Nightly Wrap

Today's big news, today's only news was the Dallas Fed's Texas Manufacturing Index which came in quite below expectations of 17 at 12.8. The worst part was what was in the report, higher materials and labor cost with slower order demand. That was it for today. I suspect the gap we saw down was very similar to the overnight action on Monday in Europe where we saw flash crashes, today's drop in the NASDAQ this morning wasn't quite a flash crash, bu an over .80% drop in 15 minutes or so, came darn close. As I warned last night, the low volume this week will create volatility. I also warned early this morning not to overreact to flash crashes as they typically will recoup part or all of the drop. Computers are basically doing all the trading and in order for them to generate returns on the spread and volume rebates, they need to create volume, taking out the stops in the NASDAQ 100 this morning did exactly that, but as we saw through the rest of the day, the NASDAQ recouped a lot of its losses to end the day down .02%-a far cry from -.80%. The major averages today averaged a decline of -.04% another nothing day. Interestingly, the dominant price volume relationship was close up/volume down followed, not surprisingly by close down volume down. The second relationship tells us nothing, the first is the most BEARISH, yes bearish of the 4 possible combinations. It shows a reluctance of traders to chase prices higher. I'm not sure we can take a signal from it though as the averages were mixed. The Dow today was the weakest link, partly because there were 18 losers and partly because bellwethers like MCD were taken down and in MCD's case, in a very bad technical fashion.

As you can see by the daily 3C chart, MCD went into distribution as it formed a top. There was a false breakout and just look at the 3C reading on the false breakout (inside the red box)-horrible distribution. A false breakout usually leads to a quick move down, in this case it broke support, then retested it as resistance and failed. 3C is now in a negative leading divergence on MCD, the worst kind.

WMT's chart is also getting ugly, we talked about retailers weakness recently as well as grocers. KO is another chart that's starting to get ugly in the DOW as well as T which is forming a triple top-I doubt it breaks out.

DIS has a similar chart and negative divergence.

Financials held up the S&P today as AIG received $4.3 billion in credit lines. As I stated earlier today, I doubt that BAC breaks resistance at $13.40, guess what the high of the day was? $13.40 and closed at $13.27

Tomorrow is relatively light in the economic news, we have the Case Shiller Home Price Index, the Richmond Fed Survey and US Consumer Confidence. SRS could be a trade in the spotlight tomorrow.

Keep an eye on the KIRK trade highlighted today. The parabolic move up was met with negative 3C divergences. When KIRK breaks below the $13.90 support area, it's probable to see the bell-shaped return to the mean, translation, a parabolic move down.

JSDA did pretty well for us today, I was hoping for a stronger close, but +12% for a day isn't bad and may produce the follow through buying we saw in XOMA's 215% run last week.

I have preferred lately to feature the trades on the site with charts so you understand them better, but since we are seeing the cats and dogs take off and it won't last long, I've listed them on the trade list under the November/December trades. The ones that don't have stops do not because the stop will depend on the breakout. What you need to do is put these trades into an alert system so if they hit the limit order, you know and you can get in quickly. As for stops, the trades that do not include them will have to have the stops determined on the breakout, just email me.

All in all, the market is still showing significant distribution and the action the last several weeks has shown very little commitment on the part of the bulls-after all, it's been 3 trading weeks since we've seen even a 1% gain which isn't that impressive to start with.

As for longer term trades (the trades listed tonight are short term and SPECULATIVE), we'll see how the market develops.

Right now the Asian markets are trading modestly lower, it seems they are finally reacting to the Chinese rate hike over the holiday. The Dollar is trading lower, that's what seemed to spur the afternoon recovery, still the correlation isn't quite right between the dollar and the markets-low volume and HFT's being the majority of the trading can certainly be the reason.

 I don't expect we'll see any real great trending opportunities until we get into the new year so set those alerts on the cats and dogs trades listed last night and tonight. 5 of 6 listed last night closed green today.