 25, 2008
10:00a.m. Jul Existing Home Sales: Previous: -2.6%.
10:30a.m. Aug Dallas Fed Mfg Production Index: Previous: 0.0.

Tuesday, August 26, 2008
7:45a.m. ICSC Chain Store Sales Index For Aug 23:
8:55a.m. Redbook Retail Sales Index For Aug 23:
10:00a.m. Jul New Home Sales: Previous: -0.6%.
10:00a.m. Aug Conference Board Consumer Confidence: Previous: 51.9.
10:00a.m. Aug Richmond Fed Manufacturing Index: Previous: -16.
2:00p.m. FOMC Minutes
5:00p.m. ABC/Wash Post Consumer Conf For Aug 24:

Wednesday, August 27, 2008
8:30a.m. Jul Durable Goods Orders: Previous: +0.8%.
10:35a.m. Crude Inventories

Thursday, August 28, 2008
8:30a.m. Initial Jobless Claims For Aug 23 Week:
8:30a.m. 2Q GDP, Prelim: Previous: +1.9%.
8:30a.m. 2Q Corporate Profits, Prelim:
10:00a.m. DJ-BTMU Business Barometer For Aug 9:

Friday, August 29, 2008
8:30a.m. Jul Personal Income: Previous: +0.1%.
8:30a.m. Jul Personal Spending: Previous: +0.6%.
9:45a.m. Aug Chicago PMI: Previous: 50.8.
9:55a.m. End-Aug Reuters/U Mich Sentiment Index:


Key Earnings Announcements This Week:

Monday, August 25, 2008
Before: APWR, IONA (?)
After: ADLR (?)

Tuesday, August 26, 2008
Before: BIG, CHS, COCO, DAKT, LTXX, SAFM, SFD, TUES
After: APSG, BGP, DY, HAIN, JCG, PEC (?)

Wednesday, August 27, 2008
Before: AEO, BWS, CHRS, DLTR, FTD (?) , GTOP (?), SOLF, TLB
After: CWTR, FCEL, GA, GEF, HEI, JAS, MW, SNDA (?), SIGM (?), TIVO

Thursday, August 28, 2008
Before: BF.B, CONN, DLM, DHT (?), ENER, FLE, FRED, GCO, KIRK, LB, LAYN, NZ, SHLD, SIFY (?), TIF, TWB (?), VIP (?), WSM, ZLC
During: NX (?)
After: ARUN, BNHN (?), JRJC, CMOS (?), DLIA, DELL, DDS, DLLR, ESL, JMBA, LTON, LAVA, MRVL, MCRS, NOVL, OVTI, PETM, RAE (?), LNUX, TMA (?), CHIP (?), WIND

Friday, August 29, 2008
During: VLCCF (?)

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

Trade Wrapup 20080815 and 18

The following is a wrapup of all my market calls and trade posts for Aug. 15-16, 2008.

Instructions for Use:

When following along in the chatroom, futures posts are done most often as support / resistance calls with support as buy and resistance as short (or closing out open positions from the other direction. These are pivots. Other patterns are posted according to the pattern forming, such as the Avalanche on the NQ below, and a link showing how to trade the pattern is posted.

Stock calls are breakout patterns unless otherwise stated with bases at highs as buys and bases at lows as short. We use the following template:
http://tradingfrommainstreet.com/images/roomexamples/BREAKOUT_TEMPLATE.gif

There is a link giving instructions for accessing this free chatroom on the lower left side of the page at http://www.tradingfrommainstreet.com/


WRAPUP

Hey gang, I have been on vacation and getting the kids back into school the last couple of weeks, so I have not been very active. Things will continue to be slow on my part over the next couple of weeks while I complete a book project. Here is what I've posted from Friday and today:

20080815

10:13 Toni: CY attempting another breakout (no break)

10:42 Toni: NMX keep an eye on this coming week on the upside.. forming daily phoenix
10:42 Toni: 10:42:55 Phoenix: For more information on this setup, please see http://www.tradingfrommainstreet.com/techanalysis2.html#17

11:31 Toni: NMX later today maybe tomorrow



10:47 Toni: futures at some 5 min resistance in here

11:30 Toni: ENR base at highs



11:49 Toni: MGM potenital 15 min avalanche
11:49 Toni: 11:49:17 Avalanche: For more information on this setup, please see http://www.tradingfrommainstreet.com/techanalysis.html#4
11:49 brandon: I like that one T
11:49 brandon: could be a good swing too
11:57 brandon: Im short MGM...
12:09 Toni: MGM first support
12:15 brandon: mgm nice t, thank you
12:19 Toni: equal move target hitting




20080818

12:52 Toni: FCX phoenix potential (no trigger)
12:52 Toni: 12:52:30 Phoenix: For more information on this setup, please see http://www.tradingfrommainstreet.com/techanalysis2.html#17
12:52 Toni: 5 min

12:53 Toni: no exhaustion move on this market drop even though equal move hit on the 15 min
12:53 Toni: meaning no volume spike
12:54 Toni: 13:00 correction period coming up
12:55 Toni: equal move hit on 5 min indices since premarket also
12:55 Toni: in that zone now

13:30 Toni: bullish 5 min base on JRCC (no setup)
13:31 norancho: CLF similar, but I am wondering if the bases may be a little stretched
13:31 Toni: that is possible.. would have to go off the 15 min 20 sma

13:33 Toni: POT 15 min avalanche
13:41 Toni: 170 pot target
14:21 Toni: POT coming into target zone
14:47 cduncan: TY for POT call, Toni
14:47 Toni: yw
14:53 Toni: POT perfect hold on target 170



14:04 Toni: third push down here since mid-day on the ES
14:04 norancho: that is signal for a bounce, right?
14:08 Toni: yep
14:20 Toni: hmm... or no bounce....
14:20 Toni: trend quite extended here intraday
14:20 Toni: not really wanting to short now
14:28 Toni: futures support
14:44 Toni: futures at pretty decent support zone now
14:44 Toni: trying to round off
14:51 Toni: pace not confirming support on 1 min NQ.. room for one more flush
14:52 Toni: here is flush
14:56 Toni: decent chance we hold lows zone in the market into the close
14:57 charlie: Toni..and here i was thinking we would get a rally!!
14:57 Toni: :)
14:57 Toni: well i was hoping for one!
14:57 charlie: thanks
14:57 Toni: scratched my first attempt to buy the low
15:01 Toni: not looking yet like we will see the momo shift .. trying for cont of the flush
15:01 Toni: seems like choppy last hour most probable
15:02 Toni: can still get a pop
15:56 Toni: hey.. market held our support but was definitely choppy too as expected

Action Found in Falling Commodities

Important Announcement:

Good day! Just a reminder: The "Daily" Market Action Letter has become a weekly letter at this time. It will continue as such until after the Forex Expo in mid-September, after which it will resume on a daily basis. In the meantime, I will be resuming the Weekly Market Action Video, which will be updated each weekend by the open on Monday and posted at http://www.tonihansen.com/marketactionvideo/. I hope that you enjoy it!

