E-minis focus on U.S., Chinese data not E.U. woes

Good day! Wednesday was a strong day for the markets. Economic data out of China and the United Stated overshadowed the ongoing concerns regarding European sovereign debt. China kicked things off with better-than-expected manufacturing data, which showed that manufacturing activity was hitting seven-month highs. This was followed by a strong rally in the index futures overnight leading into the U.S. data. According to ADP (a payroll processing firm), private sector jobs rose unexpectedly by 93,000. Shortly after this report, the Institute of Supply Management reported that its index of manufacturing activity slipped slightly in November from 56.9 to 56.6, but since it came in over 50 it still indicated expansion. Meanwhile, construction spending rose 0.7% in October, which beat analysts' estimates of a 0.5% decrease.

Dow Jones Industrial Average (Figure 1)

The index futures climbed steadily throughout premarket trade, leading to a sizable gap higher into the opening bell. That momentum continued into 10:00 a.m. ET when the indices struck resistance at previous highs on the 90 minutes charts and fell into an extended trading range. Volume dropped off during that time, but the pace of the selling slowed compared upside activity. This kept the bias bullish despite the already extended uptrend.

The market spent most of the morning in a trading range, but received a boost after Reuters reported that the U.S. would be willing to increase its commitments to the International Monetary Fund (IMF) to support financial stability in the Euro-Zone. Economists at Goldman Sachs (GS) also played a role in the session's gains when they raised their forecast for U.S. growth from 1.9% to 2.7% for next year. Data from Cyber Monday sweetened the pot. Initial reports indicate that Americans spent somewhere in the neighborhood of $1 billion, setting a new record for online spending in a single day and that November retail sales showed a gain in the territory of 3.6%.

S&P 500 (Figure 2)


At 14:00 ET the Federal Reserve's Beige Book came out. It indicated economic improvement in most of the central banks' twelve districts between October to November. This had little impact upon the intraday action in the markets, which were already extended on the upside following the morning reports. The indices traded in a very narrow channel along intraday highs throughout the entire afternoon. The pace and extent of the morning rally made a strong price correction unlikely to occur prior to the close, but it also put a damper on any continued upside. The market needed a chance to catch its breath before deciding its next move.

Nasdaq Composite (Figure 3)

The Dow Jones Industrial Average ($DJI) had a gain of 249.76 points, or 2.27%, and closed at 11,255.78 on Wednesday. All 30 of the Dow's index components posted a gain. The top performers were Home Depot (HD) (+4.63%), United Technologies (UTX) (+3.97%), Alcoa (AA) (+3.43%), and Caterpillar (CAT) (+3.37%). Cisco (CSCO) was the weakest, but it still posted a gain of 0.84%.

The S&P 500 ($SPX) rose 25.52 points, or 2.16%, and closed at 1,206.07. Masco Corp. (MAS) was the top performer with a gain of 7.06%. Red Hat (RHT) (+6.28%), Harman Intl. (HAR) (+5.99%), and Regions Financial (RF) (+5.39%). Only 15 of the 500 posted a loss. The weakest were SuperValu (SVU) (-1.66%), Health Care Reit Inc. (HCN) (-1.47%), and Ventas (VTR) (-1.17%).

The Nasdaq Composite ($COMPX) ended the session higher by 51.20 points, or 2.05%, on Wednesday and it closed at 2,549.43. Only four components in the Nasdaq-100 posted a loss. They included DirecTV (DTV) (-0.72%), Genzyme (GENZ) (-0.11%), Teva Pharmaceuticals (TEVA) (-0.10%), and Research In Motion (RIMM) (-0.02%).

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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