Good day! It's been an extremely eventful couple of weeks in the world markets thanks to a number of high tension situations unfolding. At first, our focus had been upon the Middle East. After an uprising in Tunisia changed the face of that country, Egypt soon followed. As dissenters across the region saw Mubarak ousted from power, protests grew. Libya has drawn the greatest attention in the past week, but uprisings and government interventions in Bahrain have been nearly as prominent. Now add Yemen to the mix as well.
Additionally, over the past week in particular, headlines turned to Japan, where a 9.0 (previously reported as 8.9) earthquake had an utterly devastating affect upon the country that shook the world. Subsequent tsunamis even wrecked havoc on a number of coastal communities in the western United States. Approximately 7,000 people have been confirmed dead, while about 10,000 are still missing.
Developments in both of these regions have left investors quite nervous and uncertain of what the days ahead will bring. Such uncertainty can be highly rewarding for short-term traders, but tends to make investors very nervous.
Dow Jones Industrial Average (Figure 1)
In Libya, relief initially felt following news on Friday that leader Muammar Gadhafi had agreed to an immediate cease-fire with rebel protesters was followed by the the start of military intervention by western coalitions. The French led the assault on military targets in Libya. This began on Saturday morning after reports of violent aggression against protesters by Libyan ground troops in the city of Benghazi, which has been at the center of the conflict. It's interesting to note that the U.S. has taken a back seat in this particular conflict, but has stated that it will support the decisions of its allies, which included the Arab League. Heading into the end of the week, the U.N. Security Council voted 10-0 to establish a no-fly zone over the country and authorized "all necessary measures" to protect Libya's civilian population.
In Japan, despite widespread devastation, the center of attention has been upon the damage done to the Fukushima Daiichi nuclear power plant following a tsunami caused by the quake. The plant was racked by several explosions in the days following the tsunami. Workers have struggled to contain the radiation leakage from the site and keep the reactors from overheating. Over the weekend the Japanese government reported high levels of radioactive materials in spinach and milk as far as 70 miles from the plant. The Japanese markets will be closed on Monday due to a national holiday.
After congesting on the 15 minute charts on Thursday throughout most of the day, pulling back in the afternoon, the index futures shot higher into the evening. This rally, along with another boost ahead of the open, helped the market gap strongly higher into Friday morning. The boost came on news that the finance ministers of the G7, which is comprised of the world's most industrialized nations, would intervene to stem the rising yen. The continuing rise in the Japanese currency would further slow the country's recovery efforts.
S&P 500 (Figure 2)
Despite the strength into Friday's open, it came as no surprise that the market struggled to hold onto those gains throughout the remainder of the session. As I mentioned in Friday's column, we expected the rally to "slow as traders move to the sidelines ahead of the weekend." In the current global environment, where most of the unexpected news has been bad news, investors are leery holding overnight, let alone into the weekend.
The Dow held onto the most of gains on Friday, while the technology-heavy Nasdaq struggled, but the back and forth action throughout the session still made it a very favorable one for intraday traders. Support and resistance levels held well and trend moves and follow-through on popular trading strategies provided daytraders with decent returns despite increased volatility due to triple witching. The session ended near intraday lows.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a gain of 83.93 points, or 0.71%, and closed at 11,858.52 on Friday. Twenty-six of the Dow's thirty index components posted a gain. The top performers were JP Morgan (JPM) (+2.65%), Caterpillar Inc. (CAT) (+1.88%), American Express (AXP) (+1.73%), and Pfizer (PFE) (+1.51%). The losers were Travelers Companies (TRV) (-1.06%), McDonalds (MCD) (-0.56%), Exxon Mobil (XOM) (-0.38%), and Hewlett-Packard (HPQ) (-0.27%). The Dow Jones Ind. Average ended the week lower by 1.54%. The Dow is up 2.43% year-to-date.
The S&P 500 ($SPX) rose 5.48 points, or 0.43%, and closed at 1,279.20. The strongest industry group on Friday was the financials. Several big banks on Friday were granted the go-ahead to raise dividends following the completion of stress tests on their capital. Wells Fargo & Co. (WFC), U.S. Bancorp (USB), and BB&T Corp. (BBT) were among those that announced dividend increases on Friday. Some argue that it is too soon to allow the banks to increase dividends and that the financial sector in general is not yet stable enough given the current state of the economy, which is still struggling substantially to recover.
Lorillard Inc. (LO) (+10.57%) was the strongest percentage performer in the S&P 500 on Friday. Other top performers were Centerpoint Energy Inc. (CNP) (+9.67%), Motorola Mobility Holdings (MMI) (+5.00%), SunTrust Banks (STI) (+4.74%), and Supervalu (SVU) (+4.36%). The biggest losers were Nike Inc. (NKE) (-9.16%), F5 Networks (FFIV) (-6.23%), JDS Uniphase (JDSU) (-6.10%), Polo Ralph Lauren Corp. (RL) (-3.62%), and AES Corp. (AES) (-3.45%). Nike's (NKE) followed disappointing profits, which it attributed to rising oil and cotton prices. The S&P 500 ended the week lower by 1.92%. It still remains up 1.71% year-to-date.
The Nasdaq Composite ($COMPX) ended the session higher by 7.62 points, or 0.29%, on Friday and it closed at 2,643.67. The strongest performers in the Nasdaq-100 were Netapp Inc. (NTAP) (+3.64%), Intuit (INTU) (+3.08%), Dell Inc. (DELL) (+2.83%), and Millicom Intl. Cellular (MICC) (+2.34%). The weakest were F5 Networks (FFIV) (-6.23%), First Solar (FSLR) (-2.82%), Netflix Inc. (NFLX) (-2.10%), and Citrix Systems (CTXS) (-1.65%). The Nasdaq Composite was down 2.65% and is now down 0.35% year-to-date.
On the data front, the first half of the week will be focused on real estate. On Monday the National Association of Realtors will release the February existing home sales data. This will be coming out at 10:00 a.m. ET. Economists are expecting sales to fall to an annualized rate of 5.05 million compared to 5.36 million in January. Then on Tuesday at 10:00 a.m. ET is the FHFA Housing Price Index. This is followed on Wednesday at 7:00 a.m. ET by the MBA Mortgage Index and the 10:00 a.m. ET new home sales data.
The earnings docket is light this week, but some names to keep an eye on are Tiffany & Co. (TIF) on Monday; Carnival (CCL), Dollar General (DG), Walgreens (WAG), Adobe Systems (ADBE), and Discover (DIS) on Tuesday; General Mills (GIS) on Wednesday; Best Buy (BBY), GameStop (GME), Lennar (LEN), Oracle (ORCL), and Research In Motion (RIMM) on Thursday; and KBHome (KBH) on Friday. Both Tiffany & Co. (TIF) and Oracle (ORCL) have high levels of exposure in Japan and investors will be watching for affects upon the companies resulting from Japan's economic distress.
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.
