Play by Play Friday for 09-02-11

Intraday:

                We started off the day with a historically bad jobs report which pushed us down from about 1204 to 1176 (1).  We then began trending sideways trading between 1176 and 1186 up to the European close (2).  From about 10:00 we began setting up a triangle pattern which broke down nearly right after the European close (3).  Over all, we traded within a slightly downward trending channel for the whole day.  If we take the price action from yesterday’s close into account we can draw a potential bullish falling wedge.

Daily:

                On the daily time frame our indicators have all moved into agreement.  The ADX is back in a bearish alignment the MACD histogram has put in a down tick with the signal lines beginning to turn, and the stochastic remains bearish after yesterday’s turn.  Volume on the day was again pretty much average indicating that we are still in the formation of a pattern.

                We continue to set up our bearish flag pattern for the moment.  We have put in a continuation pattern in the form of a large negative candlestick.  The bad jobs data that came in before the close pushed us through the first gap support level and sent us down toward the second.  Our overall price movement put us just below the second gap support level and right around the 23.6 Fibonacci retracement level. 

We could reverse from here if something good happens over the weekend but I think we will probably continue down to the bottom trend line of our flag pattern to finish off our sub wave 4 of my wave 2 as we got the formation of a continuation pattern today.  I expect that we will get one more rally attempt at some point.  Where we will rally to for sub wave 5?  I am not sure we have multiple levels of resistance within this bear flag and we could reverse off of any of them.

Weekly:

                We are getting some major contrarian signals from our indicators on the weekly time frame most likely because the ADX and MACD have components that lag the price movements.  I will try to find better indicators for this time frame.  The ADX is in a bullish alignment and has been for the entire down trend to this point.  The MACD histogram put in an uptick but the signal lines remain bearish.  We are getting our best weekly signals on the stochastic as it has crossed at nearly every top and bottom. 

 (Please pardon the typo on the weekly chart.  I wrote bullish engulfing whereas it is a bullish harami)            

               We put in what is called a gravestone doji (a very bearish signal).  The formation of this candle pattern represents a failure to rally (“candlestick charting explained” Gregory L. Morris).  Having a wide range of motion in price and closing near the lows for the week it is much easier to clear the low of this pattern than the high (ever heard “the path of least resistance”?).  Given all the information that I have put forward today and the work I have done during the week, I expect us to close down next week.  This may form out of a failure to rally more than half way through the bear flag pattern, or we could finish off our sub wave count and begin my wave 3 down which could move us to challenge the 2009 lows.