Friday, August 04, 2006

NASDAQ Technical Picture - Jobs Data Result in a Failed Breakout

The jobs data released at 8:30 this morning were below estimates and the pre-market action was very bullish. The Qs rallied into resistance of the 50 MA in pre-market, paused and consolidated in an orderly fashion. When the market opened they took out the pre-market high at 9:44 and things were looking great. At 9:45, they reversed sharply. Within minutes, it was clear that we had a failed breakout and it was time to exit all longs. Breakout failures can be brutal because they almost always result in steep pullbacks. A real breakout always rallies into the 10:00 reversal time, so when the second 15 minute bar of the Qs starts to penetrate the first 15 minute bar by more the 25%, its time to tighten the stops.

My theory is that the rally we had yesterday afternoon was in anticipation of the jobs data, and today's failure was a fade the news type scenario. However, by the end of the session, we suffered little technical damage. Volume was in line with recent sessions and we're still hanging on to the 20 day EMA. Going into next week, our pivot points are still intact - 2100 and 2050, with intermediate support at 2075.

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