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.
S&P 500 (Figure 2)
My outlook into Tuesday remains unchanged from this weekend. The market continued to favor corrective action off last week's lows, but it will be very difficult for the market to surpass the prior highs without stalling. This leaves the odds in favor of a longer daily trading range as the week progresses.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a gain of 95.89 points, or 0.79%, and closed at 12,226.34 on Monday. Twenty-five of the Dow's thirty index components posted a gain for the session. The leaders were Johnson & Johnson (JNJ) (+3.02%), Verizon (VZ) (+2.64%), Hewlett-Packard (HPQ) (+2.23%), and 3M (MMM) (+2.19%). Intel (INTC) was the biggest loser (-1.78%).
The S&P 500 ($SPX) rose 7.34 points, or 0.56%, and closed at 1,327.22. Interpublic Group (IPG) (+5.01%), Dell (DELL) (+4.63%), Noble Energy (NBL) (+3.89%) and Humana Inc. (HUM) (+3.85%) were the strongest percentage performers in the S&P 500. the weakest were MEMC Electr. Materials (WFR) (-6.22%), First Solar (FSLR) (-5.35%), Akamai Tech. (AKAM) (-4.94%), and Salesforce.com (CRM) (-4.73%).
The Nasdaq Composite ($COMPX) ended the session higher by 1.22 points, or 0.04%, on Monday and it closed at 2,782.27. Dell (DELL) (+4.63%), Vertex Pharmaceuticals (VRTX) (+4.08%), Joy Global (JOYG) (+3.67%), and Urban Outfitters (URBN) (+2.37%) were the leaders in the Nasdaq-100. The laggards included First Solar (FSLR) (-5.35%), Akamai Tech. (AKAM) (-4.94%), and Liberty Media Corp. (LINTA).
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.