Henry Ford's MarketWatch LIVE!

5:53 PM
WEEKLY ROUNDUP(I'll add notes throughout the weekend as I do my analysis)
Intraday we took out the old highs in the DOW that had been left over from 7/31 which was good...but...
We didn't close above the closing high, which was bad. That means we now have the potential for a double top in the short term. Monday is probably going to be make or break...We must get a decisive break above the July 31 high that sticks. Here is the pattern I am concerned about...

We broke out of the major pattern which is a symetrical triangle on 8/8 (bounded by the red and green trendlines). Triangle breakouts can see retracements to the breakout level about 57% of the time...
That's strike 1
.
We formed a short term rising wedge (between the yellow lines) from 8/6 to 8/9. RISING WEDGES are strong bearish setups ..
Strike 2

We broke the previous highs of 7/30 on Friday, but were NOT able to close above that level which would confirm a higher-high pattern we have been looking for....
Strike 2 1/2.

If we can decisively put that 7/31 high out of business on Monday, we are in for a great run...IF the Wedge fails, we are going to have one more trip down to the well. This would not be all bad...after all, we have just had a 4 day run that put 700 points on this index with little retracement along the way. It would be quite natural to see a pullback to recharge batteries and allow for some profitaking to add liquidity back into the markets which is what retracements are all about. At this point, I have to say a pullback looks probable, so we will be hedging here to wait and see ultimate direction. Watch 8650 for a break to the downside and 8850 for confirmation of an upside breakout.

Now...If we are right about the RISING WEDGE pattern, here are the stats to keep in mind:
Rising wedges fail 24% of the time. If you wait for the breakout(down) the success rate rises to 94%. Premature breakdowns will occur 22% of the time and 53% of the time there is a pullback to the breakdown point before continuing on to ultimate projected target. That target for this type of patten is 15%-19% with average of 20%, so that would project a pullback of about 150 points on the DOW...a mere sneeze in this environment. 63% of the time this pattern once confirmed makes its target.

Based on Fibonacci retracements I believe that if we do get that break we could probably pull back further thatn that to the 8475 level..particularly in light of the high volatility moves we have been seeing over the last couple of weeks.

If taken by surprise and we do get a breakout on Monday to the upside, I see the next target as 9400 DOW minimum in very short order...It is only a question of now or later.....be back in the morning.
:: Henry Ford ::

3:55 PM
UPDATEAs we move into the close, it appears that things are settling back to the level of yesterday's close. We will wait for the close and see if we can give some insights for next week's planning.
:: Henry Ford ::

3:50 PM
NASDAQ TECH INDEXTwo conflicting patterns at work here...we have already discussed the larget symetrical triangle which is represented by the thin green line at the top and the heavy red support at the bottom. There is another shorter term pattern which is created by the thick green line...this is a rising wedge. This one is a bearish pattern and has a success rate of about 76%. If you wait for a break to occur (I like 5%), its success rate shoots up to 94%. 22% of the time it will have a premature breakdown and if successful portends a drop of 15 to 19%. Which of these patterns is going to win out?...too soon to tell, so we will wait for a break and confirmatin.

:: Henry Ford ::

3:43 PM
UPDATEUnless something else interferes between now and the close I will put up a Nasdaq chart with the wedge formation and give you the stats on that pattern
:: Henry Ford ::

3:42 PM
UPDATELooks like we are stalling here...(every time I say that we see a breakout rally, so keep your fingers crossed).
:: Henry Ford ::

3:38 PM
UPDATEFloor traders are getting their MOC orders in place in the next five minutes...that should set the tone for the closing bell. We are getting a rising wedge on the NDX100 which could be negative for that index next week. We still aren't seeing fear set in enough to get the shorts to give it up, but pressure is mounting.
:: Henry Ford ::

2:38 PM
UPDATEOK...hedges are off and we are running up. This could all collapse in a 3PM bubble, but so far looks promising...Next resistance 8842 area
:: Henry Ford ::

2:09 PM
UPDATEUpper Fibonacci line is still acting as resistance here. 13 hour RSI has dropped into the 60's because of this sideways accumulation and the large triangle(red/green) is getting close to closing...probably Monday sometime. Breakouts or breakdowns usually occur around 80% of the way to closure. As I mentioned before, the real test for the DOW is up at 8761.86 That is brickwall resistance and once through there should let loose the bull-dogs of war.

