Good day! The Dow Jones Industrial Average ($DJI) ended the week last week at yet another 2 1/2 year high. It posted a weekly gain of 2.27%, while the S&P 500 ($SPX) and Nasdaq Composite ($COMPX) also managed decent gains for the week despite choppier trade. The S&P 500 rose 2.71%, while the Nasdaq climbed 3.07%. All three of the major indices are up more than 4% year-to-date and the Nasdaq is only off 1.23% from its high in October 2007.
Most of last week's gains were due to a strong rally on Monday morning, but the market managed to hold its own and congest at highs throughout the week with some mild upside action once again on Thursday and Friday.
Dow Jones Industrial Average (Figure 1)
The main focus on Friday was the latest employment data. This kept the indices active throughout the session, making it a very favorable day for intraday traders. Trend action and price moves were very regular throughout the session with solid waves of buying and selling on the 5 minute charts.
The index futures traded within a congestion range throughout afterhours and premarket trade ahead of Friday's jobs data. The bias within the congestion was bullish and the futures attempted a breakout higher ahead of the news. This is always a risky prospect unless you plan on covering the position prior to the news since even a correct bias can get whipped out quickly in post-release volatility.
The bulls heading into Friday morning were initially treated to a shock by a strongly negative reaction to the premarket news. One of the surprises that would seem beneficial on the surface was the change in the unemployment rate. According to the Labor Department, the headline unemployment rate dropped from 9.4% in December to 9.0% in January. Analysts' had been expecting unemployment to tick higher to 9.5% for the month. Those focusing on the Treasuries apparently did view this as positive news for the job market. Treasury prices fell, while yields rose. Additionally, average hourly earnings unexpectedly rose 0.4%. This is only part of the picture, however, and doesn't really offer better news for job-seekers. Let's look a bit deeper...
S&P 500 (Figure 2)
On the cautious side is the belief that one of the reasons that the rate was lower was simply because many of those who are unemployed simply gave up trying to find new positions. The bad weather that plagued a large portion of the country throughout January would have also contributed to this.
In related news, the rate of job growth slowed last month. The government reported that only 36,000 new jobs were created in January, which is the fewest in four months.
Despite the report the report of job growth, the actual number of unemployed workers (not seasonally adjusted) was still quite dismal. In fact, it rose from 14.83 million to 14.94 million, while the average number of weeks that a worker is unemployed has hit an all-time high of 36.9 weeks. "Real unemployment", which includes those who at least temporarily gave up searching for a new job or were pushed into part-time labor, now stands at 16.1%.
Nasdaq Composite (Figure 3)
The index futures sold off rapidly following the jobs data. The overall momentum, however, was not as strong as the initial push lower because two more waves of downside followed. Between each of the selloffs was a decent retracement so that the overall angle of the downtrend was modest. The third low took place at 11:00 a.m. ET, which was evenly spaced after the first two. This exhausted the downtrend and left the index futures at support heading into mid-day.
The mid-day reversal off lows had slightly slower momentum than the morning's selloff, but the trend was solid and easy to follow. Both the S&P 500 and Dow Jones Industrial Average had three clear-cut waves of buying back into the closing bell and premarket highs. The three-wave rally is the easiest to see on the 5 minute Dow. The premarket resistance level led to a longer congestion at the closing highs on Sunday evening to show that the bulls still simply refuse to let go of the reins.
The Dow Jones Industrial Average ($DJI) had a gain of 29.89 points, or 0.25%, and closed at 12,092.15 on Friday. Two-thirds of the Dow's thirty index components posted a gain for the day. The top percentage performers were Kraft Foods (KFT) (+1.46%), DuPont (DD) (+1.16%), Procter & Gamble (PG) (+1.13%), and Pfizer (PFE) (+0.68%). The weakest stocks were JP Morgan Chase (JPM) (-1.91%), Bank of America (BAC) (-0.97%), General Electric (GE) (-0.92%), and Alcoa (AA) (-0.41%).
The S&P 500 ($SPX) rose 3.77 points or 0.29%, and closed at 1,310.87. JDS Uniphase (JDSU) was the stand-out in the S&P 500 on Friday, whose quarterly results strongly surpassed analysts' expectations. It rose 26.94%. Trailing in second place was Aetna Inc. (AET) (+12.47%) thanks to strong fourth-quarter profits and an increase in dividends that will be the highest in the industry. The other top percentage performers included Stericycle Inc. (SRCL) (+5.77%), Tyson Foods (TSN) (+5.69%), and RadioShack (RSH) (+5.66%). The weakest were Apartment Invt. & Management Co. (AIV) (-5.14%), Life Technologies (LIFE) (-4.16%), and United States Steel (X) (-4.07%).
The Nasdaq Composite ($COMPX) ended the session higher by 15.42 points, or 0.56%, on Friday and it closed at 2,769.30. The strongest percentage performers in the Nasdaq-100 were Stericycle Inc. (SRCL) (+5.77%), F5 Networks (FFIV) (+4.59%), Broadcom Corp. (BRCM) (+4.37%), and Garmin Ltd. (GRMN) (+4.11%). The weakest were Life Technologies Corp. (LIFE), Fiserv Inc. (FISV) (-3.27%), and First Solar (FSLR) (-2.61%).
This week is going to be a light one on the data front, but some of the U.S. news events to keep an eye on heading into Monday will be earnings from home improvement retailer Lowes (LOW), the Fed's consumer credit report for December, and President Obama's speech at the U.S. Chamber of Commerce. Tuesday will be a light day for data. Disney (DIS) is amongst those that report earnings after the bell, while Coca-Cola (KO) and Cisco Systems (CSCO) are among the highly anticipated earnings reports for on Wednesday. Federal Reserve chairman Ben Bernanke is also scheduled to testify before the House Budget Committee on Wednesday morning. Thursday's data includes the weekly report for first-time jobless claims and December's wholesale inventories. The week will wrap up on Friday with December's U.S. trade balance and the Reuters/University of Michigan consumer sentiment report.
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.