Good day! Ever since hitting highs on Wednesday afternoon the market has been creeping higher with light volume, barely breaking the previous high before pulling back. This shifted the momentum of the recent rally, creating a period of correction. The index futures pulled back afterhours on Monday, correcting to the lower end of the trend channel, but the channel itself ended up having the same affect on the market as a trading range would. Momentum shifts such as this can lead to stronger reversals, but the overall market still favored upside, so the most I was looking for was a minor correction on the 60 minute time frame. The indices shifted momentum again, however, in the early-morning hours between 2-4 a.m. ET. A rapid turn higher kicked off the move that would eventually break the indices to new monthly highs.
Dow Jones Industrial Average
The market showed very little reaction to Moody's downgrading of Portugal's debt. Nor did it react strongly to the morning's economic data in the States. According to the Commerce Department, the U.S. trade deficit widened by 4.8% in May to $42.3 billion. This is the highest it has been since November 2008. Economists had been expecting the gap to narrow to $38.8 billion from a slightly upwardly revised $40.32 billion in April. U.S. imports rose 2.9%, while exports grew by 2.4%.
After turning higher into 3:00 a.m. ET, the market continued to push to new daily highs. The index futures were already closing in on the 50 day moving averages I have been targeting over this past week well ahead of the opening bell. This level was hitting shortly after the open in the S&P 500 and Dow Jones Industrial Average. This created concern over whether or not the indices would be able to push through that strong resistance level without first taking some time to catch its breath.
The indices do have more room to be able to push higher because of the type of continuation pattern that triggered. I am expecting this to take place on Wednesday. It will then be more difficult to continue without a larger daily correction, although a series of slightly higher highs into resistance would not be a surprise. 1900 will be NQ resistance, while 6/20 highs in the zone of the 100 day sma will be resistance in the ES.
The Dow Jones Industrial Average ($DJI) ended the session on Tuesday at 10,363.02 with a gain of 146.75 points, or 1.44%. Only one of the Dow's 30 index components posted a loss on Tuesday. Pfizer (PFE) fell 0.94%. The top performer was Caterpillar (CAT) (+3.90%). It was followed by the financials: JP Morgan (JPM) (+3.29%), American Express (AXP) (+3.13%), and Bank of America (BAC) (+3.02%).
The S&P 500 ($SPX) rose 16.59 points, or 1.54%, and closed at 1,095.34. The top performers included American Intl Group (AIG) (+6.80%), Invesco Ltd. (IVZ) (+6.47%), Eastman Kodak (EK) (+6.31%), and Priceline (PCLN) (+6.04%). Fastenal (FAST) (-4.14%), Apple (AAPL) (-2.13%), and MEMC Electr. Materials (WFR) (-1.56%) were the biggest losers.
The Nasdaq Composite ($COMPX) ended the session higher by 43.67 points, or 1.99%, and it closed at 2,242.03 on Tuesday. PCLN, Flextronics Intl (FLEX) (+6.02%), and KLA-Tencor (KLAC) (+5.96%) were the biggest gainers in the Nasdaq-100. There were only 5 losers in that index. Infosys. Tech. (INFY) was the largest, falling 5.70%. FAST and AAPL were among them, as were Cerner Corp. (CERN) (-2.23%) and Sandisk (SNDK) (-0.22%).
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.