Good day! Monday's session was a busy one for the markets. Economic data was on the light side, but there was a great deal of focus on mergers and acquisitions. The top ones included AOL's (AOL) agreement to buy The Huffington Post for $315 million, EnsCo's (ESV) acquisition of Pride International (PDE), Danaher's (DHR) agreement to buy Beckman Coulter (BEC), and the anticipated buyout of Genzyme (GENZ) by Sanofi-Aventis (SNY).
Dow Jones Industrial Average
The indices kicked of the week strongly. The index futures were already breaking the daily trading range thanks to Friday afternoon's recovery. The bias continued in premarket trade when the index futures broke higher once again in the early-morning hours on Monday. This breakout around 3:00 a.m. ET was followed by a period of congestion heading into Monday's opening bell. Such congestion is typically bullish and the market broke strongly to the upside out of the bell.
The rally on Monday continued easily into 11:00 a.m. ET. At that correction period, however, it started to lose a bit of its momentum. The Nasdaq outperformed and remained in the trend until around 11:30 a.m. ET, while the S&P 500 and Dow Jones Ind. Average each hit slightly higher highs mid-day. This created a reversal strategy into noon.
Although the Nasdaq led the upside throughout the morning, this also left it more extended into Monday afternoon. As a result, it also gave way to the afternoon reversal more readily than the S&P 500 and Dow. The Nasdaq formed a 2T on the 5 minute time frame just before the 13:00 ET correction period, but the selloff became stronger following a 5 minute AvalancheTM around 14:30 ET. The index futures did recovered once again into the early-morning on Tuesday, but resistance held at 5:30 a.m. ET when the S&P and Dow retested Monday's highs. The weaker Nasdaq fell short of the prior highs, but also hit resistance at the same time at the 62% Fibonacci retracement. The indices remain in corrective mode heading into Tuesday's opening bell, but the bulls are still maintaining the upper hand.
The Dow Jones Industrial Average ($DJI) had a gain of 69.48 points, or 0.57%, and closed at 12,161.63 on Monday. Approximately two-thirds of the Dow's thirty index components posted a gain. The financials were the top leaders. Bank of America (BAC) ended the session higher by 2.66%. American Express (AXP) followed with a gain of 2.28%, while JP Morgan Chase (JPM) climbed 2.04%. The weakest were Pfizer (PFE) (-1.35%) and Kraft Foods (KFT) (-1.03%).
The S&P 500 ($SPX) rose 8.18 points or 0.62%, and closed at 1,319.05. Big Lots (BIG) jumped at the close and ended the session as the S&P 500's top gainer, up 15.46%. JC Penney (JCP) followed. It rose 5.70%. American Intl. Group (AIG) (+5.45%) and St Jude Med. (STJ) (+4.86%) were also in the top four. Sysco Corp. (SYY) (-6.16%), Motorola Mobility (MMI) (-4.34%), and NVIDIA (NVDA) (-4.17%) were the weakest shares on the S&P 500.
The Nasdaq Composite ($COMPX) ended the session higher by 14.69 points, or 0.53%, on Monday and it closed at 2,783.99. Check Point Software Tech. (CHKP) (+3.34%), Micron Tech. (MU) (+2.17%), and Marvell Tech. (MRVL) (+1.72%) led the gainers in the Nasdaq-100. At the other end of the spectrum amongst the Nasdaq's biggest companies were NVIDIA (NVDA) (-4.17%), Vertex Pharmaceuticals (VRTX) (-2.86%), and News Corp. (NWSA) (-1.72%).
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.
Although Monday was light on data, President Obama noted in his speech to the U.S. Chamber of Commerce that he wanted to improve relationships with the business community, favoring a lower corporate tax rate while eliminating loopholes. He also restated his wishes to increase spending on education and infrastructure.
In other news, U.S. outstanding installment consumer credit rose for the first time in over two years in December. Total credit outstanding increased by $6.1 billion. It was anticipated to increase by $2.3 billion. It was upwardly revised in November to show a $2 billion increase.
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.