Good day! The markets put in a strong showing to kick off the first week of September last week, but that enthusiasm diminished following the three-day, Labor Day weekend. The Dow was even back into positive territory on the year until Tuesday's session pulled it under once again after Monday's U.S. holiday.
On Friday the major indices were all striking daily resistance levels following a week of strong upside. The index futures had slowed their gains into the weekend, however, shifting the intraday pace to reflect a slower recovery from Friday's morning pullback compared to a strong early-morning rally. This slower pace continued in the index futures throughout its trading on Sunday evening and was followed by a trading range during its trading hours on Monday.
Dow Jones Industrial Average
The shifting momentum formed a reversal strategy that kicked off selling into early Tuesday morning. Three waves of selling took place between midnight and 4:30 am ET. This took the indices back into mid-day trading levels from Friday. A trading range then followed in premarket trade going into Tuesday's opening bell. The range held into 9:45 ET, but then gave way to new lows into 10:00 ET.
The breakdown did not get far. A new trading range began going into 10:00 am ET in the indices that bore a strong resemblance to the one that took place between 4-9:30 am. The indices crept higher with the premarket range from 8:30 am ET until the indices broke lower out of 9:45 ET. This can be seen the most clearly in the S&P 500 futures and Dow Jones Ind. Ave. futures. The indices mimicked this slower mid-range ascent from 13:00 into nearly 14:30 ET. A similar breakdown followed with equally limited results, despite an attempt for a bear flag continuation lower into the closing bell.
The Dow Jones Industrial Average ($DJI) posted a loss of 107.24 points, or 1.03%, and closed at 10,340.69 on Tuesday. Only 4 of the Dow's 30 index components posted a gain on Tuesday. They included McDonalds (MCD) (+0.95%), General Electric (GE) (-0.32%), Coca-Cola (KO) (+0.12%), and Verizon (VZ) (-0.07%). The top losers were American Express (AXP) (-4.09%), Disney (DIS) (-2.39%), JP Morgan (JPM) (-2.27%), Cisco (CSCO) (-2.19%), and Bank of America (BAC) (-2.15%).
The S&P 500 ($SPX) fell 12.67 points, or 1.15%, and closed at 1,091.84. The top performers in the index were Oracle (ORCL) (+5.89%), United States Steel (X) (+4.57%), Newmont Mining (NEM) (+1.97%), Nucor Corp. (NUE) (1.81%), and Netapp (NTAP) (+1.66%). ORCL shares rose after it announced that it hired former Hewlett-Packard (HPQ) CEO Mark Hurd as its president. Goodyear Tire & Rubber (GT) (-6.02%), HR Block (HRB) (-5.94%), Kla-Tencor (KLAC) (-5.57%), Genworth Financial (GNW) (-5.49%), and Eastman Kodak (EK) (-5.49%). Although the financials were the leaders on Friday, they topped the declining sectors on Tuesday, falling 2.4% as a whole. The financial sector was hurt by overextension on the upside last week and news from Europe following the results of recent stress tests that suggested that European banks may be in worse shape than previously thought. The energy sector followed with a loss of 1.6%. None of the S&P's 10 industry sectors posted a gain, although consumer staples (-0.3%) and telecoms (-0.3%) fell the least.
The Nasdaq Composite ($COMPX) ended the session lower by 24.86 points, or 1.11%, on Tuesday and it closed at 2,208.89. Oracle (ORCL) was the Nasdaq-100's best performer. It was followed by Teva Pharmaceuticals (TEVA) (+2.59%), Netapp (NTAP), Nvidia (NVDA) (+0.91%), and Intuit (INTU) (+0.91%). Kla-Tencor (KLAC) was the worst performer in the Nasdaq-100. Other top decliners included Sears Holdings (SHLD) (-4.68%), Liberty Media Corp. (LINTA) (-4.50%), and Check Point Software (CHKP) (-4.31%).
As the week wears on, we should see a continuation of the reaction to the daily resistance, but the market is favoring a more gradual correction off last week's highs than the momentum into them. The door is even open for a trading range to result in a break higher for a two-wave bounce on the daily charts off August's lows with the first bounce having taken place into last week's highs. This is currently the most likely technical outcome, whereby a second, slower upside wave on the daily time frame would then be followed by further selling into the end of the month and early October.