Good day! Although the market took quite a beating last week, the month of February still posted a gain, making it the third straight month of upside for the markets. Monday's recovery helped. The indices struck support last week on Thursday and gradually began to pull higher. The pace accelerated first in the Nasdaq on Friday, but the index futures corrected afterhours and into Sunday evening.
At the time I posted yesterday's column, the futures were just hitting support. This support level, combined with 15 minute trend placement, suggested that the support would hold into the start of the new week. The Dow Jones Ind. Average and S&P 500 futures were not as extended as the Nasdaq on the upside prior to the correction and easily took over heading into the early morning hours. The market stalled and fell into a trading range between 2:00 and 6:00 a.m. ET, but the triangle that formed during this time included momentum that favored a bullish bias and the futures broke higher ahead of the open.
Dow Jones Industrial Average (Figure 1)
The upside paused prior to Monday's premarket economic data and was barely affected by the outcome. Personal incomes rose 1% in January. The cheer was lessened by a 2% payroll tax holiday passed at the end of last year. Personal spending remained nearly unchanged with a gain of 0.2% in January. The savings rate rose from 5.4% to 5.8%. 45 minutes later the Chicago Purchasing Managers Index came out, indicating that manufacturing in the Chicago area accelerated at a faster-than-anticipated pace last month from 68.8 in January to 71.2. The next data came out after the open. At 10:00 a.m. ET the National Association of Realtors reported that pending home sales in January 2.8%, which was more than anticipated.
Despite the strong start to Monday's session, the market struggled to hold onto the early-morning gains. Momentum reversals and breakdowns took place between 10:15 a.m. ET and 11:15 a.m. ET and the selling continued until the 14:00 ET correction period. By that time the market was again finding support with the closure of the S&P 500 gap and the pace of the selling shifted between 13:00 ET to 14:00 ET, creating the reverse of the morning's action with a buy out of 14:00. By the end of the day the S& 500 and Dow had recovered to highs, but the Nasdaq continued to lag.