Good day! The market had a strong session once again on Wednesday as the index futures continued to bounce back off premarket lows. Those lows took place at approximately 6:45 a.m. ET when a retest of an earlier low broke it just slightly and with more gradual momentum. This created a 2B buy strategy ahead of the open and led to strong upside even before Wednesday's session began. The indexes struggled slightly at price resistance around the time of the open until approximately 11:15 a.m. This was particularly true of the Dow Jones Ind. Average, but when the morning highs broke the trend quickly regained momentum.
Dow Jones Industrial Average
The Nasdaq's trend was the strongest throughout the morning. It faced minor resistance around 10:15 a.m., but easily pushed through to new highs and continued to rally throughout the morning. The indices began to struggle with the rally just before noon. By this point the market was already very extended on the 15-minute time frames, which are shown in the middle charts, and both the S&P 500 and Nasdaq-100 were testing Monday's highs. This price resistance held very well and the pace of the price action began to shift over noon.
All three of the major indices had minor corrective patterns form mid-day. In the S&P 500 and Dow those patterns began with Momentum Reversals that triggered into 13:00 ET. In the Nasdaq it was a slightly higher high that created a trap I call a 2T. None of these setups had strong follow-through. When examined on the 15 minute time frame, the rallies were simply too extreme to easily allow for another rapid reversal. It also meant, however, that they were too extended to create strong continuation patterns before the end of the session. The result was a trading range that favored scalps to the downside throughout the remainder of the session.
The index futures did manage to break higher in premarket trade heading into Thursday's opening bell. This breakout, however, was still too early on a 15-60 minute time frame to sustain a move comparable to the rally off Wednesday's lows. Instead, it was enough to push to slightly higher highs on the week before the early-morning economic data hit on Thursday. Selling was already underway before the latest jobless claims data was released, but the index futures fell further after the Labor Department reported that initial jobless claims rose to 409,000 last week from an upwardly revised 391,000 the week before.
The Dow Jones Industrial Average ($DJI) had a gain of 31.71 points, or 0.27%, and closed at 11,722.89 on Wednesday. Slightly over half of the Dow's thirty index components posted a gain. The leaders were American Express (AXP) (+2.90%), Disney (DIS) (+2.49%), Bank of America (BAC) (+1.93%), and Verizon (VZ) (+1.37%). The weakest performers were Intel (INTC) (-0.99%), WalMart (WMT) (0.66%), and Coca-Cola (KO) (-0.59%).
The S&P 500 ($SPX) rose 6.36 points or 0.5%, and closed at 1,276.56. The top percentage performers in the index were NVIDIA (NVDA) (+7.67%), American Intl. Group (AIG) (+7.34%), Autodesk (ADSK) (+7.06%), and Priceline (PCLN) (+5.92%). The weakest was Family Dollar Stores (FDO) (-8.76%). It was followed by losses in Scripps Networks Interactive (SNI) (-2.96%) and Motorola Mobility Holdings (MMI).
The Nasdaq Composite ($COMPX) ended the session higher by 20.95 points, or 0.78%, on Wednesday and it closed at 2,702.20. NVDA, ADSK, and PCLN were the strongest performers in the Nasdaq-100. Research In Motion (RIMM) followed with a 4.77% gain. The weakest performer was Dollar Tree (DLTR) (-4.86%). Lam Research (LRCX) followed with a loss of 4.35% and Activision Blizzard (ATVI) fell 1.92%.
Given the current daily action in the market, the indices are still risking a reversal as the month progresses. Despite the strong start to the year, there is great deal of overlap within the rally from one day to the next and that will make it more difficult to sustain over time without a larger correction back into the zone of the 50-day moving average. Throughout Thursday's session we should also see continued corrective action to Wednesday's rally.
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.