SPX...Stocks Rally Last Two Hours...Forms Hammer...

DJIA 10,012.23 +10.05 +0.10% SP500 1,066.19 +3.08 +0.29% COMPQ 2,141.12 +15.69 +0.74% Russell 2000 592.98 +3.30 +0.56% Exchange NYSE NASD Advancing 1,321 1,458 Declining 1,752 1,224 Oil $70.20 -2.94 Gold $1,052.20 -10.20 SOX 320.01 +7.48 – bullish harami VIX 26.11 +0.03 Index Direction Confirmation VIX Up No – SPX SOX Up Yes – COMPQ Strongest Sectors: XLB +1.87%…XLF +1.16%...XLK +1.01% Weakest Sectors: XLI -0.44%...XLY -0.28%...XLP -0.27% Four of nine sectors moved higher on Friday. Materials, Financials and Technology were stronger than the SPX +0.29%. Sector Watch Up Trending: XLK, XLB, XLY, XLV, XLP, XLI, XLU Horizontal Breakout: Sideways: XLF, XLE Down Trending: Key Resistance Levels: 1,075 = Sep Resistance Area 1,079 = Feb 4 R1 level 1,087 = Nov 10 Channel low 1,101 = October High Key Support Levels 1,044 - 1,050 = Oct 08 High The SPX fell to the 1,044 horizontal support at 2 pm ET and buyers took over driving the index to a 1,066 close. Check out these Charts... (click image to enlarge) Buyers came in at the major support level of 1,044, originally an important resistance area on October 14, 2008. Each of the four broad indices formed a hammer, bullish harami on Friday. The 1,044 support area would be a logical area for the three week down trend to attract buyers and potentially reverse in the short term. Although without confirmation it may be too soon to come to that conclusion. (click image to enlarge) Friday’s hammer reminds me of the hammer that occurred on June 8, 2006 after a dramatic sell off in May to June of that year. The hammer did not confirm the next day, but was followed by three more down days. That low three days later was just beyond the shadow of the June 8 hammer. While the hammer did not mark the low, it did mark the area where big money determined to be buyers. By July a double bottom was formed and the market moved higher from that support level. (click image to enlarge) Hammers and bullish haramis appeared on several of the sector charts. (click image to enlarge) Hammers also appeared on CREE and other watchlist stocks. (click image to enlarge) I mentioned we would discuss the virtual homework trade on CREE as it relates to stops. A trader can choose to put a stop in the machine and if it is touched it is sold. A trader can also choose to wait a certain amount of time before putting the stop in each day. For example a trader might decide that the first hour is too volatile and wait an hour before putting the stop in the machine each day. Also a trader can choose to only implement the stop at the end of the day. Each approach has advantages and disadvantages. For example with a stop 20 cents below the low on Jan 29 at 55.25 with a stop in the machine would have been stopped out during the first hour. A trader who waits until after the first would have survived but only until shortly before 2 pm ET when that trader is stopped out only to see CREE go 17 cents lower and then rebound. The trader who waits until the end of the day survived being stopped out and ends up positive for the day. The disadvantage to using a stop at the end of the day is that if the stock doesn’t rebound the loss can be larger than planned. So, does one look for a re-entry? I would ask what do you think about the trend of CREE? Do you still think it will continue up? The long and intermediate term trends are still up. Friday’s low is higher than the support low on Jan 15. And it did form a hammer suggesting downward momentum may be coming to an end. A hammer confirmation could be a re-entry for a virtual homework trade. But does anyone who got stopped out actually have the discipline to take a second trade? It could get stopped out too…then that would be two losers in a row. Other bullish candle formations formed on many stocks in our watchlist on Friday as well as hundreds of other charts. (click image to enlarge) Guidance: After falling to the next support level 1,044 the SPX bounced on Friday and rose 22 points while forming a hammer. Look for confirmation of the hammer on Monday. Be prepared for a short term rally, but flexible to trade down if confirmation does not occur. The short term trend is down. The multi-week trend is sideways. The multi-month trend is up. Continue to focus on and trade setups on the charts of the stocks you watch and follow your rules. Many stocks have shifted to a down trend with a lower high and lower low pattern, be willing to trade them according to your rules. There are a few up trending stocks. If you have not yet been stopped out of your up trending positions, continue to raise your stops. AAPL +3.41 QCOM -0.13 GOOG +4.51 BIDU +7.94 NDX 100 stocks stronger than the NDX include: BRCM, AMAT, LRCX, ALTR, RIMM, INTC, CSCO, NVDA, HANS, GENZ, IACI, ORCL, LINTA, LLTC, BIDU, AAPL, DELL, ROST, KLAC, ERTS, ADBE, NTAP, SHLD, XLNX, MXIM, STLD, ISRG, MCHP, CTSH, AMZN, SYMC, YHOO, EBAY, CERN and MRVL. Stocks to Watch on Monday Leading Stocks Holding Above 30 DMA ALGT, CBST, GMCR, ZION, FAZ, DLB, NFLX, MCD Moving Above 30 DMA = 1 CEDC Moving Below 30 DMA = 3 AMED, BA, VAR Staying Below 30 DMA CHL, CREE, K, MYGN, TDG, UAUA, VPRT, WFC, WHR, WMT, GR, ESI, SNDK, DECK, HANS, JEC, MA, BYI, ACN, FLS, UNG, BUCY, DE, DOW, FAS, HLF, SYNA, UNP, UYG, X, ATW, CAM, HDB, MHS, MOS, PCP, URE, GS, HEAT, CAT, FCX, BAC, DHR, AGU, FUQI, ICE, IPI, SWN, USO, WLT, BKC, WAB, USD, PWRD, AMD, AMX, CGA, GES, MON, POT, TSL, BDX, WCG, SPG, GME, MELI, PCLN Intermediate Term Market Trend: Neutral = 3 months, Up = 10 month Short Term Market Trend: Down