Good day! The indexes continued to push higher on Tuesday despite correcting off premarket highs when the S&P 500 and Dow Jones futures created a double top at approximately 5:30 a.m. ET. This reversal pattern off highs actually followed through quite well with three waves of downside lasting into the 9:45 a.m. ET correction period. This pullback took the two indices back into Monday afternoon's lows where they struck support.
The selloff itself experienced a slowdown as is continued, thereby shifting momentum into opening trade. This momentum shift created a buy strategy that triggered once the channel from the move into the third low broke to the upside. This pattern development can be viewed on the 15 minute, all-sessions chart of the ES shown below.
Dow Jones Industrial Average
As I mentioned in Monday's column, the indices still maintained the upper hand heading into Tuesday. The pace of that upside was not as strong as the intraday rally on Monday morning, but the overall daily momentum has increased over the course of the past five trading days. This is typically an encouraging sign, but the breakout over the past several trading days was slower than the rally at the end of last month into the 1st of February and the volume has been lighter than most of the year to date. It's not enough to confirm the end of a move though and most of the swing trade strategies I come across in my scanning are still buys with very few strong candidates for the short side just yet.
The Dow Jones Industrial Average ($DJI) had a gain of 71.52 points, or 0.59%, and closed at 12,233.15 on Tuesday. The top performers in the Dow were McDonalds (MCD) (+2.60%), American Express (AXP) (+2.37%), General Electric (GE) (+1.96%), and Home Depot (HD) (+1.53%). McDonalds led the index thanks to stronger-than-expected same-store sales in January. Only five posted a loss. The weakest were Exxon Mobil (XOM) (-0.61%), Bank of America (BAC) (-0.41%), and Intel (INTC) (-0.28%).
Disney (DIS) reported earnings after the closing bell that topped analysts' estimates on both earnings per share and revenue. Shares were up nearly $1.50 afterhours to continue the strong daily breakout that triggered early last week. This could easily leave it exhausted heading into Wednesday and put pressure on those hoping for the move to continue.
The S&P 500 ($SPX) rose 5.52 points or 0.42%, and closed at 1,324.57. Consumer discretionary shares led the index. The top individual percentage performers in the were Urban Outfitters (URBN) (+5.55%), Family Dollar Stores (FDO) (+5.19%), JC Penney (JCP) (+4.91%), and Harman Intl. Inds. (HAR) (+4.42%). The top percentage losers were Becton Dickinson & Co. (BDX) (-5.38%), Coventry Health Care (CVH) (-4.98%), Principal Financial Group (PFG) (-4.33%), and NASDAQ OMX Group (NDAQ) (-3.51%). Energy and utilities were the only sectors to post a loss for the session.
The Nasdaq Composite ($COMPX) ended the session higher by 13.06 points, or 0.47%, on Tuesday and it closed at 2,797.05. The strongest shares in the Nasdaq-100 were Urban Outfitters (URBN) (+5.55%), Sandisk (SNDK) (+4.18%), Amazon.com (AMZN) (+3.76%), and Millicom Intl. Cellular (MICC) (+3.22%). Teva Pharmaceutical (TEVA) (-5.38%), NVIDIA (NVDA) (-2.97%), Ctrip (CTRP) (-2.61%), and Broadcom (BRCM) (-1.98%) were the weakest.
The gains in the market came despite China's latest moves to try to cool off inflationary pressures. The People's Bank of China announced on Tuesday that it will once again raise its interest rates by a quarter percentage point. The move was not unexpected.
Toyota (TM) also made headlines after a federal investigation concluded that there was no evidence of electronic flaws that would explain reports of unintentional acceleration beyond the mechanical defects that had already been addressed. Meanwhile, its profits fell 39% last quarter.
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.