The Nasdaq Composite ($COMPX) ended the session lower by 14.75 points, or 0.55%, on Friday and it closed at 2,689.54 after vastly underperforming the other major indices. Despite stronger quarterly earnings on Thursday afternoon, Google (GOOG) failed to hold onto its gains and didn't make the list of the day's top performers. Instead, shares closed lower by 2.38%. Investors were disappointed that its chief executive, Eric Schmidt, will be vacating his role with the position going to co-founder Larry Page in April. Instead, News Corp. (NWSA) (+4.50%), Virgin Media (VMED) (+2.80%), and Micron Technology (MU) (+2.50%) followed Intuitive Surgical (ISRG) as the top gainers in the Nasdaq-100. Electronic Arts (ERTS) (-4.00%) was the weakest performer in the Nasdaq-100. Biogen Idec Inc. (BIIB) (-2.92%), Akamai Technologies Inc. (AKAM) (-2.80%), and Flextronics Intl. (FLEX) (-2.55%) followed. The Nasdaq Composite ended the week lower by 2.39%.
This past week was the first losing week in the S&P 500 and Dow Jones Industrial Average since the week of November 21st, 2010. A key technical influence for the weakness stems from the highly watched 1,300 price resistance level in the S&P 500. It hit a high of 1,296.25 this past week, testing the resistance zone. Although there have been a couple of weeks where the gain was minor, it's very rare for the market to go for so long without a larger weekly correction. So far, however, the 20-day moving average remains a key daily support level and one daytraders watch closely for intraday lows. The slower the market reacts to this levels, the easier it becomes to break it.
January remains a month where weakness often sets in as the month winds down. This is also common as earnings season wraps up if the price action heading into the season was already strong. This is the well-known "sell the news" phenomenon. In some cases it only lasts a couple of weeks, but in others it can be a major market turning point. It's often the pace of the correction that can help guide the longer-term bias. Given the current price action, the market is favoring the weekly correction with a third wave higher into spring instead of a larger monthly one. What we would want to see for this to develop further is action similar to what took place in November with the 50-day moving average serving as the main support zone.
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.