- USA TRADERS THREAD -

Ed Down's view

Key DOW Levels for 12/28
UP Above 10,950
DN Below 10,750

Big Sell-Off
Dow reverses from top of range, drops sharply throughout the session.

From prior commentary, "...Until either the upper or lower boundaries are decisively violated, we are likely to witness continued range bound consolidation in the near term. However, it is essential to closely monitor this "winding up" process, as the eventual break will likely be bold and unequivocal..."
The Dow opened the session with a nice rally this morning and traded precisely to the upper boundary of the large trading range we've been scouting. This is as high as the index reached, however, as the Dow proceeded to reverse sharply from the upper boundary of the range en route to a steady decline to the lower trend line at 10,790, seen in the Daily and 60 Minute Charts. The Dow dropped 156 points from the highs of the session and ultimately closed the day lower by 106 points.

The Dow continues to bounce within the boundaries of the large trading range, which tells us the market is closely watching this pattern. The Dow looks to be flirting with a potential downside break from the range at 10,780, which is the level to watch tomorrow. Given that today's decline covered so much ground, we can expect either a reaction rally or a consolidation to form at the lows, as the index gathers itself before the next move.

Continued weakness should be seen beneath 10,750 and lasting strength will be seen above 10,950.

Short Term Dow

The Dow has formed a clear intraday trend line across the highs of the decline, seen in the 1 and 5 Minute Charts. Watch this line for early signs of strength tomorrow: 10,800.

Medium Term Dow

In the medium term, we are still out of the market and will watch 10,950 up and 10,750 down; using 20 point stops.

NASDAQ & S&P

The NASDAQ and S&P each attacked key lower trend lines that led to big selling today. Look for a continuation pattern to form at the lows before the next move is decided.

Summary

The Dow reversed sharply from the top of the trading range in a fit of selling that led the index all the way to the bottom of the range. The index is now holding at the lower boundary of the range, which we will watch closely for signs of a possible continuation pattern.

Thanks for listening, and Good luck in your trading!

Ed Downs
edowns@nirvsys.com