Good day! Tuesday was a rough day for the indices. The market was hit with one of the strongest selloffs in months and this kept the indices stuck in a larger trading range on the 60 minute time frame after initially beginning a larger daily correction the week before. The index futures did hit price support as they neared the end of the session on Tuesday, however, and momentum shifted into afterhours trade as the day's selloff neared an end.
The S&P 500 index futures hit slightly lower lows afterhours on Tuesday, which created a 2B reversal late into the evening around 21:30 ET. This reversal off support continued with a low PhoenixTM that triggered at about the same time as the 2:00 a.m. ET correction period on Wednesday morning. Meanwhile, the Nasdaq-100 futures formed a series of three slightly lower lows beginning with the first low mid-afternoon on Tuesday. The third low in this Momentum ReversalTM pattern hit at 21:30 ET and it was also followed by a shallow PhoenixTM buy setup into 2:00 a.m. the next morning.
Dow Jones Industrial Average (Figure 1)
The afterhours action on Tuesday and early morning price action on Wednesday favored a larger correction off Tuesday's lows holding into Wednesday's regular trading session. The Nasdaq had the strongest recovery before hitting intraday resistance at the 11:00 a.m. ET correction period. By that point it had recovered more than 50% of the previous day's losses that had occurred between 4:00 a.m. ET and 21:30 ET on Tuesday. The S&P 500 and Dow Jones Ind. Average were weaker, but they also held resistance into 11:00 a.m. ET on Wednesday. They each recovered to approximately the 38.2% Fibonacci retracement level before falling back and spent the remainder of the session in a range. This daily congestion could easily hold throughout Thursday.
Currently the bias for a break of the daily trading range is to the downside with the Dow's 50 day sma and Nasdaq's 100 day sma as support zones.
Wednesday's economic reports had little impact on the day's price action.
Applications for U.S. home mortgages fell 6.5% last week, although the data was not adjusted for the Presidents Day holiday this past Monday. Refinancing applications decreased 6.5%, while the gauge for loans on new home purchases was down 6.1%.
The most highly anticipated jobs data isn't due out until Friday from the Labor Department, but the ADP National Employment Report released on Wednesday morning showed that employment increased by 217,000 in February and January's report was revised to show a 189,000 gain. Friday's report is expected to show a gain of approximately 185,000 in nonfarm payrolls in February, but with the national unemployment rate ticking higher from 9% to 9.1%.
In the afternoon, the Federal Reserve's Beige Book report showed that retailers in each of the Fed's twelve districts are increasing prices to compensate for rising commodity prices, but that there is still "moderate" economic growth.
S&P 500 (Figure 2)
A lot of the day's action on Wednesday came from the commodities. They have been in focus a great deal in recent years, but turmoil abroad and ongoing uncertainty over the domestic economy has again focused investors' eyes on crude oil and gold. Both continued to push higher into Wednesday. Gold has been testing record, while oil rose over $102 a barrel. This has pushed prices up at the pump as well. Gas prices in some areas are already pushing through $4 a gallon.
Gold and silver both fell back off morning highs by the end of the day, but even though this is a reaction to intraday resistance levels, there is no price pattern to yet confirm the start of a larger daily correction. Meanwhile, oil just broke higher out of a week-long trading range and ended the session near highs with no signs of even an intraday correction beginning again as we head into Thursday.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a gain of 8.78 points, or 0.07%, and closed at 12,066.80 on Wednesday. Nearly half of the Dow's thirty index components posted a gain for the mixed session. The leaders were Caterpillar Inc. (CAT) (+1.11%), 3M (MMM) (+0.95%), Verizon (VZ) (+0.89%), and Hewlett-Packard (HPQ) (+0.77%). The top decliners were JP Morgan Chase (JPM) (-0.86%), Boeing (BA) (-0.78%), Coca-Cola (KO) (-0.74%), and Travelers (TRV) (-0.69%).
The S&P 500 ($SPX) rose 2.11 points, or 0.16%, and closed at 1,308.44. Wednesday's strongest percentage performers in the index were Xilinx Inc. (XLNX) (+5.63%), Cameron International Corp. (CAM) (+4.71%), Eastman Chem. Co. (EMN) (+3.72%), and KLA-Tencor Corp. (KLAC) (+3.61%). The weakest percentage performers were Hudson City Bancorp (HCBK) (-8.99%), Metlife Inc. (MET) (-5.71%), NVIDIA (NVDA) (-4.16%), and Motorola Mobility Holdings (MMI) (-3.80%).
The Nasdaq Composite ($COMPX) ended the session higher by 10.66 points, or 0.39%, on Wednesday and it closed at 2,748.07. Xilinx (XLNX) (+5.63%) was the top performer in the Nasdaq-100. It was followed by Lam Research (LRCX) (+3.64%), KLA-Tencor (KLAC) (+3.61%), and Yahoo (YHOO) (+3.29%). The weakest index components in the Nasdaq-100 were NVIDIA (NVDA) (-4.16%), Joy Global (JOYG) (-2.76%), Costco Wholesale Corp. (COST) (-2.53%), and Autodesk Inc. (ADSK) (-2.09%).
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.