Good day! The major indexes have been skirting the 10-day moving averages over the past week, but managed to pull up off that support zone in Tuesday's trade as the holiday rally continued. The action has remained slower due to the shortened holiday weekend ahead, but the Dow Jones Industrial Average and S&P 500 had steady trend action throughout the session.
As anticipated, technical levels for support and resistance, as well as the common trade strategies you often see posted in this column, all held very well. They did not, however, offer the same price moves we generally see outside of holiday trade and the gains were stunted, although the narrower price action would have allowed for larger position sizes to offset this disadvantage. This is the type of action I wrote about yesterday. Although it was slower, it held biases well and there was little chance of getting flushed out of open positions since traditional stop levels were not triggered on any of the setups that formed throughout the day.
Dow Jones Industrial Average
The action in the Nasdaq was a little different than the other two major indexes. Although all three ended the session just off the day's highs, the Nasdaq spend more time within a trading channel. It only broke to new intraday highs once, which was during mid-day trade. Nevertheless, it still held technical levels well also, and the all-sessions trend was steady after it triggered a buy in premarket trade. The sharply ascending triangle intraday, however, gave an indication that buy setups intraday would have higher risk. The triangle did break higher, but the action was very slow and the index held highs at the 13:00 ET correction period.
The Dow Jones Industrial Average ($DJI) had a gain of 55.03 points, or 0.48%, and closed at 11,533.16 on Tuesday. Two-thirds of the Dow's thirty index components posted a gain for the session. The financials took the lead. Bank of America (BAC) rose 2.85%, JP Morgan (JPM) was up 2.63%, and American Express (AXP) rose 1.72%. The top decliners were 2M (MMM) (-0.93%), Merck (MRK) (-0.88%), and Intel (INTC) (-0.61%).
The S&P 500 ($SPX) rose 7.52 points or 0.60%, and closed at 1,254.60. Jabil Circuit (JBL) was the strongest performer in the index. It rose 10.70% after reporting fiscal first-quarter earnings that nearly doubled. It was followed by gains in Adobe (ADBE) (+6%), Sandisk (SNDK) (+4.94%), and Ameriprise Intl. (AMP) (+4.94%). ADBE's gains were also due to strong earnings. The weakest performers were Carmax (KMX) (-7.60%), Darden Restaurant Inc. (DRI) (-5.73%), and eBay (EBAY) (-3.14%). KMX beat earnings expectations, but its gross profit per car was less than anticipated. DRI's shares were lower due to a weak same-store sales forecast for 2011.
The Nasdaq Composite ($COMPX) ended the session higher by 18.05 points, or 0.68%, on Tuesday and it closed at 2,667.61. The top percentage performers in the Nasdaq-100 were Adobe (ADBE) (+6%), Sandisk (SNDK) (+4.94%), and Foster Wheeler (FWLT) (+4.32%). The weakest were eBay (EBAY) (-3.14%), Gilead Sciences (GILD) (-1.69%), and Intuitive Surgical (ISRG) (-1.36%).
The U.S. market overall ended at their highest closing prices in more than two years, but the slightly higher highs continue to urge caution. While the shorter-term price bias has not shifted and the bulls are holding on, the weekly and monthly trend remains extended. Unfortunately for the bulls, the slow creeping action to the upside tends to lead to rapid price retracements. We saw one example of this back in mid-November. Even though the uptrend resumed, the market took back several weeks worth of gains within four days of corrective action.
Wednesday and Thursday will be even slower sessions for the market, but there is some economic data that will attempt to keep some interest sparked. This morning kicks off with the final GDP reading with existing home sales to follow early intraday. The third-quarter gross domestic product was revised to an annualized rate of 2.6% according to the Commerce Department. The previous estimate was 2.5%, but analysts were anticipating an upward revision to 2.8%. Still to come this week are Thursday's durable goods orders, personal income and spending, weekly jobless claims, the latest consumer sentiment, and new home sales. Friday is a market holiday.
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.