Good day! After ripping higher on Thursday, the market has struggled. The gains were substantially stronger-than-average in a very brief period of time following an exceptionally busy news week. Although this pushed the major indices through resistance on the daily time frame, it also left them exhausted heading into the weekend. On the all-sessions charts, which include pre- and post-market trading, the congestion that began with Thursday's closing bell is in line with a typical corrective response for the rally that began following Wednesday's FOMC QE2 (quantitative easing) announcement.
Dow Jones Industrial Average (Figure 1)
The Fed committed $600 billion in $75 billion increments towards helping spur economic growth in the month's ahead. This news was not welcome by many of the G-20, which meets in South Korea on Thursday and Friday. The G-20 consists of a Group of Twenty Finance Ministers and Central Bank Governors that focuses upon issues of global economy stability. China, Germany, and Brazil have all expressed strong views against the latest Fed move, which put further pressure upon the U.S. dollar. World Bank chief Robert Zoellick even suggested a return to the gold standard. Gold has been making new record highs with investors seeking it out as a "safe haven". It topped $1,400 an ounce on Monday with a high for the day of nearly $1,410 and has further room to move this week. Gold for December delivery settled at $1,403.20 an ounce on the New York Mercantile Exchange, while the U.S. dollar index ended the session at $76.99.
The week kicked off with a gap lower in the major indices and then put in a second wave of selling coming out of the 9:45 ET correction period. This took the market to the lower end of the larger 30-minute trading range The 5 minute 200 period moving average served as support in the Dow Jones Industrial Average and S&P 500. The move was brief, however, and the indices turned higher at 10:00 a.m. ET. The Nasdaq took over with the best relative strength for the session, while the S&P 500 was the weakest of the three. The S&Ps even retested morning lows heading into the 11:00 ET correction period. Meanwhile, the Nasdaq pulled sharply lower for a few minutes, but held the 5 minute 20 sma support. The other two indices were battling this level as resistance.
S&P 500 (Figure 2)
Although the market pulled higher over noon, the pace of the action was gradual. The highs of the 30-minute trading range in the Nasdaq served as strong price resistance and the slower pace of the buying allowed rapid, albeit brief, selloffs throughout the afternoon. The cumulative strategy that developed was a Momentum Reversal (TM) that is the most evident intraday in the S&P 500. The slightly higher highs throughout the afternoon trapped the bulls and the index futures followed through on this pattern development into the closing bell and in early afterhours trade. This put the index futures back at the level of the 10:00 a.m. ET lows (Figure 3).
S&P 500 (Figure 3)
The Dow Jones Industrial Average ($DJI) had a loss of 37.24 points, or 0.33%, and closed at 11,406.84 on Monday. Eight of the Dow's thirty index components posted a gain. The leaders were Bank of America (BAC) (+1.94%), Hewlett-Packard (HPQ) (+1.21%), Cisco (CSCO) (+0.54%), and Exxon Mobil (XOM) (+0.46%). The weakest performers were Travelers (TRV) (-1.50%), Boeing (BA) (-1.49%), Home Depot (HD) (-1.35%), and JP Morgan Chase (JPM) (-1.05%).
The S&P 500 ($SPX) fell 2.60 points, or 0.21%, and closed at 1,223.25. The top percentage gainers in the index were Coventry Health Care (CVH) (+6.63%), JDS Uniphase (JDSU) (+4.91%), Halliburton (HAL) (+4.73%), and MetroPCS Communications (PCS) (+4.18%). The weakest performers were New York Times Co. (NYT) (-4.93%), Micron Technology (MU) (-4.85%), Anadarko Pete Corp. (APC) (-4.29%), and Genworth Financial (GNW) (-3.78%).
The Nasdaq Composite ($COMPX) ended the session higher by 1.07 points, or 0.04%, on Monday and it closed at 2,580.05. The strongest stocks in the Nasdaq-100 were Activision Blizzard (ATCI) (+5.13%), Wynn Resorts (WYNN) (+3.08%), Apollo Group (APOL) (+2.91%), and Hologic Inc. (HOLX) (+2.84%). Warner Chilcott (WCRX) (-13.67%) was the weakest performer in the Nasdaq-100. Other top decliners included Dish Network (DISH) (-3.65%), Millicom Intl. Cellular (MICC) (-3.05%), and Seagate Technology (STX) (-1.7%).
Nasdaq Composite (Figure 4)
It will be difficult for the bears to grab a strong hold at the moment due to last week's rally. This leaves the Nasdaq still being drawn to its 2007 highs. My longer-term outlook remains the same as I stated over the weekend. As the Nasdaq pushes into previous highs, the pace of the buying compared to the selloff on the monthly time frame will mean that the zone of prior highs will be exceptionally strong. This is due to not only the pace of the momentum, but also the time frame involved. Nearer-term levels of support and resistance are easier to break. The disadvantage of larger time frames, however, is that the zones of support or resistance are wider, so even a break higher in price that may seem substantial on a daily chart can be insignificant on the monthly charts. This is where people often get trapped.
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.