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发表于 2009-3-24 10:49
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Market Ends the Week with Sloppy Expiration Day Trade
Market Ends the Week with Sloppy Expiration Day Trade
Good day! Friday was yet another expiration day for the market and it was met with very choppy intraday trade. The session began on a positive note, following through on the prior afternoon’s reversal off lows. This reversal finally broke the losing streak in the market that had been in play for over a week. The open on Friday took the Nasdaq right into strong price resistance with the 38.2% Fibonacci retracement, as well as price resistance from several weeks prior. Early economic data on Friday, however, added a lot of pressure on the bulls.
The December Consumer Price Index fell 0.7% last month. The 8.3% drop in energy prices was the main contributor to the CPI’s decline. For 2008 as a whole consumer prices rose only a hair, up 0.1% for the smallest increase in more than half a century. The core CPI, which excludes food and energy, remained unchanged.
In other news early on in the session the University of Michigan/Reuters consumer sentiment survey showed a reading of 61.9 into this month. This was up slightly from December’s reading of 60.1. The change was not enough to reflect any major shift.
Earnings season has also factored into Friday’s trade. So far it has gotten off to a grim start this quarter. The latest came from Bank of America (BAC), which will be receiving billions in government aid. The company announced its first quarterly loss in 17 years on Friday and fell 13.8% to $7.18, pulling the rest of the financial sector down with it in the wake of additional news from Citigroup (C), which reported a slew of layoffs after it announced worse-than-expected earnings of -$1.72 a share. Citigroup also reported that it will be dividing the company into two separate firms in an effort to weed out its worst-performing entities.
Nasdaq Composite ($COMPX)
A lot of the focus this coming week will be on the news. Earnings season will be kicking into full gear and for the most part the results are expected to continue to be quite dismal. Although the indices held onto support following the three-wave selloff on the 60 minute charts into Thursday, the action in Friday’s trade is less-than-enthusiastic. The slightly higher highs made into the opening bell on the gap higher created a trap pattern called a 2T on the 15 minute time frame right smack into Wednesday’s opening highs in the S&Ps and Dow and Tuesday’s gap closure in the Nasdaq. These resistance levels held perfectly and the market struggled to hold onto gains made in afterhours and premarket trade in the indices.
In the past I have never really considered expiration day to be a big deal when it came to finding strong intraday setups. It seems that over the past year, however, this has begun to change. From the time I first started trading, other traders always complained about how difficult expiration days were, but I still managed to find many strong setups with very little difference in my perception from any other trading day. More recently, however, the intraday action has become more erratic. One glance at the 5 minute time frame on Friday shows an excellent example of this recent shift to even greater uncertainty. Nearly all of the 5 minute candlestick bars have strong overlap in price from one bar to the next throughout the session and the session also lacked clear-cut technical patterns.
Although the indices broke lower out of a morning pullback and base, it would have been very difficult to have timed a decent entry trigger for the bearish action. Instead you had to rely primarily on the larger 15 minute bearish bias as a result of the larger time frame resistance and price pattern. You also needed to be more lenient in terms of stop placement, since trading action such as Friday’s has a greater chance of flushing you out of a position using traditional stops, particularly if you attempt reversal patterns as opposed to going with the primary 5 minute trend.
S&P 500 ($SPX)
The market did once one brief period of strong follow-through without a great deal of chop. This move took place into the second half of the morning and into the very beginning of the afternoon with the morning congestion finally gave way. There was no clear breakdown setup, however, and the momentum merely built upon itself as the morning wore on. The selloff pushed the boundaries of the previous support level from Thursday’s late-day lows, but the support zone itself still held. This also corresponded to the 5 minute 200 simple moving average zone in the Nasdaq.
The market turned quickly off the early afternoon lows at about 12:20 ET. Notice that this did not correspond to any typical correction period. The 5 minute 20 sma served as the first major resistance. The momentum coming up off the lows was not stronger-than-average, which increased the risk that we might have seen another test of the lows out of the 13:00 ET correction period. Nevertheless, on Friday the zone managed to hold and the market formed a very sloppy and higher risk Phoenix setup by hugging the 5 minute 20 sma and then breaking higher out of 13:30 ET. Throughout the remainder of the day the 5 minute 20 sma would serve as support, but the market mainly chopped higher along the support with each of the waves higher within the afternoon channel only lasting a matter of minutes before returning to that support. This continued into the closing bell, although the market was once again testing 15 minute resistance levels in the final 45 minutes of trade.