All my best,
Toni


Action Found in Falling Commodities

This past week was a very mixed one for the market overall. The Dow Jones Industrial Average ($DJI) fell 0.63% on the week to close at 11,659.90, while the S&P 500 ($SPX) was essentially unchanged for a gain of 0.15% and ended the day on Friday at 1298.20. Both indices took a beating early on in the week due to financial-sector downgrades. The Nasdaq Composite ($COMPX), free from the weight of weakness in the financial, energy and oil-related sectors that assisted in holding the Dow and S&Ps down over the past week, managed a gain of 1.59% by week's end to close at 2,452.52 on Friday. The Russell 2000 ($RUT) faired even better, up 2.6% on the week with a close at 753.37 on Friday.

Last week began on Monday with a continuation of the patterns we have been following over the past several weeks on the daily and weekly time frames. The indices hit strong support in mid-June and began to roll over up off those lows into the second half of the month. Several weeks ago the indices confirmed the correction when the Dow and S&Ps both formed two-wave buy setups (in the form of a Phoenix) on the daily time frame and the Nasdaq broke through the highs of its July trading range. These indices both hit resistance, however, when they established equal moves on the 60 minute charts as compared to the rally off the lows a week earlier (shown in blue on the 60 minute charts). At the same time the Nasdaq also struck that first daily resistance level I had drawn on the chart last week which corresponds to the congestion level from mid-June in that index. Although not displayed on the charts, the Russell 2k ran into highs from early in June to hit a strong resistance level in that index as well early last week.

Dow Jones Industrial Average ($DJI)


After striking price resistance on Monday, the indices had trouble continuing higher last week. From Tuesday onward they took a break, pulling back for several days into lower trend channel support and the 20 day simple moving average in the Dow and S&Ps. As with the two-wave pullback from the week before, this correction off Monday's highs also came in two waves on a 15 minute time frame. Mid-day on Wednesday is when support hit for the indices. The pace of the selling slowed and the market rolled over off lows on a 15 minute time frame into the afternoon.

Three waves of buying followed Wednesday's reversal on a 15 minute time frame. These are most notable in the S&Ps and Russell 2k. The third move came into the open on Friday and exhausted the intraday trend. This created a slow and lackluster trading environment for the remainder of Friday's session, so the volume on the day as a whole was the lightest of the week. The momentum has remained stronger on intraday upside than vice versa, so this favors more buying into Monday, but the larger intraday time frames are favoring a reversal off highs once again rather early on in the week. Such correction would likely break the uptrend channel for the past several weeks. Sometimes an upper channel level can build momentum to break higher, shifting momentum on smaller time frames to aid in such a breakout. This is possible given the current development and the fact that the weekly time frames still have a lot of room to move before they hit higher level resistance, but I would prefer to see a flush lower on a 15-60 minute time frame first.

There are a number of things than can lead to a larger pullback on the daily time frame (while still holding weekly support) right now. For one thing, oil prices have dropped sharply in recent weeks, but are showing some signs of stability on a daily time frame for a modest correction off lows. This can be seen on a 60 minute chart where there have been some slightly lower lows and rounding off. As we saw on the daily charts of the indices, however, it is not uncommon to get a flush or two when this happens before a low is really established. This would mean that a false attempt to bounce would likely push the indices lower on the 60 minute charts, but when oil again picks up on the downside it can then send the indices sharply higher into the next daily and weekly resistance level.

S&P 500 ($SPX)


Oil, gasoline and other commodities have continued to grab headlines recently. While spring and into early summer was dominated by the constant setting of new record highs, the second half of the summer has made the news by record downside moves. Crude oil fell another 1.24% last week to $115.20 a barrel on Friday. While still up $18.54% on the year to date, this is a 22% drop off July 11th highs. Many lead analysts are expecting prices to continue lower before finding monthly support. I agree. Larger time frame support levels for crude are the March congestion zone for about $112.50 a barrel (with the range from $100-$115) and then the congestion late last year into this. That range was from $88ish at lows to $100 a barrel at highs. $100 is obvious whole number support, but the middle of a trading range tends to hold better longer term, so I suspect it (crude oil) could easily slip into the $90s by year end.

Americans are finally seeing the result of this price drop at the pump. On Friday the average U.S. retail price of gasoline was $3.771 a gallon. This is an 8.3% decline from July 17th's highs of $4.114 a gallon. Prices here in southern Florida tend to track the national average quite well and I was able to fill up on Saturday for $3.64 a gallon for regular, while midgrade was going for $3.75, which was down further from Friday. Interestingly, for the first time since 1982 U.S. consumers have spent more on gas than they did on cars.

Closely related to the drop in crude oil prices is the rally in the dollar and corresponding collapse of the euro. The U.S. dollar index is up 5.28% on the month, while the dollar in euros is up 6.25%. This put them both positive on the year to date. The euro in dollars in down 5.82% for the month, up 0.53% year-to-date. The dollar is up 7% against both the euro and the British pound since the end of June. The European economy has been showing signs that it is starting to weaken lately and this, combined with the events unfolding in Russia, have assisted in shifting investments back into the States. Adding to global tensions with the United States in relation to Russia was news late last week of Poland's agreement to allow the U.S. to create an antimissile defense system located in Poland.

Nasdaq Composite ($COMPX)


This past week was a very busy one from an economic perspective, particularly from Wednesday onward.

On Wednesday the Commerce Department announced that retail sales fell 0.1% in July. Excluding a 2.4% decline in auto sales, the seasonally adjusted retail sales rose 0.4%. Excluding a 0.8% rise in gasoline sales, retail sales fell 0.2%. Retail sales are up 2.6% over the past year. This is a 0.2% increase when excluding gasoline sales. The data as a whole was better-than-expected and was assisted by an upward revision from 0.1% to a 0.3% gain in June.

Import prices rose 1.7% in July for a 21.6% increase over the past 12 months. A large portion of this advance was due to petroleum imports, which rose another 4% last month, while natural gas prices rose 5.8%. This was larger-than-expected. For the year up to July, petroleum import prices were up 79.2% and natural gas prices were up 75.5%. Meanwhile, U.S. inventories rose 0.7% in June, higher than the expected 0.6% increase, while the inventory-to-sales ratio fell to a record low of 1.23.

On Thursday the Labor Department release its consumer price and jobless claims data. U.S. consumer prices rose more than expected in July. The 0.8% increase now places consumer prices up 5.6% over the past year, which is the largest increase in more than 17.5 years. The core consumer price index, which excludes food and energy prices, rose 0.3% in July. Economist had expected an 0.5% rise on the CPI with an 0.2% increase in the core CPI.

First-time applications for state unemployment benefits fell 10,000 to 450,000 for the week ending on Aug. 2. Although lower than the previous week, the smoothed trend in new claims is now at its highest level in over six years. A new federal program has created encouragement for more unemployed workers to file under regular state programs and it makes the number of new layoffs unclear.

Completing the week, the New York Federal Reserve Bank reported that U.S. factory output rose 0.4% in July. June's industrial production was revised lower to a 0.4% increase. On a less favorable note was the University of Michigan's index of consumer sentiment, which climbed only slightly to 61.7 in August.

