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Daily Blog -01/05/09- post-market

The market was unable to build on last week's gains. Yet what I find interesting is that there was not much profit taking now that we have begun a full week of trading on Wall Street. Most of the major averages closed in the red and yet the only sector indices that closed lower were financials, drugs, insurance and gold. The rest of the market closed higher.

The Dow Jones Industrial Average (DJIA) is flirting with a breakout over resistance at 9,000. Meanwhile the S&P 500, the NASDAQ composite, and the Russell 2000 small cap index all managed to actually breakout past resistance last Friday. Today saw these last three indices all retest prior resistance as support. If I were just looking at the charts and ignored the fact that last week's rally was fueled by extremely low, holiday volume I would have to admit this is bullish behavior.

S&P 500 index:

NASDAQ Composite:

Russell 2000:

I am concerned about the second half of January. Everyone expects fourth quarter earnings results to be dismal but I strongly suspect that they will be even worse than imagined. It will be this earnings news that can spark a new sell-off to retest the 2008 lows. Of course it's possible that we will see an emotional rally up to Obama's inauguration at which point traders should be ready for a "sell the news" reaction.

As short-term traders we have to trade what the market provides not what we think it should do. Currently it is our bullish plays that are working so we'll stay focused on bullish candidates but traders should be quick to jump ship if things deteriorate. Be patient and pick your entry point. There is always another opportunity around the corner.

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