Unfortunately I had missed out on the morning trade on Friday and only ended up trading in the final two hours. Given the lack of my favorite strategies, I consider myself extremely lucky to have scraped by with a pittance of a gain and have to admit that I probably should have stayed away in the afternoon as well! On action such as we saw in the final three hours of trade I will often find myself struggling to even breakeven and generally try to avoid it completely! For many years it was this type of action that typically led to my largest intraday losses.
Dow Jones Industrial Average ($DJI)
The Dow Jones Industrial Average ($DJI) posted modest gains on Friday and closed higher by 68.73 points, or 0.8%, at 8,281.22. For the week as a whole, however, the index lost 3.7%. Given the results of BAC and C, it should come as no surprise that the financials accounted for a substantial portion of the losses this past week. Between last Friday’s closing bell and this week’s bell, Citigroup has fallen 48.2%, while Bank of America has lost 44.7%, and J.P. Morgan & Chase is down 27.6%.
The S&P 500 ($SPX) gained 6.38 points, or 0.8%, on Friday and closed at 850.12. Crude oil futures bounced back a bit to close higher by $1.10 a barrel at $36.50. This helped boost energy shares and began what I suspect will be another recovery on the daily time frame into next week. The S&P 500 overall lost 4.7% last week for the largest weekly decline among the three major indices
The Nasdaq Composite ($COMPX) gained 17.49 points, or 1.2%, on Friday and closed at 1,529.33. Apple (AAPL) continued to slide lower on more in depth news that CEO Steve Jobs may be preparing for a liver transplant resulting from damage while undergoing cancer treatment back in 2004. AAPL closed lower by 1.3% on Friday at $82.33 a share.
Despite the end-of-the-week turnaround, the markets are still not looking predominantly bullish on the 30-60 minute time frames. After the sharp rally Thursday afternoon, the rally into Friday afternoon was a lot slower. The previous highs zone served as resistance ahead of the close. A slower pullback off the current resistance will best allow the market to move higher and sustain such a move over the next week, while a continuation of the upside right away out of the open on Tuesday will increase the risk of another sharp intraday drop into Wednesday. Keep in mind a few things. First of all, Monday is a market holiday in the U.S., while secondly, Tuesday is inauguration day. These will add to the mix of earnings and economic data to influence the momentum of the moves intraday this week.
posted by Toni Hansen @ 10:55 PM 0 Comments  
Thursday, January 15, 2009Dow Finally Breaks Losing Streak
Dow Finally Breaks Losing Streak
Good day! The market was finally able to break its losing streak on Thursday, but the day didn’t start out on a bright note. The market had kicked off a third wave of selling on the 60 minute time frame the day before and remained weak into the close on Wednesday as the indices formed a shorter base along the intraday lows where the Nasdaq had ran into price support from December 29th’s lows. This left the bearish bias still firmly in place into the closing bell. In order for the indices to reverse strongly off such a support level when they hit on larger-than-average momentum there must be some shift in that momentum at the support. Otherwise any bounce off the support may be rapid, but short-lived so that the larger correction off the support ends up being more gradual.
Heading into Thursday morning the market had yet to develop any such shift in momentum. In fact, the news which came out in Apple (AAPL) following the close on Thursday led to a sharp break lower out of the intraday trading range in afterhours trade. Soon after the closing bell Apple’s CEO Steve Jobs announced that he would be taking a leave of absence to address health concerns, which increased speculation that the cancer he had been afflicted with several years earlier may have returned.
The AAPL news helped lead to a continuation of the third wave of downside on the 60 minute all–session charts. Typically when the indices or any security experiences three waves of downside whereby the correction times between each of the three waves of downside are comparable then there will not be a fourth wave of comparable magnitude as those three until a larger correction takes place. This might be a correction in time, price, or both. The news from Apple was the wild card that I mentioned in yesterday’s column as one concern that we would see the market weighed down again heading into the session. It meant that the market didn’t have enough time to correct for as long as it had between the wave of selling which began on the 6th and is the reason the continuation into Thursday is considered a continuation of the third wave as opposed to a fourth wave.
