Trending stock market tricky for day-traders

Market Snapshot for January 11, 2011 (10:30 p.m. ET):

Closing Prices:

  • DOW 12,449.45 (-13.02, -0.1%), S&P 500 1,292.48 (+0.4, +0.03%), NASDAQ 2,710.76 (+8.26, +0.31%), Nikkei 225 8,369.53 (-78.35, -0.93%), DAX 6,152.34 (-10.64, -0.17%), FTSE 5,670.82 (-25.88, -0.45%)
  • OIL 101.24, GOLD 1,643.80, SILVER 29.995
  • EURO 1.2717, YEN 76.86, BRITISH POUND 1.5309, U.S. DOLLAR INDEX 81.52

It's been a tough couple of weeks!

As much as I'd love to say how wonderful the market has been so far this year, it's actually been a more difficult time. This is particularly true for daytraders. Light volume, strong resistance, and global uncertainty has led to a lack of conviction intraday for the better part of many of the recent sessions. This can be witnesses in the narrower trading ranges since late December and the greater degree of overlap from one bar to the next on 5 minute, 15 minute, and even daily time frames.

The result of this type of action is the need to lower reward expectations compared to risk. Where the market often gave setups of 2:1 reward to risk or higher, many traditional technical patterns are now offering 1:1 or less! There are of course exceptions, but lately many of those have taken place outside regular market hours. Few days, however, have been as difficult as Wednesday's.

Dow Jones Industrial Average (Figure 1)

Once again, the strongest price moves took place outside regular market hours. A solid buy triggered into the start of the day just past midnight when the weakness from the previous session hit support and momentum shifted into the start of the new day. The index futures steadily retraced the prior afternoon's losses, and, although the pace was still more gradual than the previous morning, the narrow channel into premarket highs meant better reward potential for a reversal. This reversal off those highs began several hours prior to the New York open.

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