Good day! The roller coaster ride that has been the market intraday in recent weeks continued on Tuesday. The index futures were favoring weakness and further downside into the end of the day on Monday and this continued to follow through into the early morning hours on Tuesday. A final wave of premarket selling took place going into 4:00 a.m. ET. The breakdown into the 4:00 a.m. ET lows was the third one that established itself with a "slightly lower low" on the five minute time frame. This action shifted the momentum of the selloff and the index futures triggered a Momentum Reversal™ off that low. This low also corresponded to the 10 day moving average, which would hit once again following the opening bell.
Dow Jones Industrial Average (Figure 1)
Momentum Reversals™ represent a change in the sentiment of market participants. They are often followed by strong upside moves, although the extent of the move is dependent upon the overall pace of the Momentum Reversal™, as well as trend placement. In this case, the follow through was solid and took the index futures back into price resistance at the first afterhours base in the Nasdaq and some prior pivot levels in the other major indices. These levels hit going into 9:00 a.m. ET.
The market was not subject to the whims of economic data on Tuesday morning and held purely to the technicals. The futures turned slightly off 9:00 a.m. ET highs and then based. This created a pattern that I call the Avalanche™ as a result of its visual formation and the odds for rapid downside once it triggers, which it did coming out of the opening bell Tuesday morning.
The downside out of the opening bell did not actually last for long. By the time the 9:45 ET correction period hit, the indices were already showing downside extension and by 9:50 ET the indices were turning higher. The reversal was very rapid given the pace of the overall selloff, but the indices had strong support at the 15 minute 200 period moving averages in the indices. This support zone held and the indices bounced quickly to new intraday highs.
The market action slowed following the 11:00 ET correction period. The indices had stalled due to the extent of the rally and the prior highs in the indices, but the overall bias still remained in favor if the market pushing onward to continue its series of slightly higher daily highs. The indices remained in a very tight range until 14:00 ET. This is when the Fed released its minutes from its last meeting. Investors were left feeling validated that the Fed would be intervening further to keep interest rates low. The market broke higher following the release, although it was a shaky start. The indices ended the session near the day's highs and the futures continued higher into the early morning hours. This continues to confirm the market favoring corrective action through time over price. Instead of a trading range, however, the correction is through slowly momentum by the bulls.
The Dow Jones Industrial Average ($DJI) posted a gain of 10.06 points, or 0.09%, and closed at 11,020.40 on Tuesday. Just over 2/3 of the Dow's 30 index components posted a gain. The top performers were Bank of America (BAC) (+2.81%), Alcoa (AA) (+2.09%), JP Morgan (JPM) (+1.69%), American Express (AXP) (+1.58%), and General Electric (GE) (+1.36%). The top losers were Verizon (VZ) (-1.48%), WalMart (WMT) (-1.26%), and Home Depot (HD) (-1.20%).
The S&P 500 ($SPX) rose 4.45 points, or 0.38%, and closed at 1,169.77. King Pharmaceuticals (KG) (+39.31%) was the strongest stock in the S&P 500 after Pfizer (PFE) announced that it had agreed to purchase the company. Other top gainers included Salesforce.com (CRM) (+5.57%), Starbucks Corp. (SBUX) (+4.42%), Avon Products (AVP) (+4.16%), and Diamond Offshore Drilling (DO) (+4.03%). The biggest losers were Electronic Arts (ERTS) (-5.95%), Fastenal Co. (FAST) (-4.95%), Gamestop Corp. (GME) (-2.80%), and Cabot Oil & Gas (COG) (-2.76%).
The Nasdaq Composite ($COMPX) ended the session higher by 15.59 points, or 0.65%, on Tuesday and it closed at 2,417.92. The top gainers in the Nasdaq-100 were Warner Chilcott (WCRX) (+4.52%), Starbucks (SBUX) (+4.42%), Citrix Systems (CTRX) (+3.14%), and Autodesk (ADSK) (+2.57%). The biggest losers were Electronic Arts (ERTS) (-5.95%), Fastenal (FAST) (-4.95%), Expedia Inc. (EXPE) (-2.07%), and Vertex Pharmaceuticals (VTRX) (-1.80%).
Following the close on Tuesday, Intel reported that it earned 52 cents per share with revenue of $11.1 billion, which is an earnings gain of 68% from a year earlier and a revenue gain of 18%. CSX, which was another widely followed name, reported earnings of $1.08 a share with revenue of $2.7 billion. Earnings were up 46% from a year earlier, while revenue was up 18%. This didn't lead to a strong reaction in the futures market immediately following the news, but could have easily contributed to the general tone of the market heading into Wednesday. The session will begin with the indices extended on the upside due to the early premarket trade and in favor of additional corrective action. Currently the rally is correcting via a trading range at highs with slower downside than upside momentum. This is typically bullish.