Earnings season is nearly over, but a few key names have yet to report this week. On the home improvement retail front are Lowe's (LOW) on Monday and Home Depot (HD) on Tuesday. Hewlett-Packard (HPQ) is also due out on Tuesday. It is expected to earn 87 cents a share with revenue or $27.3 billion for the past fiscal quarter. Both Home Depot and Hewlett-Packard's results will impact the Dow this week. Discount retailers Target (TGT) and BJ's Wholesale (BJ) also report this week on Tuesday and Wednesday, respectively. These will be some of the key names to keep an eye on for momentum plays this week.

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, August 18, 2008
1:00p.m. Aug NAHB Housing Market Index: Previous: 16.

Tuesday, August 19, 2008
7:45a.m. ICSC Chain Store Sales Index For Aug 16:
8:30a.m. Jul Producer Price Index: Previous: +1.8%.
8:30a.m. Jul PPI, Ex-Food & Energy: Previous: +0.2%.
8:30a.m. Jul Housing Starts: Previous: +9.1%.
8:55a.m. Redbook Retail Sales Index For Aug 16:
5:00p.m. ABC/Wash Post Consumer Conf For Aug 17:

Wednesday, August 20, 2008
10:35a.m. Crude Inventories

Thursday, August 21, 2008
8:30a.m. Initial Jobless Claims For Aug 16 Week:
10:00a.m. Aug Philadelphia Fed Business Index: Previous: -16.3.
10:00a.m. Jul Conference Board Leading Indicators: Previous: -0.1%.
10:00a.m. DJ-BTMU Business Barometer For Aug 2:

Friday, August 22, 2008
There are no economic indicators scheduled for today.


Key Earnings Announcements This Week:

Monday, August 11, 2008
Before: BHP, LOW, PWRD, PRGO, TSL, YTEC
After: CNTF, SGK, XFML

Tuesday, August 12, 2008
Before: CCUR, HD, MDT, MGPI (?), SOL, SKS, GASS, TGT
After: ARAY, ADI, DRYS (?), HPQ, JKHY, LZB, NVTL, OTEX, CHIP (?)

Wednesday, August 13, 2008
Before: AMWD, BJ, EV, EJ, FTD (?), MENT, RGS, RTLX, ROST, STP
After: AFCE (?), BYI, CLZR, IMOS, CTRN, GYMB, HOTT, JDSU, LTD, LTON (?), LDG (?), PVH, CRM, SMTC, SYMM, SNPS

Thursday, August 14, 2008
Before: BKS, BONT, BKC, CMRG, CTR, PLCE, CYBX, DKS (?), DMRC (?), FRO, GME, GMTN (?), HNZ, HRL, KNSY, LB (?), LANC, LYTS, MPR, PDCO, SCHS, SHMR, SFL, SCVL, SIFY (?), SSI, SMRT, TECD, BKE, TTC, TWB (?), WCI (?)
After: ARO, AVNX, BEBE, BCSI, CALL (?), CPWM, DITC, FMD (?), FL, GPS, HIBB, HRAY, INTU, JMBA, LRN (?), NDSN (?), PSUN, RAE (?), SCSC (?), SHOR, VRGY, WTSLA, ZUMZ

Friday, August 15, 2008
Before: ANN, CSUN, HPOL, SKIL (?)
After: PERY (?)

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

Advice on "Profiting Consistently"

QUESTION: Hello, I'm a novice in forex market and I'm still doing the demo account for like 11 months using a demo account. But the problem is I'm not consistently making profit. Can you give me some advice how to profit consistently? thanks


ANSWER:
Hello, I hope I can still offer some assistance.

To put it briefly, there is not really any fast route to trading profitably. There are of course some shortcuts. I didn't study under anyone or read any books when I first began trading because there was not really a lot out there and even less on technical analysis, so I essentially had to design my own form of analysis. Although I know now that there were in fact a few good places I could have started, at the time I didn't have a clue what they were. Now it seems there is the same problem in reverse. Instead of having too few, there are now too many, which leaves traders at a loss of what direction to even attempt to latch onto.

What I can offer in the form of advice is to keep things as simple as possible. You don't need to learn a lot of indicators, no matter what anyone tries to tell you. Instead of focusing on other people's systems, first learn how systems are created by learning to read the underlying building blocks of market analysis. These are the things I cover in the course at http://www.swingtrader.net. Although not covered in as much detail, can learn a few of the very basic components online: Things like support and resistance and volume.

Every single trader is going to be different, so strategies that work for one may not easily work for another. You need to figure out what time frames and types of setups you are not only the most comfortable with, but also that you show the greatest profitability with. The only real way to confirm your suspicions is to begin to keep a trading journal. This is not a spreadsheet, but rather something in which you actually print out and compare charts and data from each of your trades. Look for similarities and differences between your winning an losing positions. I would suggest keeping them in a loose leaf notebook so that you can take them out and spread them on the floor in front of you when you are looking at them. It can really help if you have someone who has been trading for awhile assist you in picking out these traits since they will have a better idea of what to look for, but if this is not possible, then just take extra time to put this into your schedule every day. You can do this with your demo trades just as easily as with real life trades.

When you move away from a demo account be sure to start small, risking only like $10-$20 for a few months. Trading live is much different from a demo. Many brokers are per share commissions, often $1 minimum, so you can easily trade 20-50 shares on liquid issues to practice with live positions. You cannot do this with forex, but you can if you trade ETFs based on the currency market.

I hope this helps!
All my best,
Toni

Weekly Market Action Video Link

Hey gang,

To view this week's video, go to http://www.tonihansen.com/marketactionvideo/.

All my best,
Toni

Market Gains Strength Off Weekly Support Level

Important Announcement:

Good day! Just a reminder: The "Daily" Market Action Letter has become a weekly letter at this time. It will continue as such until after the Forex Expo in mid-September, after which it will resume on a daily basis. In the meantime, I will be resuming the Weekly Market Action Video, which will be updated each weekend by the open on Monday and posted at http://www.tonihansen.com/marketactionvideo/. I hope that you enjoy it!

All my best,
Toni


Market Gains Strength Off Weekly Support Level

Over the past month we have been following reversal strategies and the price development on the daily time frame. The support levels have been strong enough with momentum slowing on the downside into July that it suggested we would see some form of larger weekly reaction off lows in the second half of the summer. This process began with a momentum shift in late June and into the first half of July in which the pace of the selling dropped off substantially. This played a large role in the bullish bias I had formed heading into this past week. This indices had bounced off daily lows in mid-July. After that point the Dow Jones Industrial Average ($DJI) and S&P 500 ($SPX) both began a two-wave sideways correction on the daily time frame. This was where they stood heading into last Monday. This can be seen more clearly on the 60 minute charts on which I've shown the two waves of correction in red.

Dow Jones Industrial Average ($DJI)


The indices were congesting at lows on Friday, August 1st, but the larger bias meant that the indices would be unlikely to follow through strongly on any break lower from this range. In fact, the breakdown came early on Monday morning. When compared to earlier corrections on a 60 minute time frame, the congestion from Friday was relatively brief and the break lower was too early to be easily sustained. This created a very slightly lower low in the Dow and S&Ps to form a 2B reversal pattern. This is a type of double bottom (2Bottoms) where the second low is slightly under the first, creating a type of bear trap.

