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Overheated Market Finally Lets out Steam
By Harry Boxer, The Technical Trader

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The session started out with a gap down and then a very neat orderly intraday down channel in the morning ,as the market sold off steadily. Around the lunch hour they tried to rally, which failed at intraday declining moving average resistance. That failure accelerated the decline into the afternoon, when the indices retested important short-term support near the Nasdaq 100 and S&P 500 40-day moving average on the hourly charts.

They bounced off of that ,but were unable to break through resistance again, not only the moving averages but the intraday declining tops line resistance ,as well, and the markets sold off, taking out the earlier lows just slightly on the close.

The Dow was down 64 and change, the S&P 500 down nearly 11, the Nasdaq Composite nearly 33, the 100 26 1/2 , and the SOX Index around 4 percent, down 16.

It was a nasty day technically which confirmed the price action. Advance-declines were 3 to 1 negative on New York and a little less than that on Nasdaq. Up/down volume was nearly 4 to 1 negative on New York, on total volume of about 1 ¼ billion. Nasdaq volume was close to 1.5 billion, with 1.2 billion of it to the downside, or about 4 1/2 to 1 negative.

Reviewing TheTechTrader.com watchlist, it was a nasty day for the tech stocks. The SMH, Qlogic (QLGC) and Broadcom (BRCM) each were down 1.14, coincidentally. OmniVision (OVTI) suffered its worst spill in months, with a negative earnings guidance and possible restatement of earnings. The stock was down just under 8 points today on nearly 40 million shares, a huge breakaway gap to the downside on heavy volume, obviously very negative technically.

Other negative stocks of note, Mamma.com (MAMA) backed off 46 cents & Sigma (SIGM) gave back 39 cents. Dendreon (DNDN) fell 60 cents, deCODE genetics (DCGN) was down 4 cents, and Ariad (ARIA) fell 42 cents, highlight losers in the junior biotech sector.

On the plus side, IPIX on some positive news soared ahead nearly 3 ½ points early in the day, but gave back a big chunk of it, closing up 1.12 on 66 million shares, but way off the high by about 2 ¼. One of our recent Charts of the Week, IMAX soared 82 cents on strong volume after a company conference call. That broke out of a key short-term resistance level and acted great today .

Stepping back and reviewing the overall patterns, after the overbought condition caused a sell-off and futures were lower pre opening, the market sold off strongly today. It closed at the lows for the day and at key short-term support around 1470 on the Nasdaq 100 and the 1130-31 zone on the S&P 500.

It would be key that the market follows through to the downside to confirm a trend change. So far, we’re doing some very important testing, and if it does not hold we may be in store for some additional weakness over the next few days.

Good trading!

Harry