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Morning Cup of Jo


Stay tuned and good luck...


"It's so much easier to be enthusiastic – especially when there are grounds for it."
-- Malcolm Forbes

Market Comment:

Good morning and buckle your seatbelts for what should be another exciting day in the markets. To begin, we have changed some data in "Eye on the Ball," seen below. The baby sisters, Russell 2000 (RUS), short-term (ST) support and resistance have been slightly moved higher, simply because the ST trend is upward sloping. As for the others, they remain status quo; which is not to say the markets haven't been exciting over the last week. Actually, it's quite the contrary.

We were going to put out a 'Jo' yesterday discussing Tuesday's action but our website was unable to be uploaded. This was actually a blessing in disguise. Now we can discuss yesterday's preceding action as well. Tuesday began with Bernanke's Monday evening hawkish comments – based on the core PPI being up 0.3% – hanging over the market's head. After about 2 hours the markets began to shrug off the past and begin to rally. By 1:00 all sisters were hitting new highs on the session. Just then, like a tornado through a wheat field, the markets all reversed and closed at the low of the session and below the prior 4 days lows.

This created what is called in Japanese, candlestick charting a "Bearish Engulfing." Traditional technicians call it a "Bearish Outside Day." The definition is: when the prices in one day go to a higher high than "X" previous sessions and closed lower than "X" previous sessions. The larger the "X" is, the more significant the meaning. Let's take a look at the ST charts of all four sisters and you can see what I'm talking about.

Click on images for full screen:

As you can see, the engulfing occurred just as the sisters were hitting our posted ST resistance levels. Wednesday, I led the morning discussion with our guys on this very topic. We discussed the technical meaning to the markets if there was to be a follow-through day on higher volume.

Yesterday, much to our surprise, the markets rallied back as the 10-year treasury sold off. The only downside to the actions was conviction. I've placed arrows on the previous charts pointing out volume rate. All came in lower than the average daily volume (ADV); indicating a lack of sellers versus a large group of buyers.

As the sisters struggle with resistance, it is particularly important that you "Keep your eye on the ball." It should be interesting how our new service, "Week In Review," plays out tomorrow after the close. Stay tuned and good luck.

Until next time:

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No positions in stocks mentioned.

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