The good, bad and unknown

First let me start with a warning I always give when it comes to anything Fed related; "Beware the knee jerk reaction". For whatever reason, there has been a long history of Fed/FOMC statements that see an initial knee-jerk reaction, only to be reversed shortly thereafter.

As for the optimistic outlook on the market's end of day trade...

While the web is full of distinctions a to what a "tweezers bottom reversal" is suppose to look like, the most authoritative work on the subject is definitely Steve Nison's Japanese Candlestick charting.

As for Nison's definition, today qualifies as a tweezers bottom.

The lows in the SPY yesterday were $128.87 and today $128.87. A tweezers bottom doesn't need to be exact lows, but they need to be very close; today qualifies.

 The NASDAQ 100 does not qualify, the NASDAQ composite does as do the DIA above.

The Russell 2000 put in a different type of bottom reversal called a Harami or in western vernacular, an inside day with today's candlestick body falling within yesterday's and proceeding a downtrend.

 This is the last valid tweezers bottom I can find on the SPY, which led to a reversal.

And the last Harami I can find which also led to a reversal. While I don't have statistics on the validity of these formations, the two above that I have showed you on a historical basis, were the only two, meaning there were no similar patterns that failed.

Interestingly, as for the stocks I track which have closed up or down 5% or more with their volume relationships, today saw a strong dominance in Close Up 5+% on rising volume of 54 stocks; 67 total closed up. As for close down 5% or more, there were 32 closing down 5%+ on rising volume and another 13 on falling volume for 45 total.

Unbelievably, there was a dominant price/volume relationship today-Close UP / Volume Down- 2298 stocks, with followed by Close Up / Volume Up-1552. In third place Close Down / Volume Down 1513 and finally Close Down / Volume Up at 1219.

While the dominant relationship is usually considered bearish as volume was down, I find it interesting that the first and second most dominant P/V relationships both had more stocks closing up then down (3850 closed up / 2732 closed down).

The Dow was pretty evenly distributed among the 4 P/V relationships.
The NASDAQ was barely dominant with 30 stocks closing up on falling volume.
The Russell 2000 was Dominant in Close Up / Volume Down beating out second place by about 220 stocks.
The S&P-500 was just barely dominant at Close Up / volume up 149
The NADAQ was pretty evenly distributed

I think the internals were surprising in how many more stocks closed up today.

Also surprising was the NASDAQ's breadth charts

 Today's % of stocks moving above their 50-bar 15 min average went from about 10% to 70% today. The action in the QQQ itself, didn't seem like this would be a likely outcome.

Furthermore, the % of new 15 min 250 bar lows was near 50% yesterday and even during the sell-off late today, it was only at about 10%, and intraday for most of the day, around 2-3%.

As for the bad...

The market was clearly disappointed in the lack of a hint regarding QE3, but was this really expected at this point before QE2 has even ended? QE 2 wasn't announced until well after QE1 ended. This makes me think the reaction today was more on the retail side as I believe Wall Street knows better then to expect an announcement regarding QE3 before QE 2 has even ended. Furthermore, the Fed has made clear that they intend to asses the economic situation after QE2 before deciding what steps they'll take, such as rates, asset sales, and further easy monetary policy.

Also on the negative side was the price volume relationship. A strong relationship of close down / volume up would be a strong indication of short term capitulation. On the other side of that coin, the majority of the market closed up today, which is amazing considering the very dull price action with the end of day sell-off.

All in all, I would continue to keep adding the stocks I feature as top/short candidates and keep looking for strength in these stocks as they move toward their neckline or above it. Any stock moving above the neckline should be checked for distribution, that is ultimately the strongest set up among the watchlist.

If you do not have a decent charting package in which you can create these watchlists, please check out www.FreeStockCharts.com. This is realtime intraday data with no 20 minute delay like most charting services that are free and it is browser based so you can take it anywhere.

Thus far in after hours trade, the market has regained between 30% and 50% of the late day sell-off.

If you have specific positions or portfolio strategies you'd like to discuss, feel free to email me any time.