Do You Fib? Perhaps It's Time to Start!
Good day! Volume was on the light side once again on Thursday, but the market held technical support and resistance levels extremely well throughout the session and offered ample opportunities for day traders. Those looking for setups on the daily time frame, however, had more of a challenge. The indexes have been struggling with resistance on the daily charts and most of the session was spent within the trading range of the previous two days.
Dow Jones Industrial Average
The index futures were trading strongly higher following Wednesday's closing bell as all three of the major indices pushed for a retest of Tuesday's highs. The ES (S&P 500 e-Mini) even managed to surpass its prior high to test the upper end of its 60 minute trading channel. The earlier highs, however, proved to be too much for the Dow Jones Ind. Ave. and Nasdaq-100 e-Minis. This level held as anticipated and the index futures were heading lower in premarket trade on Thursday.
The selloff received a brief reprieve when the latest employment data was released at 8:30 a.m. ET. Initial jobless claims fell from a seasonally adjusted 438,000 a week ago to 421,000 according to the Labor Department. The index futures popped, but were unable to hold onto the gains once they retested the earlier resistance. An AvalancheTM formed on the 5-15 minute time frames between 5:00 a.m. ET and the opening bell. The short trigger quickly followed the start of the regular trading session and the downside continued into noon. This completed a second wave of corrective action since reversing off highs around 3:55 a.m. ET.
The pace of the morning selloff actually began to slow at 11:00 a.m. ET when the S&P 500 filled its morning gap. The S&Ps and Nasdaq indices bounced into their 5 minute 20 period moving averages, but the attempt was weaker in the Dow. A slightly lower low followed. This created a bear trap called a 2B. By establishing a slightly lower low instead of holding the 11:00 a.m. ET low, the market bias shifted back in favor of the bulls for afternoon trade, but the stronger pace of the morning's decline made it difficult for the bulls to gain momentum. Nevertheless, the uptrend continued into 1:30 a.m. ET on Friday morning.
The Dow Jones Industrial Average ($DJI) had a loss of 2.42 points, or 0.02%, and closed at 11,370.66 on Thursday. Just over half of the Dow's 30 index components posted a gain. The top performer in the Dow was Bank of America (BAC) (+5.42%). Financials have led the gainers over the past two sessions. JP Morgan (JPM) was up 1.327% for the day. Other strong performers on Thursday included Cisco Systems (CSCO) (+1.81%), and Verizon (VZ) (+1.76%).
The S&P 500 ($SPX) rose 4.72 points, or 0.38%, and closed at 1,233.00. The best performer in the index was American Intl. Group (AIG) (+13.17%). Dean Foods (DF) (+12.62%), Eastman Kodak (EK) (+11.32%), and Goodyear Tire (GT) (+10.21%) all rose more than 10%. The weakest performers were SAIC Inc. (SAI) (-6.42%), Airgas Inc. (ARG) (-6.26%), and Range Resources Corp. (RRC) (-3.24%).
The Nasdaq Composite ($COMPX) ended the session higher by 7.51 points, or 0.29%, on Thursday and it closed at 2,616.67. The strongest stocks in the Nasdaq-100 were Teva Pharmaceutical Inds. (TEVA) (+6.82%), Foster Wheeler (FWLT) (+4.93%), and Costco (COST) (+2.56%). The weakest were Apollo Group (APOL) (-2.94%), Adobe Systems (ADBE) (-2.09%), and Urban Outfitters (URBN) (-1.80%).
There are a number of tools a trader can use for identifying support and resistance levels in the market. One of them that works particularly well in the indices are Fibonacci retracement levels. Prior highs and lows, gap closures, etc. are great levels to watch for, but sometimes the market will shift directions without testing any of these more obvious price levels. On the 15 minute charts depicted above, I've included Fibonacci retracement levels based upon the downside move that began on Tuesday and continued into early Wednesday morning. On these charts you will notice that the key levels I use, which consist of the 138.2%, 100%, 61.8%, 50%, 38.2%, 0%, and -38.2% levels, held extremely well not only throughout the remainder of the session on Wednesday, but into Thursday's trade as well. For example, the premarket low into 5:00 a.m. in the Dow futures was the 61.8% Fib level, while the mid-day low in the S&P 500 was also the 50% retracement level.
So, if you are looking for another took to help you identify probable turning points in the market, consider the Fibonacci retracements. For more information on using this tool in your trading, pick up a copy of my 10 hour, in-depth trading course: 5 Technical Signals You Should Not Trade Without at http://www.tonihansen.com.
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.