Bulls and Bears in a Tug of War

Pre-market futures are down considerably on a mini-global meltdown this morning. The U.S. earnings news hasn't been good, but the growing concerns of "nationalization" of the financial system in Europe and the U.S. has stocks trading down even more.

Here is the news tally for the day (pre-market):

Good News: Earnings: GOOG up 0.7%, WYE up 9.5%

Bad News: Earnings: GE down 6.1%, SLB down 2.9%, HOG down 17.3%, COF down 14.5%, PFE down 2.6%, and Economic: "nationalization" becomes the buzzword of the morning as investors become extremely worried about the socialization of financial system.

If your scoring the news, it's about 7 to 2 tipped towards the Bears. That means the glass is only about 1/4 full and I warned several weeks ago that the Bulls had at least come close enough to their senses that even in their desperation they want to see a 30% - 40% full glass to hold up the market. The Bulls didn't get what they wanted and the market is set to gap down right into the lows of the past several days. The bottom of the range I posted for you yesterday is going to get its most severe test yet.

Here is a chart of the Dow:
(click on image to enlarge)

The market is set to gap down (on the DIA for example) right in to the 7,925 - 7,950 area, perhaps closer to 7,950 as the futures climb back a little just before the open. With the weekend coming up and the news tipping more strongly in the direction of the Bears, this is the most likely day for a failure of the low end of the zone and a drop to 7,750. The Bulls may hold the low end of the zone one more time and try to bounce the market next week, but the odds are that the Dow cracks down through the short term support today and starts heading towards the 7,850 area and perhaps even as far as 7,750 in one day. That's a big sell-off in one day, so we shall see what happens.....

8:30 am MT: Intra-day Update: Here's the first Bear Flag forming and starting to roll over on the 15m charts of the Dow.

Here is the updated 15m chart of the Dow showing the Bear Flag rolling over:
(click on image to enlarge)

8:33 am MT: Intra-day Update: The first test was about 7,900 so this next move down could be a drop from the high of the Bear Flag at 8,000 to around the 7,850 area. We shall see.....

8:44 am MT: Intra-day Update: The market (Dow) may kick around in the 7,925 - 7,950 area for a little while. I still expect the general direction to slough off towards 7,850 today, and perhaps as far as 7,750 if the fear is strong enough (although 7,750 is a pretty steep sell-off in one day). The price action has been loose and wild every day this week, which is right in line with the first heavy week of Earnings Season. This has been a bit of a goofy schedule with the number of big-name companies that reported last week, but the overall number of companies reporting this week is much higher than last week.....So far, the loose and wild action is gradually making it's way down. We'll see if that continues.....

12:15 pm MT: Intra-day Update: The Bulls are showing resilience again in the low end of the six day trading range. This kind of back and forth chop and consolidation is creating the image of Bullish determination on the charts, although the range is fairly wide and disorderly. The key tipping point for the Bulls remains 8,250 on the Dow. Bearish puts continue to be challenging because of the tenacity of the Bulls every time the Dow dips to or slightly below 8,000. That's why I gave it the nickname Beardicat Zone. It seems to be almost a Pavlovian Zone, every time we get down here the market rings a bell and everyone goes marching off to buy some stock. The best "paper" trades I have seen or brought up the past week have all been on individual stocks. The market indexes are in grinder mode, but there have been some nice stock moves here and there.

The Bulls continue to show determination to hold up January and not let it fail any further. Once again, the key tipping point is 8,250 on the Dow. The biggest key is to see whether the wild short term price action turns into a bottom, and the first trigger point for confirmation will be a close above 8,250.

I am going to post a video re-cap tomorrow. I'm working out a few bugs due to Blogspot limitations, but I should have something that I can work out for you tomorrow.