A third push lower into Monday afternoon completed a larger momentum shift on a 30 minute time frame where the action from Friday afternoon into Monday afternoon was substantially slower when the trend channel was transected than compared to the initial decline the previous Thursday into Friday morning. This type of reversal typically leads to a strong move higher once the upper end of the slower channel breaks. I have drawn this channel on the 60 minute chart of the NQ in green.

The momentum reversal pattern triggered right away at the open Tuesday morning when the market gapped sharply higher. This type of breakaway gap is a powerful one. When the market breaks the 15 minute high on a stronger-than-average gap such as the one on Tuesday morning, then the odds are very high for at least an uptrend throughout the morning. When combined with a larger setup like the one on the 30-60 minute, however, the odds are highly favorable for a trend day. The indices did slow down into the early afternoon following the strong morning rally, but they surprised me with an even stronger surge into the close that ended at highs. The Dow Jones Industrial Average racked up a 332 point, or 2.9%, gain, while the S&P 500 rose 36 points, or 2.9%. The Nasdaq Composite ($COMPX) gained 64 points, or 2.8%. These were the largest one-day gains for the Dow and S&P 500 since April 1 and the largest in the Nasdaq since July 16.

S&P 500 ($SPX)


The financials really led the way higher for the market on Tuesday, but took more of a back seat on Wednesday even though the overall market continued to push higher. Freddie Mac (FRE) reported a loss for the quarter that was three times greater-than-expected, resulting in an 80% dividend cut to a mere 5 cents a share. The larger market move was aided by the fact that oil remained under pressure and the U.S. dollar gained strength against the euro. On Wednesday crude ended at $118.58 a barrel with the average price of retail gasoline finally showing marked improvement, down to $3.862 a gallon after highs of $4.114 on July 17. Energy stocks went against oil's performance and was one of the strongest sectors on Wednesday, followed by materials, metal stocks and technology stocks. The Dow closed higher by 40 points, with the S&P 500 up 4 points and the Nasdaq Composite up another 29 points.

After 2.5-3 days of upside in the market, whereby the indices hold a 15 minute 20 period simple moving average, the market has a high probability for forming a larger correction and breaking that support. 2.5 is more common than 3 days and with the lows hitting on the 4th it meant that by the 6th we had seen that time limit zone hit into Wednesday's close. The market gapped sharply down on Thursday and this pullback continued with a second wave lower on a 15 minute time frame in the afternoon. Two-wave corrections are very common and since the daily time frame triggered a buy on Tuesday it was easier for the market to pick up the buying once again on Friday.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) gained another 303 points on Friday, or 2.7%, to close at 11,734. For the week as a whole it added 3.6%. The S&P 500 ($SPX) rose 30 points on Friday, or 2.5%, which amounted to a 3% gain on the week with a close at 1,296. The Nasdaq Composite ($COMPX) had the strongest weekly gain after lagging the Dow and S&Ps in mid-July. It rose 4.5% last week. On Friday it added 58 points, or 2.5%, and closed at 1,296. These were the largest weekly gains in the three indices since mid-April.

Crude-oil ended the day on Friday at $115.20 a barrel, down nearly 8% on the week, although still up 20% on the year. This was the lowest close since May 2 and is about a 22% decline off July 11 highs. The retail price of gasoline was reported at $3.836 a gallon on Friday, while wholesale gasoline futures were down 2.8% to $2.8874 a gallon. This gives hope to motorists that prices at the pump will continue to drop. It should be noted that we are currently experiencing the second-largest monthly decline in commodities ever.

The U.S. dollar really stood out on Friday. It rose nearly 2% against the euro for the largest one-day advance since July 2002. The advancing dollar affects a number of commodities tied to the currency, such as oil, which make them more expensive for holders of other currencies. The pace of the dollar's advance has fueled speculation that the dollar will hold lows and continue to firm up for at least the remainder of the year. I agree than there is definitely a strong argument to be made along those lines. The dollar's rally off July lows has gained substantial momentum and corrections from such a move are generally much more gradual. In order to confirm the reversal, however, it still needs to prove that the larger correction is more through time than price, particularly over the next couple of weeks. There is strong support coming up this week in the euro, hence resistance in the dollar, from the congestion of late last year/early this year. The mid-way zone of that congestion will often hold and lead to a correction off that level. For prices to continue in the direction we are seeing so far this month we need the reaction off that zone to be more gradual than the move into it.

The larger daily bias in the market this week remains bullish. I have drawn in some of the major resistance levels to watch out for longer term on the daily charts. The more quickly prices rise off these levels, the easier it will be for them to test the upper resistance levels by fall. The market is likely to stall for several weeks, however, at the closest levels from mid-June. These will be equal move zones in the Dow and S&Ps, as well as price resistance from prior congestion and moving average levels.

Earnings season will be winding down this week. 449 of the S&P 500 companies have already reported. Most notable this week will be the retailers. Among them, Wal-Mart (WMT) reports on Thursday, as does Nordstrom Inc. (JWN). Abercrombie & Fitch (ANF) and Penney JC Inc. (JCP) both report on Friday. During this earning's season as a whole for the second quarter, earnings are expected to have fallen just over 22% since Q2 2007. Since many companies had lowered expectations, 66% of companies so far have beat forecasts, while 10% matched them. Third-quarter forecasts have also been lowered. Given the currently weekly time frames in the indices, however, there is a strong probability that the market will be able to hold the lows for the remainder of the year, at least in the Dow and S&Ps.

Economic Reports and Earnings Events This Week

Economic Reports and Events This Week

Monday, August 11, 2008
There are no economic indicators scheduled for today.

Tuesday, August 12, 2008
7:45a.m. ICSC Chain Store Sales Index For Aug 9: Previous: 0%.
8:30a.m. Jun Trade Balance: Expected: -$62.0B. Previous: -$59.8B.
8:55a.m. Redbook Retail Sales Index For Aug 9: Previous: +1.4%.
2:00p.m. Jul Federal Budget: Previous: +$50.73B.
5:00p.m. ABC/Wash Post Consumer Conf For Aug 10: Previous: -49.

Wednesday, August 13, 2008
7:00a.m. Aug 9 MBA Mortgage Application Survey Refinancing Index: Previous: +4.4%.
8:30a.m. Jul Import Prices ex-oil: Expected: +1.0%. Previous: +2.6%.
8:30a.m. Jul Export Prices ex-ag.
8:30a.m. July Retail Sales: Expected: -0.3%. Previous: +0.1%.
8:30a.m. July Retail Sales, Ex-Autos: Expected: +0.5%. Previous: +0.8%.
10:00a.m. Jun Business Inventories: Expected: +0.5%. Previous: +0.3%.
10:30a.m. Crude Oil Inventories
Bank Reserve Settlement

Thursday, August 14, 2008
8:30a.m. Initial Jobless Claims For Aug 9 Week: Expected: -8K. Previous: +7K.
8:30a.m. Jul Consumer Price Index: Expected: +0.4%. Previous: +1.1%.
8:30a.m. Jul CPI, Ex-Food & Energy: Expected: +0.2%. Previous: +0.3%.
10:00a.m. DJ-BTMU Business Barometer For Jul 26: Previous: -0.5%.
10:30a.m. Natural Gas Report
Weekly Bill Settlement

Friday, August 15, 2008
8:30a.m. Aug NY Fed/Empire State Manufacturing Index: Expected: -5.5. Previous: -4.92.
9:00a.m. Jun Treasury International Capital Flows: Previous: +$44.4B.
9:15a.m. Jul Industrial Production: Expected: 0.0%. Previous: +0.5%.
9:15a.m. Jul Capacity Utilization: Expected: 79.8%. Previous: 79.9%.
9:55a.m. Mid-Aug Reuters/U Mich Sentiment Index: Previous: 61.2.
10 yr and 30 yr Bond Settlement

Key Earnings Announcements This Week:
NOTE: This week is a big one for the retailers. Many big names are releasing earning in the second half of the week.

