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By Jeff Clark
Ah, memories. It seems like it was just yesterday when we were turning the calendar to 2001. The Internet bubble had burst. The country was heading into a recession. And the dollar was collapsing as the Federal Reserve Board lowered interest rates to head off an economic catastrophe.
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Sunday, 27 January 2008
The news was good on the earnings front and foreign markets were surging on the heels of the US gains. MSFT's results and guidance were pleasing; CAT talked of a 'very strong' back order situation, though that was outside of the US... ....that was expected to have 'anemic' growth; HON, JNPR, JAVA, and BRCM all posted results that put investors in a positive mindset. Oil was higher ($90.80, +1.39) and gold was close to $1000 again, but that seemed okay too.

Stocks opened higher, but as anticipated Thursday night, after the big reversal and charge higher, the market hesitated ahead of the weekend, and indeed started to sell back almost immediately after the open. The indices had charged above the 10 day EMA on the open with DJ30 coming within 15 points of 12,500. Then they started to stall. As planned, we used that bounce to take some gain off the table and we also started working into some downside positions.

As the session wore on the indices gave up the break above near resistance at the 10 day EMA and closed reversing from that move above that level. The market could still move higher after this pause; it sold hard and had a lot of downside pressure to let off. The action was still worth starting some downside positions, however, particularly with the week ahead chocked full of earnings, economic data, and the FOMC meeting on monetary policy which could likely disappoint the market with a 25BP rate cut given the talk of the Fed panicking over last weekend.

Technically, the action looked heavy on Friday. After the reversal the indices tested the 10 day EMA on Thursday and struggled. Friday they looked to be making the break on through that initial resistance, but after clearing it, they turned and closed lower.

Many stocks showed the same heavy action at resistance after bouncing, i.e. rolling over after a gap higher or showing a doji on the candlestick chart.
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