Nasdaq Composite ($COMPX)
The index futures experienced a continuation of that afterhours breakdown when the markets opened overseas. Another rapid drop took place into 3:00 am ET. From 4:00 ET onward, however, the Nasdaq futures began to correct and pull higher off the lows. Ahead of the open the market was also faced with the latest economic data. It reacted fairly well at 8:30 am ET, but then turned around once again prior to the bell. First time jobless claims rose by 54,000 to 524,000 last week. The four-week average of new claims fell 8,000, but remains 55% higher than the same period last year. Meanwhile, the Producer Price Index for December fell 1.9%. This was the fifth straight month of losses, but was in line with expectations. Energy prices weighed it down the most with a sharp drop of 9.3% last month. The core PPI, which excludes food and energy prices, rose 0.2%.
Following the opening bell the market continued immediately lower. It paused briefly for about 15 minutes into 10:00 ET, but then resumed into 10:30 ET. At about 10:30 ET the market began to correct off the lows. It failed to gather enough strength for a rapid recovery, however, due to the pace of the earlier selling. Although the indices climbed steadily into the 5 minute 20 period simple moving average, there was a lot of overlap in price action to make it there and the indices failed to clear that price zone in the S&Ps and Dow. The Nasdaq faired a bit better, but all three of the indices turned lower once again into the end of the morning and early afternoon due to the choppy action within the recovery attempt.
S&P 500 ($SPX)
By 12:30 ET the S&Ps and Dow were testing morning lows, albeit at a much more gradual pace than the morning decline. This shift in the selling pace was exactly what the market had been waiting for over the past week. The slightly lower lows made in both of these indices on a 15 minute time frame, along with the light volume and gradual pace of the selling combined to form a powerful reversal pattern into the afternoon. It is a type of double bottom and bear trap pattern called a 2B. The pace of the reversal built upon itself, gaining in magnitude as the afternoon wore on. By mid-afternoon all three of the major indices were hitting new highs on the day, led by the Nasdaq.
Typically the 5 minute 200 sma will cause such an ascent to stall or at least pause but the market displayed very little reaction to this level on Thursday and pushed higher into 15 minute resistance levels from Wednesday instead. These included prior highs on the S&Ps and Dow and the opening price level from Wednesday on the Nasdaq. These levels hit around 14:45 ET and the market turned lower into the final hour of trade. Even though the S&Ps and Dow found themselves once again in negative territory, they recovered enough in the final 15 minutes to manage to post a gain.
Dow Jones Industrial Average ($DJI)
The Dow Jones Industrial Average ($DJI) closed higher by 12.35 points, or 0.2%, on Thursday and ended the day at 8,212.49. After falling briefly below 8,000 earlier in the morning, 18 of the Dow’s 30 index components closed in positive territory. Both Citigroup (C) and Bank of America (BAC) fell more than 20% intraday with Citigroup finally settling with a loss of 15.4% while Bank of America finished the session lower by 18.4%. Citigroup announced earnings on Friday, while Bank of America posts its own earnings next Tuesday. After falling nearly 30% intraday, Bank of America again made headlines late Thursday on news that they are close to a deal to receive an additional $20 billion in federal aid, bringing its total to an astounding $45 billion. The details of the deal are expected to accompany Tuesday’s earnings announcement.
The S&P 500 ($SPX) gained a mere 1.12 points, or 0.1%, and closed at 843.74. Crude oil futures found themselves trading at nearly $33.00 a barrel on Thursday, but managed to rebound to $35.23 by the close of trade. Nevertheless, this still amounted to a loss of 5.5%. We should see prices recover to some extent into next week given the current level of support and the increased volume into this low.
The Nasdaq Composite ($COMPX) gained 22.20 points, or 1.5%, and closed at 1,511.84. Apple (AAPL) experienced a loss of 2.3% on the day on Thursday, ending the session at $83.38 as it came off premarket lows following Steve Jobs’ news.
Even though the 15 minute pace change helped the market move higher on Thursday afternoon, in order to sustain such a move on the larger 60 minute time frame we are going to ideally need a more gradual pullback on that time frame as well. The pace of the downside was not as extreme as the selloffs in the fall and early winter, however, it was still strong enough that it will make a lasting recovery more difficult without any slower rolling over or rounded lows on that 60 minute. A Phoenix on that time frame would certainly help, but can take about two days to form an ideal base. The market will then have to deal with resistance from the prior areas of congestion throughout any recovery attempt. The next such level is the congestion from the afternoon of the 12th into the 13th. In order to stave off yet another strong move lower we need to see a rapid upside continuation to break through the larger 10, 20, and 50 day simple moving averages which have all converged overhead. This would give it room to move into the 100 day sma levels which are shown in blue on the daily time frames.
posted by Toni Hansen @ 11:07 PM 0 Comments |
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