Good Morning, Traders. For four trading days now we have had a very similar pattern repeat itself. One which The Big Picture views as quite bearish in the near term. As the S&P 500 has sold off to the daily trendline (blue) it has done so in a very interesting manner. Let's analyze the chart below together. In the circled area in question, both large bodied candles have been followed by inside days where there has been a lack of volatility. Inside days are formed when the entire range of a trading day is inside or within the range of the high and low of the previous day. When an inside day occurs it is generally indicative that a followthrough move in the direction of the preceeding day is just around the corner. Note how Friday's (4/7) selloff is punctuated by Monday's (4/10) inside day. On Tuesday (4/11), sellers again came into control printing another large body candle to the downside which closed dead at trendline support. Yesterday was then another inside day of light volatility where we again printed a very small bodied candle just after an expansion of range. Note that both of the last two trading days have stopped right at trendline support, yet no "bounce" move by the bulls has occurred. This, coupled with Wednesday's inside day would lead us to believe that the trendline support will not hold in the near term and the next move in the S&P will be downward.

It should be noted that yesterday's overall volume came in rather light (also indicative of further lower prices since we are seeing lower volume on the inside day where the market paused then on the large bodied candles down), so much so that on the Nasdaq it was the lowest volume day of 2006 to date. Remember that Friday is a NYSE holiday and as such the markets will be closed. Expect trading to be light and erratic today, especially in the afternoon session as traders head home early for the three day weekend.

Peter Reznicek is the Chief Equity Strategist and a principal of the Prana Fund, a domestic hedge fund, and ShadowTrader, a subsidiary of thinkorswim which provides coaching and education to its clients on both intraday and swing trading of equities. For a free trial to the full version of The Big Picture or to learn about ShadowTrader's other services, visit shadowtrader.net or send an email to preznicek@shadowtrader.net.