Giant Reversal
Dow opens session higher, reverses to end day lower.
From prior commentary, "...The fact that the index continues to hold above 10,400 and has formed a bullish consolidation hints at further upside movement...while a break below 10,400 will mark weakness for Friday's market..." The Dow began 2004 on a solid note, as the index raced out to an 85 point gain early in the session. However, the index stalled at the highs and eventually unleashed a sharp reversal to the downside, resulting in a 140 point swing off the highs of the session, seen in the 15 and 60 Minute Charts.
Moreover, the reversal caused a downside break of the lower trend line of the major upward-sloping channel that has formed throughout the better part of December, seen in the 60 Minute Chart. The downside break at 10,440 implies a likely retracement in the medium term, which is quite overdue given the recent rise in the market.
Look for the index to begin trending lower in the medium term, especially if the Dow continues to hold beneath 10,450. Otherwise, an upside break through 10,450 will likely mark another move higher toward recent highs, forming a wide trading range at the highs of the current upmove.
Short Term Dow
Short term, the Dow may be forming a lower high beneath 10,425, seen in the 5 Minute Chart, which implies weakness Monday morning. A break below 10,385 will indicate a likely push lower for Monday's Open.
Medium Term Dow
In the medium term, we stopped out of Longs late in the session at 10,400 today, giving us a solid gain of 210 points for our prior trade. We entered the Dow Short at 10,400 today, but stopped out with a 20 point loss. We are out of the market and will watch 10,375 down, and 10,450 up, with 20 point stops.
NASDAQ & S&P
The NASDAQ and S&P sold off the day's highs today, completing a sharp reversal for the day. Each index got a downside break of its lower channel boundary, which implies further weakness tomorrow. Continue to watch the channels. *
Summary
The Dow began the session sharp, as the index pushed higher at the Open. However, a solid reversal brought the index lower to the Close, which ended up losing 47 points for the session. Given that the lower trend line of the major channel has been violated, further downside movement is likely in the medium term, especially if the Dow keeps below 10,450.
Thanks for listening, and Good luck in your trading..
Ed Downs
edowns@nirvsys.com
with assistance from..
Frank Ochoa, Market Analyst fochoa@nirvsys.com
** Note: We are now posting Index entries and exits in Real Time, through our new Intraday Index Alerts service. To learn more about the service, visit SignalWatch.com and select Intraday Alerts from the main navigation bar. - SW Team
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