Bearish momentum from the market's September 4 plunge spilled over into the morning of last Friday's session, but stocks later stabilized and reversed, enabling the major indices to finish with mixed results. The S&P 500, down 1.5% at its morning low, rallied to finish with a 0.4% gain. The Dow Jones Industrial Average similarly bounced 0.3%. The Nasdaq Composite settled with a 0.1% loss, but the index was actually down 1.9% at its worst level of the day. The small-cap Russell 2000 was unchanged, as the S&P Midcap 400 advanced 0.4%. After reversing from near-term "oversold" conditions in the morning, each of the main stock market indexes closed the day near its intraday high. Nevertheless, all the major indices registered sharp losses for the week.

Total volume in both the NYSE and Nasdaq slipped 4% below the previous day's levels. Still, trading remained above average levels for a second straight day. Market internals were very ugly in the beginning of the day, but improved substantially as the day progressed. By the closing bell, advancing volume in the NYSE had narrowly exceeded declining volume by a margin of 3 to 2. The Nasdaq adv/dec volume ratio remained marginally negative.

After nearly a month of choppy, range-bound trading, the broad market decisively broke lower, below key support levels, on September 4. While this may have been bad news for traditional "buy and hold" investors, it was good news for astute short- and intermediate-term traders who focus on profiting from market trends in either direction. Stocks followed up that major sell-off by closing flat to marginally higher the following day (last Friday). Going into today, this sequence of price action initially positioned the main stock market indexes for a bounce into new resistance of their prior lows from August, which they fell below last week. But just when the stock market was about to present us with ideal short-sale opportunities, the Fed curiously announced, over the weekend, that troubled mortgage lenders Fannie Mae and Freddie Mac will be taken over by the U.S. government. Upon reacting to this interesting news, the S&P and Nasdaq futures markets rocketed nearly 3% higher on Sunday evening, and have been hanging out around those levels overnight. Unless something substantially changes over the next few hours, all the major indices will open 2% to 3% higher today.

In last Friday's commentary, we said we would analyze the charts of the main stock market indexes today, in order to determine the most ideal short entry points in the coming week. However, as of now, the major indices are already poised to open well above their resistance levels of the August lows. The S&P and Dow are even positioned to open above their 20 and 50-day moving averages. Obviously, the Fed pretty much threw a wrench in our clear plan, and there was no way to anticipate such action.