Equity bears can't sustain momentum

November 29, 2010 06:00 PM

Range-Bound Trade Continues

Good day! The economic data picks up this week, but the market have continued to hold the daily trading range that began on Nov. 16 when the major indexes fell into the zone of their 50-day simple moving averages. This is a strong technical level for the markets and one that they have been reluctant to break. After falling quickly into that level at the beginning of the month, however, slower reactionary moves are typical and this congestion is similar to what the market experienced after pulling back sharply at the beginning of August.

Dow Jones Industrial Average (Figure 1)

The session began on Monday with hopes of strong Black Friday sales offering a boost to the bulls, but the technicals remained bearish and a major sell setup triggered in the early morning hours in premarket trade in the index futures. This selling resumed following the 9:45 a.m. ET correction period intraday after the indexes had gapped slightly lower out of Friday's afternoon trading channel. This continued the move off the upper end of the daily trading range that began with the gap lower on Friday morning.

Although the selloff was a strong one, the bears were unable to continue to push prices lower after 10 a.m. ET. At that point the index futures had already established three waves of selling on the all-sessions time frame, which includes premarket trade, and the move was on the upper end of extreme for the 15-minute time frame. Major intraday support levels were also hitting at that time. This included a closure of the Nov. 24 gap in the Nasdaq Composite and previous lows in the Dow Jones Industrial Average and S&P 500.

The pace of the selloff, however, prevented the market from staging a rapid recovery. Instead, the momentum had to shift on the smaller five-minute time frames throughout the remainder of the morning and first half of the afternoon. A strong buy setup finally triggered shortly before 14:30 ET. The base at the upper end of the mid-day trading range helped the breakout succeed and the late afternoon rally was on part with the early morning decline. By the end of the session all three of the major indexes were back in the trading zone from Friday afternoon and had recovered most of their intraday losses.

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About the Author

Toni Hansen is president and co-founder of the Bastiat Group, Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges.