Range-Bound Trade Continues
Good day! The economic data picks up this week, but the market have continued to hold the daily trading range that began on Nov. 16 when the major indexes fell into the zone of their 50-day simple moving averages. This is a strong technical level for the markets and one that they have been reluctant to break. After falling quickly into that level at the beginning of the month, however, slower reactionary moves are typical and this congestion is similar to what the market experienced after pulling back sharply at the beginning of August.
Dow Jones Industrial Average (Figure 1)
The session began on Monday with hopes of strong Black Friday sales offering a boost to the bulls, but the technicals remained bearish and a major sell setup triggered in the early morning hours in premarket trade in the index futures. This selling resumed following the 9:45 a.m. ET correction period intraday after the indexes had gapped slightly lower out of Friday's afternoon trading channel. This continued the move off the upper end of the daily trading range that began with the gap lower on Friday morning.
Although the selloff was a strong one, the bears were unable to continue to push prices lower after 10 a.m. ET. At that point the index futures had already established three waves of selling on the all-sessions time frame, which includes premarket trade, and the move was on the upper end of extreme for the 15-minute time frame. Major intraday support levels were also hitting at that time. This included a closure of the Nov. 24 gap in the Nasdaq Composite and previous lows in the Dow Jones Industrial Average and S&P 500.
The pace of the selloff, however, prevented the market from staging a rapid recovery. Instead, the momentum had to shift on the smaller five-minute time frames throughout the remainder of the morning and first half of the afternoon. A strong buy setup finally triggered shortly before 14:30 ET. The base at the upper end of the mid-day trading range helped the breakout succeed and the late afternoon rally was on part with the early morning decline. By the end of the session all three of the major indexes were back in the trading zone from Friday afternoon and had recovered most of their intraday losses.
The Dow Jones Industrial Average ($DJI) had a loss of 39.51 points, or 0.36%, and closed at 11,052.49 on Monday. The financials rebounded after Friday's weak performance and were among the Dow's best performers. American Express (AXP) rose 2.51%, while Bank of America (BAC) was up 1.71% and JP Morgan (JPM) climbed 1.09%. Du Pont (DD) (+1.32%), and General Electric (GE) (+1.08%) were also top gainers. The biggest losers were Hewlett Packard (HPQ) (-1.39%) and Home Depot (HD) (-1.00%).
The S&P 500 ($SPX) fell 1.64 points, or 0.14%, and closed at 1,187.76. The best performers in the index were Fedex (FDX) (+4.67%), Huntington Bancshares (HBAN) (+4.32%), and Eastman Kodak (EK) (+3.64%). The weakest performers were Teradyne Inc. (TER) (-4.93%), Goodyear Tire & Rubber Co. (GT) (-3.89%), and Monster Worldwide (MWW) (-3.41%).
The Nasdaq Composite ($COMPX) ended the session lower by 9.34 points, or 0.37%, on Monday and it closed at 2,525.22. Expedia Inc. (EXPE) (+1.55%) was the Nasdaq-100's best performer, followed by Amazon.com (AMZN) (+1.29%), and Electronic Arts (ERTS) (+1.28%). Warner Chilcott (WCRX) (-3.59%), First Solar (FSLR) (-3.07%), and eBay (EBAY) (-2.95%) were the weakest.
My outlook for Tuesday's session is relatively unchanged from this weekend. The trading channel continues to favor the bears, but intraday price action suggests that a break of the 50-day moving average at this point could be minor. In order to achieve a solid break, a retest of the highs, or even a slightly higher high, would have been preferred. News to watch on Wednesday will be the ADP Employment Report and ISM manufacturing index. Meanwhile, retailers will be closely tracking their online sales and the success of campaigns to lure consumers to the web. Cyber Monday kicked off the week, but this period of online buying frenzy is viewed as approximately a 10-day event with sales beginning to slow as time runs out to receive purchases by Dec 25.
Note: Unless otherwise stated, the index action described below 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.