Tuesday, June 24, 2008

The Disappearing Hammer

DJIA - 35.26, -0.30% SP500 - 3.71, -0.28% NASDAQ Comp. - 17.46, -0.73% Russell 2000 - 11.89, -1.65% Oil closed at $137.00 up 26 cents

The Fed announces their interest rate decision tomorrow, Wednesday, at 2:15 pm ET. This announcement can cause the markets to pause while waiting for the announcement and then increase volatility shortly before and after. If you have not traded through a Fed announcement before and you don’t have rules to guide you, you might want to watch the action closely and gain some experience before taking action on an announcement day. Don’t be surprised if the market rallies if it likes the comments and then fades within a day or two when the longer term realities are back on traders’ minds. Generally an economic announcement will not change the intermediate term trend but it can alter the short-term trend create a lot of extra volatility before settling back down with a resumption of the trend. Each of the broad indices formed a hammer pattern intra-day that changed as the markets fell, rallied and then fell again...hence "The Disappearing Hammer." The DJIA formed a spinning top after a doji on Monday. The spinning top does have a large lower shadow as the DJIA fell to 11,725 before rising to its close. The support buying should come as no surprise as major buying occurred around January 22 and March 10 at this same price level and reversed the down trend at those times. The DJIA has achieved the 11, 836 price target we posted last Wednesday and Friday from the most recent support break. Reread our post on Friday about this important support level. As we stated Friday a successful break below would create an intermediate term price target of 11,054. Big money became buyers in January and March and may be willing to do the same now. The S&P also formed a spinning top on Tuesday with long lower shadow and reflects the indecision before the fed announcement. You will notice that the S&P is still above the 1,296 target we posted last Wednesday. The Nasdaq formed a spinning top (hmm…a common pattern today) also reflecting indecision. The Nasdaq is well above the 2,310 price target for its current down move. Today’s move was a clear support break below the June 12 low.

The Russell (RUT) broke below its head and shoulders neckline today, rallied forming a hammer candle pattern intra-day and then fell to its low creating a large black candle closing below its neckline. The close below the 716 neckline gives a target in the 670 – 673 area as we posted on Friday. Remember the target off the chart does not mean price will go straight to the target, rather it is more likely the RUT will zig zag its way to the target. Also please remember targets are probabilities, not certainties.

Ag-related stocks POT, MOS, CF, AGU and MON all pulled back and are in the process of forming bull flag patterns. CLF confirmed today yesterday’s horizontal breakout. Price target is 125. V formed a piercing line with a bounce off of the 50 DMA. LEH formed a bullish engulfing candle in a down trend. MS formed a piercing line at a potential double bottom. BTU formed a shooting star in an up trend. BIDU broke horizontal support at 310 as well as its 200 DMA. Price target is 276. SOHU broke below its 50 DMA and Friday’s low support after hitting the R1 resistance of Friday’s large black candle. Price target is 64. Monday’s Action Moving Up: GS, CLF, V, LEH, MS, BTU Moving Down: BIDU, POT, CF, MOS, MON, AGU, SOHU, IPI, DECK, STRA, CNX, RIMM, MEE, MA, SCHN, PCLN, MTL, FWLT, X, ESRX, AMZN, NKE Intermediate Term Market Trend: Down Short Term Market Trend: Down

3 comments:

Anonymous said...

DAVE,

IN REFERENCE TO THE SHOOTING STAR IN AN UPTREND ON BTU. IN A LONG CALL POSITION, WHAT DO YOU NEED TO SEE FOR CONFIRMATION TO SELL OUT AND PRESERVE PROFIT... ONE AREA I CONTINUE TO STRUGGLE WITH IS WHEN TO GET OUT ONCE I HAVE A SMALL PROFIT BUT IT HAS NOT REACHED MY TARGET, I SEEM TO STRUGGLE ON WHEN I SHOULD PULL THE TRIGGER TO GET OUT AND TAKE A SMALL PROFIT OR STAY IN THE TRADE AND LET IT RUN, THEN WHAT SEEMS TO HAPPEN IS A SMALL PROFIT TURNS INTO A SMALL LOSS, THEN THE HOPEIUM KICKS IN AND IT TURNS TO A LARGER LOSS.....


THANKS,

TONY S

Dave Johnson said...

Tony,

Hopium is a non-issue. A phrase invented by those who don't know to sound clever. The key is knowing that you know. Your comment clearly states you don't know. When you know, you just do and hopium never appears.

It sounds as if you are not totally determining the exits in advance. Do you have any ideas on choices you could make?

Dave

Anonymous said...

Dave,

I am and have been woking in my exits. Thanks to your classes I have improved greatly!!!! I still have ways to go. In this instance, a small profit turned into a small loss, and the the key for me is a small loss. I got out and am looking for a new entry. Thanks for all that you do.

Sincerely,

Tony S