The week played out pretty much as we predicted ( see last week’s commentary and charts). The breakdown in the market came very close to testing the July lows today (Friday) two hours into the trading day. Then the 15 minute chart formed a doji and a bullish engulfing pattern and began a steady march higher to close with a 5 point gain in the SPX on much better than average volume. I am not a day trader, but a technique that can help you understand the dynamics of the market is to compare various time frames by investigating the price action on smaller or larger time frame charts in order to gain knowledge as to the market action. In this situation, it became obvious to me that the smart money drove the market down to “shake out” the weaker players and acquired their bullish positions at bargain prices. This action is depicted on the daily charts in the Dow and SPX as represented by a “Hammer” candlestick pattern which is a very bullish single day pattern. The move may have been partially influenced by rumors about the Treasury finalizing a backstop plan for FRE and FNM the two troubled GSES. The financials traded up smartly after hours on the news. Energy continues to be a huge issue, but as posted previously on this site, I feel that housing must stabilize before we have a meaningful and sustained Bull Market. From a technical perspective, the Dow and the S&P, as already mentioned, have formed a classic Hammer pattern. I expect these indexes to open higher on Monday and trade up. However, I must emphasize that I believe that at best, this will be a bear market rally. We will watch the price action closely and reevaluate our opinion if necessary. Next week there is a parade of economic reports that could well influence the direction of the market. Today’s action could have been the bottom of this recent downtrend, but I highly doubt it. We need a much more convincing sell off. You may be able to take advantage of a short term relief rally but my belief is we have more to go on the downside. On the political front, Sarah Palin was impressive in her acceptance speech and it was interesting for me to note that The Republicans still continue to maintain the “inexperience” theme with Obama , even in the face of Palin’s apparent lack of experience. I don’t know about you, but I want to hear the candidates talk about the issues and get past the petty B.S. This is a critical election with many more important things to decide and act upon besides candidates taking pot shots at one another. Think about it, the war, the economy, healthcare, global warming the energy crisis on and on and on. Let’s get busy. I encourage you to get involve and stay involved. OK, it’s time for me to get back to Sherwood. I hope you had a good week. Tell your friends about Robinhoodtrader.com. We’re trying our best to keep you on the right side of the market! See you next week. Robin

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