Good day! The Dow Jones Industrial Average ($DJI) eked out a seventh straight session of gains on Wednesday to overcome both an opening gap to the downside and a strong afternoon selloff. The session's volume remained light, but comparable to Tuesday and the indices had some nice intraday swings, making it a great environment for daytraders.
Dow Jones Industrial Average
The session began with the Nasdaq gapping slightly higher thanks to strength following Intel's (INTC) earnings and upside guidance, while the Dow and S&P 500 ($SPX) gapped slightly lower. This difference in the relative strength of the three major indices held throughout the session.
The market congested out of the opening bell, inching slightly lower into 10:00 a.m. ET before breaking higher to trigger the first 5 minute setup of the day. This push to the upside took the S&P to its 5 minute 20 sma resistance, while the Nasdaq pushed to slightly higher intraday highs.
The 5 minute 20 sma served as resistance in the S&P 500 and Dow Jones Ind. Ave. and the Nasdaq fell into its footsteps and corrected along its intraday highs as the other two indices hugged the 5 minute 20 sma zone. All three triggered continuation strategies out of the 11:00 a.m. ET correction period, but the Nasdaq had the cleanest follow through.
The S&Ps and Dow were more hesitant with a stronger degree of overlap from one bar to the next on the 5 minute time frame in the second half of the morning. This shift in momentum on the upside helped the market create a bias for the early afternoon. The push higher out of 11:00 a.m. ET was the second wave of buying since hitting 10:00 lows and the highs of the rally found strong resistance at Tuesday's highs, adding to a reversal bias mid-day.
The 5 minute 20 sma served as initial support on the turn lower into noon. The indices hugged this support level to create a 5 minute Avalanche(TM) short setup around 12:45 ET. A bear flag on that same time frame followed with momentum increasing on the downside into the FOMC minutes. The 5 minute 200 sma finally halted the descent, but by that point the market had returned to intraday lows. It was only a choppy bounce in the final 90 minutes of the day that allows the indices to post a gain on the session.
In earlier news, advance retail sales for June fell 0.5%, which was greater-than-expected, while sales less autos fell 0.1%. Meanwhile, import prices fell 1.3% month-over-month in June.
The Dow Jones Industrial Average ($DJI) ended the session on Wednesday at 10,366.72 with a gain of 3.70 points, or 0.04%. The gainers and losers were fairly evenly split on the day. The best performers in the Dow were Cisco (CSCO) (+2.82%), Intel (INTC) (+1.67%), Microsoft (MSFT) (+1.23%), and Hewlett Packard (HPQ) (+1.22%). The weakest index components included Home Depot (HD) (-1.26%), American Express (AXP) (-1.06%), and Alcoa (AA) (-0.82%).
The S&P 500 ($SPX) fell 0.17 points, or 0.02%, and closed at 1,095.17. Expeditors Intl. (EXPD) (+6.67%) was the best performer in the index after it forecast second-quarter earnings above analysts' estimates. AK Steel (AKS) followed with a gain of 6.52%, while Monsanto (MON) continued to recover with a gain of 4.56%. Lincoln Natl. Corp. (LNC) has both daily and intraday short setups, falling 5.69% to land itself in the worst-performer category in the S&P 500. Lexmark Intl. (LXK) closely followed with a loss of 5.66%.
The Nasdaq Composite ($COMPX) ended the session higher by 7.81 points, or 0.35%, and it closed at 2,249.84 on Wednesday. Seagate Tech. (STX) (+3.60%) followed EXPD on the Nasdaq-100 gainer list. Bed Bath & Beyond (BBBY ) (-2.71%) was the biggest loser. KLA-Tencor (KLAC) followed with a loss of 2.33%.
Earnings season really starts to pick up now and will offer up ample intraday opportunities over the next couple of weeks. A couple to keep an eye on this week that are potentially strong market movers will be JP Morgan (JPM) and Google (GOOG) today. JPM announces early, while GOOG follows the close. The Dow is shaping up well enough that we can still see one more push higher on the 30 minute time frame into the 100 day moving average before a larger daily correction kicks in. Although I originally expect the 50 day sma to serve as resistance (and it has for the past two days), the price action at this resistance will make it easier to break. The next S&P 500 resistance is its 200 day sma.
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.