Stock Market Profit-Taking Sets In

By: Harry_Boxer

Profit-taking finally set in after 7 out of 8 days on the upside, as the indices were extremely overbought this morning, with the McClellen Oscillator +328. I wasn't surprised to see the market move lower, but they did start out with a pop to the upside, reaching the session highs right in the first few minutes. Then they stair-stepped down in a 3-wave decline from 1220 NDX to about 1196, about a 24-point drop in the first hour and a half or so, and the SPX dropped from 803 to 783, about 20 points.

In the late-morning to early afternoon they worked their way higher in a real slow tedious bear-flag type pattern. Then they rolled over to retest, bounced late in the session but then came back down very late in the session and closed near the lower end of the session trading ranges for the day. All indices were down for the day except for the semiconductor index, which we highlighted in last weekend's Charts of the Week as looking relatively bullish.

Net on the day the Dow was at 7400 down 85.78, the S&P 500 at 784 down 10.31, and the Nasdaq 100 at 1204 down 2.75. The Philadelphia Semiconductor Index (SOXX) was up 1.91 to 226.61.

The technicals were negative, although advance-declines were only 27 issues lower on New York and about 244 issues lower on Nasdaq. Up/down volume was 11 to 7 negative on New York on total volume of a hefty 1.9 billion. Nasdaq traded more than 2 1/3 billion and had 3 to 2 negative a volume ratio.

TheTechTrader.com board was mixed today, with several point-plus gainers and losers. On the plus side, the ultrashort ETFs were positive, as would be expected. The Direxion Financial Bear 3x Shares (FAZ), which dropped earlier to 23.88, closed at 30.40, up 4.05 on more than 60 million a huge reversal there on the heaviest volume ever . The Direxion Large Cap Bear 3X Shares (BGZ) advanced 2.20 to 69.43. The UltraShort Real Estate ProShares (SRS) was up 5.87 to 61.34.

Also on the upside, DryShips (DRYS) had an exceptional day today after announcing a substantial charter of one of its ships, resulting in a big contract. It was up 1.15 to 5.32 on 43 million shares, a clean breakout from a mini base pattern.

Potash (POT) had a strong session, up 1.92, and SunPower (SPWR) advanced 2.72 to 24.37.

Among the fractional gainers, the U.S. Oil Fund ETF (USO) broke out above 30 resistance and got up to 31.03 before settling back to 30.66, up 75 cents on 35 million.

Best Buy (BYY), our Chart of the Day on Tuesday, was up 85 cents to 33.58 on 12 million shares. Mosaic (MOS) at 43.50 was up 96 cents.

Portfolio position Sequenom (SQNM) gained 77 cents to 16.37, and DG FastChannel (DGIT) advanced another 29 cents to 17.31. Canadian Solar (CSIQ), also in our portfolio, had a nice session, at 4.45 up 36 cents, also breaking out to a multi-week high.

On the downside, financials were weak, as you would imagine. Morgan Stanley (MS) fell 3.15 to 21.04, JP Morgan (JPM) lost 2.16 to 24.95, Wells Fargo (WFC) was down 1.80 to 15.42, Hartford Financial Services (HIG) down 84 cents to 8.01, and Bank of America (BAC) down 74 cents to 6.93.

The Direxion Financial Bull 3x Shares (FAS) as a result dropped from an opening price of 7.80 to 5.73 and closed down 1.43 on 358 million shares.

Stepping back and reviewing the hourly chart patterns the indices did well today to consolidate at a high level, and despite the overbought condition did not get hammered today. The current 5 min index chart formations still look constructive and could still work higher from here if support continues to hold, but if there's a breakdown from these levels we'll see a deeper retest.

Good Trading!

Harry

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