Don't Force It

Yesterday was certainly on the light side with NYSE volume at 1.26 billion, the lowest of the past five days, the volume ratio was negative at 40, and breadth was -399. The SPX ($SPX.X | Quote | Chart | News | PowerRating) and Dow ($INDU | Quote | Chart | News | PowerRating) each declined about 1.0%, while the NDX ($NDX.X | Quote | Chart | News | PowerRating) was -1.5% and Nasdaq ($COMPQ | Quote | Chart | News | PowerRating) -1.2%. Both the RLX and BKX lost about 2.0%, while the brokers were off only 0.6% and continue to maintain their rally gains in spite of the continued layoffs and dropping out of certain parts of the business. For example, Morgan Stanley has advanced 50% without hardly a pullback, so it's certainly not daytraders holding up the stock. However, the 50% advance in half the amount of days will lead to a certain retracement and that's where we can see if the Generals continue to play the game so as to provide us some good setups on pullbacks to the 20-, 50- and 89-day EMAs. The same can be said for many of the other big cap stocks.

The SPX provided two pattern trades yesterday. The first was a retracement to the .618 retracement zone between Friday's 895 swing point low and yesterday's 915.91 intraday high. The retracement low was 904.25 vs. the .618 number at 903.20. The trade re-crossed the 260 EMA on your five-minute chart, but ended at 910.65, which was vs. the .618 retracement to the 915.91 high and 904.25 low. If you were in the bearish camp, then you probably took the Kings and Queens short entry below 909.64. This traded down to the intraday low of 899.48, as the SPX closed at 900.71, just below the 89-day EMA of 901.91. The .618 retracement from 769 to 965 move is down at 890, which is also the 20-day EMA right now.

Yesterday's close put the SPX at the midpoint of the 926 - 872 zone, so we don't know whether we are going to get further extension of this first rally leg or whether the SPX will break the head-and-shoulders pattern forming to the downside with the neckline around the 872 - 875 level and then retrace at least .38 to the 769 low. There is symmetry to the Friday 895.35 low, with the .786 retracement at 899.75 and yesterday's second leg down equaling the first leg at 899, and this was versus yesterday's intraday low at 899.48. That is A to B equals C to D for those of you into the symmetry of numbers.

The market is trading like this inspection drill will resolve nothing, and why should it? If we were allowed into the country, it's not like he's going allow us to find anything significant, just what he wants us to find. So, until the first rounds are fired in earnest, I assume we will get more of the same. When the enthusiasm isn't present, the market moves are labored and lack any follow through. For the daytrader, it means trading less and don't force it if it's not there.

Have a good trading day.

Five-minute chart of Monday's SPX with 8-, 20-, 60- and 260-period EMAs

Five-minute chart of Monday's NYSE TICKS