Good day! Tuesday brought with it the continuation of the corrective action I spoke of in yesterday's column with an end result of the worst day for the Dow Jones Ind. Average so far this month. The losses were not as extreme as they were at lows, however, thanks to a late-day recovery that eventually continued higher afterhours.
Dow Jones Industrial Average (Figure 1)
The strength versus weakness in the U.S. market was split on Tuesday between the weaker Dow and the the stronger Nasdaq-100. The difference was not as noticeable heading into the opening bell in the index futures as it would become as the day wore on, but even then there were signs. To begin with, the Dow was breaking down out of a larger AvalancheTM short setup on the 30-60 minute charts ahead of the open. This pattern followed through with additional help from the morning's economic data.
January's retail sales data marked a sore point for the day. Although store sales were higher last month, the total for retail sales was up only 0.3%. This was nearly half the anticipated increase and was an unwelcome slowdown. Nevertheless, it was still the seventh consecutive monthly gain. Sales ex-autos rose 0.3% as well.
Despite an attempt at a recovery shortly after the open, it was only the Nasdaq-100 that managed to close the zone from the morning's downside gap. At 10:00 a.m. the next round of data hit and it hit the market hard. All three of the indices fell to new intraday lows.
In the news at that time, the National Association of Homebuilders announced that its preliminary reading for the housing market index remained at 16 for the month of February despite an anticipated increase to 17. Meanwhile, U.S. import prices increased by 1.5% in January. This was partly a result of increasing fuel costs. Finally, the government reported that business inventories for December were up 0.8% compared to expectations for an increase of 0.6%. The news should keep tech shares in focus on Wednesday.
S&P 500 (Figure 2)
Although the market climbed off morning lows, the indices failed to break higher on the day and the overall momentum within the session favored daytrading by the bears into the early afternoon. The market found support at approximately 14:30 ET and slowly before to recover once again. This time, the recovery received a boost thanks to Dell (DELL) afterhours. The company reported earnings that were above expectations and they also raised their sales expectations for the year to fall between a 5% to 9% growth.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a loss of 41.55 points, or 0.34%, and closed at 12,226.64 on Tuesday. Only eight of the Dow's thirty index components posted a gain on the day. Verizon (VZ) (+1.56%) was the only one to gain more than 1%. Travelers (TRV) (+0.87%) and JP Morgan (JPM) (+0.60%) were among the top three gainers. Exxon Mobil (XOM) (-2.28%), Boeing (BA) (-1.19%), and Alcoa (AA) (-1.08%) were the only components to post a loss greater than 1%.
The S&P 500 ($SPX) fell 4.31 points, or 0.32%, and closed at 1,328.01. The day's only advancing industry groups were the utilities (+0.3%) and consumer discretionary (+0.01%). The top percentage performers were Wyndham Worldwide Corp. (WYN) (+6.87%), Gap Inc. (GPS) (+6.10%), H&R Block (HRB) (+5.53%), and Marsh & McLennan Cos. (MMC) (+4.71%). JDS Uniphase Corp. (JDSU) (-10.18%) was the worst performer after faced with downgrades following the sharp rally of the past two days. Other top losers were Masco Corp. (MAS) (-9.23%) and CF Industries Holdings (CF) (-5.19%). The weakest industry groups were materials and energy shares. Both fell 1.1%.
The Nasdaq Composite ($COMPX) ended the session lower by 12.83 points, or 0.46%, on Tuesday and it closed at 2,804.35. Top gainers in the Nasdaq-100 were Warner Chilcott (WCRX) (+4.26%), Genzyme Corp. (GENZ) (+3.53%), Qiagen (QGEN) (+2.17%), and Akamai Tech. (AKAM) (+2.02%). Marvel Tech. Group (MRVL) (-5.01%), Sandisk (SNDK) (-2.75%), and Netflix (NFLX) (-2.73%) were the weakest.
As we head into Wednesday, keep an eye on the latest housing data in the form of the weekly mortgage applications and housing start, as well as the FOMC minutes. The directional bias heading into the session is slightly in favor of the bulls, but the pace of the recent buying is shifting and the index futures are starting to round off at highs. This leads me to believe that we are due for an even larger correction on the 60 minute charts in the second half of the week.
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.