Good day! The market had its strongest session in two and a half weeks on Monday as the indexes continued to correct from the sharp selloff that began with the news of a revolt in Egypt last month and escalated following Japan's 9.0 earthquake on Feb. 11.
The indexes hit and held strong support last week. The S&P 500 and Dow Jones Industrial Average each held its 100-day simple moving average. Since then we've seen a steady recovery take place. The swings on the 15-minute charts have not been as pronounced as on the decline, however, and a lot of the upside has occurred outside regular market hours following the market recoveries overseas. This has made it a trickier environment for day traders in the U.S. markets since the intraday action over the past three trading days, and particularly on Friday and Monday, were quite compact and choppy. All of the upside has taken place within each session during the first 30-60 minutes of the day.
Dow Jones Industrial Average
As we head into Tuesday morning we are once again seeing premarket action up off afterhours lows. The pullback from Monday morning highs continued after the closing bell with steady, but gradual selling into midnight. By this point the 15 minute trend was already extended on the upside with the indices hitting resistance on the daily time frame from the previous congestion zone in the Dow and S&P 500, as well as the 20 day moving averages. The rally also had three distinct highs within the move off last week's lows. This meant that once the index futures pulled back to the lower end of that uptrend channel into midnight last night, they had a much more difficult time reacting to it and the bounce was less pronounced than earlier premarket moves.
The Dow futures were the strongest premarket performers due to a weaker pullback afterhours on Monday. This allowed it to retest Monday's highs in premarket trade early on Tuesday morning. Slightly higher highs created a trap I call a "2T". This is a sign of a weakening trend. The push into the second high was still on strong momentum, so the reversal off it was not a sharp one to begin with, but we should see the market trying to catch its breath as we head into mid-week as it reacts to the intermediate daily resistance. On the larger time frames, a correction on the 30-60 minute charts is still going to favor the bulls based upon current price action, so use caution on shorts other than day trades or positions that are not tied heavily to the overall market bias.
The Dow Jones Industrial Average ($DJI) had a gain of 178.01 points, or 1.5%, and closed at 12,036.53 on Monday. The strongest performers in the Dow were Boeing (BA) (+3.04%), Alcoa (AA) (+2.73%), Exxon Mobil (XOM) (+2.46%), and General Electric (GE) (+2.44%). Only three components in the Dow posted a loss. They were Pfizer (PFE) (-1.04), Kraft Foods (KFT) (-0.32%), and JP Morgan Chase (JPM) (-0.24).
The S&P 500 ($SPX) rose 19.18 points, or 1.5%, and closed at 1,298.38. The strongest percentage performers in the index were American Intl. Group (AIG) (+5.95%), CBS Corp. (CBS) (+5.51%), Rowan Cos. (RDC) (+5.49%), Textron Inc. (TXT) (+5.37%), and Tiffany & Co. (TIF) (+5.11%). Sprint Nextel Corp. (S) (-13.66%), American Tower Corp. (AMT) (-7.92%), Qwest Communications Intl. (Q) (-3.46%), and Centurylink Inc. (CTL) (-3.23%) were the biggest losers. Telecoms were in play on news that AT&T (T) had agreed to buy T-Mobil from Deutsche Telekom, making AT&T the largest mobile phone provider if the deal goes through.
The Nasdaq Composite ($COMPX) ended the session higher by 48.42 points, or 1.83%, on Monday and it closed at 2,692.09. The strongest p Wynn Resorts (WYNN) (+4.55%), Paccar Inc. (PCAR) (+4.33%), Autodesk (ADSK) (+3.98%), Vodaphone (VOD) (+3.75%). 8 losers: Sears Holdings Corp. (SHLD) (-2.51%), Ross Stores (ROST) (-1.44%), F5 Networks (FFIV) (-1.36%), Dollar Tree (DLTR) (-0.85%).
On the data front, the first half of the week will be focused on real estate. On Monday the National Association of Realtors reported that February existing home sales fell 9.6% to a seasonally adjusted annual rate of 4.88 million from an upwardly revised 5.4 million in January. This was more than expected. Many economists are expecting the housing market to stabilize this year, but a number still predict prices to slip further before 2014. 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 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.