Good day! The market struggled to gain a foothold on Wednesday as the correction on the daily time frame continued with the indices maintaining the 60-minute trading range we've been following over the past two weeks. The strongest sectors on the day were the utilities and telecoms, while materials and energy shares retreated. All in all, however, the day was very mixed.
Even the volatile oil, gold and silver contracts have maintained the week's trading range, although oil's structured intraday downtrend following a higher open made it an ideal target for intraday traders. At 10:30 a.m. ET the government reported that U.S. crude oil inventories rose unexpectedly by 2.5 million barrels.
Dow Jones Industrial Average (Figure 1)
The rest of the day's data had little impact on the session's price action. According to the Mortgage Bankers Association, their seasonally adjusted index of mortgage application activity rose 15.5% last week. This is the highest level in three months. Later, the Commerce Department reported that U.S. wholesale inventories rose 1.1% in January to $436.88 billion. This is the highest level in 14 months and is greater than analysts' expectations for a 0.9% increase.
When Tuesday's session came to an end, the index futures were still in favor of at least a minor push lower out of the 60-minute trading range with the Nasdaq displaying the greatest weakness. This bias continued afterhours. The range that followed Tuesday's close broke lower into midnight in the futures, but there was not a lot of momentum in the breakdown. It took a second correction off the lows at the end of the day to further enhance the breakdown bias into Wednesday.
Premarket highs in the index futures held at 6:45 a.m. ET on the 15 minute time frame. The Nasdaq futures took the lead and gained momentum on the downside as the opening bell approached. This move continued for the first 15 minutes of the day before stalling at the 9:45 a.m. ET correction period. At this point the Nasdaq futures were testing previous lows and the 50-day moving average once again as support. The retracement to the lower end of the range was not as strong in the S&P 500 and Dow Jones. Ind. Average as it was in the Nasdaq, but they pulled lower at a more rapid pace than previous buying.
S&P 500 (Figure 2)
The market had some wider intraday swings on the 5 minute time frame in the morning, but they were on the erratic side despite holding support and resistance levels well. At noon the swings became briefer and narrower in price. If the indices had intended to break higher we would have expected such a move to have begun around 14:00-14:30 ET. By holding steady, however, the bias continued to remain in favor of weakness. It was not until afterhours that this bias played out. As on Tuesday, the index futures fell into a range afterhours near the intraday lows and broke lower as the evening wore on. This time the pace was stronger and we're continuing to see the bias I spoke of earlier in the week play out. So far it continues to act like the breakdown will not be as strong as the turn off last month's highs.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a gain of 124.35 points, or 1.03%, and closed at 12,214.38 on Wednesday. Fewer than half of the Dow's thirty index components posted a gain. The top performers were IBM (+2.21%), Home Depot (HD) (+1.70%), AT&T (T) (+1.20%), and WalMart (WMT) (+1.15%). At least six brokerages raised their price targets on IBM, which helped account for its unusual wide intraday price move. The biggest losers were Caterpillar Inc. (CAT) (-1.70%), Chevron Corp. (CVX) (-1.57%), Alcoa (AA) (-1.15%), and DuPont (DD) (-1.01%).
The S&P 500 ($SPX) rose 11.69 points, or 0.89%, and closed at 1,321.82. The strongest percentage performers in the index were JC Penney (JCP) (+4.76%), Tyson Foods Inc. (TSN) (+4.31%), Yahoo Inc. (YHOO) (+4.19%), and CB Richard Ellis Group (CBG) (+4.11%). JDS Uniphase (JDSU) was the biggest loser. It fell 16.71% in sympathy with rival Finisar's (FNSR) disappointing outlook. Other top decliners were Altera Corp. (ALTR) (-7.07%), Novellus Sys. (NVLS) (-5.84%), and Xilinx (XLNX) (-5.54%).
The Nasdaq Composite ($COMPX) ended the session higher by 20.14 points, or 0.73%, on Wednesday and it closed at 2,765.77. Yahoo (YHOO) (+4.19%), Symantec Corp. (SYMC) (+2.38%), Starbucks (SBUX) (+1.56%), and Millicom Intl. (MICC) (+1.54%) were the strongest performers in the Nasdaq-100. The weakest were Altera Corp. (ALTR) (-7.07%), Lam Research (LRCX) (-6.85%), Xilinx (XLNX) (-5.54%), and Micron Technology (MU) (-5.23%).
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.