Good day! After seven days of upside, things were looking ugly for the bulls on Thursday morning. The index futures formed three waves of upside on the five-minute time frame heading into the 8:30 a.m. economic data, which left the trend extended when the data hit.
According to the Labor Department, initial jobless claims fell 29,000 to 429,000 last week, which is the lowest level since August 2008. Analysts were expecting claims to have fallen to 445,000, but cited seasonal adjustments and high volatility as reasons to remain concerned. Continuing claims rose 247,000 to 4.68 million.
In other news, U.S. wholesale prices fell to a seasonally adjusted 0.5% in June with food prices down 2.2%. Producer prices remain up 2.8% year-over-year. The core PPI, which excludes food and energy prices, rose 0.1%.
Another report out of New York also struck a sour note. The Empire State manufacturing survey fell from 19.57 in June to 5.08 in July. This was substantially worse than the 18 that had been expected.
Dow Jones Industrial Average
The market's reaction to the morning data was decidedly negative. The extended trends quickly reversed and sharp selling ensued. The market gained momentum on the downside with each of three waves of selling, establishing the sharpest decline out of 10:00 a.m. ET. This is when the Philadelphia Fed released its own data showing that, while there was continued expansion in manufacturing, it was also much slower than anticipated. The Philly Fed Index hit 5.1 in July, down from 8.1 in June, and much lower than the 10 that was expected.
The third leg of downside on a 2 minute time frame took the indices into the 10:15 a.m. ET correction period. This left the trend extended once again and very exhausted. The pace of the downtrend was much stronger than the early-morning, premarket rally, making it virtually impossible for the market to recover from the losses as quickly as it established them. This left me in favor of more gradual overall directional activity with a bias towards 2-5 minute setups to play the swings within the larger congestive activity. This worked out very well throughout much of the session. Technical support and resistance levels held very well and the market was able to clearly follow through on price triggers.
Then at approximately 15:30 ET this changed. Granted, the market was hitting strong price support intraday at that time, but the selloff into that support was stronger-than-average. Given the reversal strategy into 15:00 ET with a 2T, it seemed implausible that the market would manage to close with another higher high in the afternoon. This probably would have been the case had it not had some help.
Both Goldman Sachs (GS) and BP provided that late-day boost that nearly led to day 8 of the Dow's uptrend. The indices recovered nearly all of their losses on the day when it was announced that the Securities and Exchange Commission was planning a news release after the close regarding a potential settlement (which was later confirmed for $550 million). BP also announced that a test for a cap on the leaking well in the Gulf of Mexico showed no signs of leaking and offered hope that it can seal it off entirely. Thanks to both of these developments, the market rallied sharply in the final 30 minutes of trade.
The Dow Jones Industrial Average ($DJI) ended the session at 10,359.31 with a loss of 7.41 points, or 0.07%. JP Morgan (JPM) beat analyst's earnings estimates on Thursday, posting second-quarter results of $1.09 a share. The weakest components in the Dow included the financials. JPM was the only financial to end the session in positive territory.
The S&P 500 ($SPX) rose 1.31 points, or 0.12%, and closed at 1,096.48.
The Nasdaq Composite ($COMPX) ended the session lower by 0.76 points, or 0.03%, and it closed at 2,249.08 on Thursday. Google (GOOG) disappointed investors with its Q2 earnings. Despite gaining ground intraday, shares were significantly lower afterhours. The company earned $6.45 a share after one-time items, but analysts anticipated $6.52.
The market has been continuing to hug 50 day moving average resistance levels in the S&P 500 and Dow. There is still the potential to push through this level into the 200 day sma into the 100 day sma in the Dow, which is about 10,530. It will depend upon how the momentum within the current congestion develops. A slower correction off the upper end of the range is desirable for a strong upside breakout. Due to the current price placement within the larger market trend, however, new swingtrades will be higher risk and current trend action favors day traders for shorter-term price moves, particularly amongst the bulls.
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.