Nasdaq Composite (Figure 3)
The Nasdaq harbored the greatest relative strength out of Monday's open thanks to early-morning gains in technology for the first thirty minutes out of the opening bell. Meanwhile, the S&P 500 and Dow Jones Industrial Average congested while the Nasdaq rose, creating a solid continuation pattern for further selling into mid-day. Once this selloff triggered, it also eroded the Nasdaq's gains.
The indices hit support over noon after establishing a selloff that was comparable to the initial move off Friday's afternoon highs into early Sunday evening's lows (shown in blue). This zone of support hit at 11:30 a.m. ET. Over the next hour the market slowed and followed the 5 minute 20 period moving average. This shifting momentum created an intraday reversal setup on the upside into the early afternoon. It triggered a buy on the 5 minute charts around 12:45 ET and a second wave followed into about 14:30 ET.
Corrective moves often last for two waves and risk can then increase on further attempts to continue unless there is a larger trend reversal underway. The pace of the selloff slowed enough to make this possible and the uptrend managed a third push into the closing bell before reversing once again afterhours to take back all of the afternoon gains.
The Dow Jones Industrial Average ($DJI) had a loss of 51.24 points, or 0.43%, and closed at 11,993.16 on Monday. Seven of the Dow's thirty index components posted a gain. The top performers were Caterpillar Inc. (CAT) (+2.08%), Pfizer Inc. (PFE) (+1.75%), Chevron Corp. (CVX) (+0.87%), and Alcoa Inc. (AA) (+0.56%). The weakest percentage performers were General Electric Co. (GE) (-2.16%), Verizon Communications (VZ) (-1.87%), Disney (DIS) (-1.61%), and McDonalds Corp. (MCD) (-1.38%).
The S&P 500 ($SPX) fell 7.89 points, or 0.6%, and closed at 1,296.39. MEMC Electronic Materials Inc. (WFR) (+11.23%), Tesoro Corp. (TSO) (+6.00), First Solar (FSLR) (+5.13%), and Cabot Oil & Gas Corp. (COG) (+5.00%) were the strongest percentage gainers. The weakest were Coach Inc. (COH) (-5.30%), Tiffany & Co. (TIF) (-5.27%), Entergy Corp. (ETR) (-4.89%), and Owens Ill. Inc. (OI) (-4.23%).
The Nasdaq Composite ($COMPX) ended the session lower by 14.64 points, or 0.54%, on Monday and it closed at 2,700.97. The strongest performers in the Nasdaq-100 were First Solar (FSLR) (+5.13%), Celgene Corp. (CELG) (+1.32%), Stericycle Inc. (SRCL) (+1.21%), and Micron Technology Inc. (MU) (+1.17%). The weakest performers were Seagate Technology (STX) (-2.88%), Warner Chilcott (WCRX) (-2.43%), Netapp Inc. (NTAP) (-2.40%), and Starbucks (SBUX) (-2.27%).
On the docket for Tuesday are the Empire Manufacturing survey for March, February's import and export prices, and the National Association of Homebuilder's March housing market index. Then, in the afternoon the Federal Reserve will announce its latest policy setting. The Fed is expected to keep rates untouched, so the focus will be upon its standing for QE2 (the second round of quantitative easing), which is due to come to an end in June.
The market is still correcting gradually out of the congestion from late February to early March. It's now reaching a critical point for the bulls. In order to get any decent retest of highs to hold the current trend, it will need to kick off that upside this week. The indices have now corrected off last month's highs for approximately the same amount of time as last November's correction. Although the odds are higher that a break to new highs would lead to only slightly higher highs before correcting, instead of a third wave of buying similar to the September-November and December to February moves, the possibility for a third wave of buying lasting a comparable period of time does still remain... as long as this zone of support from this week holds.
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.