By Nicholas Santiago on August 12th, 2010 3:34pm Eastern Time
Yesterday was a nasty sell day anyway you slice it or dice. The severe point decline in the major indexes yesterday did cause a lot of technical damage on the daily charts. Whenever the Dow Jones Industrial Average closes lower by more than 2.00 percent it is common to see a flat to slightly positive or negative session on the next trading day. We call this the “day after effect”. Therefore, if we see today's close on the Dow Jones Industrial Average finish positive or negative by 20.0 – 30.0 points this would the typical day after a large point move. This is essentially a pause or consolidation day.
Today the leading commodity stocks are holding up well after declining sharply. Commodity stocks such as Cliffs Natural Resources Inc (NYSE:CLF), Freeport McMoRan Inc (NYSE:FCX), and Southern Copper Corp (NYSE:SCCO) are holding up very well trading slightly higher on the day. The action in these stocks is keeping the market form declining sharply lower. Should these stocks begin to sell off today these market indexes could decline very quickly.
There are a couple of key things to watch today as the market closes in on the final forty minutes of the trading session. The first is to see if the market declines sharply into the close. Should this happen then that would be a sign of further weakness to come. The second is to see the pattern that is being formed on the charts ahead of tomorrow. This could tell us what is in the cards in the near term. In any case after a decline of yesterday's magnitude please be very cautious unless you are and experienced trader. This market is not for the average investor.
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