Toni Hansen writes that the Nasdaq is continuing to form a potential cup-with-handle, while the indices are continuing to show a strong inclination to continue to hold the previous weekly lows from early July for about two more months.
Toni Hansen writes that market momentum has remained stronger on intraday upside than vice versa, so this favors more buying into Monday, but the larger intraday time frames are favoring a reversal off highs once again rather early on in the week.
Second quarter earnings are expected to have fallen just over 22% since Q2 2007. Third-quarter forecasts have also been lowered. Given the current weekly time frames in the indices, however, there is a strong probability that the market will be able to hold the lows for the remainder of the year, at least in the Dow and S&Ps.
Toni Hansen's bias into the new week is higher on the 60-minute time frame, since the correction from an extreme move lower can build on itself and easily gain momentum on the upside once the upper channel line from the congestion off the lows breaks.
Thursday's session ended at support in the indices from the end of last week and the beginning of this at prior highs and congestion zones. This creates higher potential for a bounce in the morning. On the whole though,Toni Hansen is favoring further downside into next week.
The market is attempting to pull up into a second high. If it can make a second low on the 30-minute time frame with lighter volume and a more gradual pace than Wednesday's intraday pullback, then it will allow the indices to break through this week's highs ahead of the weekend.
Heading into this week Toni Hansen was looking for a larger daily correction off the 20-day sma resistance. The congestion along highs, however, broke on the upside on Tuesday following the gap recovery and it's now looking as though that pullback is going to take a bit longer to develop.
The index futures are trading significantly lower following Monday's earnings news, so chances are high, Toni Hansen writes, for a large downside gap. In such a case, if the market breaks the first 15-minute lows, then odds are higher for at least a trend morning lower, if not a trend day.
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