Good day! The markets once again had a new round of economic reports to digest on Wednesday. They began overseas where the main focus was upon the short-term debt issuance from the European Central Bank. Demand was light for the ECB 3-month tender and the International Monetary Fund's latest reserve data indicated that U.S. dollar holdings by central banks have fallen to record lows.
One of the main U.S. economic reports on Wednesday was the ADP's May jobs report. The ADP jobs report was not what the market wanted to see. After steadily climbing higher afterhours and into the early morning, the index futures plunged lower out of the 8:15 a.m. ET data. The ADP Employment Change Report showed that private payrolls for June fell sharply below expectations with an increase of only 13,000 compared to the 61,000 that had been anticipated. This data will seem like small potatoes when Friday's news hits the wires. The overall number of nonfarm payrolls is expected to drop as a result of losses by the Census Bureau, so the main focus will be upon private employment. The number of hours worked will also be closely followed.
Dow Jones Industrial Average
Soon after the ADP data was released, the Chicago Purchasing Managers Index came out. It was in line with expectations and fell from 59.7% in May to 59.1% in June. It came in above 50%, indicating growth, but the pace of that growth slowed last month.
In other news for Wednesday, the Mortgage Bankers Association reported on Wednesday morning that applications to refinance mortgages jumped 12.6% last week. The jump was attributed to a 0.08% drop in the 30-year mortgage rate to 4.67%. It's record low of 4.61% took place in March 2009. More than 3/4 of the loan requests were for refinancing, while applications on new homes fell 3.3%. This latest home data follows last week's reports that new-home sales were down 33% in May, while existing-home sales dropped 2.2%.
Despite the extremely rapid descent into the open on Wednesday, the market began to recover almost immediately. A 2B low had formed in the S&Ps with a slightly lower low on the 5 minute time frame going into the open and the market managed to rally strongly in the first 20 minutes of trade. A period of congestion followed with the indices hugging 5 minute 20 sma levels. In the S&P 500 and Dow Jones Industrial Average these zone of congestion each had two waves of downside in them, creating a classic buy setup coming out of the 11:00 ET correction period. For more information on the market's major correction periods and how to play them, check out my in-depth DVD course 5 Technical Signals You Should Not Trade Without. The correction periods are one of the 5! More information is available at http://www.tonihansen.com.
The move out of the two-wave continuation into noon was very similar to the price action we recently saw develop on a daily time frame for crude oil futures. The pace of the 11:00 a.m. ET breakout for the second wave of upside following opening lows was more gradual than the first. It then rounded off at the upper end of the 30-minute trading range intraday. 12:00 ET is another one of those core correction periods and it kicked off the reversal into the afternoon.
The change in momentum continued in the markets throughout the remainder of the session. A trading range into 14:00 ET broke lower at a stronger pace than off noon highs and was followed by a 5 minute bear flag into the 5 minute 20 sma resistance. This trade on the short side, which I posted on my Facebook and Twitter feeds, triggered heading into the final 45 minutes of trade. It also provided a breakdown trigger on the 30-minute charts from the congestion that lasted over a day and a half. Momentum built into the close, allowing the indices to easily surpass typical bear flag target levels. All three of the major indices ended at the zone of the day's lows, giving us that new low on the week that I spoke of yesterday as being a "very easy" feat to accomplish mid-week.
The Dow Jones Industrial Average ($DJI) ended the session on Wednesday at 9,774.02 with a loss of 96.28 points, or 0.98%. 3M (MMM) (+0.64%) was the only Dow component to post a gain. The biggest losers were Alcoa (AA) (-2.71%), Disney (DIS) (-2.48%), Hewlett-Packard (HPQ) (-2.30%) and Verizon (VZ) (-2.10%). The Dow ended the month of June with a loss of 3.6%, down 10% for the quarter and 6.2% year-to-date.
The S&P 500 ($SPX) fell 10.53 points, or 1.01%, and closed at 1,030.71. Diamond Offshore (DO) (+3.37%) was the biggest gainer, followed by Gamestop Corp. (GME) (+2.57%), Office Depot (ODP) (+2.54%), CF Inds. Holding (CF) (+2.40%), and Ford (F) (+2.02%). Fifth Third Bancorp (FITB) (-5.10%) was the biggest loser. It was followed by Celgene Corp. (CELG) (-4.55%), Masco Corp. (MAS) (-4.44%), Lexmark Intl. (LXK) (-4.26%), and McGraw Hill (MHP) (-4.25%). Telecoms and consumer staples were the weakest sectors on Wednesday morning, but this weakness spread by the closing bell with technology, materials, consumer discretionary, and financial shares helping to round off the top 6 of the S&P 500's 10 industry sectors. All of them, however, ended the day in the red. Those showing the least weakness were energy, industrials, and utilities. The S&P 500 ended June lower by 5.4% with a loss of 11.9% on the quarter and 7.6% year-to-date.
The Nasdaq Composite ($COMPX) ended the session lower by 25.94 points, or 1.21%, and it closed at 2,109.24 on Wednesday. Only 9 out of the Nasdaq-100 index components posted a gain on the day. The leaders were Hologic Inc. (HOLX) (+2.20%), Flextronics (FLEX) (+1.45%), Baidu (BIDU) (+0.75%), and Amazon (AMZN) (+0.75%). CELG was the biggest loser, followed by Vodafone Group (VOD) (-3.41%), Marvell Technology (MRVL) (-3.19%), and Wynn resorts (WYNN) (-2.90%). The Nasdaq Composite ended June will a loss of 12% on the quarter and 7.1% year-to-date.
The index futures continued to feel the pressure afterhours on Wednesday. A sharp wave of selling came in at 21:00 ET, pulling the markets lower once again, but the drop was not as large as the one that took place in the final 45 minutes of trade during the main session. A typical follow-through for this would be a third push to lows into the early morning. On the 30 minute charts there is still room to move before this breakdown hits equal move support as compared to the drop into Tuesday morning. This equal move is the main target level for this breakdown, assuming that the pace of the breakdown continues to be as strong, if not stronger than, the previous descent.
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.