Good day! While Friday was a slow day for the markets, Monday was even slower. Earnings season unofficially kicked off this week with Alcoa's (AA) second-quarter earnings posted after Monday's closing bell. Q2 revenues rose 22% year over year, while it posted a profit of 13 cents per share. Both were above expectations. The market was unenthusiastic at the start of the intraday session, however, and that lack of enthusiasm became even more apparent as the session wore on.
Dow Jones Industrial Average
The indices did have some decent price action on a 5 minute time frame on Monday morning though. They opened slightly lower, quickly closed the gap with the Nasdaq leading the upside, and then pivoted off highs with the onset of the 9:45 a.m. ET correction period. Selling was steady into nearly 11:15 ET. Things became trickier at that point. The market pulled higher into 5 minute 20 sma resistance, hugged that zone, and then triggered a scalp buy around noon. After it hit its target just 15 minutes later, however, the market ended up congesting throughout the remainder of the day.
The index futures jumped higher afterhours following the AA earnings, but stalled after hitting equal move resistance on the all-sessions time frame as compared to the rally out of the morning lows. The market then shifted momentum with a slightly higher high into 21:00 ET, which created a 2T bull trap. The final hours of Monday were spent with the index futures selling off strongly to take back the afterhours gains until hitting initial support at midnight.
The Dow Jones Industrial Average ($DJI) ended the session on Monday at 10,216.27 with a gain of 18.24 points, or 0.18%. 2/3 of the Dow's 30 index components posted a gain for the session. The top performers were Microsoft (MSFT) (+2.31%), Intel (INTC) (+1.63%), WalMart (WMT) (+1.40%), Pfizer (PFE) (+1.08%), and McDonalds (MCD) (+1.04%). The top losers were United Technologies (UTX) (-1.23%) and DuPont (DD) (-1.03%).
The S&P 500 ($SPX) rose 0.79 point, or 0.07%, and closed at 1,078.75. Weyerhauser (WY) (+8.42%), Sandisk Corp. (SNDK) (+6.78%), Sprint Nextel (S) (+5.14%), New York Times (NYT) (+4.22%), and Qualcomm (QCOM) (+3.51%) were the S&P's best performers. The weakest were Aon Corp. (AON) (-7.09%), Cliffs Natural Resources (CLF) (-6.11%), Massey Energy Corp. (MEE) (-4.53%), and Freeport-McMoran Copper & Gold (FCX) (-4.28%). AON's move followed the annoucement that it was aquiring Hewitt Associates (HEW).
The Nasdaq Composite ($COMPX) ended the session higher by 1.91 points, or 0.09%, and it closed at 2,198.36 on Monday. Marvell Technology Group (MRVL) (+3.49%) followed SNDK and QCOM on the gainers list in the Nasdaq-100. Garmin Ltd. (GRMN) (-3.33%), Illumina Inc. (ILMN) (-2.50%), Foster Wheeler (FWLT) (-2.32%), and Wynn Resorts (WYNN) (-2.25%) were the weakest.
My outlook has not changed at all from yesterday, so some of this will be a repeat: The indices ended the week on Friday at a level of price resistance created due to price action over the past several months. This has slowed the buying over the past couple of trading days, but I still feel that the 50 day moving averages remain a magnet for this current daily rally. A correction within this rally on a 60-minute time frame would be normal, since most swings in the market take the form of two smaller waves, such as the decline off last month's highs, but ultimately I feel that we will see a retest of those 50 day smas before we get another longer daily correction to the current rally off the July 1 lows.
Right now there is a bit of a momentum type of reversal forming on the 30 minute time frame since the indices have attempted higher highs, but barely broken to new ons over the past couple of days after the stronger rally early last week. This creates a bull trap type of situation that makes the bulls nervous and can lead to some rapid downside. It's going to be the pace of this follow through on a breakdown and the reaction off the first 30 minute support following the trigger of a Momentum Reversal that will determine whether we will still have a good shot of hitting the 50 day sma after a brief pause intraday or whether the market falls back further once again.
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.