Good morning! As I wait patiently for that larger correction on the monthly charts that has been teasing since October, I find myself still primarily position in longs. Wednesday's trend day did follow through with the bullish bias it continued to display at the end of the day, but even though it began to slow rather early on Thursday, becoming choppy after the onset of the 10:15 ET reversal period, the buyers continued to flock into positions throughout the morning. The energy stocks finally felt a bit of a reprieve after several weeks of selling and this helped boost the Dow Jones Industrial Average and S&P 500 once again, while the Nasdaq lagged behind with slower upside momentum soon after the open. It did a great job playing catch-up, however, as the morning wore on.
The market continued to rally throughout the morning. It was not until 11:15 ET that the indices FINALLY decided it was time for a siesta! By that time they had already established a typical day's price range. The "mid-day doldrums" that followed in Thursday's session were even duller than usual. The market fell into a very narrow sideways trading channel as the volume began to dry up. The bulls were exhausted, but the bears were too wary to push for any sort of reversal.
That began to change once the afternoon wore on and many market participants returned from lunch. The market attempted another high around 12:30/13:00, but lack any volume to confirm. After a day and a half of significant upside, it was hard to convince new players to step up when the market had not even busted the 10 period moving average on the 15 minute charts during that entire time. Instead the momentum began to turn. The bears led a pullback from the 13:00 ET reversal period and when support hit shortly thereafter they refused to let the indices bounce. Alternately, they hugged support and the 5 minute 20 sma served as resistance. This created a very nice bear flag that broke lower just before 14:00, confirming the mid-day reversal and causing panic among any late-arriving bulls from earlier in the session.
Although somewhat ominous-looking, the bear flag only hit the typical target for such a pattern, breaking down at a similar pace as the move into the flag and hitting an equal, or measured, move just before 14:30 ET before correcting again off afternoon lows. This equal move came at the same time as price support from earlier in the session. Had the indices shown little reaction to the support, then it would have been likely that the market would have sold off for the remainder of the day. Instead the market pulled very quickly back into the 5 minute 20 sma, stalled there for a few minutes and then was able to return to the price resistance zone from mid-day. That strong resistance level once again held and the market fell back to the lower end of the afternoon range before the closing bell.
I am expecting things to slow down a bit on Friday. For the market to move higher, it would be best for the indices to fall into a choppy trading range on Friday and, after such strong buying Wednesday afternoon and Thursday morning, that is pretty likely.
Economic Reports and Events This Week
Monday: Consumer Credit for Nov. (3:00 pm)
Tuesday: -
Wednesday: Trade Balance for Nov. (8:30 am), Wholesale Inventories for Nov. (10:00 am), Crude Inventories 1/5 (10:30 am)
Thursday: Initial Claims 1/5 (8:30 am), Treasury Budget for Dec. (2:00 pm)
Friday: Export Prices ex-ag and Import Prices ex-oil for Dec. (8:30 am), Retail Sales for Dec. (8:30 am), Business Inventories for Nov. (10:00 am)
Key Earnings Announcements This Week
Monday: LIFC, NUHC, and SCHN.
Tuesday: EMMS, GAP, GBX, HELE, LWSN, SVU, VOL, AA, EXFO, OXM, RI, SNX, and WDFC.
Wednesday: ASHW, DNA, and SAPE.
Thursday: CRAI, INFY, MTB, MTG, SRR, CAMP, and IHS.
Friday: No earnings are scheduled
Note: All economic numbers and earnings reports are in lines with those compiled by Yahoo Finance and Briefing.com. Occasionally changes will occur that are made after the posting of this column.
Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.
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