Monday, August 11, 2008
Before: KDE, ACMR, ARQL, CNTY, CCO, CODI, CNO, CMLS, EMAG, FTEK, GMET, SRVY, HWCC, HYGS, NRGY, ISPH, IONA (?), KNOL, LINTA, MESA (?), NRP, NCT, OMPI, PEIX, PNCL, RDN, RDNT, RTK, STRL, SYY, NGLS, TICC, VRX, VAL, ZOLT (?)
After: ADLR (?), AMCN, APP, AOB, ASEI, ARRY, ARTE, BE, BKI, BWY, CUZ, TRAK, EPEX, EVEP, EXM, FLR, FNET, GCA, HMIN, HPT, HYTM, INWK, NSIT, IPAR, INTX, LDK, MNKD, MDR, MRGE, MBLX, MIVA, NAPS, NNI, NUAN, OMRI, POM, FACE, PGIC, SB, SONS, SNS, TMRK, THRM, TWTC, OVEN

Tuesday, August 12, 2008
Before: ACIW, ALLT, CATM (?), COMV, CTCT, ESLT, FOSL, GKSR, GIGM, GOL, HI, IART, INXI, ITRN, JASO, MEDX (?), SENO, TRI, TJX, VSE, WW
After: AEZS, APEI, AMAT, BOBE, BZP (?), CREE, DNDN, ICXT (?), PODD, LLNW, MELI, NVDA, SRX, WES (?)

Wednesday, August 13, 2008
Before: BVF, BRCD, CSIQ, CFSG, DE, GIL, HQS, IGLD, LIZ, M, MAG, PAAS, PTI (?), QUIX
After: ANW, CAI, CHNL (?), GRRF, CLNE, CTRP, GA (?), IPCM (?), LDG (?), MIPS, NTES, NTAP, NOA, PLAB, SPRD, TTGT, CHIP (?), VM, WNS

Thursday, August 14, 2008
Before: AES (?), FEED (?), ABV, BKUNA (?), BGG, CCJ, CHCI (?), CPA, DMRC (?), RDEN, EL, FLO, FTD (?), FNDT, FUQI (?), GILT (?), GSOL, SJM, MGPI (?), QXM (?), ELOS, URBN, WMT
During: ASFI (?), FSIN (?)
After: A, ARTC (?), ADSK, BLG, JRJC (?), CHLN (?), DV, FVRL (?), FMD (?), HAR, IFON, IUSA, KSS, KONG, JWN, OPLK, PDLI (?), RAE (?), RRGB, RICK, TMA (?), ZIGO

Friday, August 15, 2008
Before: ANF, JCP, NWY

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

Toni's Position Trade of the Week - AMTD

TD Ameritrade Hldg. Corp. (AMTD) through its subsidiaries, provides securities brokerage services and technology-based financial services in the United States. The company provides common and preferred stocks, exchange-traded funds, option trades, mutual funds, fixed income, margin lending, and cash management services.

Sector: Financial
Industry: Investment Brokerage - National

AMTD peaked in 1999, going from under $5/share to over $60 in several months. It then spent several years retracing its extreme 6-month spike, rounding off at lows into 2002 with strong buy triggers into mid-2003. After turning higher once again, the stock had two strong waves of upside. The first took place in 2003, followed by a two-wave correction sideways, and then a second rally in 2005.

Since late 2005/beginning of 2006, AMTD has once again fallen into a correction phase. This phase has lasted longer than the one in 2004-2005, but it has formed a nice change of pace within the congestion, particularly since mid-2007. This has created a cup-with-handle on the monthly time frame. The handle has matured nicely and is currently favoring a stronger break higher.

While this breakout began on a daily time frame several weeks ago, it is still at an early stage on the monthly time frame, so I will begin to build a position in this stock. The longer monthly correction, as compared to 2004 into 2005, creates higher odds for a two-wave continuation to mirror the action from early 2003 into late 2005. This places a larger target in the $36.50 zone.

Watch Stocks:
Long: UNM, JNPR, JNJ

Analysis of a position

QUESTION (part of a more extensive email and follow-up): You didn't make any mention of looking at overall market Trend, economic cycles and sector performance. Do these areas matter in your decision to trade or do you simply look at individual stocks Support & Resistance, trend lines etc?

ANSWER: I do look at the overall market trend as a larger guide, but many positions based upon momentum moves on news and the like will not correspond as significantly to the overall market bias, so there are many times when I am trading such securities that I will take them even if they go against the larger market. However, risk will almost always be lessened if that trend is in place to support it. To that extent, economic cycles also come into play. These are more important when trading on a weekly or monthly time frame than they are to most swing and daytraders. When it comes to sector performance, this ties into the trend answer in that the sector's favor, while very helpful, is not always necessary. It depends more upon whether or not the security typically follows the general direction of the larger sector trend. Some do not. If they do, however, I would be less likely to take a position that is at odds with the bias of the sector or goes against what appears to be the bias of the major names within the sector. Just because a stock has better relative strength and is forming a buy setup does not mean it can break higher if the rest of the sector is more short biased. In fact, that stronger stock may easily be the one to drop the hardest in some instances.

Importance of multiple time frames in analysis

QUESTION: I have always been told the importance of looking at 3 time periods before placing a trade. As a novice swing trader, I have been told to identify my setups on a daily chart, use a 60 minute chart for timing the entry and a weekly chart to confirm support and resistance. You also mentioned this in your presentation. Can you explain exactly how the 60 minute chart identifies timing of entry into a trade. What is the danger of not using the 60 minute chart?

ANSWER: I agree completely with this. The danger of not using a 60 minute chart is that you can more easily get sucked into a position that is already quite extended on an intraday time frame. The 60 minute chart shows you where price action is in an intraday trend to avoid entering as often on an exhaustion move intraday. If you also have a base that is breaking out on a 60 minute time frame, then it will assist the swing trade and offer a higher probability setup, so this is another reason. You can also best assess pace or momentum and if the upside is more gradual than the downside within the range or flag or whatever you are trading, then you can tell that it has higher risk for a long setup and vice versa unless the pace shifts.

Trade and Commentary Wrapup 20080804

The following is a wrapup of all my market calls and trade posts for Aug. 4, 2008.

