Good day! The index futures held up well afterhours on Wednesday following one of the strongest days of the year after the indices once again held and bounced off the lower end of the daily trading channel. This channel began on November 16th and continued into December 1st. The Positive data out of China helped the bulls, as did the retail data that began to trickle in following Black Friday and Cyber Monday's start to the holiday shopping season.
After breaking strongly higher out of the daily trading range on Wednesday morning, the market fell into a trading range and this range continued into the early morning hours on Thursday. The index futures broke higher at 4:00 a.m. ET with a favorable reaction to the latest news overseas.
European Central Bank (ECB) chief Jean-Claude Trichet spoke at a press conference in Brussels on Thursday and announced that the ECB planned to delay its plan to reduce liquidity support for the European banks by three months. Speculation has increased that further intervention is necessary.
Dow Jones Industrial Average (Figure 1)
The index futures struggled to hold onto the early morning gains after the latest employment data hit the wires in the U.S. They were already weakening ahead of the news. The Nasdaq futures hit a slightly higher high into 8:00 a.m. ET to create a 2TTM, which is a type of bull trap, while the S&P 500 and Dow Jones Ind. Average futures formed 5 minute AvalancheTM sell patterns by slowly rising to a slightly lower high before breaking lower once again.
According to the government, the number of Americans that filed for first-time unemployment rose to 436,000 last week. This was more than had been expected and the index futures fell back into the lower end of the premarket trading range.
Previous lows held as support and the market began to recover from the news-driven selloff at 9:00 a.m. ET. They even managed to begin the regular trading session with a slight gap to the upside that placed them over their 5 minute 20 period moving averages. These served as support throughout the remainder of the session, particularly in the Nasdaq.
Buying increased once gain at 10:00 a.m. with the release of the latest housing data. The National Association of Realtors reported that its pending home sales index jumped 10.4% in October. It was expected to remain unchanged. Meanwhile, mortgage rates continued to creep higher. Three weeks ago the average rate for a 30-year fixed loan was 4.17%. It's now closing in on 4.5%.
S&P 500 (Figure 2)
After the initial thrill from the housing data began to wear off, the indices ran into the same type of trouble that plagued them the previous afternoon. The morning rally left them extended, but the pace of the ascent left the bears wary and on the sidelines. Even though the pace of the buying slowed throughout the afternoon, my focus remained on the side of the bulls, but without the expectation of any strong continuation pattern. The shift in momentum was a deviation from the previous day's action. Whereas Wednesday's afternoon trade fell into a narrow channel along highs, Thursday's session was marked by slightly higher highs into the close. This shift in the buying tends to put the brakes on the bulls. The market is also approaching prior highs from November, which will serve as a resistance zone. I am in favor of a slightly higher high, but expect the momentum of the uptrend on the 60 minute charts to slow heading into that level.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a gain of 106.63 points, or 0.95%, and closed at 11,362.41 on Thursday. Home Depot (HD) was the strongest component in the Dow. It ended the session higher by 5.54%. Alcoa (AA) (+3.83%), Bank of America (BAC) (+3.45%), Microsoft (MSFT) (+3.26%), and JP Morgan (JPM) (+3.04%) also posted gains over 3%. The only losers were Kraft Foods (KFT) (-0.65%), Cisco Systems (CSCO) (-0.52%), and Pfizer (PFE) (-0.06%).
The S&P 500 ($SPX) rose 15.46 points, or 1.28%, and closed at 1,221.53. Marshall & Illsley (MI) (+12.30%) was the top performer in the index. Abercrombie & Fitch (ANF) (+11.06%) came in second. Other top gainers included Lennar Corp. (LEN) (+7.17%), Nicor Inc. (GAS) (+7.15%), and Micron Tech. (MU) (+7.04%). Kroger Co. (KR) (-9.35%) was the weakest performer. Safeway (SWY) (-4.46%), Carefusion Corp. (CFN) (-3.48%), and Nordstrom (JWN) (-2.97%) rounded off the top decliners.
The Nasdaq Composite ($COMPX) ended the session higher by 29.92 points, or 1.17%, on Thursday and it closed at 2,579.35. Seagate Tech. (STX) (+4.38%) was the best gainer in the Nasdaq-100. Others top gainers were First Solar (FSLR) (+3.73%), Foster Wheeler (FWLT) (+3.69%), and Cognizant Tech. Solutions (CTSH) (+3.63%). Wynn Resorts (WYNN) (-1.26%) was the biggest loser in the Nasdaq-100. It was followed by losses in DirecTV (DTV) (-0.78%) and Express Scripts Inc. (ESRX) (-0.55%).
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.