E-mini losses mount for worst week in months

Good day! The market has been in a corrective phase over the past week, but it picked up steam as the week wound to a close. Cisco's (CSCO) disappointing earnings put pressure on the Nasdaq on Thursday, but the selling accelerated into the weekend. Moreover, commodities also joined the fray on Friday following speculation that China may begin to raise its interest rates to curb its rising inflation. Gold, silver, copper, and oil were just a few that fell under strong selling pressure. Gold slid $37.70 an ounce, or 2.7%, on Friday, and ended the week lower by 2.3% at $1,365.60 an ounce. Silver ended the week lower by 2.7%, while copper was down 1.2% for the week. Meanwhile, crude oil settled at $84.88 a barrel on Friday after testing $87 earlier in the week. It finished the week lower by 2.3%.

Dow Jones Industrial Average (Figure 1)

Friday's session began with a slight downside gap in the major indices. The gap itself provided confirmation of a larger 15 minute channel breakdown from Thursday's session, which meant a continuation move on the larger intraday time frame. This took a few minutes to start to play out, however. Initially the gap was bought and most of the opening losses were recovered heading into 10:00 a.m. ET. The closure of the gap zone and the 5 and 15 minute 20 period moving averages were formidable opponents and prices stalled at those levels. They also corresponded to the University of Michigan's index for consumer sentiment, which rose from 67.7 to 69.3 in early November. Analysts were expecting a reading of 69.0. Despite the better-than-expected data, the market sold the news, along with the technical resistance. This kicked off the continuation of the larger opening sell pattern.

The market spent the remainder of the morning and early afternoon in sell mode. The initial wave of downside intraday continued into the 11:00 a.m. ET correction period. This was also support from Thursday's lows in the Nasdaq. A second correction off morning lows and into the 5 minute 20 sma followed. This lasted approximately as long as the opening bounce, so when the selling continued it marked the third leg down on the 5 minute time frame and trend exhaustion. The indices hit equal move support for this third wave of selling between 12:30 and 13:00 ET. The low corresponded to the 13:00 correction period in the S&P and Dow. This provided the market with a strong reason to hold the mid-day lows when combined with the trend exhaustion and additional support from the S&P's 20 day sma. The indices climbed slowly higher throughout the remainder of the session.

S&P 500 (Figure 2)



The Dow Jones Industrial Average ($DJI) had a loss of 90.52 points, or 0.8%, and closed at 11,192.58 on Friday. Only four of the Dow's thirty index components managed to post a gain for the day. The top performer was Walt Disney (DIS) (+5.1%). It's shares had slumped on earnings concerns, but confusion over an early report gave way to confidence with numbers that beat Wall Street expectations. Intel Corporation (INTC) (+1.5%), Kraft Foods (KFT) (+0.5%), and Coca-Coca (KO) (+0.2%) were the other gainers. Boeing Company (BA) (-3.5%), Alcoa Inc. (-2.3%), Hewlett-Packard (HPQ) (-2.1%), and Bank of America (BAC) (-2.0%) were the top losers. The Dow ended the week lower by 2.2%.

The S&P 500 ($SPX) fell 14.33 points, or 1.18%, and closed at 1,199.21. The top percentage gainers in the S&P 500 were Fortune Brands (FO) (+8.2%), NVIDIA Corp. (NVDA) (+5.1%), Walt Disney (DIS) (+5.1%), and Juniper Networks (JNPR) (+3.7%). The biggest losers were CF Industries Holdings (-6.3%), D.R. Horton Inc. (DHI) (-5.4%), Office Depot (ODP) (-5.1%), and Diamond Offshore Drilling (DO) (-4.9%). The S&P 500 ended the week lower by 2.17%.

The Nasdaq Composite ($COMPX) ended the session lower by 37.31 points, or 1.46%, on Friday and it closed at 2,518.21. The Nasdaq-100 only had 6 gainers for the day. The top performers were NVIDIA (NVDA) (+5.15%), Intel Corp. (INTC) (+1.51%), Garmin Ltd. (GRMN) (+1.06%), and Symantec Corp. (SYMC) (+0.94%). The top losers were Foster Wheeler (FWLT) (-3.77%), Dell Inc. (DELL) (-3.66%), Vertex Pharmaceuticals (VRTX) (-3.49%), and Joy Global (JOYG) (-3.29%). The Nasdaq Composite ended the week lower by 2.36%.

Nasdaq Composite (Figure 3)

Unsurprisingly, last week's meeting of the G-20 in Seoul, South Korea ended without any definitive plan to combat the ongoing economic concerns facing so many of its member nations. Those following the event were particularly hoping to see guidance for reducing global trade imbalances and currency tensions. Specific concerns have been aimed at China's inflation and Irish sovereign debt. European Union officials will be meeting in Brussels this week to discuss Ireland's troubles and whether or not the country should be offered outside financial assistance.

Next week will be a busy one on the economic front. The week will kick off with October's retail sales on Monday. The Commerce Department is expected to report a 0.7% increase in sales for the month. Black Friday is also just around the corner, so retailers overall will continue to receive a lot of focus over the next several weeks as holiday shopping kicks into gear. WalMart (WMT), Target (TGT), Nordstom (JWN), Saks (SKS), Home Depot (HD), and Lowe's (LOW) are a few of the retailers still left to report earnings as well and the Street will be looking for signs on how American consumers will approach the season.

Later in the week, keep an eye on October's leading indicators on Thursday, as well as the Philadelphia Federal Reserve Index, which most are hoping will show positive signs of business growth.

Also of interest this week will be General Motors' (GM) initial public offering following bankruptcy. Shares are expected to trade on Thursday somewhere between $26-30 a share.

Although this past week has been a difficult one for the market, the indices are currently at strong daily support levels. The corrective move into Friday was comparable to the one that took place at the end of September, providing another type of support based on time rather than price. How the market reacts to this level will be key for how price action plays out throughout the remainder of the year. If there is a strong reaction, this would trigger a third wave higher on the 120-minute time frame in the Nasdaq since the low at the end of August. On the other hand, two-wave trend moves are also quite common. So, if the indices hug support, react to it with slower or equal upside momentum compared to the previous selloff, or only pause and flush through it early in the week, then we can expect to enter a longer phase of correction without any strong upside trend continuation for at least several months.

Based on the current price action, I am favoring an equal to slower push higher with potential for slightly higher highs that would merely serve as a trap for bulls. This is similar to what we saw take place in April after it pulled back into the middle of the month and then returned to slightly higher highs in the second half of the month. It will be important to watch the smaller, intraday time frames for timing signals and be aware that without any rounding off at support, with slightly lower lows before a bounce, that any upside reaction will begin more gradually in most cases.

Note: I'll be in Las Vegas later this week teaching a workshop at the Online Trading Expo on Friday from 5:30-6:30 pm. For more information, go to http://tiny.cc/ezsp5. I look forward to seeing you there!

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.

About the Author
Toni Hansen

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.

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