Good day! Volume remained light on Wednesday with health care, consumer staples, and tech stocks leading the gainers, while utilities, energy, and materials topped the market's losers list. Stocks had hit strong daily resistance on Monday after advancing into the 200 day sma in the S&P 500 and previous weekly highs from June and August and the market hasn't done much since. The price action heading into the session was very comparable on the all-sessions time frame on Wednesday morning as on Tuesday. In both cases the index futures slid slowly lower in premarket trade, establishing the final low within the downtrend channel with the 9:45 ET correction period. At that point the market popped.
Dow Jones Industrial Average
The early morning economic data in the States had very little impact upon the price action in the market. September's Empire Manufacturing Index fell further-than-expected. In August it came in at 7.1, but fell to 4.1 this month. Expectations were for a reading of 6.4. In other news, imported prices were up 0.6% in August. Industrial production rose 0.2%, although this was less-than-anticipated. August's capacity utilization was relatively unchanged at 74.7%.
The largest news for forex traders was the Japanese government's decision to intervene in the currency markets in order to curtail the strength of the yen, which is near 15-year highs. Although there had been widespread speculation for the move for weeks, Japan's Nikkei Index jumped more than 2% overnight. This will impact trade with the U.S. by increasing the cost of U.S. imports. The sharpest reaction to this news came at 21:30 ET on Tuesday evening and was priced into the market by the opening bell. The major currency pairs then spent most of the New York trading session stuck in a narrow range.
In the indices, the market experienced strength between 9:45 and 10:15 a.m. ET. and then fell into a range. The range broke higher with the 11:15 ET correction period. The Nasdaq was the strongest of the three indices and established an equal move into noon. Slower downside action was followed by sharper upside moves throughout the session, but the market struggled to break the upper end of the larger trading range. Even though the follow through strengthened in the final hour of trade, it was not enough to push through the daily resistance and the futures pulled back slowly into midnight.
The Dow Jones Industrial Average ($DJI) posted a gain of 46.24 points, or 0.44%, and closed at 10,572.73 on Wednesday. 2/3 of the Dow's 30 index components posted a gain. The top performers were Travelers (TRV) (+2.88%), Kraft Foods (KFT) (+1.74%), American Express (AXP) (+1.16%), General Electric (GE) (+1.11%), and Pfizer (PFE) (+1.11%). Although 1/3 of the Dow's components lost ground, none of them fell more than 1% and only 2 broke the -0.5% level. They included United Technologies (UTX) (-0.65%) and Alcoa (AA) (-0.52%.
The S&P 500 ($SPX) rose 3.97 points, or 0.35%, and closed at 1,125.07. Pall Corp. (PALL) (+6.26%), Novell Inc. (NOVL) (+5.92%), McKesson Corp. (MCK) (+5.42%), and Mastercard (MA) (+5.22%) were the top gainers in the S&P 500. NOVL's gains were attributed to unconfirmed talks of a sellout, while MA climbed after reporting that it expects its net income to rise by at least 20% this year. AK Steel Holding (AKS) (-5.71%), Time Warner Cable Inc. (TWC) (-4.97%), and Micron Tech. (MU) (-4.54%) were the biggest losers.
The Nasdaq Composite ($COMPX) ended the session higher by 11.55 points, or 0.5%, on Wednesday and it closed at 2,301.32. Yahoo Inc. (YHOO) (+4.70%), Intuitive Surgical Inc. (ISRG) (+2.74%), Seagate Tech. (STX) (+2.52%), and Netapp Inc. (NTAP) (+2.45%) were the top stocks in the tech-heavy Nasdaq-100. Only Logitech Intl. (LOGI) (-3.18%) and Cognizant Tech. (CTSH) (-1.25%) posted losses over 1%.
My market outlook heading into Thursday is very similar to Wednesday's, minus the smaller time frame bias for weakness heading into the open. On the 60 minute time frames, the action remains favorable for another push higher, allowing the indices to push through the highs of the past several months in the S&P 500 for a couple of days before a larger, multi-week correction will gain favor.
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.