Good day! The market continued to show restraint on Monday as the new week kicked off. This has been a slow month so far, despite earnings season being in full swing. The Federal Reserve stands a chance of shaking things up on Tuesday, however, when they announce their latest stance on interest rates. No change is anticipated and analysts are expecting the accompanying statement to also indicate that this will remain the policy for awhile to come.
So far this year the FOMC meetings have not resulted in the extreme moves they yielded in the past. While volatility still spikes, the reactionary moves have been muted following the announcement. This isn't keeping market participants from hoping that Tuesday's announcement finally spices up the month!
Dow Jones Industrial Average
The markets remained in positive territory throughout most of Monday's session. The day began with a gap higher into the opening bell, but the premarket trading range broke lower out of 9:30 a.m. ET. This was the main show of weakness for the day. The minor upside gap quickly closed. The indices had been on the run since the previous afternoon without a decent correction on even a 5 minute time frame, so the gap had a strong potential for closure to begin with. The closure of the gap into 10:00 a.m. ET served as support. The bulls were not quite ready to throw in the towel and the support held. The momentum of the selling shifted when the indices bounced off the support and then pulled back on light volume and more gradual selling between 10:15 ET and 11:00 ET.
11:00 a.m. ET is a common time of the day for new moves in the market to begin. Trading ranges will often break free at this time. On Monday, the 11:00 ET correction period was accompanied by a break in the upper end of the morning triangle on the 5 minute time frame. The last portion of the triangle was also a Phoenix (TM). The volume did not confirm the move, however, and the trend extension on the 15 minute time frame made it difficult for the indices to break strongly to new intraday highs.
Although the market remained on the side of the bulls throughout the remainder of the session, they struggled for their gains. Another breakout trigger took place as the indices based into their 15 minute 20 period moving averages at 14:30 ET, but rounded highs on that time frame from earlier in the session made it difficult for the market to follow through on the breakout. The market turned lower into the final hour of trade, showing a bearish bias into the closing bell, but the indices managed to finish the session in positive territory before giving way to the selling pressure afterhours.
The Dow Jones Industrial Average ($DJI) posted a gain of 45.19 points, or 0.42%, and closed at 10,698.75 on Monday. Although the gains in the Dow were not monumental, all except 5 of the Dow's 30 index components posted a gain and one of those 5 was a scratch. The top performers were Cisco (CSCO) (+2.91%), McDonalds (MCD) (+1.64%), IBM (IBM) (+1.43%), and AT&T (T) (+1.21%). Hewlett-Packard (HPQ) (-7.39%) was the weakest after Friday's afterhours news that its Chief Executive Mark Hurd had resigned after becoming the focus of a sexual harassment probe that revealed falsified expense reports and other major concerns. JP Morgan (JPM) was another loser, falling 1.53%, while General Electric (GE) (-0.43%), and Bank of America (BAC) (-0.36%) were the Dow's remaining decliners.
The S&P 500 ($SPX) rose 6.15 points, or 0.55%, and closed at 1,127.79. King Pharmaceuticals (KG) (+4.44%) was the S&P 500's best performer, followed by DR Horton (DHI) (+4.34%), Eastman Kodak (EK) (+4.11%), and Cliffs Natural Resources (CLF) (+4.05%). After HPQ, the biggest losers in the S&P 500 were Tyson Food (TSN) (-4.90%), Genzyme Corp. (GENZ) (-2.49%), and Teradata Corp. (TDC) (-2.23%).
The Nasdaq Composite ($COMPX) ended the session higher by 17.22 points, or 0.75%, on Monday and it closed at 2,305.69. Liberty Mutual (LINTA) (+4.79%) was the Nasdaq-100's top gainer. Research In Motion (RIMM) (+3.48%), Cisco (CSCO) (+2.91%), and Qualcomm (QCOM) (+2.85%) were also strong performers. Dish Network (DISH) was the weakest stock in the Nasdaq-100, falling 10.17% despite beating earnings and revenue estimates. Subscriber numbers fell last quarter, however, and this loss was felt by investors on Monday morning. Hologic (HOLX) (-3.23%) and Seagate Tech. (STX) (-2.78%) were also weak.
The volume in the market is likely to remain light on Tuesday morning as market participants quietly await the Fed. The daily bias in the indices is still in favor of a break lower out of the rising wedge that has been forming since July lows. Without unexpectedly strong news from the Fed, that afternoon announcement could easily be the spark leading to a multi-day or longer correction off highs in the market.
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.