The Fed announced that low interest rates are here to stay until at least 2011.  That announcement wasn’t enough to keep the markets win streak intact.  Traders also had to contend with a rise in wholesale inflation and flat earnings from GE.

Also, bank shares led the way down today but the damage was contained to approximately half of yesterdays gain, but on slightly increasing volume.

Let’s take a look at the stock charts for some technical analysis and market timing insights.

On the weekly stock chart, prices are appearing still flat for the week but with more than half the trading week remaining things could still change either way.  The stochastic and CCI are still pointing up with the MACD is indicating just absolutely nothing in direction.  This is still a market that could move in either direction.

The daily stock chart shows the drop in prices that still held above the resistance level of 11,250.  Today’s action finished with a bottoming tail but both the stochastic and CCI reversed direction to the downside.  The upward movement of the MACD seems to have stalled somewhat.

On the daily chart prices dropped sharply in the first 30 minutes of trading, reversed right at the 10am reversal time to the opening price, then proceeded to lose value for the remainder of the day, with the exception of the last hour of trading. 

During the last 30 minutes of trading it looked like prices were going over the cliff.  But buyers jumped in pushing the average back up creating a sort of hammer at the close of the market.  This could potentially add strength to tomorrows open, we’ll have to wait and see.

Trading Strategy:

Aggressive traders could consider new positions during the market as long as prices are moving up and higher than the high made during the first 30 minutes of trading.

Prudent traders may want to wait until prices move up more before taking on new long positions.  

Either way, now is the time for caution.  Don’t be the farm on positions in either direction

Trading action today created a classic “indecision day” type of candlestick on the daily chart.

After yesterday’s huge run-up, an indecision day is just what you’d like to see on the day after – unless prices run up again.  An indecision day gives the market a chance to digest recent gains and provides evidence that profit taking is not the first thing on trader’s minds.

The recent months of trading has produced several of these types of trading days, look at the daily chart on July 17, September 11, and most recently October 7.  All these days were indecision days after a run-up in prices. 

You’ll also note that after these indecision days, prices had a tendency to take-off to the upside again.  Will that be the case this week?  We hope so and our trading strategy – see below – will take advantage of this action if it occurs.

On the weekly chart, prices did not move up to trip the PSAR indicator into a bullish mode.  The CCI(20) moved up to a level of 93.63.  If prices move up tomorrow we could have a PSAR move to the bullish side which would also provide momentum for a break through of the overhead resistance at the 11,250 level.

On the daily chart, the CCI(20) has moved up to 57.22 and with stock prices still above the PSAR indicator, the daily mode appears to have some upward momentum left.

On the hourly chart you can see the controlled amount of profit taking that took place in the morning.  Another sign of strength were the bottoming tails that were created during the mid-day hours.  The last hours of trading recovered the morning loss and prices finished just about where they started.

The final hour of trading moved stock prices above the PSAR so perhaps this late day market strength will influence prices tomorrow.

Trading Strategy:

Traders should consider new long positions on trading days when prices are moving up.  This means that stock prices are above the high made during the first half hour of trading and moving higher.  Unless this condition occurs during the day tomorrow, traders should take no action.

What a difference a day can make! Today’s GDP announcement fired up the bulls today sufficiently to recover yesterday’s loss.

The real question is – will this move up in stock prices have any follow through?  Or will the reality of the unemployment levels and home foreclosure rate derail this rally?

Stock market action in the next few days will help define if long positions or short positions are likely to be more profitable for traders.

Let’s view the market charts for more technical analysis of today’s action.

With only one trading day left in October, it appears the monthly chart may end up with a classic indecision candlestick formation.  Stock prices during the month have so far reached a high of almost 11,250 and a low of 10,416.  If today was the last trading day, prices would have finished the month almost directly in the middle of this range.  It will be interesting to see how we finish the month tomorrow.

On the weekly time frame, stock prices dropped down to the support line and are currently creating a bottoming tail which could indicate future strength.  So far though, weekly results have been dismal with a 1.67% loss of value.  The CCI(20) is a little below the 100 line and stock prices are still above the PSAR indicator.

On the daily chart you can view what could be considered a bullish engulfing type of candlestick pattern which usually indicates more strength to come.  Although ideally a bullish engulfing pattern needs to “enclose” more of yesterday’s price range than was shown today, today’s action was certainly a strong recovery day.  The only caveat to the strength of today’s move up is the lack of convincing trading volume.

The daily CCI(20) is in bearish territory at a reading of -71.25.  Stock prices are below the PSAR indicator.

Today’s hourly stock chart is almost a mirror image of yesterdays.  Prices shot out of the gate at the opening bell and didn’t look back all day.  The last hour of trading created a bottoming tail which may carry strength over to Fridays trading.

Trading Strategy:

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With approximately half of Octobers trading now in the history books, stock prices are holding right around the highs for the month.  Monthly trading so far is developing a bottoming tail which could indicate future strength if these levels continue to hold.

On the weekly chart with 2/5’s of the trading week complete, stock prices have appeared to react once again to the 11,000 level.  The weekly CCI(20) is above 100 and the prices are still above the PSAR indicator.  These are both required conditions for the week to end on a bullish note. 

However, for now the weekly time period is still in a cautionary mode that is left over from last week’s trading.  This cautionary posture on the weekly chart will color our trading strategy until the week is complete and the weekly trend is confirmed to be bullish.

The daily chart is perhaps signaling some weakness that is flowing over from the longer time frame.  The CCI(20) just peaked above the 100 level and finished today’s trading below 100 at 80.60. 

Today’s candlestick traced a bottoming tail which is an indication of strength but prices still lost a little more than 30 points on the broad index.

Daily prices are still above the PSAR indicator and as long as prices are above the PSAR and the CCI(20) is above zero we’ll trade in a bullish mode with the cautionary posture as noted from above.