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TRADING FROM MAIN STREET FOCUS LETTER
Editor: Toni Hansen

February 7th, 2005

Indices Bust Through Downtrend Channel and Resistance

Good day! Friday's session came as a bit of a surprise to me, although I didn't get much chance to follow along throughout the day due to a hectic schedule. I was not expecting such a strong showing after so many weeks of selling and a nice bear flag forming on the daily charts. The indices had great resistance with the 20 and 50 day simple moving averages, despite pace picking up going into it in the Dow and SP500. As a result, heading into the day I figured that the pace would turn over within the range in the NASDAQ that had been forming at lows throughout Thursday afternoon and that we would then see a breakdown in at least that index.

The market decided to take a completely different path with Friday's session. After an initial range for the first 15 minutes of the day, during which the 5 minute charts based at highs coming out of the prior afternoon, the market broke higher. It was not just an average break, however. Instead, the NASDAQ busted very quickly through its 30 minute 20 sma resistance and once that was gone, the indices had plenty of room to move until the next resistance hit at prior daily highs from Wednesday.

They hit this zone pretty quickly and it was strong enough to help stall it and push the market into a range into mid-day. The weaker NASDAQ even put in a smaller time frame reversal that triggered with the 11:00 reversal period and led to a correction into the 12:00 ET reversal period, which we've see hold very well over the past week. From there the volume continued to decline until the 13:30 ET reversal period hit and the market broke through its 15 minute triangle and rapidly established a new high of the day.

The initial afternoon breakout was pretty early given how much the market had ran in the morning and off the prior afternoons lows. As a result, we didn't see a very large pop with 13:30 ET. Instead, the market pulled back into the 5 minute 20 sma zone with the 15:00 ET reversal period helping to hold things up. There it formed another small base with the move hugging the highs of the range towards the end before breakout strongly higher to complete the move for the day

As we head into the new week, we are seeing a good deal of intraday extension at highs. The move is a strongly paced one, so any correction to it is likely to start out a lot more slowly. At this point though, I don't see a strong pattern or resistance level going into Monday to trigger it. I'll have to just watch intraday for patterns. The market is too far gone for me to try to look at much on the long side for anything more than a scalp, but there just are not a decent number of shorts as far as swingtrades go either that I was able to come up with over the weekend. This is pretty sad because a lot of times my trade ideas for swings as the week progresses stem from things I found over the weekend that just might not have been quite ready yet for Monday, but might be later on in the week. So, for stocks also, I'll be looking at the gainer and losers lists in the morning to find nice relative strength and weakness to hunt down patterns on intraday.

Economic Reports and Events:

Only stocks with an average daily volume of 500K+ are listed. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing

Feb. 07: Consumer Credit for Dec (3:00 pm)

Feb. 08: -

Feb 09: Wholesale Inventories for Dec (10:00 am)

Feb 10: Initial Claims 02/05 (8:30 am), Trade Balance for Dec (8:30 am), Treasury Budget for Jan (2:00 pm)

Feb 11: -

Feb 14: -

Feb 15: NY Empire State Index for Feb (8:30 am), Retail Sales for Jan (8:30 am), Retail Sales ex-auto for Jan M(8:30 am), Business Inventories for Dec (10:00 am)

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