Good day! The market has been in corrective mode, pulling back off the year's highs, since mid-February, but has spent much of that time in a trading range on the 6-minute charts after an initially strong drop. As I've written throughout the week, the bias within the range that has followed has been bearish and in favor of further downside out of the range to allow the market to correct for a similar period of time as last November.
The bears were initially hesitant within the range to take the lead, but the pace of the follow-through started to pick up on Wednesday. The evening price action in the index futures was comparable to that of Tuesday afterhours, but the pace was much stronger. This weakened the counter-correction off lows as the evening turned to morning and the slower pull higher in premarket trade on Thursday gave the bears yet another edge.
Dow Jones Industrial Average (Figure 1)
Although the economic data earlier in the week did not have much of an impact on intraday price action, this was not the case at all on Thursday. An unexpected jump first-time jobless claims this past week triggered the day's selloff. According to the Labor Department, claims rose 26,000 to a seasonally adjusted 397,000. The previous week's claims were also revised to the upside.
Meanwhile, the U.S. trade deficit widened by $6 billion to $46.3 billion. Analysts had been anticipating it to widen to a lesser degree to $41. 5 billion. The increase was attributed to greater imports of cars, capital goods, and oil.
S&P 500 (Figure 2)
The selling that took place afterhours on Wednesday and in premarket trade on Thursday was so strong that the market was facing exhaustion soon after the opening bell rang. When the 9:45 a.m. ET correction period hit the pace of the selling began to shift. The indices established slightly lower lows around 10:05 a.m. ET, cut held the zone of those lows throughout the remainder of the trading session, although the price action throughout the day remained weaker on the upside than the downside.
The market corrected slowly higher throughout most of the morning and early afternoon, but gave back all of those gains in less than 30 minutes beginning at approximately 13:15 ET. Although the selloff was once of the strongest we've seen in weeks, the market is likely to find support holding into Friday barring unexpected market-moving news. This can help contribute to the overall pace of the breakdown remaining weaker than the initial turn off last month's highs.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a loss of 228.48 points, or 1.87%, and closed at 11,984.61 on Thursday. McDonalds (MCD) was the only gainer for the day. It climbed 1.19%. The worst performers were Caterpillar Inc. (CAT) (-3.88%), Exxon Mobil (XOM) (-3.56%), 3M (MMM) (-3.39%), and Alcoa (AA) (-3.07%).
The S&P 500 ($SPX) fell 24.91 points, or 1.89%, and closed at 1,295.11. All of the index's ten industry components ended the session in the red. The leaders on the downside were energy, materials, and financials. The weakest individual components were Cliffs Natural Resources (CLF) (-7.03%), NVIDIA (NVDA) (-6.37%), Netapp Inc. (NTAP) (-6.07%), National Oilwell Varco Inc. (NOV) (-5.84%), and Peabody Energy Corp. (BTU) (-5.78%). Only 26 of the index components posted a gain. Starbucks (SBUX) was the strongest, rising 9.93% after announcing a deal with Green Mountain. Iron Mountain Inc. (IRM) (+5.17%), H&R Block (HRB) (+4.28%), and Sprint Nextel (S) (+4.26%) followed.
The Nasdaq Composite ($COMPX) ended the session lower by 50.70 points, or 1.84%, on Thursday and it closed at 2,701.02. Eight of the Nasdaq-100 index components ended the session in the black. Starbucks (SBUX) (+9.93%), Netflix (NFLX) (+3.64%), F5 Networks (FFIV) (+1.75%), and Urban Outfitters (URBN) (+1.60%) were the top performers. Vertex Pharmaceuticals (VRTX) (-5.55%), and Joy Global (JOYG) (-4.16%) followed NVIDIA (NVDA) (-6.37%) and Netapp Inc. (NTAP) (-6.07%) as the index's top percentage decliners.
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.