Closing Analysis

Nice Snapback Rally, But How Meaningful?

Closing Technical Market Analysis for Tue May 8th 2012

The stock market indices suffered very sharp losses early on as support was broken, however, at the session lows in the morning, the indices reached 5-wave declines and channel bottoms, and key support zone. We did expect to rally, which we had called already. The market jumped off the lows, and then pulled back and retested. When that was successful, they moved back up to resistance, and stalled there. The consolidation, however, was bullish, and they broke out in the afternoon and ran up, and took back a big chunk of the losses.

Net of the day, the Dow was 122 points off its low, but still down 76.44 at 12,932.09, the S&P 500 was down 5.87 at 1363.71, 16 points off the low, and the Nasdaq 100 down 9.41 at 2629.87, about 42 points off its low.

Advance-declines were about 3 to 2 negative on the New York Stock Exchange, but much worse earlier on, and Nasdaq was only 100 issues lower. Up/down volume was about 3 to 1 negative on New York, total volume 875 million. Nasdaq traded 2.1 billion, and had a 2 to 1 negative volume ratio, with declining volume over advancing volume. board was mostly lower, but there were some outstanding stocks today. Vertex Pharmaceuticals Incorporated (VRTX), which we traded yesterday, was up another 6.04 to 64.16, or 10%, on 16 million shares traded. Low-priced SuperMedia (SPMD) jumped 56 cents to 2.30, or 32%. Generac Holdings Inc. (GNRC), which we traded today, gained 5.85 to 28.89, or 25%, on 2.5 million shares. IEC Electronics Corp. (IEC) ran 1.26 to 6.02, or 26 1/2%.

Other gainers of note included Arena Pharmaceuticals, Inc. (ARNA) was the volume leader standout on our board today, up 70 cents to 3.42, or 26%, on 50 million shares. Vitamin Shoppe, Inc. (VSI), which we also traded today, gained 6.85 to 51.61, or 15%, on 2.8 million shares. Quality Distribution Inc. (QLTY) was up 1.40 to 12.19, or 13%. Grand Canyon Education, Inc. (LOPE) popped 1.95 to 17.98, or 12%, on 2.7 million shares.

The Direxion Daily Gold Miners Bear 3X Shrs (DUST) jumped another 5.84 today to 63.80, and went as high as 65.60 earlier in the day.

In addition, Cognizant Technology Solutions Corporation (CTSH) snapped back 4.01 to 60.31, after a significant drop yesterday. Zillow, Inc. (Z) was up 1.88 to 42.91, Diamond Foods, Inc. (DMND) up 1.13 to 23.40, and Inc. (ACOM) 1.23 to 26.70 were among the point-plus gainers today.

On the downside, Apple Inc. (AAPL) lost 1.30 to 568.18, but closed 10 dollars off its low. Dendreon Corp (DNDN) down a whopping 2.94 to 8.75, losing 28% today. Sourcefire, Inc. (FIRE) lost 1.49 to 54.54. International Business Machines Corp. (IBM) lost 1.42 to 201.48. Nu Skin Enterprises Inc. (NUS) down 2.17 to 42.65. Rackspace Hosting, Inc (RAX) got hammered for 5.16 to 52.64. Universal Display Corp. (PANL) was down 1.48 to 38.83. Questcor Pharmaceutical (QCOR) dropped 1.55 to 41.51. VirnetX Holding Corp (VHC) lost 1.47 to 29.50.

The Direxion Daily Financial Bull 3X Shares (FAS) gave back 1.83 to 96.64 today.

Stepping back and reviewing the hourly chart patterns, the indices gapped down, went down sharply in the morning, rallied back the rest of the session from 11:00 o’clock on, and closed substantially off the lows, with the NDX moving from a low of 25.88 to close near 2630. That’s a big jump from 1348 to 1366, and close at 1363.71 on the S&P 500.

That was a nice snapback rally off of key levels and oversold conditions, and at the bottom of the 5-wave rally. It’s no surprise that a rally took place. The question is how meaningful was it.

We’ll see what kind of follow-through it gets.

Good Trading!


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