Good day! 'Tis the season for good cheer, and the bulls have failed to yield to the Market Grinch. Buying has slowed in recent weeks, but the 10-day moving averages have continued to hold in the major indexes as the Christmas holiday approaches. Although volume was on the lighter side on Monday, the day experienced some nice technical moves. This is fairly common around the end of the year. Although many market participants take a break, those that remain tend to obey technical levels of support and resistance extremely well and patterns often follow through in a fairly regular manner, albeit often with stunted moves. The smoother price action that takes place within the trends, however, often offsets the fact that those trends may be smaller than average.
Dow Jones Industrial Average
Monday's trade was a perfect example of the type of holiday trading day that actually favors the trader. Volume has not completely died off and there has been enough speculation thanks to global and U.S. data and news to stir end-of-the-year speculation. The global markets have been particularly active and afterhours and premarket trade in the index futures has also been busy.
On Sunday evening the indexes continued the selloff that began at the end of Friday's session after some initial congestion. This move took the index futures into support heading into midnight on Sunday and began to clear the way for a rally into the early morning hours on Monday. The index futures rounded off at the lows before the buying began and the momentum shift began to see some buying enter in earnest after 3:00 a.m. ET. A nice bull flag followed from 4:00 a.m. into 6:00 a.m. ET that took the indices back into previous highs.
The bulls struggled heading into the opening bell. The premarket rally was as large as move moves typically are on the 15-minute time frame before a larger correction will occur and selling began to creep in before the opening bell even rang. The momentum on the selling increased once it did. By 11:00 a.m. ET the Nasdaq and Dow had taken back all of the premarket gains, leaving the indices once again at the lower end of the trading channel and poised for yet another reversal.
The upside that took place throughout mid-day and most of the afternoon was very orderly. The indexes established three clear-cut waves of buying on the 5 minute time frame and the overall trend recovered the session's earlier losses before congesting into the close.
The Dow Jones Industrial Average ($DJI) had a loss of 13.78 points, or 0.12%, and closed at 11,478.13 on Monday. Just over half of the Dow's 30 index components posted a gain for the day. The top performers were Alcoa (AA) (+1.44%), 3M (MMM) (+1.12%), Pfizer (PFE) (+0.82%), and Caterpillar (CAT) (+0.77%). The worst performers were American Express (AXP) (-3.43%), Boeing (BA) (-2.71%), WalMart (WMT) (-1.18%), and Intel (INTC) (-1.07%).
The S&P 500 ($SPX) rose 3.17 points or 0.25%, and closed at 1,247.08.Chesapeake Energy (CHK) (+8.84%) was the index's top percentage performer on Friday. It was followed by strong gains in SLM Corp. (SLM) (+6.30%), MetroPCS (PCS) (+5.46%), and Eastman Kodak (EK) (+5.42%). The weakest percentage performers were Titanium Metals (TIE) (-4.09%), American Express (AXP) (-3.43%), and Marshall & Ilsley (MI) (-3.36%).
The Nasdaq Composite ($COMPX) ended the session higher by 6.59 points, or 0.25%, on Monday and it closed at 2,649.56. The best percentage performers in the Nasdaq 100 were Dish Network (DISH) (+4.84%), Amazon.com (AMZN) (+3.22%), Netapp (NTAP) (+2.88%), and Comcast (CMCSA) (+2.38%). Research In Motion (RIMM) (-2.86%) was the weakest of the top 100 Nasdaq stocks. Losses followed in Fiserv (FISV) (-2.48%) and Dell (DELL) (-2.05%).
The futures market has held onto the afternoon gains heading into premarket trade on Tuesday. The price action is not strongly in favor of the bulls as we approach the opening bell due to the series of slightly higher highs, but there is a good chance for another day of nice intraday trend action before things slow down ahead of the three-day weekend.
Data still to watch out for this wee 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. My larger bias has not changed. 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 that just 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.