Good day! Crude oil was in the spotlight on Wednesday after it pushed through the $90 a barrel level to settle just under $90.50. This is the highest settled price it's had since October, 2008. On Wednesday morning, the latest inventory data was released, indicating that crude oil stockpiles had fallen by 5.3 million barrel last week.
The overall market was also higher once again on Wednesday as the holiday rally continued. As expected, volume dropped off quite a bit for the session, but there were still a few decent setups in the indices throughout most of the day. The Dow Jones Ind. Average and Nasdaq-100 futures had the best action, whereas the S&P 500 has been much slower and lacked enough movement to generate decent moves on the 5 minute charts, although the 15 minute action has still been steady. The most notable setup in that index was the 15 minute breakout on the upside that triggered ahead of Tuesday's close as the index struck its 15 minute 20 sma. Throughout Wednesday morning it held its 5 minute 20 sma support, but broke through it into the early afternoon.
Dow Jones Industrial Average (Figure 1)
The telecoms helped the Dow jump mid-day, offering a strong buy setup on the 5 minute time frame as morning congestion broke shortly after noon. It was the Nasdaq, however, that had the most regular price swings with the cleanest setups. A descending wedge offered the first trigger when it broke higher into the 11:00 ET correction period. At the same time, the Dow popped a little out of its morning triangle as Alcoa (AA) broke strongly out of a narrow trading range.
The Nasdaq continued its rally throughout the morning, pushing to new highs at 12:30 ET as the Dow jumped as well. Slightly higher highs in the Nasdaq on slower momentum than the 11:30 ET move created a bull trap I call a 2TTM (as in "two tops"). The index quickly reversed into the early afternoon on this sell pattern and continued with a two-wave correction. The second wave was in the form of a pattern I call an AvalancheTM and it triggered at about 13:30 ET and took the Nasdaq back into the zone of morning lows.
At this time the Dow held the greatest relative strength. Even though it also retraced, the morning highs served as support and it remained in the upper half of its trading range throughout the remainder of the afternoon. The support held in the indices coming out of the 14:00 ET correction period, but the price action throughout the final two hours of trade was slower and choppy as the indices hugged their 15 minute 20 period moving averages into the closing bell.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) had a gain of 26.33 points, or 0.23%, and closed at 11,559.49 on Wednesday. The financials were once again the best performers in the index. Bank of America (BAC) rose 3.08%, while JP Morgan (JPM) climbed 2.83%. Other top gainers included General Electric (GE) (+1.69%) and Alcoa (AA) (+1.68%). Eight of the Dow's thirty index components posted a loss. The weakest were Hewlett-Packard (HPQ) (-1.03%) and Intel (INTC) (-1.00%).
The S&P 500 ($SPX) rose 4.24 points or 0.34%, and closed at 1,258.84. The strongest percentage performers in the index were Regions Financial Corp. (RF) (+7.13%), Walgreen Co. (WAG) (+5.48%), Jacobs Engineering Group (JEC) (+4.92%), and Supervalu (SVU) (+4.63%). Nike Inc. (NKE) was the weakest performer, falling 5.80% after the company cut its future sales estimates. Other top decliners were Akamai Technologies (AKAM) (-3.18%), Coach Inc. (COH) (-3.14%), and Cintas Corp. (CTAS) (-3.08%).
The Nasdaq Composite ($COMPX) ended the session higher by 3.87 points, or 0.15%, on Wednesday and it closed at 2,671.48. The strongest stocks in the Nasdaq-100 were News Corp. (NWSA) (+3.17%), Ctrip.com Intl. (CTRP) (+3.05%), and Activision Blizzard (ATVI) (+2.53%). The weakest were Vertex Pharmaceuticals (VRTX) (-3.33%), Akamai Tech. (AKAM) (-3.18%), and Garmin Ltd. (GRMN) (-2.18%).
Nasdaq Composite (Figure 3)
On Wednesday morning the Commerce Department reported that the third-quarter gross domestic product was revised to an annualized rate of 2.6%. The previous estimate was 2.5%, but analysts were anticipating an upward revision to 2.8%. Later, the National Association of Realtors' monthly report on existing home sales showed an increase of 5.6% in November to an annual rate of 4.68 million. The overall rate is down 27.9% year-over-year.
As we head into Thursday's session, the index futures are finally feeling the effects of the slower rally that has taken place over the past week. When the market establishes a series of slightly higher highs, it's easier for the bears to rapidly retake the gains made by the bulls in a substantially shorter period of time. Heading into 8:00 a.m. ET, the Nasdaq-100 futures are already back at Monday's levels, while the stronger S&P 500 has taken back most of Wednesday's gains. This does leave the market at support levels heading into the opening bell on the 15 minute time frame, but it's also common price action before a choppy trading range. When we combine that bias with the impending holiday, it may be worthwhile to call it a week and enjoy the extended weekend.
I'll be on holiday myself from this afternoon until Jan. 1, so have a wonderful holiday season!
All my best, Toni
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.