As we wrote this week, the four week trend turned down but the longer intermediate term trend could still be viewed as sideway. As support breaks do they fall until the next support level and that happened on Friday.
Remember, when support breaks it is most probable that price will fall to the next support level. At that lower support price can either bounce or break. Due to the 8-week sideways trend, watch to see if this support bounce follows through on Monday and moves above the R1 and R2 levels and watch to see if price action also breaks above its moving averages. After the markets closed information was circulated about the Fed taking over Fannie Mae, FNM, and Freddie Mac, FRE. This had a significant impact on after-hours trading especially in the financial sector. XLF which had gained 3.62% on Friday, gained an additional 2.71% in after-hours trading on Friday after the news on FNM and FRE. Many individual financial stocks also had strong gains after Friday's close. You may have noticed that the financial sector has been relatively stronger than the broad indices over the past week and that it did maintain its sideways trend this week. Is it possible that big money analyzed that financial stocks would be getting stronger and therefore continued buying this sector during the week while selling off the broader market?Is it really accurate that market action discounts everything?
Could it be that the finacial sectors relative strength indicates that big money had a different viewpoint of financial stocks than they did of the broad markets?
These are important questions that you should draw your own conclusion about and then perhaps alter portions of your decision making process so you will be in a more powerful position to interpret price action in different sectors.
Index Commentary The DJIA formed a hammer on Friday. The lower shadow of this hammer occurred at the 78.8% Fibonacci retracement level from the July 15 low. Watch the R1, R2/R3 levels on Thursday's candles.
The SPX formed a hammer like candle with a larger white body than the DJIA hammer...the lower shadow occurred just below it 78.8% retracement level...the SPX 50 DMA is at the R2 level of Thursday's large black candle. The Nasdaq also formed a hammer like candle with the lower shadow just beyond its 78.8 Fibonacci retracement. The RUT formed a hammer pattern the broke below its 200 DMA and that closed just above its 200 DMA...support came in just below its 50 DMA at its 50% Fibonacci retracement from its July 15 low...this it the 20th day in a row that the RUT closed above its 200 DMA...the RUT continues to be the strongest of the four broad indices. Stock Commentary POT rose on Friday on news of the company continuing to buy back shares. POT formed the equivalent of a bullish engulfing pattern and is still in an intermediate term down trend and trading below its 200 DMA. This is a counter trend support bounce. MOS rose on Friday on news of Morgan Stanley starting coverage of the stock with an overweight rating and a $155 price target. Friday’s Action Moving Up: POT, MOS, CF, BUCY, MA, AGU, MON, SNDK, MEE, GS, IPI, BTU, ANR, SOHU, V, CLF, LEH, AEM, NUE, FMCN, PNRA, MTL, AMZN, MS, WRC, PCLN, X, CNX, SCHN, FNM, JASO Moving Down: STRA, CELG, DRYS, FSLR, AAPL, LDK, ESRX, IBM Intermediate Term Market Trend: Down Short Term Market Trend: Down
2 comments:
My answers: yes to all 3 of your questions.
/Chin
How do you interpret outside day candles in downtrending stocks? For instance, today RIMM, AAPL, GOOG, ORCL, CF, FWLT, DRYS are all doing this. Where can you set a target? Where can you establish entry/exit points?
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