Good day! Even though economic data picked up last week, the market activity remained slow. The indices once again inched higher on the daily time frame. They also once again fell short of a strong rally. The index futures were actually up strongly heading into early Friday morning. The steady rally that began mid-day on Thursday continued afterhours. The market peaked around 4:00 a.m. ET, which is also a typical correction period. Although the selling began slowly, the indices rounded off and the downside momentum built on itself after 6:30 a.m. The breakout on Thursday afternoon was actually a fairly strong one when examined on the all-sessions time frames to include afterhours and premarket data. It included three waves of upside with each wave more gradual than the last. This helped pave the way for the stronger downside momentum that began just before 7a.m.
Dow Jones Industrial Average
The first wave of selling on a 15 minute time frame continued into approximately 8a.m. ET. At that point the index futures stalled where the end of the first rally from the prior afternoon had stalled just after the closing bell. The market then congested along this support zone before finally breaking lower soon after Friday's opening bell. This created a two-wave correction into 10:00 a.m. ET and the 5 minute 200 sma zone in the Dow Jones Ind. Ave. and S&P 500. The Nasdaq outperformed the other indices last week thanks to strength in technology. It also fared better on Friday's morning retracement, falling only to its 5 minute 20 sma before holding.
The remainder of the session on Friday lacked a strong directional bias lasting longer than about an hour. Market participants seemed hesitant to bank of strong action. The range from the first 30 minutes of the day held extremely well and the market bounced back and forth off the upper and lower end of a 5-15 minute trading range intraday. It could have been due to it being quadruple witching day, or it could have been the fact that the market has been creeping higher for about two weeks, but on light volume and with a great deal of overlap from one day to the next in price. This creates concern for the bulls, who see the extension and become disturbed price falling in and out of profits.
The Dow Jones Industrial Average ($DJI) posted a gain of 13.02 points, or 0.12%, and closed at 10,607.85 on Friday. Just over half of the Dow's 30 index components posted a gain. The leaders included Caterpillar (CAT) (+1.64%), United Tech. (UTX) (+1.46%), 3M (MMM) (+1.32%), and DuPont (DD) (+1.31%). CAT's gains came after it reported strong quarterly gains. The top decliners were Hewlett-Packard (HPQ) (-3%), JP Morgan (JPM) (-2.27%), and Bank of America (BAC) (-1.11%).
The S&P 500 ($SPX) rose 0.93 points, or 0.08%, and closed at 1,125.59. Oracle (ORCL) (+8.36%) was the S&P 500's best performer after it reported a stronger-than-expected profit topping 38%. Other top gainers included Interpublic Group (IPG) (+4.78%), SLM Corp. (SLM) (+4.46%), and Deere & Co. (DE) (+4.04%). Massey Energy (MEE) (-7.48%) was the worst performer. Other top losers were Tyson Foods (TSN) (-6.87%), and Micron Tech. (MU) (-4.79%).
The Nasdaq Composite ($COMPX) ended the session higher by 12.36 points, or 0.54%, on Friday and it closed at 2,315.61. Oracle (ORCL) (+8.36%) was also the top performer in the Nasdaq-100, followed by Expedia (EXPE) (+3.86%), Marvell Tech. (MRVL) (+3.41%), and Warner Chilcott (WCRX) (+2.62%). Broadcom (BRCM) (-3.37%), Sandisk (SNDK) (-3.03%), and Sears Holdings (SHLD) were the weakest.
As we head into Monday, I'm starting to focus once again upon potential swingtrades. My primary directional bias for these types of setups is to the downside. The average holding time for a swingtrades can range from 3 days to 3 weeks... or thereabouts. The current bias in the shorter term is still bullish, but I'm starting to see more examples of those that are just not cutting it. The Fed meets this week and is expected to announce its latest interest rate on Wednesday. This could easily be the catalyst for a daily correction, even if the news comes in within the realm of what economists are expecting.
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.