Good day! The goings-on in Egypt have been at the forefront of the world's, and hence the market's, eyes over the past several weeks. On Thursday Egypt's President Mubarak announced that he would be transferring some power to the vice president and would be stepping down in September at the end of the current term. This was met with increased dissent from a large group of Egypt's citizens, who originally began anti-government protests throughout the country several weeks ago. In response to the latest uproar, Mubarak amended his statement on Friday and declared that he would be relinquishing power as the week came to a close.
Dow Jones Industrial Average (Figure 1)
Friday's session began in negative territory, but the bias was positive from a technical standpoint due to shifting momentum in premarket trade. The index futures had been in a slow, but steady downtrend since Thursday's closing bell, but this trend found support between 5:00-6:00 a.m. ET and the premarket trading channel broke to the upside shortly thereafter. The breakout did not last long before another correction began to set in, but this was minor and held near the upper channel of the earlier downtrend, as seen on the 15 minute charts of the YM (eMini Dow futures) and NQ (Nasdaq-100 futures). It was this correction to the channel breakout that was pulling the index futures lower into the opening bell.
Although the market was in a corrective mode heading into the open, it was only minor compared to the larger trend breakout. By 9:50 a.m. ET the indices were once again pulling higher and favoring a continuation of the upside. The news out of Egypt merely accelerated that breakout, which surged on increased volume until 11:00 a.m. ET. Meanwhile, gold and oil prices fell as concerns over stability in the region waned somewhat.
S&P 500 (Figure 2)
11:00 a.m. ET is a common time of the day for a morning rally to stop to catch its breath, but the overall bias for the session remained favorable for the bulls. The Dow Jones Ind. Ave. ($DJI), which had one of the strongest breakouts, also experienced the greatest correction mid-day in terms of the percentage of the morning's rally that it retraced. By 12:30 ET it had given up about half of its intraday gains. The Nasdaq, whose morning reaction was more muted, held up best over noon and crept to new intraday highs throughout the afternoon. The S&P 500 and Dow managed to hit new intraday highs as well, but only in the final 90 minutes of trade.
Although the rally throughout the afternoon was slower than during the morning trade, it was not substantially slower than average. This means that while the bullish side is likely to be even slower on the next push, the bears haven't gained much of a foothold yet and a decent reversal pattern has not yet formed as we head into Sunday morning.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a gain of 43.97 points, or 0.36%, and closed at 12,273.26 on Friday. Just under two-thirds of the Dow's thirty index components posted a gain for the day. The top percentage performers were Caterpillar (CAT) (+2.92%), JP Morgan (JPM) (+2.28%), Bank of America (BAC, and 3M (MMM) (+1.93%). The weakest were Kraft Foods (KFT) (-1.45%), Cisco (CSCO) (-1.16%), and Pfizer (PFE) (-1.05%). The Dow ended the week higher by 1.5% and is up 6.01% year-to-date.
The S&P 500 ($SPX) rose 7.28 points or 0.55%, and closed at 1,329.15. JDS Uniphase (JDSU) continued its breakaway move by adding another 11.52% gain. It was followed by Clorox Co. (CLX) (+7.56%), and Wynn Resorts (WYNN) (+7.45%). Clorox's gains followed news that billionaire investor Carl Icahn had establishrd a 9.08% ownership in the company and continued to consider the stock undervalued. Wynn Resorts rose on strong earnings. Expedia Inc. (EXPE) (-17.05%) was the weakest performer. Although it posted a profit on stronger bookings, they weren't enough to hit estimates. Other top losers were Scana Corp. (SCG) (-4.10%) and FLIR Systems (FLIR) (-3.28%). The S&P 500 ended the week higher by 1.39% and is up 5.69% year-to-date.
The Nasdaq Composite ($COMPX) ended the session higher by 18.99 points, or 0.68%, on Friday and it closed at 2,809.44. The top percentage gainers in the Nasdaq-100 were Wynn Resorts (WYNN) (+7.45%), First Solar (FSLR) (+5.49%), Ctrip (CTRP) (+3.89%), and News Corp. (NWSA) (+3.82%). Cephalon Inc. (CEPH) (-2.58%) and Cisco (CSCO) (-1.16%) followed losses in Expedia (EXPE) (-17.05%) and FLIR Systems (FLIR) (-3.28%). The overall Nasdaq Composite ended the week higher by 1.45% to strike levels last seen in November, 2007. It is up 5.90% year-to-date.
In addition to the news out of Egypt, the U.S. also had some news of its own to contend with in the form of the latest trade balance and consumer sentiment readings. Neither generated anywhere near the same regard as the the global news, however, and had little impact on the day's price action.
According to the Commerce Department, the U.S. trade gap in December widened to $40.6 billion, which is its largest annual percentage increase in ten years. This was larger than the anticipated $40.5 billion and a large step up from $38.32 billion the month before.
Meanwhile, the Reuters/University of Michigan consumer sentimentreport offered a preliminary reading for February that indicated consumer sentiment is at its highest level in eight months. Economists were anticipating a gain to approximately 75 in the index as compared to January's reading of 74.2, and February's preliminary reading of 75.1 was roughly in-line with expectations. Part of the survey is a gauge for consumer expectations, however, and this reading fell from 69.3 in January to 67.6.
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.