Toil Paper Troubles?
Good day! This past week was a slow one for the markets with the indices creeping higher after a strong rally to kick off December. On Friday the market overcame weakness from Thursday morning, gapping higher into the opening bell. This gap zone closed within the first 45 minutes of the day, but the 10:15 ET correction period held and the market was able to once again begin to recover. The pace of that recovery was gradual, however, and the market found it difficult to break through the opening highs. A shift in the momentum of price action between 11:00 to 12:00 ET helped. During this time the indices pulled more gradually off the upper end of the session's trading range on declining volume. This created a buy setup that triggered with the correction period at noon ET. This setup was able to help the market push to new intraday highs, but the overall buying was still on the slow side.
Dow Jones Industrial Average
The indices closed near the highs on Friday. The Dow Jones Industrial Average ($DJI) had a gain of 40.26 points, or 0.35%, and closed at 11,410.32 on Friday. Only seven of the Dow's thirty index components posted a loss for the session. The top performers were General Electric (GE) (+3.44%), Pfizer (PFE) (+1.55%), and JP Morgan (JPM (+1.52%). The strongest stock for the week was General Electric (GE), which increased its quarterly dividends by 17%. The weakest were Kraft Foods (KFT (-1.09%), Boeing (BA) (-0.70%), and Coca-Cola (KO) (-0.28%). The weakest stock in the index for the week was McDonald's (MCD). The index ended the week higher by 0.25%.
The S&P 500 ($SPX) rose 7.40 points, or 0.60%, and closed at 1,240.40 at a new 2-year high. All of the index's 10 industry sectors managed a gain. Tenet Healthcare (THC) was by far the best performer in the index. It rose 55.01%. Trailing it were gains in Pall Corp. (PLL) (+4.12%), Sandisk (SNDK) (+4.11%), and First Solar (FSLR) (+3.74%). The weakest performers in the index were National Semiconductor (NSM) (-7.75%), Eastman Kodak (EK) (-3.58%), and Texas Instruments (TXN) (-2.79%). The index ended the week higher by 1.28%.
The Nasdaq Composite ($COMPX) ended the session higher by 20.87 points, or 0.80%, on Friday and it closed at 2,637.54 at a new 3-year high. Sandisk Corp. (SNDK) (+4.11%) was the strongest performer in the Nasdaq-100, followed by First Solar (FSLR) (+3.74%), Vertex Pharmaceuticals (VRTX) (+2.89%), and Apollo Group (APOL) (+2.76%). The weakest were Urban Outfitters (URBN) (-1.14%), Altera Corp. (ALTR) (-0.99%), and Marvell Technology Group (MRVL) (-0.96%). The Nasdaq Comp. ended the week higher by 1.78%.
On Friday the U.S. government reported that the trade deficit narrowed unexpectedly in October to $38.7 billion. It had been $44.6 billion in September and it was expected to fall to $43.6 billion. Exports rose 3.2%, while imports were down slightly. Consumer sentiment also came in better-than-expected. The Thomson Reuters/University of Michigan Survey of Consumers' preliminary consumer sentiment index rose from 71.6 to 74.2 this month. The overall market reaction to the news has been positive and the buzz is starting to pick up that the economy may actually be starting to show some real improvements.
The indices traded in a narrow range over the weekend. This began to break higher in premarket trade, triggering a rally that mimicked the one from Friday's session. This leaves the indices extended intraday heading into Monday's opening bell.
When I look at the housing and jobs market in Florida in particular, however, the picture still isn't that bright. Housing prices are still falling in many neighborhoods and many of the companies geared at public services in particular are still laying off workers. As federal funding dries up, the cities are finding it difficult to meet their budgets and are taking drastic means to do so, namely by putting off public works projects and downsizing. There was a quote I read this past week about one director cutting toilet paper supplies, saying you wouldn't believe how much they spend on toilet paper. I am rather relieved that I don't work in that department! I can see it now: "From now on, all employees are required to provide their own toilet paper." Yikes!
Now, staying on the topic of government intervention, but away from the topic of toiletries, let's move onto China and it's latest news. China's been trying to get a handle on its rising inflation in an attempt to prevent the type of economic crash that's been affecting so many of the global economies over the past several years. Along those lines, the People's Bank of China increased its reserve requirement ratio even further. It will take a little time to see if this measure alone is enough.
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.