Instructions for Use:

When following along in the chatroom, futures posts are done most often as support / resistance calls with support as buy and resistance as short (or closing out open positions from the other direction. These are pivots. Other patterns are posted according to the pattern forming, such as the Avalanche on the NQ below, and a link showing how to trade the pattern is posted.

Stock calls are breakout patterns unless otherwise stated with bases at highs as buys and bases at lows as short. We use the following template:
http://tradingfrommainstreet.com/images/roomexamples/BREAKOUT_TEMPLATE.gif

There is a link giving instructions for accessing this free chatroom on the lower left side of the page at http://www.tradingfrommainstreet.com/


WRAPUP

11:23 Toni: futures still weak but Nasdaq hit Friday's support at lows
11:25 Toni: getting a lot of overlap here at the lows on a 400 tick chart int he futures which can assist a pop
11:33 Toni: market popping
11:42 Toni: futs pop now coming into resistance on the 15 min
11:47 Toni: PCLN went a little nutty
11:47 Toni: futs resistance holding well
12:08 Toni: not seeing much at the moment
12:08 Toni: futures still holding the resistance we nailed
12:17 Toni: energy stocks still hitting lows
12:36 Toni: CALM 15 min avalanche potential
12:46 Toni: STLD is basing at lows but extended 30 min
12:48 Toni: CALM off watch as short.. channel broke higher
13:46 Toni: STLD just creeping

Signs of Strength for August, but Momentum Remains Uncertain

Important Announcement:

Good day! I have an announcement here today regarding my Market Action Letter. As many of you know, I just picked up my kids from my parents place this past week where they've been hanging out and living it up for summer vacation. Now that they are back, however, and I'm also on a deadline to complete a book about developing a trading plan/system, I've reached the conclusion that I needed to free up some time to spend with my family and get my project completed. Both of these need to be done outside of market hours. As a result, I am going to be converting this column into a weekly column for the immediate future. I will resume it on a daily basis once the kids are settled back into school and my project is complete. Until then, an extended version will be released each weekend beginning next week with a larger time frame outlook for the week and a wrapup of the prior week's action. I will continue to include the earnings and economic reports for the week ahead as well. Starting next week I will also be resuming the Weekly Market Action Video describing current market action and outlook from a technical standpoint to supplement the written column. Thank you so much for your understanding and I hope you enjoy this new version!

All my best,
Toni


Signs of Strength for August, but Momentum Remains Uncertain

This past week was a momentous one for both earnings and other major news announcements. Heading into Monday I had been bearish, expecting selling to dominate the week, followed by a reversal higher into this week. It began by holding that bias with a sharp continuation lower almost from the start Monday morning. The session concluded with the Dow Jones Industrial Average ($DJI) off by 240 points, or 2.1%. The Dow ended the day at 11,131, just off the intraday low of 11125. This took its three-day loss to just over 500 points. In the Dow, only Alcoa (AA) posted gains, up 2.7% on news of up to an 8% buyout by Highfields Capital Management. The financials had weighed down the session, with Merrill Lynch (MER) coming in as one of the weakest of the group. The S&P 500 ($SPX) ended Monday lower by 23 points, or 1.9%, at 2,264. Meanwhile, the techs held down the Nasdaq Composite ($COMPX), which closed off by 46 points, or 2% at 1,803. Shares of Apple (AAPL) shed 4.8%, while Microsoft (MSFT) dropped 2.5%. Yahoo (YHOO) fell 4.8%, and Google (GOOG) lost 3%.

Oil, on the other hand, began to show signs of a developing recovery on the daily time frame. The pace of the selling, which had begun with sharp drop during Bush's address on the 15th of July, slowed in the prior week of trade and started to round off at support from May's levels. Although hesitant, crude oil closed higher last Monday by 1.2% at $124.73. It slipped lower again on Tuesday to close at $122.19, but the volume was light and this merely served to round off lows even better, allowing it to recover more rapidly on Wednesday. Crude closed at $126.77 a barrel on Wednesday, up 3.8%, when the technical reversal pattern was assisted by news that domestic gasoline supplies had fallen unexpectedly the week before.

Another development came on a political front which also could have influenced the move. Israeli Prime Minister Ehud Olmert announced that he would not be running for re-election in September, which opens the door for a more hawkish leader to come to the fore-front of the Israeli political arena. Comments regarding Iran by Israeli Deputy Prime Minister Shaul Mofaz pushed crude past $128 a barrel for a weekly high on Friday, but it failed to hold the gains and closed at $125.10.

While oil played a game of cat and mouse throughout the week, ending the session on Friday not far from where it began on Monday, so too did the rest of the market. Shares recovered to a greater extent on Tuesday that I had expected would occur going into the week. The financials were largely responsible. Merrill Lynch (MER) managed to recover from a nearly 10% morning loss to close higher by 7.9% after it announced that it would raise $8.5 billion in stock sale and sell off some of its hard-hit mortgage securities. Bank of America (BAC) gained 14.8% on Tuesday, adding 34 points to the Dow, which closed higher by 266 points total, or 2.4%. The rally continued into Wednesday with energy stocks taking over from the financials to lead the Dow and S&P. The Dow added another 186 points, or 1.6%, but the Nasdaq only managed to tack on an additional 0.4% to its 2.5% gain from Tuesday.

Dow Jones Industrial Average ($DJI)


The market succeeded to establish a slightly higher high into Thursday morning as compared to Wednesday morning and this created the beginning of what would become a 2T reversal setup on a 60 minute time frame. A 2T is a form of double top where a slightly higher high creates a type of bull trap. Since the momentum was strong into the second high, however, the reversal was not a rapid one to begin with. Instead, the pace of the price action needed to shift in order to bring on the start of a stronger break lower. This took place on Thursday from the late morning throughout most of the afternoon. After a brief, yet rapid, pullback into noon, the market began a slower recovery higher on light volume. The gradual pace of the buying, accompanied by a lack of strong participation, were the two strongest elements contributing to a late day breakdown in the indices. This breakdown pattern, which was an Avalanche break out of a 60 minute head and shoulders pattern in the Dow and S&Ps, continued sharply lower into Friday morning.

Poor economic data, which had also been plaguing the week of trade, provided a negative influence on the market on Friday as well. Nonfarm payrolls dropped another 51,000 in July, for the seventh straight month of losses amounting to approximately 463,000 jobs, while the unemployment rate jumped to a four-year high of 5.7%. Economists had expected a rise to 5.6% from 5.5% in June. The selling continued after the Institute of Supply Management data came out at 10:00 ET. Although up slightly from the month before, the ISM manufacturing index came in at 50, failing to break the 50 mark, which would indicate expansion. Instead, the it showed that the higher costs and mixed demand have kept levels flat for the past month.

S&P 500 ($SPX)


The extreme selloff on Friday morning left the market uncertain what to do for the remainder of the week. The downside was exhausted on the smaller intraday time frames, but the bulls were not ready to jump back in on the heels of one of the most volatile weeks of trading year-to-date. The Dow Jones Industrial Average ended the week lower by 0.5% at 11,326.32. General Motors (GM) was among the biggest losers on Friday, falling 7.6% after it posted a $15.5 billion loss. The S&P 500 eked out a gain for the week by 0.2% and closed at 1,260.31. The Nasdaq Composite ended flat on the week at 2,310.

