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KEY REVERSAL DAY OR JUST A SHARP PULLBACK W/IN RALLY?

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By Harry Boxer, The Technical Trader (www.thetechtrader.com)
We had two very distinct markets today. The market gapped up early, pulled back and then ran to new highs for the last three-day rally, getting up to resistance. At that point the market went into a very orderly sideways coiled flag-type consolidation pattern, and it sure looked like the market would take off again in another leg up in the afternoon.

But when a couple attempts to break out failed, the market started heading south with a couple hours left, breaking three levels of support on the way down and closing near the lows for the session going away.

So it was a very negative reversal day, and I’m going to have to re-examine all the charts and technicals to see if this is a key reversal day or just a sharp pullback within the confines of a rally. But it’s not a good day, and individually most stocks reversed very negatively.

Net on the day the Dow was down nearly 82 after being up a like amount earlier. The S&P 500 was down 7 after being up nearly 10 earlier. The Nasdaq 100 was down nearly 15 after being up about the same amount. So we had about an equal reversal from where we were up in the morning to where we ended down.

After being up sharply in the morning, the technicals ended slightly down, but not too badly. New York was about 17 to 16 negative on advance-declines and about 16 to 15 on Nasdaq. Up/down volume was about 5 to 3 negative on New York with a total of nearly 1.6 billion traded. There was 1.85 billion traded on Nasdaq with about 1.1 billion of it to the downside and about 750 million to the upside, so about 11 to 7 negative.

A review of my personal board showed a very mixed picture because of the reversals. On the upside, Veritas (VRTS) continued to hold most of its gains today. Although it did back off 1.60, it was still up 2.30 on the day on very heavy volume on a good earnings report. That was the standout leader today.

Other than that, there were very few gainers to speak of. Qualcomm (QCOM) was strong most of the day, up nearly a point, and BEA Systems (BEAS), a stock we haven’t mentioned in a while, had a very good day, up 42 cents.

Most low-priced stocks were fractionally mixed. On the downside, stocks of note were QLogic (QLGC) down a point, Nvidia (NVDA) down 84 cents, and IBM (IBM) 79 cents. Amgen (AMGN) got hit for 1.22 and was the loss leader on my board.

Tomorrow’s going to be an important day. I thought today would be, and the market sure looked strong in the morning when we broke out, but it looks like they gave us a head fake.

We’ll have to see if we hold support tomorrow. We’re probably in for some key testing, and we’ll see how resilient this market can be. Support levels we’ll be watching tomorrow are short-term at the 980 level on the S&P 500 and below that 975. If we take those levels out the market may be in trouble. Nasdaq 100 support levels would be around the 1248-50 zone and then the 1230-33 area. Those are key short-term levels, the latter levels being the lows for this last move down that if we retest successfully it can result in some strong upward movement.

But a downside break of those key secondary support levels could result in quite a bit of technical damage.

Good trading!

Harry