Three Soldiers Rally the Troops but Market Consolidates

Here comes the wiggle out of the gate. Pre-market futures, as I speculated yesterday, are down this morning on earnings reports from Retailers KSS, JWN, JCP, and ANF. In addition, C and NOK are announcing job layoffs, which is no surprise either.

Energy and Commodity stocks were among the biggest movers yesterday, with Healthcare/Biotechs showing strength. Many sectors showed late day strength, but I will be avoiding Retail and Financials today. I have plenty to look at with the index ETF's and other solid sectors, so I don't want to mess around with Retail or Financials today.

This is the scenario I was looking for to consolidate the market off the huge bounce back from yesterday where the Dow ranged over 900 points from low to high. It may be that the market reverses yesterday's move, but I'm playing it for a consolidation and then continuation of the confirmed bounce off support. My drop dead zone is a move below 8,500 on the Dow and/or a move below 875 on the SPX.

In the Big Picture, this is still a skittish market that has had numerous headfakes and sharp reversals, but in the short term it's a bounce, and even the intermediate term support zone continues to hold. The move yesterday came on huge volume, so the battle will be on today between the bulls and bears, but eventually I expect the short term upswing to continue. I will nibble a little on calls early in the day and watch to see how the Three Soldiers battle the market. I expect a good fight today, but I expect the Soldiers to win.

Here is a 60m chart showing the Three Soldiers picking up a Hammer and marching forward with the Bulls to battle against the Bears yesterday. This is the Dow, but the SPX and many other charts showed the same:
(click on image to enlarge)

Here is a Daily Chart of the Dow for perspective on the bounce yesterday:
(click on image to enlarge)

As always, we shall see who does what today.....

12:30 pm MT: So far so good. The Three Soldiers pulled out a Bull Flag and got the troops ready for another rally. They picked up a Hammer on the 30m charts, and a Tweezer on the 15m charts, so they had plenty of power for the next battle. I cherry picked calls all the way through the Bull Flag. Now the market is rallying to new intra-day highs.

12:45 pm MT: We have a perfect Cup and Handle trying to confirm on the 5m charts, so once again, so far so good. I will probably start taking profits on a portion of the calls now, and nearer to the close, but leave some there for the weekend.

12:53 pm MT: The market is in a Pennant on the 5m charts. I will lock in about 10% of my positions profits on the next leg up on the 5m charts, if we get it.

1:00 pm MT: I sold 10% of my calls for about an average of a 30% profit intra-day so far.

1:12 pm MT: I'm sniffin' the wind, for whatever that's worth.....and I'm smelling the shorts getting more and more tense going into the close. The Dow may take a shot at the 9,000 area before this is done. We could get profit-taking before the close if we go as far as 9,100 - 9,150, but I think the shorts are pumping down the Pepto right now, so I want to see if we get one more leg up on the 5m charts to the 8,975 - 9,000 area. If we do, then I will lock in another 10% of my positions and watch to see how far this goes. If we get to that 9,100 - 9,150 zone then I will sell another 20% of my positions and call it good and hold the rest through the weekend.

1:19 pm MT: The 5's are starting to consolidate, so I may be waiting until the last 20m before the close to lock any more profits ahead of the weekend.

1:30 pm MT: Here is a follow-up to the drop dead zone of 8,500 on the Dow and stopping out of calls. Remember that it's a zone, so give it a little wiggle room. Also, when you get into those areas, check the price action for a moment (you can have an alert come to your email or cell phone and then go check a computer for a few minutes). You will notice on the 5m charts that the Dow only closed below 8,500 twice, and that the battle stayed right on that area. The low may have been 8,472 but the battle stayed right along 8,500 like it should and the index only popped below for a very brief time and not by very much. I like to trade the picture, and the pullback we got of the Three Soldiers was acceptable for the huge move we got from low to high yesterday, and it hung tough right along the drop dead zone just like I wanted it to.

1:35 pm MT: This is our official profit-taking before the weekend. I'm still watching to see if we rally a bit into the close because I think the Bears are going to be wrong about the end of the day. I'm happy with what I've locked in so far and the cost basis of my calls, so I'm just sitting tight.

1:52 pm MT: There is a Descent Block on the 10m charts for the DIA and SPY. It will be interesting to see if we get a final rally here. Even if we don't, the Bulls have won the day by holding the gains from yesterday.

1:57 pm MT: The market broke the other way, so this is done for the day. I will hold what I have and pick it up again on Monday.

2:00 pm MT: Market Wrap: Today ended as a consolidation day with the Weak Hands jumping overboard and drowning in their own fear. Big Money appears to be sitting tight and keeping their eyes on the Big Picture for a potential rally next week. There usually isn't much to say about a consolidation day because it's a consolidation day.....but the market did hold support in the 8,500 area. The Dow finished down 337, which is acceptable considering the 911 point rally from low to high yesterday. The Weak Hands obviously had sell-on-market-close orders, which we can see after the fact. Volume was considerably lighter today, so it's probable that some of the Big Money traders grabbed a little more of what they wanted today and then walked away early for the weekend. That left the Hedgies and other Week Hands to dink around and play their little games with each other into the close. As it has been for much of the past two months, the range on the markets was pretty volatile despite the fact that it was a consolidation day.

The end-of-day selling was a little deeper than I would have wanted, so we'll have to see what next week brings. Monday before the open I would expect TGT and LOW to report the same type of Retail earnings stuff that we have been getting this week, which is warning of a big drop in consumer spending. HD reports Tuesday before the open and it should be more of the same, so I expect a lot of this has been priced in since it shouldn't be a surprise anymore. We will get the Industrial Production and Capacity Utilization numbers on Monday before the open and the PPI on Tuesday and the CPI on Wednesday. So there is enough potential news, along with any news bogeys to move the markets. I speculate that most of the catastrophic news has been priced in, which is why Big Money was willing to push the market on huge volume yesterday. I think this is coming down to cheap stock valuations and that's why the Big Money is starting to buy again at the low end of the intermediate term support zone. Next week should see a continuation of the bounce started yesterday, but as always, we shall see.....