Good day! The market gave us the intraday recovery we were looking for after Friday's sharp descent. Volume was light as the indices bounced back and forth like a pinball throughout the session on Monday. The day began with a push higher into and out of the opening bell, but the buying started to weaken as the Nasdaq approached its 15 minute 200 simple moving average. Then the 10:00 housing data came out and the market quickly took a turn for the worse... at least for the bulls.
Homebuilder confidence fell to a 15-year low in July. This is the first of several housing reports due out this week. The selling continued over the next hour and landed all three of the major indices at lower lows than on Friday. The pace of the selling began to shift between 10:30 a.m. ET and 11:00 a.m. ET, however, leading to a bounce out of the 11:00 ET correction period. This resulted in a "V" bottom intraday that is typically followed by a larger trading range. Building permits and housing starts for June will be reported before Tuesday's opening bell, followed by June's existing home sales at 10:00 ET on Thursday.
Dow Jones Industrial Average
Although the housing data remained dismal on Monday morning, there was some good news for the markets as well. The National Association for Business Economics stated that 31% of businesses hired workers in the second quarter, showing a second quarter of growth in a row. Those cutting jobs also crept lower, which is encouraging to those seeking employment. The June unemployment rate stood at 9.5%.
Although the market recovered from its morning selloff and posted a gain on the day, the trend was not strong. Monday's session bore a strong resemblance to last Thursday's. Both days saw sharp selling after the open and then steady upside following morning lows, but the intraday swings were where the money was. The indices formed strong, clear-cut strategies throughout Monday's session, holding support and resistance levels, as well the correction periods, very well.
The Dow Jones Industrial Average ($DJI) ended the session at 10,154.43 with a gain of 56.53 points, or 0.56%. 8 out of the 30 index components posted a loss. The biggest losers were Bank of America (BAC) (-2.65%), Merck (MRK) (-0.31%), and WalMart (WMT) (-0.30%). BAC posted the biggest loss after analysts trimmed their outlooks. The top gainers were Intel (INTC) (+2.71%), Boeing (BA) (+2.07%), Alcoa (AA) (+1.63%), and IBM (+1.37%). IBM posted earnings after the close that beat estimates, but its revenue fell short of forecasts.
The S&P 500 ($SPX) rose 6.37 points, or 0.60%, and closed at 1,071.25. Halliburton (HAL) (+6.03%) was the best performer in the S&P 500 after it beat earnings expectations. Motorola (MOT) followed with a gain of 5.60%, while Apollo (APOL) rose 5.40%, and Cameron International (CAM) rose 4.72%. Anadarko Pete (APC) (-4.09%), Medco Health Solutions (MHS) (-3.66%), First Horizon (FHN) (-2.97%), and Southwestern Energy (SWN) (-2.81%) were the biggest losers.
The Nasdaq Composite ($COMPX) ended the session higher by 19.18 points, or 0.88%, and it closed at 2,198.23 on Monday. Apollo (APOL) was the biggest gainer in the Nasdaq-100. Nvidia Corp. (NVDA) (+4.08%), Xlinx (XLNX) (+4.06%), and Research In Motion (RIMM) (+3.35%) followed. Sears Holdings (SHLD) (-1.96%), Apple (AAPL) (-1.73%), and Dentsply Intl. (XRAY) (-1.50%) were the weakest performers in the Nasdaq-100.
The indices weren't able to hold onto those gains afterhours, however, as a result of the disappointing earnings from IBM and Texas Instruments (TXN). In both cases, the revenue failed to meet expectations. The index futures sold off quickly following the news, although Momentum Reversals on a 5 minute time frame into 19:00 ET at the zone of Monday's lows helped the futures turn higher again into midnight. Some earnings to watch for on Tuesday will be in Goldman Sachs (GS), Pepsico (PEP), and Apple (AAPL). Coca-Cola (KO) and Morgan Stanley (MS) follow on Wednesday, Microsoft (MSFT); Caterpillar (CAT) and 3M (MMM) on Thursday; and McDonalds (MCD) and Ford (F) on Friday.
I am still favoring further corrective activity off last week's highs. The current bias for that correction is a gradual daily pullback with a lot more overlap from one day to the next than previous daily downside moves from the past several months. Lightly volume is likely to accompany such action.
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.