Good day! No one can argue that 2010 was a good year for the markets. All three of the major indexes posted double digit gains and commodities also shared the spotlight. The Dow Jones Industrial Average ($DJI) ended the year higher by 11%, while the S&P 500 ($SPX) rose 12.8%, and the Nasdaq Composite ($COMPX) gained 16.9%. Meanwhile, crude oil rose 15.2%, gold was higher by 29.7%, and silver jumped 83.7% to 30-year highs.
The Dow Jones Industrial Average ($DJI) had a gain of 7.80 points, or 0.07%, and closed at 11,577.51 on Friday. It finished 2010 higher by 11.02%. The strongest stocks in the Dow last year were Caterpillar (CAT) (+64.34%), DuPont (DD) (+48.14%), McDonald's (MCD) (+22.93%), Home Depot (HD) (+21.19%), and General Electric (GE) (+20.89%). The weakest were Hewlett-Packard (HPQ) (-18.27%), Cisco Systems (CSCO) (-15.50%), Bank of America (BAC) (-11.42%), Microsoft (MSFT) (-8.43%), and Alcoa (AA) (-4.53%).
Dow Jones Industrial Average
The S&P 500 ($SPX) fell 0.24 point or 0.02%, and closed at 1,257.64. The index ended the year higher by 12.78%. The top performers were Cummins (CMI) (+139.88%), American Intl. Group (AIG) (+92.19%), Zions Bancorp (ZION) (+88.85%), Huntington Bancshares (HBAN) (+88.22%), and Akamai Technologies (AKAM) (+85.67%). The weakest were Dean Foods (DF) (-51.00%), H&R Block (HRB) (-47.92%), Apollo Group (APOL) (-34.71%), Diamond Offshore Drilling (DO) (-32.06%), and Pulte Group (PHM) (-24.80%).
The Nasdaq Composite ($COMPX) ended the session lower by 10.11 points, or 0.38%, on Friday and it closed at 2,652.87. The Nasdaq-100 ended the year higher by 19.22%. The top gainers were Netflix (NFLX) (+218.93%), F5 Networks (FFIV) (145.72%), Baidu (BIDU) (+134.73%), Illumina (ILMN) (+106.45%), and Akamai Tech. (AKAM) (+85.67%). The weakest were Apollo Group (APOL) (-34.81%), Micron Technologies (MU) (-24.05%), Warner Chilcott (WCRX) (-20.76%), Vertex Pharmaceuticals (VRTX) (-18.25%), and NVIDIA (NVDA) (-17.56%).
The end of 2010 was a slow one for the markets, but it was the holidays, so this came as no surprise. We had also seen a strong run at the beginning of December, which left the indexes needing a chance to catch their breath before deciding on their next move. Unlike the last day of trading in 2009, year-end profit-taking didn't have a strong impact in the overall market. Both the Dow and S&P remained relatively unchanged by the end of the session. The Nasdaq-100 did experience some strong selling early in Friday's session, but many stocks managed to recover losses mid-day.
By the time the session wound to a close on Friday, the lack of selling meant that there was no major shift in the momentum of the intraday price action to substantially change the bias of the uptrend that began in early July and picked up steam in September. Overall, the indices were still holding onto the 10 and 20 day moving averages as major support levels and trading looks remarkably similar to what we saw back in October on the daily charts.
Although I was watching for signs of weakness going into the holiday and keeping an eye on the potential for a larger weekly correction heading into the New Year, the price action on the 60-minute time frames has only offered short setups of a smaller scale and hasn't provided any confirmation for the start of a larger correction. The last chance it had was on December 23rd when the indices pulled back and began to base with the start of an Avalanche formation on the 30-minute chart. The rally on the 26th before the Avalanche could completely develop, however, smashed any potential for a continuation of that reversal attempt.
The gradual overall corrective action off recent highs on the intraday time frames, combined with the daily support, has led to a bullish bias on the 60-minute time frame heading into the beginning of trading in 2011 when the futures markets opened Sunday evening. This bias has continued into early-morning trade. This is similar to what we saw at the start of 2010 as well. As the month progressed, however, it was unable to maintain those gains. Historically, January does not tend to be a strong month for the markets. Even when it posts a gain, the gains are often minor.
This month has a shot of standing out as result of its failure to confirm Dec. 23 reversal attempt. If the indexes can break the upper channel of trading from the past two weeks, it will have a chance to repeat the run it made in early-December. The historical bias, however, is still more likely. Shorter-term strength intraday will probably be faced with rapid corrections that resemble the trading we experienced last April with a larger price pullback into the end of the month. Don't worry though. I do not expect a correction on the scale of the one which took place in May once the market does pullback. As long as there is a lot of overlap in price from one day to the next, the pullback can be rapid, but it should not be as extreme.
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.