Fed Pauses

Posted by downtowntrader | 8/08/2006 11:35:00 PM | 0 comments »

The Fed paused today and Bulls could not capitalize on the news. However, bears didn't exactly take over either as the decline was not drastic. It will be interesting to see if the markets follow through tomorrow or if we get a reversal. All of the indices are under resistance and would need a sharp move to reclaim support. There were a couple clues given to us today though. First, smallcaps easily declined more then the other indices by a wide margin. Second, Materials, Industrials, and Consumer Discretionary were the days worst performers. These may be the hardest hit sectors once the downtrend resumes in earnest. Interestingly, Information Technology was up with Consumer Staples as the best performers.

Here is chart of the Russell Index. It is under all the moving averages and looks to have broken a little triangle continuation pattern which is part of a bigger pattern. You can use IWM as a proxy for the Russell for those interested.
Here is the weekly chart of the Russell. It would probably get ugly really fast if the lower trendline was violated. The ratio charts near the bottom continue to show underperformance by smallcaps vs other markets.
Here is an updated chart on the gold contract. Notice it is walking down the trendline I highlighted last week. It was interesting that the Dollar actually was up today and Gold down with what should of been dollar bearish news. If the dollar tanks tomorrow then gold may get the push it needs.
Since the bears didn't take control today, there is a chance that there is a snapback rally tomorrow. It would probably be sharp as shorts rush to cover. Although I doubt any rally would last too long, I would be looking to get some momentum trades in. With that in mind, I am highlighting a few flag patterns. These could offer a quick gain if the markets rally.

First up is Flag's Flag :D.
Next is ICLR.
And then IMKTA.
And if the markets decide to follow through with the next wave down, then I am looking for stocks in sectors such as the ones mentioned above that would suffer in a slowing economy.

BBBY seems to fit the bill perfectly. They are in a downtrend and are being hurt by several factors such as the ailing housing market and now the weakening economy. They broke a huge descending triangle and it looks like they retraced back up to it and failed.
ATI tried to break out of the triangle but it may of been a whipsaw. I would wait for confirmation on this one.
ODFL is in the transports group and that group has been getting hammered. If they break below the previous pivot low, then I see a trip to the 200sma.
TS looks like a failed breakout and may pick up steam to the downside.

Other shorts highlighted here recently such as TIE, CRDN, and HAL continue to look good to me. Also, TraderJamie has highlighted CYMI and LRCX recently and those look good as well.

Good Luck,