Good day! Although earnings season has not yet begun, the market has plenty to keep it occupied. This is a full week for economic data and daytraders should have a lot to work with. The data started coming in full force on Tuesday with the A&P/Case-Shiller housing price index. This composite index, which measures housing price trends in 20 major U.S. cities, showed that home prices rose from June to July, but that the pace of the growth had slowed. In the 10 major metropolitan areas that were tracked, home prices were up 0.8%. The overall index was up 0.6%, but the prices were virtually flat to slightly lower for both when seasonally-adjusted. This was followed an hour later by the U.S. Conference Board's index on consumer confidence. Economists were anticipating a drop from 53.2 in August to 52.5 in September. In actuality, the index fell to 48.5. The indices showed little reaction to the housing data, but fell on the consumer confidence report.
Dow Jones Industrial Average (Figure 1)
Premarket trade on Tuesday was a lot more volatile than usual. The index futures were wrapped up in a battle between the bulls and the bears even before the economic data came out. The indices had broken lower into 4:00 a.m. ET after basing from Monday's close into 2:00 a.m. At 4:00 a.m. ET the S&Ps were hitting equal move support when comparing the breakdown to the selloff intraday on Monday that began around 14:45 ET. Instead of falling into a trading range at lows once again, however, something caught the bulls' attention at 5:20 a.m. ET and they quickly recouped the morning's losses.
At 6:00 a.m. ET the bias began to shift once again. The index futures fell into another level of congestion, but they took the lead from the earlier reversal off lows and went for a double top into 9:00 a.m. ET on a 5 minute time frame. A momentum style of reversal formed within the second test of premarket highs and a strong sell setup was triggered ahead of the opening bell that followed through sharply out of the open. The 10:00 consumer confidence data merely extended this move, which had hit support at premarket lows around 9:45 ET. The additional flush on the data brought the indices into their 200 period simple moving averages on the 15 minute charts based on intraday data in the S&P 500 and Nasdaq futures. This was also daily support at the 10 day sma in the Dow and Nasdaq.
S&P 500 (Figure 2)
The market continued to recover into the afternoon. Two waves of buying on a 5 minute chart took the S&P and Dow futures back to the zone of premarket highs shortly before noon. The was the zone of the 15 minute 200 sma intraday as well. The market hugged this level over noon, but it stalled the overall pace of the buying. This indicates a confirmation of a momentum shift starting to take place on the 60-minute time frame within the larger uptrend channel whereby the pace of that trend is slowing overall. This will continue to work in favor of a larger weekly correction into October.
The market continued to press higher in the afternoon on Tuesday, but without the same conviction as displayed in the morning rally. The Nasdaq came into premarket price resistance at 14:00 ET, which is also a correction period in the indices intraday, and stalled there. The indices pulled back for the next hour, but the pace of the selling was comparable to the move higher between 13:05 and 14:00 ET. This favored a trading range into the close. The 15:00 ET correction period held and the market rallied into the close. The result was a widening triangle intraday that began just before noon and that continued into afterhours trade.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) posted a gain of 46.10 points, or 0.43%, and closed at 10,858.14 on Tuesday. 22 of the Dow's 30 index components posted a gain with the market recovering Monday's losses. 5 of the 30 gained more than 1%. They included Pfizer (PFE) (+1.51%), Intel Corp. (INTC) (+1.40%), Alcoa (AA) (+1.24%), Travelers (TRV) (+1.02%), and Chevron (CVX) (+1.00%). The top losers were Cisco (CSCO) (-1.13%), Procter & Gamble (PG) (-0.69%), and Verizon (VZ) (-0.43%).
The S&P 500 ($SPX) rose 5.54 points, or 0.49%, and closed at 1,147.70. Walgreen Co. (WAG) (+11.40%) was the best performer in the S&P 500 after it beat its earnings forecast. Other top gainers included Boston Scientific Corp. (BSX) (+7.85%), Washington Post (WPO) (+5.08%), and Altera (ALTR) (+4.47%). The biggest losers were Monsanto (MON) (-8.14%), Flir Systems (FLIR) (-3.74%), E*Trade (ETFC) (-3.46%), and Massey Energy (MEE) (-2.32%). MON's selling was attributed to early indications that its genetically modified corn seed branded at SmartStax has fallen short of expectations.
The Nasdaq Composite ($COMPX) ended the session higher by 9.82 points, or 0.41%, on Tuesday and it closed at 2,379.59. Foster Wheeler (FWLT) was the top gainer in the Nasdaq-100, up 6.02%. It was followed by 4.47% gains in Altera (ALTR) and a 4.08% gain in Liberty Media Corp. (LINTA). Research In Motion (RIMM) (-3.00%) followed the loss in Flir Systems (FLIR) in the Nasdaq-100. Adobe (ADBE) (-2.23%), Baidu (BIDU) (-1.71%), and Apple Comp. (AAPL) (-1.48%) also topped the losers list. RIMM unveiled its PlayBook on Monday, which is a new tablet computer that will compete with Apple's iPad. On Tuesday, Apple was also the subject of speculation after reports that Tim Cook, its Chief Operating Officer, may soon be named chief executive at Hewlett-Packard (HPQ).
Gold futures made headlines on Tuesday when it set a new record by closing above the $1,300 an ounce mark. It gained $9.70 to settle at $1,308.30 after hitting an intraday high of $1,311.80. It's up 4.6% for the month and 19.4% year-to-date. Silver reached its highest level since 1980. It's up 11.9% this month and 29% this year. It settled at $21.707 an ounce.
The market bias continues to favor the bulls holding on this week and there is still room on the daily charts for one more push to slightly higher highs. Overall, however, I urge caution on the part of the bulls. In Figure 1, which depicts the Dow derivatives, it's evident that the index is hitting a strong daily resistance zone. This is the case on the weekly time frame as well. The blue lines represent a measured move in the index as compared to the rally into August highs, while the maroon one indicates the upper channel resistance. It will be extremely difficult for the market to push past these levels without at least correcting on a weekly time frame. October is also a common month to kick off larger market corrections. Combined with the resistance levels and evidence of a daily momentum shift over the past two weeks, I am expecting this to be the case this October as well.
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.