Good day! As we headed into Thursday morning, the price action in the market was mixed. The bullish bias that we saw in the early hours of the morning led to some slightly higher highs in the index futures ahead of the open, but the larger time frames had the potential to play out either way and lacked a strong up or downside bias.
The 8:30 a.m. ET unemployment claims report strongly influenced the morning's trade. The futures market took a hit when U.S. jobless claims jumped to three-month highs. The largest one-week jump in nearly six months took the market by surprise. According to the Labor Department, filings for first-time unemployment benefits rose from 410,000 in the previous week to 445,000 last week. Analysts had anticipated a decline to 405,000. The four-week moving average for new claims rose by 5,500 to 416,500. The small bright spot was that continuing claims fell from 4.13 million to 3.88 million. The unemployment rate, however, remained at 9.4%.
Dow Jones Industrial Average
The unemployment data was not the only data to catch the market's eye. The Labor Department also reported that U.S. producer prices rose 1.1% in December, following an 0.8% increase in November. Excluding food and energy, prices rose 0.2%, which was in line with expectations, but the overall picture was still worrisome. The largest price jump was due to increased food prices. Fresh and dry vegetables shot higher by 22.8%, while fresh fruit prices were up 15.4% for the month of December. Heating oil also posted sharp gains of 12.3% for the month.
Meanwhile, according to the Commerce Department, the U.S. trade gap narrowed unexpectedly from $38.4 billion in October to $38.3 billion thanks to an increase in exports that totaled $156.9 billion. This is the strongest they have been since August 2008. Exports to China amounted to nearly $10 billion - a record high. Analysts were expecting the trade gap to widen by $1.1 billion.
The intraday price action in the markets was very mixed in the morning. The S&P 500 and Dow Jones Ind. Average bore the brunt of the selling that took place after the open and continued the reaction to the early-morning data. The Nasdaq-100, on the other hand, held up extremely well and easily pushed to new highs as the morning wore on. That rally stalled as the index hit the upper channel limits at 11:00 a.m. ET. Highs were established by 11:30 ET. The pace of the rally had slowed in the index, creating a Momentum ReversalTM that triggered mid-day. At this point the S&P 500 was retesting its morning highs, which served as price resistance as well and all three of the major indices took a turn lower into the afternoon.
The downtrend on the 5 minute time frame continued into the final 30 minutes of trade. At that point, three evenly spaced lows created another Momentum ReversalTM that triggered a rebound into the closing bell. This rebound continued afterhours and took the Nasdaq-100 futures to new highs for the year within a widening triangle on the 15 minute time frame. Since this pattern took place at highs after the earlier run this week, however, it was a bearish strategy and the index futures have been heading lower since approximately 17:30 on Thursday evening. This will leave them hitting support as Friday's opening bell approaches, and the indices will favor holding a trading range on the 30-minute time frame heading into the weekend.
The Dow Jones Industrial Average ($DJI) had a loss of 23.54 points, or 0.2%, and closed at 11,731.90 on Thursday. Just under half of the Dow's thirty index components posted a gain for the day. The leaders were Home Depot (HD) (+1.26%), Verizon (VZ) (+0.93%), Procter & Gamble (PG) (+0.78%), and Caterpillar Inc. (CAT) (+0.70%). Merck (MRK) was the weakest sock in the index, falling sharply. Alcoa (AA) followed with a loss of 3.02%, while Bank of America (BAC) retreated by 1.47% and McDonald's slid 1.26%.
The S&P 500 ($SPX) fell 2.20 points or 0.17%, and closed at 1,283.76. Consumer staples showed strength on Thursday, while materials, health care, and the financials fell. Marathon Oil (MRO) was the strongest performer in the index, increasing the momentum on its weekly breakout with an exhaustion gap on the upside for a gain of 6.04% despite the intraday pullback. Whole Foods (WFMI) also has a strong session, rallying 4.60%, while JDS Uniphase (JDSU) rose 4.43% and Micron Technologies (MU) ended the session higher by 3.10%. Merck (MRK) also led the S&P 500 losers. It was followed by Goodyear Tire & Rubber (GT) (-5.46%), Lexmark Intl. (LXK) (-4.50%), and ITT Corp. (ITT) (-3.33%).
The Nasdaq Composite ($COMPX) ended the session lower by 2.04 points, or 0.07%, on Thursday and it closed at 2,735.29. In the Nasdaq-100, Illumina Inc. (ILMN) followed Whole Foods (WFMI) on the upside. Vertex Pharmaceuticals (VRTX) (+3.60%) was the third-best performer. Infoysys Tech. (INFY) (-6.31%) was the weakest stock in the Nasdaq-100, but held support after gapping sharply into the zone of its 50-day moving average. Sears Holdings Corp. (SHLD) (-3.07%) and Virgin Media (VMED) (-2.89%) rounded off the top three losers.
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.