Good day! The market refused to let either the bulls or the bears take the lead in Thursday's session. After a strong rally on Wednesday, the indices were exhausted and needed a chance to catch their breath. The strong pace of the rally helped sustain the gains, but, as I noted in yesterday's column, the market was poised for a struggle even before the session began.
Dow Jones Industrial Average
The index futures began to pullback in premarket trade heading into Thursday morning. This correction was rapid compared to earlier upside, making it unlikely that the market would continue its uptrend. Instead, the market had entered corrective mode, and that bias remained intact throughout the day. The indices faced an increase in pressure when the government warned that if the federal debt limit was not raised, it could easily be reached by spring. If this were to happen, it would be the first time in history that the United States would default on its obligations. It seems unlikely that some measure will not be reached prior to that point, but the thought of it hanging overhead is greatly disconcerting. It also means that even with preventative measure enacted, the picture is still worrisome.
Most eyes heading into Friday morning were on the jobs report. Economists were expecting a rise of 175,000 non-farm payrolls in December and for the unemployment rate to edge lower to 9.7%. The index futures saw very little action ahead of the data and remained within the trading range set by Thursday's price action as the data was released.
Although fewer jobs were created than anticipated, leading to immediate selling on the news, the data's main surprise was unemployment. The unemployment rate fell to 9.4%. Despite this glimmer of hope, the market is still stuck within the larger 15 minute trading range with the opening bell in less than an hour away. The rapid pullback on the data following Thursday morning's premarket selling means that unless the futures bounce back quickly on the unemployment news then the overall pace bias is bearish heading into Friday's session.
The Dow Jones Industrial Average ($DJI) had a loss of 25.57 points, or 0.22%, and closed at 11,697.31 on Thursday. Only eight of the Dow's thirty index components posted a gain. The top performers were Microsoft (MSFT) (+2.93%), Boeing (BA) (+1.96%), Hewlett-Packard (HPQ) (+1.54%), Merck (MRK) (+1.37%), and IBM (IBM) (+1.09%). As you can see, tech shares ruled the session. This resulted in the Nasdaq being the only one of the top three indices to post a gain for the day. The weakest stocks in the Dow included telecoms. Verizon (VZ) fell 2.56%, while AT&T (T) shed 1.35%. Other top decliners included Travelers (TRV) (-1.54%) and Alcoa (AA) (-1.21%).
The S&P 500 ($SPX) fell 2.71 points or 0.21%, and closed at 1,273.85. The top percentage performer in the index was NVIDIA (NVDA), which rallied another 13.84%. It was followed by Moodys Corp. (MCO) (+8.60%), JDS Uniphase Corp. (JDSU) (+6.72%), and TJX Cos. Inc. (5.86%). The weakest stocks were Constellation Brands (STZ) (-8.06%), Gap Inc. (GAP) (-6.88%), and Target Corp. (TGT) (-6.80%). The S&P's top losers reflected concern amongst the retailers. While sales at higher-end stores were generally higher, those that catered to middle class and lower-income individuals lagged. Target (TGT), for example, reported an increase in sales of only 0.9% compared to analyst expectations of a 3.9% increase. Gap (GAP) actually posted an 8% decline in same-store sales. Analysts were expecting a 2.4% gain. Dollar Tree (DLTR) and others like it were hit even harder.
The Nasdaq Composite ($COMPX) ended the session higher by 7.69 points, or 0.28%, on Thursday and it closed at 2,709.89. Marvell Technology (MRVL) (+5.39%) followed NVIDIA (NVDA) in the Nasdaq-100. Mylan (MYL) (+3.55), Microsoft (MSFT) (+2.93%), and DELL (DELL) (+2.81%) rounded off the top five. The weakest were CheckPoint Software (CHKP) (-3.39%), O'Reilly Automotive (ORLY) (-3.14%), and Sears Holdings (SHLD) (-2.49%).
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.