Good day! After several days of narrow trading, the market widened its range on Thursday as the indices continued to round off at 60-minute highs as discussed in yesterday's column. The index futures traded higher into the opening bell following a slow ascent afterhours on Wednesday and early in the morning Thursday. The channel broke sharply lower into the opening bell after advancing to a similar degree on the all-sessions time frame as the correction off Tuesday's lows into the early morning hours on Wednesday. "All-sessions" includes the data outside regular market hours. This, along with the slow advance, prepped the market for a breakdown into Thursday's opening bell, but the follow through was substantially greater than the move on Wednesday. The indices sold off sharply out of the bell and continued into noon with a steady, above-average momentum trend into the mid-day correction period.
Dow Jones Industrial Average
The breakdown took the indices not only into a strong support level with the correction period at noon, but also a strong price support level, which allowed the market to react well to the correction period. The S&P 500 hit its 15 minute 200 period simple moving average into noon. This was also the 10 day sma and the congestion zone from the 22nd and 23rd. A shift in momentum took place at that point, creating a reversal pattern into the early afternoon. The confirmation came in the form of a 5 minute Phoenix (TM) around 12:45 ET. The reversal held into the final hour of trade, but the market began to struggle as the indices tested 10:30-11:00 a.m. ET congestion and the 5 minute 20 sma. Slightly higher highs in the final hour of trade on a 5 minute time frame created a 2T (TM) reversal that pulled the market back into the closing bell, returning the indices to negative territory for the session.
The market did not show a strong reaction to the day's economic reports. The index futures did rise slightly ahead of the open following the 8:30 a.m. ET employment data, but they failed to hold onto those gains. Initial jobless claims fell 11,000 last week. Despite this positive news, the number of continuing claims pushed higher to 4.57 million. Comments by St. Louis regional Federal Reserve president James Bullard weighed heavily on the morning after he warned that the U.S. is at risk of an extended period of declining wages and even prices if the current policies are not improved.
The Dow Jones Industrial Average ($DJI) fell 30.72 points, or 0.29%, and closed at 10,467.16 on Wednesday. 2/3 of the Dow's 30 index components posted a loss. The top losers were Kraft (KFT) (-2.05%), Procter & Gamble (PG) (-1.64%), Hewlett-Packard (HPQ) (-1.53%), and Intel (INTC) (-1.41%). The top performers were Merck (MRK) (+0.92%), General Electric (GE) (+0.62%), and Chevron (CVX) (+0.61%).
The S&P 500 ($SPX) fell 4.60 points, or 0.42%, and closed at 1,101.53. Citrix Sys. (CTXS) (+19.73%) was the top performer, followed by Ameriprise Finl. (AMP) (+12.28%). Other top performers included Interpublic Group (IPG) (+8.85%), Teradyne (+8.42%), and Lincoln National (LNC) (+6.93%). LSI Corporation (LSI) (-13.92%), Akamai Tech. (AKAM) (-12.90%), Symantec Corp. (SYMC) (-11.18%), and Owens Ill. (OI) (-10.36%) were the top losers.
The Nasdaq Composite ($COMPX) ended the session lower by 12.87 points, or 0.57%, on Thursday and it closed at 2,251.69. CTXS was the Nasdaq-100's best performer. It was followed by gains in Logitech (LOGI) (+4.29%) and Virgin media (VMED) (+3.91%). SYMC was the biggest loser, followed by Nvidia (NVDA) (-9.87%) and Life Tech. (LIFE) (-6.15%).
It will be important to pay attention to the Gross Domestic Product (GDP) on Friday. This can easily move the index futures when the report is announced at 8:30 a.m. ET. It is expected to reveal a slowdown in second-quarter growth from 2.7% to 2.5%. The Chicago PMI is also due out at that time, while the Reuter's Michigan Consumer Sentiment Index comes out at 9:55 a.m. ET.
The momentum heading into Friday is still bearish overall. We were originally looking at more of a slowdown into highs and then a breakdown, but the indices rounded off easily and this leaves the indices continuing to favor the bears ahead of the weekend. The 20-day moving average is the next daily support level and the indices are strongly biased to react to that level with an attempt to break through the 100 day sma in the Dow, S&P 500 and Nasdaq.
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.