Nasdaq Composite ($COMPX)


July began with a build-up of volume as the market continued its weekly selloff. This created an exhaustion move on the larger weekly time frame which has led to the correction attempt off lows that has taken place over the past several weeks. Although it has not materialized quite as I had hoped by forming a little more downside earlier this past week, the market still has room on the larger time frames to continue to hold the weekly exhaustion and support and head higher into the new month. I am expecting a choppy start to the month, but if the chop shift momentum slightly on some downside congestion, then the indices can pop higher more quickly. Otherwise, continued chop as the market makes its way higher is more likely.

I have sketched out several scenarios on the weekly charts of the DIA and QQQQ to show how the momentum coming off the weekly lows will most likely impact upcoming price action. The thick blue line represents the move lower in June and into early July, while the thinner blue lines represent the waves of action coming off the lows and how the pace of those moves will typically need to shift in order to see any stronger upside price action. The dark red trend line and the 50 period simple moving averages will be the strongest resistance levels. The moving average is also displayed in dark red and is currently corresponding to the trend line in the SPY. Despite the congestion at lows Friday, my bias into the new week is also higher on the 60 minute time frame, since the correction from an extreme move lower can build on itself and easily gain momentum on the upside once the upper channel line from the congestion off the lows breaks.

Economic Reports for the Week of Aug. 4, 2008

Monday, August 4, 2008
8:30a.m. Jun Personal Income: Expected: -0.3%. Previous: +1.9%.
8:30a.m. Jun Personal Spending: Expected: +0.5%. Previous: +0.8%.
10:00a.m. Jun Factory Orders: Expected: +0.6%. Previous: +0.6%.

Tuesday, August 5, 2008
7:45a.m. ICSC Chain Store Sales Index For Aug 2: Previous: +1.2%.
8:55a.m. Redbook Retail Sales Index For Aug 2: Previous: +1.2%.
10:00a.m. Jul ISM Non-Manufacturing Composite Index: Expected: 48.3. Previous: 48.2.
2:15p.m. FOMC meeting and interest rate decision, Federal Funds Rate: Previous: 2%.
5:00p.m. ABC/Wash Post Consumer Conf For Aug 3: Previous: -47.

Wednesday, August 6, 2008
7:00a.m. Aug 2 MBA Mortgage Application Survey Refinancing Index: Previous: -22.9%.

Thursday, August 7, 2008
8:30a.m. Initial Jobless Claims For Aug 2 Week: Expected: -23K. Previous: +44K.
10:00a.m. Jun Pending Home Sales: Expected: -1.0%. Previous: -4.7%.
10:00a.m. DJ-BTMU Business Barometer For Jul 19: Previous: -0.3%.
3:00p.m. Jun Consumer Credit: Expected: +$6.0B. Previous: +$7.78B.

Friday, August 8, 2008
8:30a.m. 2Q Prelim Nonfarm Productivity: Expected: +2.4%. Previous: +2.6%.
8:30a.m. 2Q Prelim Unit Labor Costs: Expected: +1.7%. Previous: +2.2%.
10:00a.m. Jun Wholesale Trade: Expected: +0.6%. Previous: +0.8%.

Earnings Announcements for the Week of Aug. 4, 2008

Monday, July 21, 2008
Before: EYE, ALY, CMED, CHD, CTB, DISH, ETM, FNM (?), RAIL, GWR, HUM, HYC (?), ICE, MDU, MCY, MSTR (?), NTE, GAS, OWW, ORBK, SBAC, SIX, STEC, TM
After: ACTS, ACTU, ADLR (?), AIMC, ASEI (?), ASCA, APC, ARRY (?), ATHN, AXS, RATE, BAS, BLKB, CLDN, CSR, CVLT, CRK, CUTR, DVA, ERES, GSX, HCKT, HGIG, HVT, HE, HCP, HE, HCP, HMA, HL, HIMX, HLTH, IBI, KNXA, LF, LQDT, MKL, MASI, MWY, ODSY, ASGN, OEH, OTTR, PKY, PBI, PPS, PFG, PSB, QGEN, RACK, RTEC, SAFT (?), SLXP, SNTS, SMTL, SM, SUPG, SYKE, SVR, THRM (?), TNS, THS, TMWD, UDR, VVUS, WWWW, WBMD, WGL

Tuesday, July 22, 2008
Before: ACW, ADES, ALD, AHCI, AMSC, APAC, ADM, AACC, ATRC, BBG, BLT, EAT, CSE, FUN, CEDC, CHTR, CKP, XEC, CZN, CMS, COV, COWN, DNR, DXYN, DTG, DHI, DUK, EMS, EPL, NPO, EXPD, GET, GLBC, GLBL, WOLF, GBE, GTXI, HNR, HNT, HPY, HSIC, HEW, HURN, ICON, IFLO (?), IIVI, IDEV, IRC, IPGP, JRCC, LEAP, TVL, LIOX, MMP, MVL, MTRX, MXGL, MEDX (?), MGM, TAP, NNDS, NURO, NSR, NGPC, NI, NTMD, GLT, PKD, PCAP, PDX, PPCO, PXD, PG, RRI, RDC, SCR, SKH, JOE, STXS, SHOO, THC, TLCV, TDG, GTS, UNT, VNDA, VSAT, VICL, VNO, WTI, WEN, WST, WLK, WY, GR, WWE
During: SNHY
After: ABCO, MDRX, ACAS, AMKR, ARNA, ATN, ATO, BIDZ, BMRN, BIO, NILE, SAM, CELL, CBM, CBOU, CBL, CBF (?), CTLM, CRL, CHDN, CSCO, CNL, CCRT, CSC, CCRN, DEIX, DXCM, DRRX, ENTR, XCO, EXEL, FCH, FOE, FIS, FST, GHDX, GGC, GLUU, GOLF, HRS, HCN, HLEX, HLS, HLF, HME, INSP, INAP, IO, JCOM, JBX, KCP, LNDC, LTRE, LOCM, LOOK, MCHX, MMLP, MRX, MOLX, MSCS, MFLX, N, NWS.A, OKE, OKS, ONXX, OPWV, OPNT, OSUR, ORA, PACR, PZZA, PCLN, PL, QSFT, RENT, RMD, RUTH, SONE, SMSI, SNCI, BID, SGY, SHO, SNCR, TEAM, TX, TIE, UPL, UNTD, USU, VTR, VOLC, WMC, WFMI, WMS, ZGEN

