Good day! As we headed into the new week we were faced with a bearish bias in the indices after Friday's moderate correction off lows. The momentum continued to shift in favor of this bias on Sunday evening when the futures began trading. Slower upside than seen on Friday was followed by the start of a larger pullback into the early-morning hours on Monday. This weakness reflected losses in the Asian and European markets. By the time the opening bell rang, however, most of the bearish bias I noted over the weekend on the 15-60 minute time frames had already played out and the index futures were once again testing Friday's lows.
Dow Jones Industrial Average
Since the premarket drop in the indices was on par with a typical 15 minute trend move in the indices, the previous lows served as strong support. The Dow Jones Ind. Ave., which had hit support earlier in the morning and formed a base along premarket lows, was the only one of the three major indices to push through that support. The longer period of congestion allowed the Dow to catch its breath and breakdown once again shortly after the opening bell. The move did not last long, however, and by 10:00 am ET the lows of the day were in.
The strength of the selling once again made recovery action more difficult. A solid uptrend took hold as the Dow and S&P 500 bounce off their 20 day moving averages, but the pace of the trend was more gradual than the earlier weakness. The tech-heavy Nasdaq had the easiest time punching through prior highs, while the Dow lagged and was not able to even close the morning gap.
The Dow Jones Industrial Average ($DJI) had a loss of 37.31 points, or 0.32%, and closed at 11,637.45 on Monday. Slightly over a third of the Dow's 30 index components posted a gain for the day. The top performers were 3M (MMM) (+1.07%), Bank of America (BAC) (+1.05%), and Travelers (TRV) (+0.98%). The weakest performers were AT&T (T) (-1.77%), DuPont (DD) (-1.47%), Microsoft (MSFT) (-1.33%), and McDonalds (MCD) (-1.09%).
The S&P 500 ($SPX) fell 1.75 points or 0.14%, and closed at 1,269.75. The strongest percentage performers in the S&P 500 on Monday were Netflix (NFLX) (+4.79%), Sara Lee Corp. (SLE) (+4.48%), Advanced Micro Devices (AMD) (+4.08%), and NVIDIA (NVDA) (+3.82%). The weakest were Devry (DV) (-9.97%), Washington Post (WPO) (-6.23%), American Intl. Group (AIG) (-6.19%), and Apollo Group (APOL) (-5.37%).
The Nasdaq Composite ($COMPX) ended the session higher by 4.63 points, or 0.17%, on Monday and it closed at 2,707.80. The strongest stocks in the Nasdaq-100 were Netflix (NFLX) (+4.79%), NVIDIA (NVDA) (+3.82%), Maxim Integrated Products (MXIM) (+3.58%), and Lam Research (LRCX) (+3.26%). The weakest were Apollo Group (APOL) (-5.37%), Celgene Corp. (CELG) (-4.60%), and Symantec Corp. (SYMC) (-2.85%).
Keep a "heads-up" this week, because earning season unofficially kicked off on Monday with Alcoa (AA). Earnings for the company were slightly higher than anticipated, but revenue was just under. The futures market showed very little reaction. Some additional names to watch for this week are Intel (INTC), which reports on Thursday, and JP Morgan Chase (JPM), which reports on Friday.
Congestion afterhours on Monday and early into Tuesday morning have allowed the pace of the rally to increase heading into Tuesday's opening bell. This has created yet another new high for the Nasdaq futures for the year, but the S&P 500 and Dow are going to continue to face resistance at last week's highs.
Since the momentum was not able to pick up this month on the 60-minute time frame, the risk of a repeat of last January remains high. As I noted last week, January is not typically a strong month for the markets and last year saw a strong start followed by weakness in the second half of the month. This would also correspond to the winding down of earnings season, which can often leave investors feeling a little deflated, even when earnings are good (the "sell the news" mentality).
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.