Good day! The market has been waiting anxiously it seems for a firm decision on whether or not an extension of the Bush-era tax cuts and unemployment benefits will pass. The consensus is that they will, but it has been met by fierce resistance, particularly from House Democrats. On Monday, it managed to gain support by Congress and will head to a final vote in the Senate mid-week and the House of Representatives by the end of the week.
Dow Jones Industrial Average
The bulls have been in charge over the past several weeks after catching their breath in November, but the pace has slowed in the last week and the market struggled once again on Monday morning. The indices had rallied in premarket trade and were extended by the time the opening bell rang, as I pointed out in yesterday's column. This made it difficult for the trend to continue to push higher on Monday.
The bulls did hold on throughout most of the session, but by mid-afternoon the S&P 500 had been trading above its 15 minute 20 period moving average for about three days. It's exceptionally rare for an index to make it past the third day and still remain above this key technical level. Thus, despite an attempt to break higher into the mid-afternoon, risk for new positions by the bulls was quite high in the indices. The Dow Jones Ind. Average did manage a successful move from a scalping to daytrading standpoint, but the bull trap is obvious on a 5 minute chart of the S&P 500. The Nasdaq didn't even try. The larger corrective bias finally took over into the final hour of trade and wiped out the session's gains to leave the S&P 500 virtually flat by the closing bell.
S&P 500
The Dow Jones Industrial Average ($DJI) had a gain of 18.24 points, or 0.16%, and closed at 11,428.56 on Monday. Half of the Dow's thirty index components posted a gain for the day. The top performers were Caterpillar Inc. (CAT) (+1.88%), Chevron (CVX) (+1.54%), Merck (MRK) (+1.38%), and Disney (DIS) (+1.28%). The weakest were Hewlett-Packard (HPQ) (-2.09%), Bank of America (BAC) (-2.03%), and Intel (INTC) (-1.87%).
The S&P 500 ($SPX) rose 0.06.40 point or 0.0%, and closed at 1,240.46. The best performers in the index included Thermo Fisher Scientific (TMO) (+4.75%), Cabot Oil & Gas (COG) (+4.50%), First Horizon Natl. Corp. (FHN) (+3.70%), and Iron Mountain (IRM) (+3.67%). The weakest were Expedia Inc. (EXPE) (-4.77%), Dean Foods (DF) (-4.62%), and Dell (DELL) (-3.88%).
The Nasdaq Composite ($COMPX) ended the session lower by 12.6320.87 points, or 0.48%, on Monday and it closed at 2,624.91. The strongest stocks in the Nasdaq-100 were Netapp Inc. (NTAP) (+2.64%), Illumina Inc. (ILMN) (+2.50%), and NII Holdings (NIHD) (+2.26%). The weakest were Expedia (EXPE) (-4.77%), Dell (DELL) (-3.88%), Virgin Media Inc. (VMED) (-3.34%), and Adobe Systems (ADBE) (-3.13%).
Nasdaq 100
The index futures continued lower throughout the remainder of the evening, but at a more gradual pace. A buy setup took place just before midnight after the indices hit support from the previous congestion zone in Sunday and early Monday trade. This was a Momentum Reversal and the futures markets popped until 8:00 a.m. ET. They were unable to return to Monday's highs before Tuesday's morning data hit.
Heading into Tuesday morning, the premarket data made few waves. At 8:30 a.m. the latest in retail sales data was released and Wall Street and Main Street alike were crossing their fingers that the preliminary reports on holiday shopping activity from November would be able to surpass already high expectations. They managed to do just that, rising 0.8% and 1.2% excluding autos. At the same time the Producer Price Index for November also hit the wires. Analysts anticipated rising food and fuel prices to result in a 0.7% overall increase in the PPI. It rose 0.8% with the core PPI up 0.3% - slightly more than anticipated. The Consumer Price Index, which is the most widely watched gauge for inflation, is due out ahead of Wednesday's open. Later in Tuesday's session will be the U.S. Federal Open Market Committee's policy statement. Rates are expected to continue to remain unchanged.
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.
