Good day! The market whipsawed on Thursday, but the intraday range and price action throughout the session was substantially more favorable to intraday traders than the previous one. This range began to widen soon after Wednesday's close when a low level base afterhours broke solidly to the downside. The index futures remained modestly bearish into premarket trade, but began to recover the losses heading into the opening bell after the first round of morning economic data hit the wires.
At 8:30 a.m. ET the government's latest unemployment data was released. The Labor Department reported that the number of people applying for first-time unemployment benefits fell by 42,000 to 415,000 last week from a revised 457,000 the week before. This was a larger decline than anticipated. Continuing claims fell from an upwardly revised 4.00 million to 3.93 million. This was a worse number than expected.
The U.S. nonfarm productivity data also came out at this time and indicated that growth for the fourth quarter was faster-than-expected. The Labor Department reported an annual rate increase to 2.6%, which was stronger-than-anticipated. Productivity for 2010 as a whole grew 3.6%. The total nonfarm output in Q3 grew at a rate of 4.5%.
Meanwhile, the average work week increase at a rate of 1.8% for the fourth quarter of 2010, but unit labor costs were down 0.6%.
Dow Jones Industrial Average (Figure 1)
The premarket recovery continued to hold past Thursday's opening bell. The first half hour of the the primary session was marked by a narrow trading range just under the 5 minute 20 period moving averages intraday. The bottom gave way with the next round of economic data at 10:00 a.m. ET.
Interestingly, the data was actually stronger-than-expected at 10:00. The Institute for Supply Management's nonmanufacturing composite for January climbed to 59.4, which is its strongest level since 2005. Additionally, according to the Commerce Department, factory orders for December increased 0.2%. Analysts had anticipated a decline of 0.6%. They had risen 1.3% in November.
Despite a rapid drop at 10:00 a.m. ET into 10:15, the market spent the remainder of the session pushing higher. The pace of the rally was more gradual, but it was steady and without any signs of abating. By noon the index futures had recovered the morning losses and quickly fell into a narrow trading range. Within this range, which lasted until nearly 15:00 ET, the momentum remained slow on the downside, particularly in the final 30 minutes. This slowing pace helped the indices break out to the upside. The strongest moves were in the S&P 500 and Dow Jones Ind. Ave. The afternoon breakout, however, was unable to push past the upper limits of the daily trend channel.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) had a gain of 20.29 points, or 0.17%, and closed at 12,062.26 on Thursday. The gainers and losers were fairly evenly matched in the Dow throughout most of the day, but by the closing bell more than two-thirds of the Dow's thirty index components were in positive territory. The top performers were Cisco (CSCO) (+1.34%), Bank of America (BAC) (+1.33%), AT&T (T) (+1.16%), and Pfizer (PFE) (+1.11%). The weakest shares were Merck (MRK) (-2.72%) and Microsoft (MSFT) (-1.04%). Merck (MRK) reported earnings within estimates, but offered a cautious outlook for the year overall.
The S&P 500 ($SPX) rose 3.07 points or 0.24%, and closed at 1,307.10. The top percentage gainers in the index were Estee Lauder (EL) (+14.13%) and Harmin Inds. (HAR) (+12.16%). Estee Lauder (EL) popped after the cosmetics maker reported higher-than-expected quarterly profits and raised its guidance for the remainder of the year, while Harmin (HAR) was also higher on strong earnings. Other top leaders in the S&P for the day were Autonation (AN) (+11.33%), Supervalu (SVU) (+10.45%), and Sears Holdings (SHLD) (+7.68%). The weakest percentage performer was Celgene Corp. (CELG) (-6.90%). Ameriprise Financial (AMP) (-6.87%), which fell short of analysts' earnings expectations, followed. CVS Caremark Corp. (CVS) (-4.99%), Pulte Group (PHM) (-4.80%), and Avery Dennison (AVY) (-4.77%) were also top decliners.
Nasdaq Composite (Figure 3)
The Nasdaq Composite ($COMPX) ended the session higher by 4.32 points, or 0.16%, on Thursday and it closed at 2,753.88. The Nasdaq-100's top leaders were Sears Holdings (SHLD) (+7.68%), News Corp. (NWSA) (+6.07%), Ross Stores (ROST) (+5.80%), and Costco (COST) (+4.49%). The top decliners were Celgene Corp. (CELG) (-6.90%), NVIDIA (NVDA) (-1.91%), Gilead Science (GILD) (-1.85%), and NII Holdings (NIHD) (-1.79%).
Friday's focus in the markets will be the latest jobs data. January nonfarm payrolls, average workweek, hourly earnings, and the current unemployment rate will all be coming out ahead of the opening bell and will be a primary catalyst for the intraday direction the market takes into the weekend. Economists are expecting an increase of 148,000 jobs in January, but for the overall jobless rate to increase from 9.4% to 9.5%.
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.