Good day! Wednesday was a choppy day for the market. The indices continued to react to the daily resistance from the zone of the 100-day moving averages that I targeted last week, but volume has been light and the intraday action was more volatile than usual. Even though the technical biases held throughout the session, reacting well to support and resistance levels, changes in momentum, etc., the indices experienced a lot of overlap in price from one bar to the next on a five minute time frame. This lasted into the closing bell and tends to make things more difficult for traders because the overlap makes it easier to get flushed out of a trade and it increases the stop size compared to the reward, thereby lowering the overall reward one could expect compared to a typical session.
Dow Jones Industrial Average
The session's data on Wednesday did not provide the bulls any encouragement. Durable goods orders fell 1% in June. Economists had anticipated an increase of 1%. In May they had fallen 0.8%. "Durable goods" are those that are expected to last at least 3 years. In additional economic news, the Fed's beige book showed a modest improvement in the economic recovery with economic activity holding steady or improving in 10 out of the country's 12 districts. Despite the improvement, the Federal Reserve suggested that the economic recovery is starting to soften. This is not something the bulls prefer to hear.
Company data did not improve things either. Boeing (BA) was the largest drag on the Dow. it fell 1.89% after reporting a quarterly decline in profits and a disappointing outlook. Alcoa (AA) also had a difficult session, falling 1.52% after also restating a negative outlook. Moody's lowered outlook on Bank of America (BAC) and Wells Fargo (WFC) pulled down the financials.
The Dow Jones Industrial Average ($DJI) fell 39.81 points, or 0.38%, and closed at 10,497.88 on Wednesday. 9 of the Dow's index components posted a gain on the day. The top performers were Verizon (VZ) (+1.12%), Caterpillar (CAT) (+0.78%), Cisco (CSCO) (+0.39%), and Chevron (CVX) (+0.35%). The top losers were Boeing (BA) (-1.89%), Pfizer (PFE) (-1.77%), Home Depot (HD) (-1.75%), Alcoa (AA) (-1.52%).
The S&P 500 ($SPX) fell 7.71 points, or 0.69%, and closed at 1,106.13. Wyndham Worldwide (WYN) (+8.04%), CB Richard Ellis Group (CBG) (+7.59%), CH Robinson Worldwide (CHRW) (+6.00%), and Waters Corp. (WAT) (+4.65%) were the top S&P 500 performers, while Eastman Kodak (EK) (-15.21%), International Game Tech. (IGT) (-10.06%), Cephalon Inc. (CEPH) (-8.39%), and New York Times (NYT) (-7.89%) posted the largest losses.
The Nasdaq Composite ($COMPX) ended the session lower by 23.69 points, or 1.04%, and it closed at 2,264.56. Illumina Inc. (ILMN) (+6.76%), CH Robinson (CHRW) (+6.00%), Research In Motion (RIMM) (+4.19%), and Virgin Media (VMED) (+3.59%) were the top gainers in the Nasdaq-100. The worst were Cephalon (CEPH) (-8.39%), Hologic Inc. (HOLX) (-6.52%), Marvell Tech. (MRVL) (-3.58%), and Teva Pharmaceutical (TEVA) (-3.33%).
Stocks to watch on Thursday include Visa (V), which beat earnings estimates, and Apache Corp. (APA), which announced that it will be buying oil and gas fields in the U.S., Canada, and Egypt from BP. The government will also be releasing its latest jobless claims data on Thursday, so keep an eye on this early-morning report to cause some initial morning momentum. Other earnings stocks that trade well intraday for strong follow through with the smallest stop size are AKAM, CEPH, BDX, WLL, CRS, WYNN, LIFE,
My overall bias into Thursday is not much different than on Tuesday. We are seeing the greater day-to-day overlap that I wrote about heading into the resistance zone.We can easily continue to see this slowdown and rounding off at highs as the indices continue to test the daily resistance zone of the 100 and 200 day moving averages.
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.