:: Henry Ford ::

2:06 PM
FOR THOSE WHO HAVEN'T SEEN IT YET

:: Henry Ford ::

2:05 PM
UPDATEOK...lunch hour drawing to a close and we are back...our offering hasn't done anything either way so far...so we will see what they have in mind...keeping the hedge on for now.
:: Henry Ford ::

12:13 PM
UPDATEInto the lunchtime scalpers period ...won't know any serious direction until after 2PM. Remaining floor traders will probably move things around durning this period taking out stops. We are hedged against any sudden drop to the support lines discussed ....hopefully will be just a small sacrifice to the "Bull Gods"and they will take it as a sign to rally. Gonna set my trading alarms and take a break...be back if anything breaks.
:: Henry Ford ::

11:50 AM
UPDATEHere is the NDX 100 chart I promised you...look at the similarities to the SP and DOW charts....looks like things may finally be getting in synch again. It is behind in that it hasn't taken out its intermediate term declining triangle resistance(Green line), but it is getting close and has the support of a short term support line (in yellow).Next resistance is 948 which was yesterday's high, but the real number for a tearaway is 992, so a ways to go to make up for its sins.

:: Henry Ford ::

11:42 AM
UPDATEWell...they are testing the upper Fibonacci line as well as the highs of 7/30 which is 8761.86. This is the number that could really start a meltup if taken out decisively...I just don't see it happening without more consolidation but I have been surprised before, so we are prepared to go either way.
:: Henry Ford ::

11:03 AM
UPDATENot much going on right now...we are drifting sideways in about a 120 point range. Last hourly candle was "inside" the previous, so high and low of today's action will be next breakout watch...we will start our analysis of NDX 100 in a little while. Marking up the charts right now.
:: Henry Ford ::

10:08 AM
UPDATESorry for the messiness of this chart, but there is a lot going on here...Blue lines represent the Fibonacci support and resistance lines drawn from the low 3 days ago to yesterday's high. The heavy green line is the resistance line from the long term symmetrical triangle pattern, while the red line is the lower ascending support of that same pattern. As we said yesterday, on a successful break of a triangle pattern, about 57% of the time we will have a "throwback" or retracement of price back to the breakout level which gives another opportunity for purchase. Many traders will play the odds and wait for the pullback for their initial buy, while others will buy a partial position on the original breakout and add on the retracement. Just below the descending trendline is the 38% Fibonacci retracement which will give added support to any retracement attempt at this point. You can see a short yellow rising trendline as well which is connecting the retracements as we stairstep up. It appears that this will also be close to intersection with the other trendlines we have drawn, so you can see the obvious point of convergence for all those patterns is a few hours to the right of where we sit right now. Should all of those support lines fail, the next line of defense is the 50% Fibonacci retracement line. 38% Fib is 8461, 50% Fib is 8379. (Fib line that says 68 should be 62...digital dyslexia)

:: Henry Ford ::

9:52 AM
UPDATEAs expected, weak open here after the exhuberance of last two days...we have a couple of natural inflection points...I'll put up a chart as soon as I finish marking it up.
:: Henry Ford ::

9:06 AM
GOOD MORNINGPre-market has been drifting lower all night, but on extremely low volume. As we said at the end of the day yesterday, we have a couple of factors that warrant a pull back in the short term.
A. We are very close to the major declining upper trendline of a much larger triangle of which yesterday's smaller triangle breakout and 230 point run was just a small subset. This is a natural point of resistance and is liable to take a few stabs before penetrated. This is also the top end Fibonacci line.
B. All cyclical indicators like the 13 hour RSI and MACD have been pushed towards the top of their ranges.
C. After 660 points in 2 days it is reasonable to expect a "pause to refresh" that allows for some profitaking and consolidation before another assault on resistance.
D. We are within 32 points of the most recent high. Once through that level we will have an all important higher-low/higher-high pattern that will set the stage for the real rally which will get the bears dumping their shorts and will be fueled by momentum players who don't want to be left behind.

A warning on revenues from Emulex (EMLX) has the storage sector on the defensive as well as the Nasdaq. As a separate matter, some traders are blaming weakness on Wall Street Journal story stating the Fed is not likely to cut rates next week. Of course, the fed funds futures have been telling us this all along, so it should hardly be viewed as a breaking story. Lost in the noise was a higher than expected Productivity report that came in a 1.1% as opposed to the consensus of .6%.
:: Henry Ford ::

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