Good day! We were looking at a very narrow bias heading into Thursday's session. The market had already fallen sharply off last week's highs and was beginning to reach an exhaustion point on the 60 minute charts. As discussed in yesterday's column, I was left with a focus upon daytrade action that would take advantage of a sideways type of market with the expectation that it would be difficult for the indices to make any substantially lower low by week's end. This exhaustion, however, was still not a reason to switch gears completely. The pace of the selloff into daily support levels meant that it would also be unlikely that a rapid recovery would set in.
Dow Jones Industrial Average (Figure 1)
Although I began to look for the start of a correction off lows heading into Thursday, the downtrend move did not relinquish control quickly. Slower upside afterhours on Wednesday left the index futures facing a strong short setup on the 15 minute charts. This triggered around midnight and gained momentum just a couple of hours later. This early-morning drop took the index futures to slightly lower lows compared to Wednesday.
Despite the strong selloff, the regular trading session began relatively unchanged. This was the result of a recovery off premarket lows that included a strong PhoenixTM buy strategy. This setup can be viewed on the 15 minute chart of the Nasdaq. The rally that followed took the indices back into the zone of previous highs, which hit around 10:30 a.m. ET before selling resumed. A third low was hit at approximately 14:00 ET on Thursday.
S&P 500 (Figure 2)
This series of slightly lower lows in the indices, particularly the S&P 500 and Dow Jones Ind. Average, is a part of a pattern I call a "Momentum Reversal" because it involves the shift the momentum of the buying or selling. The shift was not enough to propel the indices higher, but it was enough to confirm that the market was dealing with corrective action off the Nasdaq's 50-day moving average. The indices easily held the lows and made their way back to the upper end of the 60-minute trend channel. The market is still favoring further corrective action at this zone of daily support.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a loss of 37.28 points, or 0.31%, and closed at 12,068.50 on Thursday. Twelve of the Dow's thirty index components posted a gain for the day. The top performer was General Electric (GE) (+1.73%). It was followed by gains in Boeing (BA) (+0.75%), Pfizer (PFE) (+0.75%), and Disney (DIS) (+0.69%). Hewlett Packard (HPQ) (-3.26%) once again topped the loser's list, but Travelers (TRV) (-1.80%), WalMart (WMT) (-1.77%), Procter & Gamble (PG) (-1.71%), and Bank of America (BAC) (-1.41%) were also big losers.
The S&P 500 ($SPX) fell 1.30 points, or 0.1%, and closed at 1,306.10. The strongest performers in the index were Priceline (PCLN) (+8.53%), Perkinelmer Inc. (PKI) (+6.90%), Advanced Micro Devices (AMD) (+6.43%), and MetroPCS Communications (PCS) (+6.03%). The largest percentage losers were Newmont Mining Corp. (NEM) (-7.36%), Sears Holdings Corp. (SHLD) (-5.54%), Tesoro Corp. (TSO) (-5.35%), and ETrade Financial Corp. (ETFC) (-4.80%).
The Nasdaq Composite ($COMPX) ended the session higher by 14.91 points, or 0.55%, on Thursday and it closed at 2,737.90. NII Holdings Inc. (NIHD) (+7.67%), Ctrip (CTRP) (+4.64%), and First Solar (FSLR) (+4.53%) followed Priceline (PCLN) (+4.53%) as the Nasdaq-100's gainers. The top losers were Sears Holdings (SHLD) (-5.54%), Mylan Inc. (MYL) (-1.47%), Yahoo (YHOO) (-1.27%), and Vodaphone Group (VOD) (-1.23%).
Despite the technical reasons behind Thursday's price action in the markets, news headlines also continue to make waves. They have been particularly focused upon the unrest in the Middle East, hence influencing commodity prices on goods such as oil, silver, and gold.
In other news, initial unemployment claims fell 22,000 last week to 391,000. The four-week moving average for claims fell to 402,000, which is the lowest it has been in about two and a half years.
Orders for durable goods jumped in January by 2.7%, but this number was in line with expectations.
New homes sales, however, were dismal. The Commerce Department reported that new-home sales on homes in the U.S. fell substantially to a seasonally adjusted rate of 284,000 homes last month. Last year was the worst in nearly half a century and Thursday's data was another blow to the housing sector.
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.