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Strength within Larger Downside Correction
By Mike Paulenoff, MPTrader.com (www.mptrader.com)

The stock indexes after declining for most of the overnight session managed to rally ahead of the opening bell and recovered a slight bit of yesterday's weakness and the decline that started Tuesday.

After a little bit of a rebound rally this morning the indices rolled over and, in the case of the Nasdaq in particular, fell to new lows for the Tuesday-Thursday decline. Looking at the December contract, which we're moving into, the December E-Mini Nasdaq peaked Tuesday at 1394, hit a low today of 1330, and now as of 12:30 pm Eastern has rallied 17 points back to 1347-48. It seems to me that something ended at 1330 in the E-Mini Nasdaq, in that the initial downleg from Tuesday's high at 1394 into today's low at 1330 is over and now we have already embarked on a pretty sizeable recovery rally. I think this rally could get into the 1360 area from 1348 where we are now.

So the Nasdaq is leading the way down, and only naturally you would expect it to be buoyant on the recovery side as well.

The December S&P is a slightly different story. It hit a low yesterday in the December contract at 1007.75, and did not make a new low today. It tried to test 1009, and while the Nasdaq was making new lows, the S&P did not. Both of the indices have reversed, with the Nasdaq leading the way up, but the S&P has recovered quite a bit, too. It has moved up from 1009 to 1016-17, and I think is on the way to 1020 or so if not a little higher.

So both indices have reversed to the upside after two days of weakness, and it'll be interesting to see now how much territory they can recover off those declines. The bottom line for me and my analysis right now suggests that some larger downside corrective move is unfolding, and this strength is an opportunity to either to get short or to liquidate long positions.

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