The Big Hammer - Intraday Rally Attracts Buyers as Market Bounces

DJIA + 32.25, +0.28% SP500 + 4.91, +0.38% NASDAQ Comp. + 11.99, +0.52% Russell 2000 + 1.93, +0.28% Oil closed at $140.97 up 97 cents The four major indices all had significant rallies from their intra-day lows. This is positive. It is also important to note that only the SPX penetrated the R2 horizontal resistance level (the R2 level is the bottom of the body of a large black candle) of last Thursday’s candle. The other three indices failed to rally to even Thursday’s low. At this point these rallies should be viewed as the natural bounce from support that continually occurs in every down trend of lower lows and lower highs. Look for a lower high at this stage of the trend. The DJIA rallied almost 200 points from its intra-day low to form a hammer candle and close modestly positive for the day. A hammer requires a close above the body of the hammer as confirmation. Since this hammer occurs in a down trend it signals the potential for short-term rally or counter trend move. More technical evidence would be necessary to conclude that a reversal of the intermediate term down trend is ready to occur and that evidence is not yet on the chart. It is worth noting that the ETF, DIA, rose on 50%+ above average volume. The SPX formed a hammer pattern with rally from the 1,260 area to close near its high of the day. Today’s hammer did form a lower high and lower low. The Nasdaq formed a large white body candle with a long lower shadow. Much of today’s gain was from gains in AAPL and RIMM which are two of the largest components of the NDX or Nasdaq 100. The negative side of the Nasdaq rally is that the SOX Semiconductor Index which also formed a hammer pattern, was down for the day. Nasdaq rallies without the support of semiconductors are often short lived. The RUT also formed a hammer and closed at its high for the day. AXP was the big DJIA gainer today as financial stocks rallied. XLF the financial ETF was up today also but is clearly still in a down trend. Other financial stocks that were big gainers in the SPX included COF (bullish engulfing), LEH (bullish harami), RF (bullish engulfing) and WB (bullish engulfing). AAPL formed a bullish engulfing pattern as it bounced off of its 200 DMA. RIMM also formed a bullish engulfing patten as it bounced off of its 200 DMA. CELG broke out of resistance on news that competitors drug trial fails. CELG appeared to be trading down in after-market hours. BIDU forms bullish engulging pattern just below 200 DMA. SOHU formed a bullish engulfing pattern on a return move to the break of its neckline in its head and shoulders top. CF formed a hammer as it bounced off its 30 DMA after falling back through its breakout of horizontal resistance during the past week. FWLT rose to its 30 DMA on a continution of its support bounce of the past two days. Tuesday’s Action Moving Up: AAPL, RIMM, CELG, BIDU, SOHU, STRA, CF, FWLT, LEH, IBM, USO Moving Down: X, POT, CLF, MOS, DRYS, AGU, NUE, IPI, MA, BTU, FSLR, DECK, MEE, MON, JASO, MTL Intermediate Term Market Trend: Down Short Term Market Trend: Down