Wednesday, July 23, 2008
Before: TDSC, AGU (?), AKNS, AMRI, LNT, ALTI, ABK, WTR, ABTL, AVT, BCE, BX, BRS, CALP, LSE, CNP, CINF, CWEI, CLHB, CGX, DF, DVN, DSCO, RRD, EP, EE, ENZN, XJT, FWLT, FRE, FTO, FCN, GEL, GNA, HSII, HLCS, HGG, HOC, HSP, HPT (?), ICFI, IHR, KNDL, KLIC, LAMR, LCRY, LINC, LOJN, LL, MFB, MMC, MDH, MGAM, MYL, NDAQ, NEWS, NICE, OZM, ONNN, OPTR (?), PTI (?), PQ, PCG, PNK, PXP, PLA, PLUG, RL, PWR, KGS (?), KWK, Q, RSTI, SNH (?), SPIL, SBGI, SIRO, SKYW, SE, TRK, S, SMA, TTES, TKLC, TICC (?), TWX, TWC, RIG, RMIX, WRES, WPI, WPTE, XRIT, YGE
After: JOBS, AAP, AIRN, ALNT, ALJ, AIG, ARII, ACF, AMSF, AHS, ANEN (?), ANDE, AHT, CAR, BBBB, BZP (?), CPE, CECO, CBEY, STV, RIO, COGO, CNO (?), CPII, CUB (?), DCGN, HILL, DCP, EGLE, DIET, BAGL, EMKR (?), EAC, EVC, EXLS, FVE, FLML, FNET, FBN, GGB (?), GERN (?), GIVN (?), GDP, GXP, HIL, HRC, TEG, INET (?), INXI (?), JRT, LRN (?), LPSN, LMIA, MGA, MXWL, MSSR, MEAS, MRN, MR (?), NCMI, NFS, NHP, NKTR, NTLS (?), OPXT, PEIX (?), PRXL, PVA, PVR (?), PAA, PLNR, PRSC, RJET, RUBO, WINS (?), SALM, SVNT, SCI, SINA, STAN, BEE, SUNH, SUN, TK, TS, TRLG, TXCO, UTI, URS, UTSI, VRAZ, CHIP (?), VRSN, WCAA

Thursday, July 24, 2008
Before: FLWS, ABH, ACMR, AIXD, ACM, AER, AES (?), AGYS, ARE, ARK, ANSS, AHR (?), ARD, ARCC, STST, ARIA, ARQL (?), ARE (?), ALC, ATPG, BKUNA (?), BRL, BCRX, BBI, BORL, BRNC (?), CNQ (?), CAH, CATM (?), CRZO (?), CPHL, CDL, CCU (?), CCO (?), CHCI (?), ED, CNSL, CEP, CXW, CMLS (?), CYCC, DK, DPTR, DTPI, DTV, DRQ (?), DYN, EPB (?), EMAG (?), EBS, ENG, FRP (?), FIG, GEO (?), GOK, GILT (?), GCA (?), GPX, GPOR, HEES, HDIX, ITWO, ICTG, IDA, IMAX, IDCC, VTIV, IONA (?), IDID, JMP, KALU, KBALB, KG, KOP, LXP, LCUT, LINE, LIZ (?), MAC, MIC, MLM (?), MMS (?), MCGC, MDTH, MCCC, MDCI, MPW, MED, TMR, MESA (?), PCS, MF, MEND, MINI, NGS, NRF, NOVN (?), CHUX, OMG, OHI, OFIX, VITA, PTIE (?), PEI, PRFT, HK (?), PNCL (?), PMI, POL, POR, PBH, PDE, PGN, QCCO, ROLL, FRZ, RIGL (?), RMG (?), RIV, SBH, SLE, SGK (?), SRE, SIRI (?), SNN, SUG, SBSA, SEP, SPH, SUP (?), SWSI, SURW, SFY, SXCI (?), TECH (?), THI, TWGP, TRMP, USPH, URBN (?), USM, VTAL, VG, WRC, WMG, WNR, WON, WMB, WPZ, WATG
During: ASFI (?), DIOD, EPEX (?), NCT (?), RAME (?)
After: NDN, APKT, ANW (?), ACS, AIRM, ALKS, AMCP, AGNC (?), ARP, ANSV (?), AGII, AGO, ATW, BLTI, EPAY (?), BRKS (?), BLG (?), CPKI, CHINA, CENT (?), CHLN (?), CLWR, COGT, CCIX, COSI, CROX (?), DAR, DCT (?), DECK, PROJ (?), DNDN (?), DWRI (?), DNEX, DIVX, DM, DTSI (?), ELX, ENOC, ESE, FVRL (?), FMD (?), ROCK, GUID, HANS, HLYS, HTZ, HYTM (?), IFON (?), IUSA (?), IPAS, ISTA, JSDA, JUPM, KFN, LMNX, MVSN, MNKD (?), ME, MIDD (?), MIVA (?), MOVE, NABI, NFG, NLST, OCNW, OPTV, PRX, PLLL (?), PARL (?), PDLI (?), PSPT (?), PCR (?), PMC, POWR, PGIC (?), PRO, PSA, QLTY, RAE (?), RSCR, SD, SAPE, SOMX, SPC, SRSL, SNS (?), SPSX (?), SYMM (?), KNOT, NCTY, TMA (?), TRMS (?), UNCA, UEIC, YSI, VITL (?), WES (?), WEDC, INT, ZIPR

Friday, July 25, 2008
Before: AYR, AIT, BECN, CAPA, CNK, CDE, CCOI, XTEX, XTXI, CRYP, CYPB, DMRC (?), UFS, EIX, FGXI (?), HALO, IAG, LPNT, MBI, NOOF, NAT (?), NVAX, OFI (?), RBA, SMBL, TTI, TRGL, WCRX, WR, WIN
After: ACLS, LNG (?), XOMA (?)

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

Target Levels

Question:

Great presentation last night (Wednesday's webinar), as a newbie I found it very useful.
One area I am having difficulty with is exit strategy. I find that my gains turn into small wins
or even losses. In the webinar you mentioned exiting in three stages, do you always do this?
If so how do you exit if the move fails to make target 1, or makes target 1 but not target 2,
or target 2 but not target 3?

Answer:

I do often exit in 2 to 3 stages, however, this is certainly not always the case and I often will add back into positions in which I have taken partials as a continuation pattern forms. The real trick to this is to identify the larger trend placement and pace action. Depending on this traits, there will be the potential for larger gains in certain cases than in others.

Unfortunately there is no quick way to go into details on this.

You will find the support and resistance sections dealing with equal moves to be particularly helpful for most circumstances (referencing the CD course he purchased and was discussing).

The greater the momentum out of a setup, the greater potential it will also have.

Also, the less resistance, the higher the odds.

If the overall market is also favoring the direction of the setup then the odds will be higher as well, unless it is something like energy or oil which can trade against the larger market.

These are some of the basic things I will look at to determine not only what a likely target will but, but also how willing I am to hold part of the position past an initial resistance level to hit the targets. I hope this helps to some degree!

News & Event Driven Price Action

Question:

Technical Analysis vs. News & Event Driven Price Action. Perhaps I’m over-analyzing this issue however, it seems that price action is usually driven by the events of the day. How can one rely upon historical Technical Analysis as a predictor of the future when events are so unpredictable?

Answer:

It is true that price action is a reflection of the sentiment of the day, but think in terms of psychology: Similar triggers create similar responses. If a loved one becomes sick you will start to worry. As their condition deteriorates your emotional reponses will also heighten. Should they pass away then you will also react in a predictable manner which psychologists call the stages of grief. The markets are merely a reflection of human emotions. Charts show the visual progression of this range of emotions as market participants react to the current sentiments. As such, technical analysis is a highly valid means of measuring and predicting price action which is merely a reflection of repetitive human nature.