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1 Today s Overview The Dow broke to new lows and tested 7500 in the first half hour. Choppy conditions then set in, and the market wobbled around for the rest of the day. You could sense that stocks were being bid up midday in hopes of attracting last-minute fund buying. The double-bottom crowd was also in attendance, showing a flurry of buying interest on each intraday dip. Without these two benign forces, the day could have been a lot uglier. Things are a little stretched to the downside, so expect a bounce on any good news. There is brutal overhead resistance right now, so any rally should be met with an abundance of sellers. VIX popped to 47 this morning, but it still doesn t look as if it's printed a climax. October should give us a news-driven market, with lots of tax selling under the surface. Our next shot at a sustainable rally may be late in the month, as positive seasonality finally takes over. As I noted a few days back, the first week of the quarter is notorious for preannouncements, so tread lightly and watch your overnight exposure. CBRL Group (CBRL:Nasdaq) gapped down and closed midrange. I covered part of my position at 22.90, but am holding the balance. Oracle (ORCL:Nasdaq) dropped off toward a test of its September low. I sold short Winnebago Industries (WGO:NYSE) at 39.24, and covered as a daytrade. I was picking up bullish divergences, especially the developing hammer on the daily chart. Thought for the day: I m headed down to visit with Larry Pesavento in Tucson, Ariz., and will be away from my desk Tuesday morning. I won t be entering any new positions, but will be back in time to write the newsletter. I ll be placing stops over my open positions and hoping for the best. (See Watch List on next page) PLEASE SEE IMPORTANT LEGAL DISCLAIMER ON LAST PAGE 1

2 Watch List -- Protein Design Labs (PDLI:Nasdaq) held near support, but may be printing a breakdown on the 60-minute chart. (short) -- Coventry Health Care (CVH:NYSE) moved out of the triangle and closed midrange. (long) -- Zimmer Holdings (ZMH:NYSE) pulled back in congestion, but still looks good. (long) -- Movie Gallery (MOVI:Nasdaq) surged out of the triangle in a strong bull candle. (long) -- United Surgical Partners (USPI:Nasdaq) sold off 6%. (short) -- Serena Software (SRNA:Nasdaq) continues to hold the recent low. (short) -- Biogen (BGEN:Nasdaq), Icos (ICOS:Nasdaq) and many biotechs bounced today. (short) -- Micron Technology (MU:NYSE) held its low for the fifth day. (short) -- Reliant Energy (REI:NYSE) shows resistance just under 11. (short) -- Career Education (CECO:Nasdaq) broke out to a new closing high. (long) -- Removing Lexmark (LXK:NYSE), Del Monte (FDP:NYSE) and Winnebago Industries (WGO:NYSE) 2

3 ay s Close: [Up.86] O'Reilly Automotive (ORLY:Nasdaq) Today s Close: $28.62 down $0.74 O Reilly Automotive (ORLY:Nasdaq) has been caught in a broad sideways pattern since mid The stock is now printing a six-week head-and-shoulders top in the middle of this large-scale pattern. A breakdown here could yield a decline down to the H&S measured target between 24 and 25. This is a breakdown short-sale setup. Wait for the neckline to break, or take a position within the top, and wait for the selloff. ORLY is oversold on a short-term basis and could bounce for a few days before challenging neckline support. Watch for a failed rally up to to for a signal the stock is ready to resume its selloff. Note that a breakdown of this smaller pattern does not predict a breakdown of the large-scale pattern, so take profits quickly, and move on once the target is reached. (See second chart on next page) 3

4 O'Reilly Automotive 4

5 The Daily Swing Trade is intended to provide technical analysis and opinions about stocks and markets. Alan welcomes your questions about The Daily Swing Trade and his swing trading strategy and techniques. Please Alan with your questions at However, please remember that The Daily Swing Trade is not intended to provide personalized investment advice. DO NOT ALAN SEEKING PERSONALIZED INVESTMENT ADVICE, WHICH HE CANNOT PROVIDE. Question: Could you explain in more detail what the NYSE TICK represents? Alan Farley: NYSE TICK tracks the number of stocks whose last trade represents an uptick vs. a downtick. Extreme TICK readings flag important market turning points. Intermediate reversals often begin when the indicator strikes or levels. TICK extremes from through now occur during severe market conditions. Use TICK with parallel channel behavior. Draw trend lines and channels on five-minute TICK charts, and notice how the bars oscillate within the channels. When bars break out of the channel, there is often a surge that predicts price breakouts or breakdowns. 5

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