Japan earthquake fallout ripples through markets

Good day! It's been three days since a devastating 8.9 earthquake hit only a couple of hundred miles off the coast of Japan on Friday and many sectors of the market were heavily influenced by the harsh blow left on the Japanese economy in the aftermath of the destruction. The Japanese Nikkei closed down more than 6% on Monday.

Japan's automakers were among those hit hard. Honda Motor Co. (HMC) (-3.95%), Toyota Motor Co. (TM) (-4.58%), and Nissan (NSANY) (-6.16%) all kicked off the session down at least 5%. In truth, however, the quake was not fully to blame for the auto selloff. It merely accelerated a larger correction that was already underway on the daily and weekly time frames. Shares of these companies hit strong resistance back in February after rallies that began in July-September 2010 ran their course. The companies each opened into support on Monday morning and held the zone of those early-morning lows throughout the remainder of the session.

Dow Jones Industrial Average (Figure 1)

Shares in companies related to nuclear power and uranium producers also struggled on Monday. The region had been expected to expand its nuclear energy stations, but concerns over radiation leaks and a potential meltdown at facilities affected by last week's quake could turn the tide against this form of energy production.

Among the stocks heavily affected by the news were Denison Mines Corp. (DNN) (-22.49), Uranium Energy Corp. (UEC) (-19.18%), Entergy Corp. (ETR) (-4.89%), and General Electric (GE) (-2.16%), who designed the six reactors at the Fukushima Daiichi nuclear plant in Japan. Residents in the around surrounding the nuclear plant were evacuated after reactors shut down following the quake. An explosion also racked one of the building housing a reactor, although authorities stated that the reactor itself remained intact.

General Electric (GE) had been trading in a range just above its 50-day moving average with an AvalancheTM formation on the daily time frame. Although slightly lower lows within the congestion itself over the past several weeks increased risk that a breakdown would not confirm, the added impact of news broke the security cleanly through the lows of the range and the gap confirmed with further selling out of a low-level intraday base around 11:00 a.m. ET. Although it was the Dow's biggest loser, it did recover off afternoon lows to end the session at approximately the same price as its open, but still under Friday's close.

Not all of the reactions were negative. Those stocks deemed likely to benefit from the disaster included solar stocks as an alternative to nuclear power. First Solar (FSLR) (+5.13%), JA Solar (JASO) (+6.02%), and LDK Solar (LDK) (+8.83%) were among the beneficiaries.

S&P 500 (Figure 2)


Although the market had recovered initially following news of the quake in the U.S. markets on Friday, the index futures turned lower once again prior to Monday's opening bell. The intraday trend exhaustion into Friday's upside close helped the futures selloff when trading resumed on Sunday evening in the States, but the pace of the action that followed that correction on the five minute time frame also remained bearish.

The index futures congested near lows on the all-sessions time frames into midnight on Sunday and the momentum on the upside with each bounce within the correction slowed. This resulted in an initial break lower out of the 3:00 a.m. ET correction period on Monday morning, followed by a bounce back into the congestion at 6:00 a.m. ET and subsequent follow through on the downside at 10:00 a.m. ET.

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