Good day! The market has been in recovery mode since the second half of last week, but we were seeing things start to cool off heading into Tuesday morning. After a sharp rally into Monday morning that left the market extended and at daily resistance, the U.S. indices slowly began to retrace off highs. The index futures found support shortly after midnight and turned higher into the early morning hours.
The market has been highly tuned into global events over the past several weeks and one of the centers of attention has been Japan. Japan's Nikkei rose sharply in Tuesday's session on signs that workers were making progress on getting the disaster at the Fukushima nuclear power plant under control and Japanese automakers announced that they would soon be resuming production as well. The Japanese markets had been closed on Monday for a national holiday.
Dow Jones Industrial Average (Figure 1)
Although the U.S. index futures were higher in premarket trade, the rally slowed shortly after 5:00 a.m. ET. The stronger S&P 500 hit slightly higher highs as compared to Monday morning, which created a 2T reversal pattern. As I discussed in yesterday's column, since the pace of the rally was still stronger-than-average into the second high on the 15 minute time frame, the market didn't react sharply to begin with. Instead, it favored a more drawn-out correction over time.
This slower correction kept the price action in Tuesday's session on the choppy side once again, but the indices still had a few decent waves of price action on the 5 minute time frame for daytraders. The first continuation pattern for the premarket reversal lower took place heading into Tuesday's opening bell. The index futures had struck support at 7:00 a.m. ET and the S&P 500 and Dow Jones Ind. Average fell into a two-wave correction on the 5 minute charts ahead of the bell. The second low in the congestion hit at about 8:20 and the second bounce off that low was slower and more drawn out than the first. This left the indices favoring a breakdown.
In the meantime, the Nasdaq futures were hitting slightly higher highs after bouncing more strongly off the 7:00 a.m. ET support and formed a 2T of their own into the open on the 5 minute charts. Both sell patterns triggered into the open. Admittedly, however, the range for the action was narrow and it was more of a scalpers market.
S&P 500 (Figure 2)
The market's weakness continued as the morning wore on. Another two-wave correction on the 5 minute charts formed between 10:00 and 10:30 a.m. ET, which led to new intraday lows into 11:00. Volume was light throughout the session but dropped off even further mid-day. The slower pace on the upside at that time helped the indices pulled lower into the early afternoon, but light volume and slow momentum persisted into the closing bell. This works in favor of the larger daily bias for more upside this month, but kept the short-term focus favoring the bears. The index futures broke lower once again afterhours.
The Dow Jones Industrial Average ($DJI) had a loss of 17.90 points, or 0.15%, and closed at 12,018.63 on Tuesday. A third of the Dow's thirty index components posted a gain for the day. The top performer was Verizon (VZ) (+1.34%). It was followed by American Express (AXP) (+0.97%), Boeing (BA) (+0.91%), and Kraft Foods (KFT) (+0.45%). The weakest performers were Bank of America (BAC) (-1.21%), General Electric (GE) (-1.17%), Travelers (TRV) (-1.14%), and Disney (DIS) (-0.91%).
Nasdaq Composite (Figure 3)
The S&P 500 ($SPX) fell 4.61 points, or 0.35%, and closed at 1,293.77. The strongest percentage performers in the index were St. Jude Med. (STJ) (+6.13%), American Tower Corp. (AMT) (+4.53%), Netflix (NFLX) (+4.02%), and Massey Energy Co. (MEE) (+3.17%). The weakest performers were Walgreens (WAG) (-6.58%), Carnival Corp. (CCL) (-4.51%), Urban Outfitters (URBN) (-4.37%), and Marriott Intl. (MAR) (-4.25%).
The Nasdaq Composite ($COMPX) ended the session lower by 8.22 points, or 0.31%, on Tuesday and it closed at 2,683.87. The strongest performers in the Nasdaq -100 were Netflix (NFLX) (+4.02%), Apollo Group (APOL) (+3.01%), Baidu (BIDU) (+2.49%), and Vertex Pharmaceuticals (VRTX) (+1.92%). The weakest performers were Urban Outfitters (URBN) (-4.37%), F5 Networks (FFIV) (-4.11%), CH Robinson Worldwide (CHRW) (-2.88%), and Wynn Resorts (WYNN) (-2.75%).
The continuing conflicts in Northern Africa and the Middle East have kept commodities at the forefront of the market's attention. This week Yemen's leader announced that he planned on stepping down this year, but protesters wish for more immediate action. Meanwhile, fighting continues in Libya where rebel forces have taken approximately half the country. Crude oil for May delivery settled at $104.97 on the New York Mercantile Exchange on Tuesday.
On the data front, the first half of the week has been focused on real estate. On Tuesday at 10:00 a.m. ET the FHFA Housing Price Index showed that home prices once again slid in January. The housing data continues on Wednesday at 7:00 a.m. ET with the MBA Mortgage Index and at 10:00 a.m. ET with the new home sales data.
The earnings docket is light this week, but some names to keep an eye on throughout the remainder of the week are 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.
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.