Stock Market Eases Lower

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By Toni Hansen | Published 01/18/2006 | Futures , Stocks | Unrated

Stock Market Eases Lower

Good morning! The market action on Monday to kick off the new week after the extended weekend was very similar to Friday's session heading into it. The indices fell into a rather narrow range early on out of the open. They attempted to make a lower low intraday, but held the 10:45 ET reversal period. Unlike on Friday, however, the upside over lunch was more subdued ahead of the slow selling that crept in past noon.

As on Friday, the market managed to pop quickly off early afternoon lows. In the S&P500 and Dow Jones Ind. Ave. it set up in the form of a double bottom called a 2B. This occurs when the market makes a very slightly lower low, preferably at a slower descent than the first low was made. It is enough to trap new shorts and flush out weak longs and often takes place with lighter volume coming out of the second low as compared to the first. This is shown on the 5 minute charts that the first low was at about 12:30 ET with the second one at 13:15 ET, which is circled in green.

Earlier highs on the day and the 30 minute 20 sma resistance in the NASDAQ held well throughout the remainder of the day. The market had managed to pop back into this zone after basing along the 5 minute 20 sma in the S&P500 and Dow. That same moving average then served as support after correcting from the resistance, pushing the market into a triangle pattern on the 5 minute charts into the close. The NASDAQ formed a 5 minute cup with handle between 14:00-15:30 ET, but didn't have enough time to follow through before the end of the day.

A lot of the action on Monday took place after the regular trading session ended. Intel Corp. (INTC) and Yahoo Inc. (YHOO) both fell sharply after hours when they failed to meet analysts' expectations. INTC dropped 9% to $23.10, while YHOO hit $34.70 with a 13% price decline after missing estimates by just a penny a share, while their revenue, excluding distribution fees, came in at forecasted levels. INTL missed by 3 cents a share. IBM also missed estimates, but it chopped back and forth a lot more instead of plummeting like INTC and YHOO. Additional news on IBM came in the announcement of a Securities and Exchange Commission probe into its expensing of equity compensation for the first quarter of 2005.

There still isn't much intraday that is great for forming a correction up off this selling. A strong downside gap into the open seems likely at this point, however, and since we've had several days of gradual selling this could be enough to flush out the weak hands. As a result, I'll be looking mainly on the long side out of the open and hoping we see an open into some strong support, such as the 200 sma on the larger intraday time frames like the 60 and 120 minute charts or the 50 day moving average. It the market starts moving back up in the premarket ahead of Wednesday's open it will take away some of the impact, so trading near premarket lows before the open would be ideal.

Economic Reports and Events
Jan 18: Core CPI and CPI for Dec. (8:30 am), NY Empire State Index for Jan (8:30 am), Net Foreign Purchases for Nov. (9:00 am), Crude Inventories 1/13 (10:30 am), Fed's Beige Book (2:00 pm)
Jan 19: Building Permits for Dec (8:30 am), Housing Starts for Dec (8:30 am), Initial Claims 01/14 (8:30 am), Philadelphia Fed for Jan (12:00 pm)
Jan 20: Mich. Sentiment-Prel. for Jan (9:50 am)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stock's earnings date before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Jan 18: DOX (A), AMR (?), AAPL (A), ASNL (2:00 PM), CIT (B), CNB (?), EBAY (?), FHN (A), HCBK (A), HBAN (B), HTCH (A), JPM (B), MEL (?), NTRS (?), PH (10:00 AM), QLGC (A), RDN (A), STX (A), LUV (B), SPSN (A), STT (B), STI (B), SNV (?), TCB (?), BK (B), VCP (B), WM (A)
Jan 19: BBT (B), BZH (B), COF (A), CMA (B), CREE (?), DHI (B), FFIV (?), FCS (B), FSL (A), GNSS (A), HDI (B), HYSL (A), IGT (?), NITE (B), MER (?), MCHP (A), MOT (A), NFB (?), NVS (B), PFE (B), RMBS (?), SFA (A), SLM (B), UNP (?), UNH (B), WB (B), XLNX (?)
Jan 20: AT (?), C (B), GE (?), JCI (B), KEY (B), RF (B), SLB (B)
Jan 23: AXP (?), ACF (A), ARBA (A), AV (A), BAC (B), CBST (A), ET (A), ETN (B), F (B), MSPD (?), PPC (B), SKM (3:00 pm ET), TXN (A)
Jan 24: MMM (B), ADTN (?), AGR (?), AAI (B), AKS (?), BJS (?), EAT (B), BNI (B), CA (?), CTX (A), CKFR (A), COH (B), GLW (A), CSX (?), DD (B), EMC (B), EXTR (A), GDW (?), HMA (B), JNJ (B), KMB (B), LAB (B), LXK (B), LU (B), NFLX (?), NOC (B), PPP (?), RFMD (A), RYL (A), STLD (?), STM (A), SUNW (4:30 pm ET), NYT (B), TMA (A), TDW (B), UTX (B), ZION (A)
Note: All economic numbers and earnings reports are in lines with those compiled by Yahoo Finance. Occasionally changes will occur that are made after the posting of this column.

Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.

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