Good day! September kicked off on a positive note when the market jumped sharply higher Wednesday on strong manufacturing data out of China and the U.S., followed by continued upside throughout the remainder of the week. This took place after the Dow hit the 10,000 target zone for the daily breakdown in the second half of August that I wrote about in mid-August.
Friday's gains came on the heels of August's nonfarm payrolls, which fell 54,000 for the month. Analysts, however, were anticipating a 100,000 decline. Private sector payrolls rose 67,000, which was higher than the 41,000 anticipated. Meanwhile, the unemployment rate rose 9.6%.
In other news, the Institute for Supply Management reported that non-manufacturing activity in the U.S. grew by less-than-anticipated. The index of national services activity fell to 51.5 in August. A slight decline had been expected. August's level was the second lowest level of the year-to-date.
Dow Jones Industrial Average
Although the market continued to push higher following the early-morning data, the indices struggled to maintain that pace. It was already shifting ahead of the opening bell. The indices hit slightly higher highs in the first 30 minutes of the intraday session, but this merely shifted the momentum further. The slightly higher highs created a type of bull trap that led to a turn lower throughout the next hour.
The initial wave of downside was the strongest of the morning, with the indices breaking throughout opening levels to hit first support at the 10:15 ET correction period. Two more slightly lower lows followed into 11:00 ET. Once again this shifted the momentum and the market turned. Friday was the third day of upside whereby the indices held the 15 minute 20 period simple moving average. The market has a difficult time continuing this course past day three and, although they tried, the bulls failed to break the morning highs before the closing bell. The indices did hold 11:00 ET lows, however, and remained in a gradual uptrend into the three-day weekend.
The Dow Jones Industrial Average ($DJI) posted a gain of 127.83 points, or 1.24%, and closed at 10,447.93 on Friday. All 30 of the Dow's index components posted a gain on the day. The leaders included JP Morgan (JPM) (+2.65%), Cisco (CSCO) (+2.53%), American Express (AXP) (+2.25%), and Caterpillar (CAT) (+2.25%). Although they still posted a gain, McDonalds (MCD) (+0.09%), AT&T (T) (+0.15%), and Verizon (VZ) (+0.30%) were the weakest. The Dow ended the week with a gain of 2.9%.
The S&P 500 ($SPX) rose 14.41 points, or 1.32%, and closed at 1,104.51. Monster Worldwide (MWW) (+7.03%) was the S&P's best performer on Friday. It was followed by Janus Capital Group (JNS) (+6.64%), Genworth Financial Inc. (GNW) (+5.99%), H&R Block (HRB) (+5.81%), and Goldman Sachs (GS) (+5.37%). The leading sectors were the financials, technology, and consumer discretionary. Out of the S&P's 500 index components, only three ended the day lower by more than 1%. They were Campbell Soup (CPB) (-2.97%), Family Dollar Stores (FDO) (-2.28%), and First Horizon Natl. Corp. (FHN) (-1.03%). The S&P 500 ended the week higher by 3.8%, while the financials were up 5.7%.
The Nasdaq Composite ($COMPX) ended the session higher by 33.74 points, or 1.53%, on Friday and it closed at 2,233.75. 8 of the Nasdaq-100 index stocks closed with a loss, but only Check Point Software (CHKP) (-1.44%) fell more than 1%. The top performers were Nii Holdings (NIHD) (+3.78%), Wynn Resorts (WYNN) (+3.71%), Nvidia (NVDA) (+3.45%), Sears Holdings (SHLD) (+2.84%), and Microchip Technology (MCHP) (+2.80%). The Nasdaq ended the week higher by 3.72%.
Although the bulls found cheer with last week's gains, the moves were made on fairly light volume and the market isn't out of the woods yet. The indices have been trading in a range ever since May's sharp selloff. Both the S&P 500 and Dow Jones Industrial Averages established slightly lower lows on the weekly time frame, so the recent lows make it possible that both of these indices are forming Reverse Head and Shoulders formations on that time frame. This is a positive for the bulls. Nevertheless, the last wave of downside that took place in August still kept the overall momentum of the trading range in favor of the bears until this past week. The market will need to confirm last week's shift in momentum that favored the bulls with a slower move to the downside on the daily and weekly time frames in order to offer the bulls any real confirmation beyond a swingtrade perspective.
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.