Good day! The market remained trapped primarily within a narrow trading range heading into the weekend. Despite a retest of highs, investors have started to become nervous heading into the end of the year. The market has spent the quarter steadily making higher highs, creating an exhaustion move and a bull trap on the most recent daily high as momentum slows coming off fresh two-year highs. Nevertheless, the bears haven't been able to regain control just yet.
Dow Jones Industrial Average (Figure 1)
The Dow Jones Industrial Average ($DJI) had a loss of 7.34 points, or 0.06%, and closed at 11,491.91 on Friday. Thirteen of the Dow's 30 index components posted a gain for the session. The leaders were Boeing (BA) (+0.98%), Kraft Foods (KFT) (+0.92%), DuPont (DD) (+0.83%), and Intel (INTC) (+0.75%). The weakest performers were American Express (AXP) (-1.26%), Pfizer (PFE) (-1.10%), Cisco (CSCO) (-1.01%), and Merck (MRK) (-0.98%). The Dow ended the week higher by 0.72%.
The S&P 500 ($SPX) rose 1.04 points or 0.08%, and closed at 1,243.91. The top performer in the index was Marshall & Ilsley (MI), which reached an agreement to be acquired by Canada's BMO Financial based on a share price of $7.75. Allegheny Technologies (ATI) (+7.16%) was another leader, breaking higher out of a trading range that is testing the year's highs. Titanium Metals (TIE) (+6.23%), AK Steel Holding Corp. (AKS) (+5.99%), and Boston Scientific (BSX) (+5.96%) were other notable gainers. At the other end of the spectrum were Expeditors Intl. (EXPD) (-2.83%), Discover Financial Services (DFS) (-2.75%), Vulcan Materials (VMC) (-2.68%), and Forest Labs (FRX) (-2.65%). The S&P 500 ended the week higher by 0.28%. Materials, consumer staples, and health care were the best sectors for the week, while financials were the weakest. Bank of America (BAC) and JPMorgan (JPM) were only two of the handful of banks that were issued new subpoenas by the Securities and Exchange Commission in connection to mortgage dealings.
S&P 500 (Figure 2)
The Nasdaq Composite ($COMPX) ended the session higher by 5.66 points, or 0.21%, on Friday and it closed at 2,642.97. The strongest performer in the Nasdaq-100 was Oracle Corp. (ORCL) (+3.93%) after it beat earnings estimates. It was followed by Cephalon Inc. (CEPH) (+3.38%), Expedia Inc. (EXPE) (+3.27%), and Warner Chilcott (WCRX) (+3.16%). The weakest were Expeditors Intl. (EXPD), eBay (EBAY) (-2.33%), and Symantec Corp. (SYMC) (-1.91%). The Nasdaq Composite ended the week higher by 0.21%.
The market has had a lot of news to digest recently and seems uncertain what to make of it. The most recent has to do with extending the Bush-era tax cuts. A compromised bill was signed on Friday afternoon. The index futures were trading higher as trading resumed on Sunday evening, but selling quickly hit which took the index futures back into the lower end of the 60 minute trading channel by midnight.
Nasdaq Composite (Figure 3)
Expect light trade this week due to the Christmas holiday. The NYSE closes early on Thursday and the U.S. exchanges are among those that will be closed on Friday for the holiday. Nevertheless, a few notable reports later in the week include existing home sales on Wednesday and durable goods orders, personal income and spending, weekly jobless claims, consumer sentiment, and new home sales on Thursday. Given the current price action in the market, I still favor a larger weekly correction into the new year, but will be monitoring the smaller time frames for positioning. While the larger time frames can serve to help establish a bias, it's the smaller ones that offer the initial triggers and pattern confirmation and we aren't seeing it yet.
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.