Good day! After selling off sharply last week, the market struggled to pick a direction in Monday's trade. As we headed into the session, my bias for the day was in favor of a continuation of Friday afternoon's congestion, monitoring it for a shift in momentum for more of a recovery in price coming off last week's lows. The main trigger I was watching for on the intraday time frames for trade action was a break in the 5 minute 200 period simple moving average in the indices. The market struggled with this feat early on with the Nasdaq Composite considerably underperforming both the S&P 500 and Dow Jones Industrial Average. All three of the major indices continued Friday's afternoon correction into the first 30 minutes of trade on Monday morning after breaking down from the weekend's trading range coming out of 8:00 a.m. ET. This resulted in a continuation of the congestion on the 30 minute time frame, but kept the focus on the smaller scalp setups intraday.
Dow Jones Industrial Average
The market's reaction to the G20 meeting that took place over the weekend in Toronto, Canada was mild, if not nonexistent. Among other things, members agreed to focus on cutting deficits, easing time lines for banks to build their capital reserves. The financials did not seem to care.
Nor did the indices show much reaction to the day's premarket data. Real disposable income for May was up 0.5%, which was the third straight monthly increase, while the personal savings rate rose 0.2%. Personal income was up 0.4%, just under the 0.5% analysts had been anticipating, while April's personal income was revised higher to a 0.5% increase. Core personal spending was up 0.2%. This was 0.1% higher than anticipated, but still weak given that wage growth has slowly been improving.
Continuing the early-morning laid back attitude, the market drifted throughout Monday's trade. The strongest move took place in the morning when the markets turned higher into 10:00 ET, but the two subsequent pivots at 11:45 ET and 13:30 ET had better technical traits. The main reason was that the morning drop out of the open was stronger-than-average for the S&Ps and this made a recovery more difficult to enter without a shift in momentum. The mid-day reversals on the 5 minute time frame had these changes in pace, creating less of a chance to be flushed out of a good trade. Those following me on Facebook caught me with the NQ out of the 13:30 ET lows zone on the Momentum Reversal into the second half of the afternoon.
The Dow Jones Industrial Average ($DJI) ended the session on Monday at 10,138.52 with a loss of 5.29 points, or 0.05%. Less than half of the Dow's 30 index components posted a gain. The best performers were Intel (INTC) (+1.65%), Coca-Cola (KO) (+1.63%), WalMart (WMT) (+1.58%), IBM (IBM) (+1.46%), and Procter & Gamble (PG) (+1.36%). The worst performers were JP Morgan (JPM) (-2.28%), Boeing (BA) (-2.14%), Home Depot (HD) (-2.02%), and Alcoa (AA) (-1.78%).
The S&P 500 ($SPX) fell 2.19 points, or 0.20%, and closed at 1,074.57. Tellabs Inc. (TLAB) was the best performer, up 8.16%, followed by Sprint Nextel (S) (+6.19%), and Micron Technologies (MU) (+5.92%). Office Depot (ODP) (-6.99%) was the worst performer, followed by Denbury Res. Inc. (DNR) (-4.51%), and CF Inds. Holdings (CF) (-4.47%). The S&P 500 found its strength in the consumer staples and telecoms, while energy and materials were the weakest sectors.
The Nasdaq Composite ($COMPX) ended the session lower by 2.83 points, or 0.13%, and it closed at 2,220.65 on Monday. Comcast Corp. (CMCSA) (+2.49%), Flir Sys. (FLIR) (+2.44%), and Schein Henry Inc. (HSIC) (+1.83%) were the Nasdaq-100's top gainers. Garmin Ltd. (GRMN) (-4.43%), Wynn Resorts (WYNN) (-4.42%), and Adobe (ADBE) (-3.79%) were the Nasdaq-100's main losers.
Heading into yesterday's session, I was expecting more of a reaction with a better change in momentum within the trading range to favor another push higher on a 30 minute chart before the market fell back. Given how the session played out, however, the weakness was even more pronounced and the daily charts are starting to form a continuation pattern on the short side to continue the reversal that began last Monday. The type of price pattern forming is one that is more difficult to discern the longer time frame outlook, since the smaller shifts in momentum on a 15 minute time frame will have a much greater impact compared to something such as a bull flag. I've seen this development play out both for the bulls and the bears and, while it's typically in favor of the bears (for at least one more swing on the 30 minute time frame anyway), it's often just a final shift in pace on the smaller time frames that ends up as the deciding factor, so I would urge greater caution for those that do not have the ability to closely monitor intraday action for shorter term trades on Tuesday.
Note: Unless otherwise stated, the index action described in this article relates to the E-mini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.
Toni Hansen is president and co-founder of the Bastiat Group, Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.