On Tuesday, the Nasdaq sold off hard in early trading, drifted sideways throughout mid-day, sold off again in late afternoon trading, and then it bounced slightly going into the close. This action has it closing poorly.

Ditto for the Ps.

So what do we do? As ugly as the market looks, the sector action is even worse. I tooled though the 239 that I follow plus another dozen or so major sector indices. This is what I found: Biotech, major drugs (which many may need if the market continues to slide), health services, generic drugs, tobacco, and trucking (to name a few) are accelerating in their downtrends. Areas at higher levels such as selected retail, real estate, banks, finance, selected manufacturing, computer hardware, and major airs (to name a few) are breaking down. As mentioned recently, now that the market is beginning to slide, those who bought during this trading range may be looking to get out on any bounce--i.e. breakeven. This action creates a situation known as "overhead resistance" (see the quote of the day below). Therefore, continue looking for shorting opportunities. Areas at higher levels that are just beginning to break down could provide the best opportunities. I've dubbed these "transitional patterns." Now would be a great time to brush up on them (email me for more info or attend Wednesday's presentation). On the long side, the commodity related areas such as gold, metals & mining, and energies sold off fairly hard on Tuesday but so far, they only appear to be pulling back.

As far as setups, Allegheny Technologies (ATI), in the strong steels & iron (and let's face it, weak steel isn't very useful), looks like it has the potential to resume its persistent uptrend out of a pullback. Wait for an entry though since it ended lower on Tuesday.

Phelps Dodge (PD), in copper and mentioned recently, still looks like it has the potential to resume its sharp uptrend out of a Trend Knockout (TKO, email me if you need the rules). However, wait for an entry though since it "faked out" on Tuesday.

Quote of the day

"The positioning going on now in these trading ranges should leave plenty on the wrong side when we breakup/breakdown resulting in new trends (at least we hope!)."

Mark Baniewicz of Allen Konrad Asset Management

Wednesday's With Dave

It's that time again. On Wednesday 4/12/06 at 11:00 AM EST, I will be hosting my weekly interactive lesson. I plan on covering key current chart patterns (e.g. overhead resistance), transitional setups, and some other stuff. Once that's done, I'll will then take your questions on individual issues or trading in general. As usual, admission is free (and I give money back guarantees if not completely satisfied!). However, the space is limited by the software. Email me if you need instructions on how to join (the same each week) or if you would like the archives for the prior year (covering topics such as money & position management, scanning, picking the best setups, sectors, longer-term trend following and a plethora of other stuff).

Best of luck with your trading on Wednesday!