Good day! Energy, materials, and health care stocks led the market higher in Tuesday's session, while telecom shares dragged after Verizon confirmed that it will begin carrying the iphone next month. Despite the positive close in all three of the major indices, however, most of the gains took place in premarket trade. The index futures were trading in a range heading into the early-morning hours before breaking higher on news that Japan plans on stepping in to buy Eurozone bonds in a move that many hope will help curtail the spread of the region's debt crisis.
Dow Jones Industrial Average
The largest chunk of buying took place between 5:00 a.m. to 7:15 a.m. ET. The tech-heavy Nasdaq continued to lead, but the S&P 500 help strong. It pushed higher at 11:00 a.m. to retest last week's highs. This was a strong resistance level for the index, which had been in a steady uptrend on the intraday charts since hitting Tuesday morning lows. Throughout the 1 1/2 day run the index had not substantially broken its 5 minute 20 period moving average, which left the trend quite extended by mid-day on Tuesday. From 11:30 to 13:00 ET the index hugged that moving average as volume sharply declined. This created a strong bearish bias for the early afternoon and selling hit hard once the moving average support gave way.
A continuation of the afternoon breakdown took place between 13:30-14:00 ET, although the pace was slower than the initial drop. This second move took all three of the major indices into strong intraday support levels at 5 and 15 minute 200 period moving averages, along with gap closures. The slower momentum on the second selloff on the 5 minute time frame helped the indices hold the support and a reverse head and shoulders pattern continued the reversal off lows.
The Dow Jones Industrial Average ($DJI) had a gain of 34.43 points, or 0.3%, and closed at 11,671.88 on Tuesday. Over half of the Dow's 30 index components posted a gain for the session. The top performers were Bank of America (BAC) (+2.01%), Intel (INTC) (+1.74%), Chevron Corp. (CVX) (+1.57%), and Home Depot (HD) (+1.37%). Telecoms were the weakest. Verizon (VZ) fell 1.56%, while AT&T (T) ended the session lower by 1.52%. Alcoa (AA) (-0.97%) and Merck (MRK) (-0.67%) topped the losing list.
The S&P 500 ($SPX) rose 4.73 points or 0.37%, and closed at 1,274.48. The strongest percentage performer in the S&P 500 was Apollo Group (APOL), which jumped back from pre-earnings losses to post a gain of 13.36% after it beat expectations despite a 42% drop in new student enrollment. Other top performers included Lennar Corp. (LEN) (+7.09%), Sears Holding (SHLD) (+6.27%), Stryker Corp. (SYK) (+6.03%), and Allegheny Technologies (ATI) (+6.02%). Supervalu Inc. (SVU), which posted earnings premarket, was the biggest loser. It fell 11.64% to new 52-week lows. Advanced Micro Devices (AMD) also posted a large loss, falling 9.03% after retesting last summer's highs on Monday.
The Nasdaq Composite ($COMPX) ended the session higher by 9.03 points, or 0.33%, on Tuesday and it closed at 2,716.83. Intuitive Surgical Inc. (ISRG) (+3.46%) followed gains in Apollo Group (APOL) and Sears Holdings (SHLD) in the Nasdaq-100. SHLD's gains came after its fourth-quarter outlook beat forecasts. Expedia Inc. (EXPE) (+3.33%) rounded off the top four. Citrix Systems (CTXS) (-2.52%) was the weakest performer in the Nasdaq-100, followed by losses in Priceline.com (PCLN) (-2.12%) and Sandisk Corp. (SNDK) (-1.95%).
The market is poised for another strong open heading into Wednesday morning followed a strong surge of buying in Asia and Europe that helped boost the index futures. The extent of the anticipated gap, however, will leave the indices extended and make a continuation of the rally difficult and any intraday buying should be more gradual than the premarket action. A more likely scenario will be price correction with the continuation of intraday strength focused in select stocks as opposed to the overall market. The Dow futures are currently forming a potential 15 minute Avalanche short setup in premarket trade ahead of the open.
Keep an eye out this afternoon for the Fed's Beige Book. This season's earnings will also start to pick up from this point onward and many are hoping to see a continuation of upward surprises.
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.