Tuesday's rally off lows, while quite large, was nevertheless a very hesitant one that showed a great deal of underlying concern still remaining. Even on a 5 minute time frame, each bar within the trend overlaps the prior bar to a large extent. Instead of solid swings back and forth, the market churned higher. The 5 and 15 minute 200 period moving averages held as resistance ahead of the closing bell. The type of rally, combined with this resistance, made it easy for the futures market to retrace at least half of the intraday gains afterhours.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a loss of 137.74 points, or 1.15%, and closed at 11,855.42 on Tuesday. Chevron Corp.(CVX) (+0.43%) was the only gainer in the Dow. The top decliners were Intel Corp. (INTC) (-3.17%), Cisco Systems (CSCO) (-2.58%), Bank of America (BAC) (-1.90%), and 3M Co. (MMM) (-1.67%).
The S&P 500 ($SPX) fell 14.52 points, or 1.12%, and closed at 1,281.87. The solar stocks were once again in play on Tuesday. The strongest percentage performer in the index was First Solar (FSLR) (+8.17%). It was followed by gains in Netflix (NFLX) (+7.91%), Supervalu Inc. (SVU) (+6.22%), Freeport McMoran Copper & Gold (FCX) (+5.11%), and Gamestop Corp. (GME) (+3.58%). Yahoo Inc. (YHOO) (-5.66%), Aflac Inc. (AFL) (-5.58%), Motorola Mobility Holdings Inc. (MMI) (-4.98%), CB Richard Ellis Group (CBG) (-4.56%), and Hartford Financial Services (HIG) (-4.55%).
The Nasdaq Composite ($COMPX) ended the session lower by 33.64 points, or 1.25%, on Tuesday and it closed at 2,667.33. Twelve of the stocks in the Nasdaq-100 managed to end the session in the black. The top performers were First Solar (FSLR) (+8.17%), Netflix Inc. (NFLX) (+7.91%), Bed Bath & Beyond Inc. (BBBY) (+1.63%), F5 Networks Inc. (FFIV) (+1.56%), and Garmin Ltd. (GRMN) (+1.42%). The weakest performers were Yahoo Inc. (YHOO) (-5.66%), Dentsply Intl. Inc. (XRAY) (+4.17%), Intel Corp. (INTC) (-3.17%), and Adobe Systems (ADBE) (-3.05%).
Interestingly, although Tuesday was an FOMC announcement day, the announcement was practically overlooked. We've seen weaker reactions to recent rate announcements, but a quick glance at a chart for Tuesday's session would have left you surprised that there was any announcement at all other than the hint left by a slight jump in volume at 14:15 ET. Interest rates were left unchanged and no changes were made in its bond buying program (QE2) either. QE2 is expected to continue through June.
The Middle Eastern unrest also took a backseat this week, but should not be forgotten. One the latest reports out of the region focuses upon Bahrain, whose king declared martial law on Tuesday following uprisings that led the ruler to request assistance from neighboring Saudi Arabia. The Saudis sent over 1,000 troops into Bahrain.
Although the momentum in the market is continuing to favor weakness early into Wednesday morning, the overall trend on the 60-minute charts is extended and we are likely to see price action stabilize. This is going to be a more favorable market for daytraders at this point than for swingtraders (those looking to initiate positions lasting 3-5 days).
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.