Good day! Volume was light on Monday despite the session taking place in the middle of earnings season. The bulls still continued to push the market higher, but the pace of the buying was slower than the early-July rally, which is what we were expecting heading into the session. The day began without much excitement, but at 10:00 a.m. ET the market received a welcome boost when the new-homes sales data was released.
In June the sales of new homes rose 23.6%. Additionally, inventory hit a 42-year low. The data was enough to bust the market out of the 15 minute trading range that took place throughout Friday afternoon and into the first 30 minutes of trade on Monday. The news was a welcome surprise to the home builders. Hovnanian (HOV) jumped 6.53%, while Beazer (BZH) closed higher by 6.19%.
Dow Jones Industrial Average
While it was the housing data that triggered the day's rally, FedEx (FDX) brought welcome news to the market as well when it boosted it fiscal 2011 forecast in addition to raising its fiscal Q1 earnings-per-share guidance.
The market showed some uncertainty mid-day, but light volume and shallow trading action keep the spirit of the bulls alive. The indices formed a 5 minute Head & Shoulders pattern from 10:15 a.m. ET into 15:00 ET, but after the market hit support at that 15:00 ET correction period the bulls were able to regain control and took the market higher into the closing bell. In the weekend edition of this column, I pegged the 10,525 zone as the Dow's next level of resistance to start the week. It ended the session at the closing high of 10,525.43 on Monday.
The Dow Jones Industrial Average ($DJI) rose 100.81 points, or 0.97% on Monday. WalMart (WMT) was the only Dow component that posted a loss. It fell 1.05%. The top performers were Pfizer (PFE) (+3.02%), Bank of America (BAC) (+2.98%), General Electric (GE) (+2.74%), and Home Depot (HD) (+2.62%).
The S&P 500 ($SPX) rose 12.35 points, or 1.12%, and closed at 1,115.01. Biogen (BIIB) was the best performer in the S&P 500 (+8.27%), followed by Genzyme (GENZ) (+7.77%), Office Depot (ODP) (+7.74%), Sprint Nextel (S) (+7.68%), and Davita Inc. (DVA) (+7.09%). Despite making huge gains on Friday, Devry (DV) fell back 6.41%, followed by losses in FMC Tech. (FTI) (-3.01%), CF Inds. (CF) (-2.78%), and Apollo (APOL) (-1.93%).
The Nasdaq Composite ($COMPX) ended the session higher by 26.96 points, or 1.19%, and it closed at 2,296.43. BIIB and GENZ were the best performers in the Nasdaq-100. Seagate Tech. (STX) (+4.07%) and Sears Holdings (SHLD) (+3.95%) followed. Nii Holdings (NIHD) (-2.78%), Qiagen (QGEN) (-2.10%), and APOL were the weakest performers in the Nasdaq-100.
My bias heading into Tuesday's session is unchanged from the weekend. The zone of the 100 day simple moving averages will remain a magnet and strong daily resistance level for the indices. I expect upside action to be mild, however, with volume remaining light and the momentum of the upside slowing like we saw in Monday's session.
So far though, the momentum is still strong enough that unless it slows further, we will not get as strong of a reaction off the daily resistance as I was originally watching for. If we see a lot of overlap in price over the next several sessions, however, then it will shift the momentum of the uptrend channel enough that a sharper downside move into the weekend remains very likely. Otherwise the reaction will be muted initially in terms of a price correction and a greater degree of overlap following the test of resistance will become more plausible.
Stocks that I will be watching for momentum plays intraday on Tuesday include AFL, FLR, ABC, CEPH, and LLL. All have had or will have earnings early this week and tend to form strong intraday setups with favorable price action for the technical analyst types such as myself.
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.