Market Takes Huge Hit to End the Week

06/24/2008 12:00 am EST

Focus: STRATEGIES

Toni Hansen

President and CEO, Trading From Main Street

Good day! The market had quite a rough session on Friday after a week of the bears at the helm. The Dow Jones Industrial Average ($DJI) fell below 12,000 and closed down 220.40 points, or 1.8%, at 11,842.69.  By the end of the session the Dow futures had hit the support level I had pointed out on the 10th in the 11800 zone after breaking the first support of 12000 that we had been looking at which had held on Wednesday and Thursday. The losses placed the Dow in the position to closed under 12k for the first time since March and took it back into the support from those lows. 29 of the Dow's 30 components posted losses with the index closing down 3.8% on the week. General Mills (GM) had the most difficult time, extending its substantial daily losses with another 6.8% drop. Meanwhile, Citigroup (C) fell 4.3%, while American Express (AXP) lost 3.4%.

The S&P 500 ($SPX) lost 24.90 points, or 1.8% as well, on Friday. It closed at 1,317.93 with all 10 of the index's industry groups losing ground. It closed lower on the week by 3.1%. The Nasdaq Composite ($COMPX), which had rallied throughout Thursday, took back its gains to lead the decliners on Friday with a loss of 55.97 points, or 2.3%. On the week overall the index tied with the S&Ps down 3.1%.  Volatility was higher on Friday thanks to options and futures expiration. Although the indices we're bearish from a technical standpoint going into the day, this fact probably did not help the bulls at all.

Dow Jones Industrial Average ($DJI)

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Friday's session began on a weak not. It experienced the second strong downside gap of the week, but it was larger than Wednesday's and without the opening hesitation. The Dow, S&Ps and Nasdaq all found themselves directly under strong price resistance from previous 15 minute lows on Thursday. They immediately began to move in the direction of the gap and, like Wednesday, could not break the 15 minute highs. By failing to do so right away, it sent the indices down the path yet again for a stronger bias in favor of a downtrend day.

S&P 500 ($SPX)

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The Nasdaq led the decline throughout the morning. It fell the strongest immediately out of the open and then, even though all three indices dropped into 10:00 ET, the Nasdaq went for a third low into 10:30 ET. The S&Ps and Dow held 10:00 ET lows and began to shift momentum into mid-day. This allowed them a greater price recovery into noon. That momentum shifted again, however, into the early afternoon. The S&Ps and Dow formed strong Avalanche short patterns into 13:00 ET and their 15 minute 20 period simple moving averages. Taking up where the Nasdaq left off, they had the strongest mid-afternoon downside follow-through. Three waves of afternoon selling left them at support with the 15:00 ET correction period, but the indices remained weak into the close with congestive action in the final hour of trade.

Nasdaq Composite ($MPX)

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The 5 minute pattern in the indices into 15:00 ET on Friday created a bullish setup despite the upside follow-through in the remainder of the day. Although the reaction was not immediate, it allowed the index futures to pull up in trading on Sunday and early Monday during premarket activity. I am expecting a bit of a bounce early in the week to help the market correct from this most recent selloff. It's going to be difficult to sustain any strong move in momentum on the upside though, so I remain more cautious on setups larger than on the 5 minute time frame. Nevertheless, the larger weekly bias, as I mentioned on Friday, is still bearish.

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