Good day! Price action in the futures market heading into Tuesday's open was indecisive on the intraday time frames. The slower ascent that began on Monday off its mid-day lows broke lower once again in the early-morning hours in the index futures after striking strong moving average and Fibonacci retracement levels (as seen on the 15 minute charts below). The reaction on the downside, however, was fairly muted. The pace of the selling was slower than Monday's and even the premarket volume was light. This continued to leave the indices favoring continued congestion on the daily charts as Tuesday's regular trading session began.
Dow Jones Industrial Average (Figure 1)
The bulls received some support on Tuesday as the slowdown in the oil and precious metals markets from Monday continued, but the main headlines associated with the morning recovery were focused on the financials. Comments out of Bank of America (BAC) were particularly of interest. The bank's chief executive stated that their plan was to focus on rebuilding the confidence of its investors by returning "every dollar" in capital to shareholders through special dividends, share buybacks, etc. and that they will be steering clear from any new acquisitions for the time being and focus on customers and continued cost-cutting measures. The financials were the Dow's biggest gainers for the day, but they were starting to show exhaustion on the 15 minute charts by the time the closing bell rang.
The overall action in the major indices on Tuesday mimicked the financials intraday fairly well, including a slowdown as the session wore on. The financials, however, began the session in positive territory, whereas the overall market struggled in the first 15 minutes of the day before turning higher out of the 9:45 a.m. ET correction period.
Intraday trade throughout Tuesday's session was highly actionable. The major indices had nice swings on the 5 minute charts throughout the session, leading to smoother follow through on price action than seen previous afternoon. The strongest moves were in the morning when the downtrend channel from premarket trade broke sharply higher around 9:50 a.m. ET. The initial wave of buying took back the premarket losses and a solid congestion along premarket highs led to a secondary wave of buying on the five minute charts that lasted into noon.
The strongest of the three indices were the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI). The tech-heavy Nasdaq lagged and its Nasdaq-100 index futures failed to push past Fibonacci resistance at the 61.8% retracement level from Monday's selloff. It hit that resistance perfectly at noon while the other two major indices reacted to prior highs at the same time. Noon in the eastern time zone is a major correction period intraday and morning rallies will commonly fade at this point. The weaker Nasdaq experienced the greatest price correction in the afternoon, but all three of the indices held the mid-day highs into the closing bell and pulled off them afterhours.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) had a gain of 124.35 points, or 1.03%, and closed at 12,214.38 on Tuesday. Twenty-seven of the Dow's thirty index components posted a gain. The top performers were the financials: Bank of America (BAC) (+4.70%), American Express (AXP) (+3.50%), and JP Morgan Chase (JPM) (+2.68%). The decliners were McDonalds (MCD) (-0.98%), Intel (INTC) (-0.38%), and Exxon Mobil (XOM) (-0.14%). McDonald's losses came after it reported better-than-expected same store sales, but results in U.S. restaurants missed expectations.
The S&P 500 ($SPX) rose 11.69 points, or 0.89%, and closed at 1,321.82. The strongest percentage performers in the index were PulteGroup Inc. (PHM) (+8.41%), Southwest Airlines (LUV) (+7.56%), Goodyear Tire & Rubber Co. (GT) (+5.85%), and Radio Shack (RSH) (+5.62%). Home builders were strong after PulteGroup (PHM) announced that it signed 2,674 contracts in January and February, up by 259 compared to the same period last year. Urban Outfitters (URBN) was the top percentage decliner, falling 16.66% after missing earnings. Other top decliners were Netflix (NFLX) (-5.76%), NVIDIA (NVDA) (-4.49%), and Tesoro Corp. (TSO) (-4.28%).
The Nasdaq Composite ($COMPX) ended the session higher by 20.14 points, or 0.73%, on Tuesday and it closed at 2,765.77. The strongest stocks in the Nasdaq-100 were Cephalon Inc. (CEPH) (+3.42%), Stericycle Inc. (SRCL) (+3.35%), Infosys Technologies (INFY) (+3.14%), and Expeditors Intl. (EXPD) (+3.08%). Vertex Pharmaceuticals (VRTX) (-5.68%), NVIDIA (NVDA) (-4.49%), and Apollo Group (APOL) (-1.95%), followed URBN and NFLX as the index's biggest losers.
Nasdaq Composite (Figure 3)
The trading channel that has been forming over the past two weeks in the indices currently lacks a strong breakout bias due to Tuesday's stronger upswing. Heading into the week the momentum was favoring at least a minor push lower out of the range, but only the Nasdaq is continuing to show stronger favor for such a move. I'm still favoring this corrective action as the week progresses, but it also continues to look like a break lower will be mild in terms of price and that the intraday swings on the 15 minute time frames will become more brief. This will increase risk for swingtraders attempting to play a breakdown from this range since daily triggers will more easily be forms of bear traps.
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.